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Series 65 Flashcards

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Series 65 flashcards
1
Q

What are examples of securities (12) and non-securities (7)

A

Securities: Common stock, Preferred stock, Mutual funds, Bonds, Variable annuities, Variable life insurance, Rights, Options, Warrants, ETFs/ETNs, Real Estate Investment Trusts, CMOs
Non-securities: Term life insurance, Whole life insurance, Fixed annuities, IRAs, Retirement accounts, Prospectus, Confirmations

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2
Q

What is another name for equity? What does it mean?

A

Stock; it means ownership of the corporation

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3
Q

What is authorized stock? How are number of shares determined?

A

The number of shares allotted in creation of the corporation. Number of shares are arbitrary, and new authorized stock needs to be approved for further money coming into the corporation.

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4
Q

What is issued stock? What can additional authorized stock be issued to in the future (4)?

A

Issued stock is stock that is sold. Authorized stock can be issued to:

  1. Pay a stock dividend
  2. Expand current operations
  3. Exchange common shares for convertible preferred or convertible bonds
  4. Employee stock option pool or plan purchases
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5
Q

What is outstanding stock?

A

Authorized stock is stock that has been sold or issued to the investing public

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6
Q

What is treasury stock? What 2 rights doesn’t it have compared to other stock? What is it used for (4)? What is equation?

A

Treasury stock is stock that is sold and bought back by the corporation. It doesn’t have voting power or get paid dividends. It is used for:

  1. To maintain control of the company
  2. To increase earnings/share
  3. To use shares to pay for an acquisition/merger
  4. Employee option pool
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7
Q

What is book value and book value/share?

A

Book value = Total assets - Total liabilities (tangible)

Book value/share = Book value/outstanding shares

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8
Q

Par value

A

The value an accountant records in the balance sheet for sale of an initial stock

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9
Q

What are preemptive rights? Ensures through what? When and how can you purchase new shares? What is this called and what are the 3 possible outcomes?

A

Allows investors to maintain their ownership by buying percentage of shares, ensured through rights offering. You can buy percentage of shares at a discount for 45 days at subscription price. Possible outcomes:
Executed - stock sold to original investor
Sold - Stock sold to new investor
Expired - Stock not sold after 45 days (only happens when market price is lower than subscription price after 45 days)

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10
Q

What are equity security types (2)?

A

Common and preferred stock

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11
Q

Alzprotect

A

ALZ2006- binds cofactor of progranulin, entering Phase 2 in PSP

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12
Q

3 steps of a rights offering

A
  1. Once rights offering is declared, stock is traded with rights attached (trading cum rights) - starts trading cum rights after declaration date
  2. Stock becomes available to trade without rights attached after ex date (trading ex rights)
  3. Stock not sold in the rights offering is bought by underwriters (investment banks standing by)
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13
Q

The value of the common stock will be adjusted when and by what?

A

The value of the common stock will be adjusted down by the value of the right on the ex rights date

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14
Q

During a rights offering, one share = how many rights?

A

1 right

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15
Q

How is number of rights “cum rights” calculated and where is it detailed?

A 
Stock price - Subscription price = Number of rights required to purchase one share + 1
That value (discount)/# of rights required for one share = value of one right
Terms of how many rights required to purchase one additional share is detailed in terms of rights certificate
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16
Q

How is number of rights “ex rights” calculated?

A 
Rights bought after ex date, stock price - subscription price = Number of rights required to purchase one share
That value (discount)/# of rights = value of one right
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17
Q

What shares do underwriters purchase?

A

Underwriters purchase shares not purchased by the rights holders during a rights offering

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18
Q

What does limited liability mean?

A

Liability is limited to the amount of capital invested and no more

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19
Q

What does freely transferrable mean? What 2 things are freely transferrable? Who is this facilitated by?

A

Freely transferrable means you do not need issuers approval before selling stock (transfer of ownership). Common stock and most other securities. Facilitated by broker dealer

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20
Q

Where is the transfer of ownership normally executed?

A

Normally executed on secondary market (either by exchange or over-the-counter market)

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21
Q

How is ownership of common stock evidenced? On what and what 4 things does it include?

A

Stock certificate

  1. Name of issuing company
  2. Number of shares owned
  3. Name of owner of record
  4. CUSIP number
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22
Q

What is a transfer agent? What are their tasks (7)?

A

A transfer agent is responsible for transfering the record of ownership from one party to another. They can:

  1. Cancels own certificates registered to the seller
  2. Issues new certificates tot he buyer
  3. Locates lost or stolen certificates
  4. May authenticate a mutilated certificate
  5. Issues new certificates in the event of detruction
  6. Maintains and records a list of shareholders
  7. Ensures that shares are issued to the correct owner
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23
Q

What is the registrar?

A

Company responsible for auditing the transfer agent and makes sure they are not selling more shares than is authorized. The registrar and transfer agent need to be in separate departments in a company

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24
Q

What is a CUSIP number? Where is it located?

A

Committee on Uniform Securities Identification Procedures - personalized number for ownership, located on stock and bond certificate, also on trade confirmations.

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25
Q

What is residual claim to assets?

A

Common stockholders have the right to receive their proportional interest in residual assets (after all other security holders have been paid)

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26
Q

What is income (dividends), and how is dividend yield calculated?

A

Many corporations distribute a portion of their earnings in the form of dividends; Dividends are paid out to investors quarterly, dividend yield = yearly dividend/stock price. Dividends can be reduced or stopped.

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27
Q

What are risks of owning common stock? (3)

A
  1. Value can decline
  2. Dividends can be reduced or stopped
  3. Junior claim on corporate assets
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28
Q

2 Ways to become a stockholder

A
  1. By buying shares directly from the corporation when stock is offered to the public company
  2. By buying on the secondary market through exchange or over-the-counter market
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29
Q

What is the timing of stock buying (3 terms, explain them). What happens if you are in violation?

A

Trade date- the day you place the order, the market will execute the order usually right when the market opens.
Settlement date - This is the day the transfer of title takes place (T+3) for all regular-way transactions in common stock, preferred stock, corporate bonds, and municipal bonds, happens next day for government bonds
Payment date- This is the day buyer of security has to have money in the brokerage firm to pay for the purchase (T+5), if you don’t pay for the stock 5 days after you’ve placed the order you are in violation of Regulation T - broker dealer can “sell out” other securities to cover for this payment, they will also “freeze” you customer account for 90 days so that you need to deposit money upfront to buy stock; goes back to normal after 90 days.

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30
Q

What is a preferred stock? What are the 6 features?

A

Preferred stock is an equity security with a fixed income component; preferred stockholder is investing in stock for the fixed income that the preferred shares generate through semiannual dividends. Preferred stock has a stated dividend rate or fixed rate that corporations must pay to its preferred shareholders
6 Features:
1. Par value - This is what dividend is based on, par value of all preferred shares is $100 unless stated otherwise
2. Payment of Dividends - Dividends get paid first to preferred shareholders before common
3. Distribution of assets assets - If corporation liquidates, preferred shareholders get paid first
4. Perpetual: No maturity date, investors may hold shares for as long as they wish or until shares are called in by the company under a call feature
5. Nonvoting - Most preferred stock is nonvoting
6. Interest rate sensitive - as interest rates decline, value of preferred shares increase and vise versa

31
Q

What are the types of preferred stock? (4)

A
  1. Simple/Non-cumulative - no additional features, entitled to dividend rate and nothing else, if company cannot pay dividend, it is not owed to investor
  2. Cumulative - if dividend cannot be paid, it is owed to investor; company must pay dividends in arrears before paying out dividends to common shareholders
  3. Participating preferred - Entitled to receive stated preferred rights as well as additional common dividends
  4. Convertible preferred - allows preferred shares to be converted to common shares at a fixed price called the conversion price; Number of shares = par/conversion price ($100/$20) = 5 common shares for every 1 preferred share
32
Q

Where do cumulative dividends accumulate?

A

Cumulative dividends accumulate in arrears until paid to investor

33
Q

What is callable preferred? What is feature preventing callable preferred? When is the most likely time for callable preferred?

A

Term in favor of corporation; Company can call in or redeem the preferred shares at their discretion after a period of time has expired. The feature within the first few years where callable preferred stock cannot be called is called “call protection”. Most likely time corporation will call preferred stock is when interest rates decline

34
Q

What are types of dividends? (3)

A

Cash - corporation sends a check directly to stockholders or sent to brokerage firm where money will be credited to their account
Stock - Each investor will receive an additional number of shares based on number of shares they own (market price declines after paid dividend because more shares outstanding, but market value stays the same)
Product/property - least likely way to pay dividend

35
Q

What is dividend distribution? What are 4 dates that are associated with dividend distribution? Explain them.

A

Dividend distribution - all common stockholders get paid, but depends on when they bought the stock.
1. Declaration date - Date that BOD decides to pay a dividend to common stockholders of record; company must notify the regulators at the exchange or FINRA (depending on where the stock trades) at least 10 business days prior to the record
2. Ex-dividend date - First date when purchasers of security are no longer entitled to receive dividend that company has declared for payment (First day the stock trades without (ex) the dividend attached. This is based on record date set by BOD, because it takes 3 business days for trade to settle, the ex date is always 2 business days prior to record date
Record date - the date when investors must have name recorded on the stock certificate in order to to be paid dividend (declared by BOD)
Payment date - when dividend gets distributed to shareholders, controlled and set by the BOD and is usually 4 weeks after record date

36
Q

Taxation of dividends

A

15% for ordinary income earners and 20% for high income earners (based on high tax bracket - 39%)

37
Q

What is violation around selling dividends?

A

An investment advisor cannot use pending dividend payment as sole basis for their recommendation to purchase stock, this is a violation!

38
Q

Who is responsible for distribution of dividends? When?

A

The corporation’s dividend distribution agent on record date

39
Q

What is a warrant?

A

A security that gives holder the opportunity to purchase common stock; Warrant subscription price is higher than current market price when issued, but has up to 10 years to purchase stock at subscription price

40
Q

How do people get warrants (3)?

A
  1. Offered to common shareholders who purchase during initial public offering (IPO)
  2. Attached to bonds
  3. Secondary market
41
Q

Possible outcomes of warrants (2)?

A
  1. Sold or exercised by investor

2. Can expire if stock price is below warrant subscription price at its expiration

42
Q

What are American Depository Receipts/Shares (ADRs/ADSs)? What rights are associated with these (3)? What is the risk?

A

A receipt that represents ownership of foreign shares that are being held abroad in a branch of a US bank. Can request delivery of foreign shares, voting rights, divident payments. Currency risk

43
Q

What is real estate investment trust (REITs)? How is it organized (2)? When are REITs associated with special tax treatment (2)?

A

Organized for buying, developing, or managing a portfolio of real estate. Organized as a corporation or a trust. REIT are entitled to special tax treatment at the corporate level as long as:

  1. 75% of incomes comes from real estate
  2. It distributes at least 90% of its taxable income to shareholders
44
Q

What is a non-traded REIT? Why are these attractive? What 3 things must a non-traded REIT do?

A

These lack liquidity, have high fees (fees cannot exceed 10% of offering price), and are difficult to value, they are attractive due to the high possible return. Non-traded REITs must:

  1. Distribute 90% of taxable income to shareholders
  2. File annual (10-K) and quarterly (10-Q) reports
  3. Provide valuation of REIT within 18 months of closing of the offering of shares
45
Q

What are direct participation programs and limited partnerships?

A

Entitles that allow income, expenses, gains, losses, and tax benefits to be passed through to the investor

46
Q

What is a limited partnership? What 5 things are associated with this entity?

A

Entity that allows all of the economic events of the partnership to flow to the investors including:

  1. Income
  2. Gains
  3. Losses
  4. Tax credits
  5. Deductible
47
Q

What are the 7 responsibilities of the limited parter?

A
  1. Put up investment capital
  2. Losses are limited to their investment
  3. Receive benefits from the operation
  4. May not exercise management over the operation
  5. May vote to change the objective of the partnership
  6. May vote to switch or remove the general partner
  7. Can sue the general partner if they did not act in the best interest of the partnership
48
Q

What are the 4 musts and 3 must nots for a general partner?

A

General parter is in charge of organization and management of the entity and has unlimited liability for the obligations of the partnership business.
Must:
1. Must maintain financial interest in partnership of at least 1%
2. Buy/sell property for the partnership
3. Receive compensation for managing the partnership
4. Enter into legally binding contracts for the partnership
Must not:
1. Compete against the partnership
2. Co-mingle funds of the general partner with funds of the partnership
3. Borrow from the partnership

49
Q

What 2/6 things does the general partner need to avoid to get preferential tax benefit?

A
  1. Associates
  2. Profit motive
  3. Limited liability
  4. Freely transferrable interest
  5. Continuity of life
  6. Central management
    Freely transferrable and continuity of life are easiest to avoid
50
Q

What effect does Naproxen Sodium (NSAID) (Aleve) have on AD?

A

No effect, failed in early stage prevention trial of AD

51
Q

Regeneron/Anylam deal (April 2019)

A

Regeneron will pay Alnylam $800M (half in cash and half in equity) for full rights to develop 2 drugs for eye disease (companies have option to split profits and development costs to neurological programs).

52
Q

AlzProtect

A

Stabilizing co-factor for progranulin - about to enter Phase 2 in PSP and eventually AD

53
Q

What can phase synchronization among task-relevant areas do? What protocol was developed targeting 2 regions to augment what 2 processes?

A

Potentially may integrate information across multiple spacial scales. Lab developed tACS protocol that targets prefrontal and temporal regions simultaneously with the goal of augmenting maintenance-related functional connectivity (PAC and phase synchronization) to improve working memory

54
Q

What is the cross-frequency coupling for working-memory maintenance?

A

Theta (4-8Hz)-gamma (>25Hz) Phase -amplitude coupling (PAC) in which amplitude of gamma rhythms is coupled to phase of theta rhythms observed in temporal cortex - thought to reflect local processing and storage of memory contents

55
Q

What is a partnership agreement? (3)

A

Foundation of limited partnership

  1. Explains the terms and conditions and business of the limited partnership
  2. Limited partners must be given a copy of partnership agreement
  3. Explains the role of control of the general partner (general partner needs to file a certificate of limited partnership in the state where the partnership is formed)
56
Q

What does certificate of limited partnership need to include? (8)

A
  1. Name and address of partnership
  2. Amount invested by each limited partner (if any)
  3. A description of the partnership’s business
  4. The life of the partnership
  5. Conditions for assignment of interest by limited partners
  6. Conditions for dissolving the partnership
  7. Conditions for admitting new limited partners
  8. The projected date for the return of capital if one is set
57
Q

When does the certificate of limited partnership need to be updated after a material change has occurred?

A

30 days after material change

58
Q

What are the 3 ways limited partnerships can be offered to investors? What do they need to receive?

A
  1. Private placement - Private placement memorandum (can only be offered to accredited investors, except in rare instances)
  2. Initial public offering - Prospectus
  3. Syndicator - syndicator is responsible for filing the partnership documents
59
Q

What is maximum fee that can be received by syndicator?

A

10%

60
Q

What is limited partnership known as if secondary market develops for a partnership? What must the limited partnership complete in this scenario?

A

Master limited partnership (MLP). Needs to submit subscription agreement

61
Q

What must the subscription agreement include (4)?

A
  1. A power of attorney appointing the general partner
  2. A statement of the prospective limited partner’s net worth
  3. The limited partner annual income
  4. A prospectus signed by each limited partner accepting the risk
62
Q

What are the 3 most common limited partnerships (3)?

A
  1. Real estate
  2. Oil and gas wells
  3. Equipment leasing
63
Q

What are the 5 types of real estate partnerships? What do they do, what is the associated risks and what are the advantages/disadvantages and tax benefits for each?

A
  1. Existing property - Purchase income property - Low
    A: Predictable cash flow
    D: Rental and maintenance issues
    T: Tax deductions on mortgage interest and depreciation
  2. New construction - Build units for rent - Higher
    A: Potential capital gains and low maintenance
    D: No deductions on current expenses and no promise of rental or sale
    T: Deductions on expenses and depreciation once complete
  3. Raw land - Buy land for appreciation - Highest
    A: Only appreciation potential
    D: No tax deductions or income
    T: No tax benefits
  4. Government housing - Low income housing - Low
    A: Governement subsidies and tax credits
    D: High maintenance costs and risk of repositioned gvmt programs
    T: Tax credits and deductions on losses from property
  5. Historic restoration - Restore buildings - Higher
    A: Tax credits
    D: Financial trouble, No rental history
    T: Tax credits and deductions on depreciation
64
Q

What is the direct partnership program tax reporting? What can the DPP be organized as (2)? How can losses be filed? What can’t DPPs do in relation to taxes?

A

DPP has no tax consequences, only reports results to IRS, responsibility for paying taxes rests with the partners or shareholders.
Can be organized as either limited partnership or as Subchapter S Corporations
Losses form DPPs can only be used to offset investor’s passive income, not ordinary income
Investors should not purchase DPPs for tax benefits, anyone found to do this is subject to penalties including back taxes, fines, or prosecution of fraud

65
Q

What are 7 things limited partnership should analyze before investing?

A
  1. Economic viability
  2. Time horizon
  3. Tax considerations
  4. Management team
  5. Lack of liquidity
  6. Blind pool or specified program
  7. Internal rate of return
66
Q

What is blind pool and specified program?

A

Blind pool is when 75% or less of investments have been identified, specified program is when 75% or more of investments have been identified

67
Q

What is internal rate of return?

A

Discounted present value of its projected future cash flow

68
Q

What is tax deduction vs. tax credit?

A

Tax deduction is the amount reduced reduced from your overall income that is taxable, tax credits are dollar-for-dollar reduction in amount of taxes due from the investor

69
Q

Dissolving a partnership, what 2 things can lead to this? What must be done if partnership is dissolved (2)? What is priority of payment?

A

Can dissolve based on termination date set in partnership agreement or be dissolved by votes from the limited partnership. If this happens, partnership needs to be liquidates and certificate of limited partnership must be canceled. Priority of payment:

  1. Secured lendors
  2. General creditors
  3. Profits of LPs, LP initial investment
  4. GP fees first, then profits, then return of capital
70
Q

What is a bond? Who issues them and why? Why does someone buy a bond?

A

Bond is a loan to the issuer in exchange for its promise to repay the face amount (principal amount) at maturity. Corporations, municipalities, government, and government agencies sell issues bonds to raise working capital
Investors invest primarily for interest income generated during bond term (investor return = semi-annual interest payments plus any capital appreciation or depreciation at maturity)

71
Q

Are corporate bond holders owners? What rights do they have (1) and don’t have (1)?

A

No, they are creditors of the company, have right to be paid before preferred and common shareholders in liquidation rate, do not have voting rights (unless interest payments are not paid in timely manner)

72
Q

Is interest income received by investors on corporate bonds taxable?

A

Yes (federal, state, and local)

73
Q

Corporate debt financing is known as what because why?

A

Leverage financing because company pays interest only on loan until maturity

74
Q

What are bearer bonds? Where are they issued?

A

Bonds that do not record the owner’s information with the issuer and the bond certificate does not have legal owner’s name; anyone who clips the coupons attached to the bond and deposits them in a bank or trust company is entitled to receive the interest payments. Bearer bonds no longer are issued in US, but are outside the country.

Series 65 (7 decks)

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