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Series 7 > Series 7 > Flashcards

Series 7 Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Outstanding Shares

A

Issued shares - Treasury shares (shares repurchased by corp)

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2
Q

Treasury shares (shares repurchased by corp)

A

Issued shares - outstanding shares

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3
Q

Dividends payable as

A

cash, stock or property

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4
Q

Annual Dividend

A

most recent quarterly dividend x 4 quarters

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5
Q

Dividend (current) yield

A

annual dividend / current market value

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6
Q

Declaration date

A

determined by BOD
date dividend is declared

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7
Q

Ex-dividend date

A

determined by FINRA or SRO
one business day before record date

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8
Q

Record date

A

determined by BOD
date trade must settle by for buyer to receive current dividend

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9
Q

Payable date

A

determined by BOD
date dividend is distributed

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10
Q

Cash Dividend

A

Received by shareholders
Market price of stock declines by the amount of the dividend on the ex-dividend date
Taxable when received

Qualified taxed @ capital gains rate
Non-qualified taxed as ordinary income

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11
Q

Stock Dividend Adjustment

A

Market price and cost basis of stock adjusts lower for dividend

Investor receives additional shares

Aggregate value remains the same

Taxable when shares are sold

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12
Q

Stock Split Adjustment

A

Market price and cost basis lower for split

Investor receives additional shares

Aggregate value remains the same

Taxable when shares are sold

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13
Q

Reverse Stock Split Adjustment

A

Market price and cost basis of stock adjusts up for reverse split

Investor will have fewer shares

Aggregate value remains the same

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14
Q

Preferred Stock

A

Fixed par value (assume $100 unless stated different)
Dividends are fixed stated rate (% of par)

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15
Q

Straight (noncumulative) Preferred Stock

A

missed dividends are not payable

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16
Q

Cumulative Preferred Stock

A

missed dividend (dividends in arrears and current preferred dividend must be paid before common)

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17
Q

Callable Preferred Stock

A

Issuer may buy back shares after a specified date at a specified price

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18
Q

Participating Preferred Stock

A

Issuer may pay more than stated dividend

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19
Q

Adjustable Rate Preferred Stock

A

dividend tied to another rate (e.g., T-bill rate)

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20
Q

Rights

A

Available to existing shareholders

Short term (30-45 days)

When issued exercise price is below CMV (allows purchase at a discount)

Not marginable

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21
Q

Warrants

A

Offered w/ other securities as “sweeteners”, sold as units (e.g., bond w/ warrant)

Long term (2-5 years or longer)

When issued exercise price is above CMV (anticipated value w/ time)

Marginable

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22
Q

American Depository Receipts (ADRs)

A

Facilitate U.S. citizens owning foreign shares

Foreign shares held by bank (domestic bank issues receipt)

ADR is U.S. security traded in U.S. markets (quoted in U.S. dollars)

Dividends declared in foreign currency, but paid in U.S. dollars (ADR holder has currency risk)

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23
Q

Real Estate Investment Trusts (REITs)

A

Traded on exchanges or OTC

Provide liquidity for real estate investors

75% of assets must be invested in operating income producing real estate or mortgages to qualify as a REIT

90% of net operating income must be distributed for REIT to avoid taxation as a trust

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24
Q

Par Value

A

Assume $1,000 unless specified differently

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25
Q

Premium Bond Yields

A

Coupon > CY > YTM > YTC

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26
Q

Par Bond Yields

A

Coupon = CY = YTM = YTC

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27
Q

Discount Bond Yields

A

Coupon < CY < YTM < YTC

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28
Q

Coupon, Nominal, or Stated Yield

A

annual interest / par vale

Example: bond pays $60 annual interest $60 / $1,000 = 6% coupon yield

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29
Q

Current Yield

A

annual interest / current market value

Example: bond trading @ $1,200 pays $60 annual interest $60 / $1,200 = 5% current yield

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30
Q

Yield to Maturity

A

annualized return if held to maturity

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31
Q

Yield to Call

A

return reflecting early redemption and acceleration of discount gain or premium loss

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32
Q

Bond Quotes: Price Quote

A

1 bond point = 1% of par = $10

Example: price quote — 6s of ‘43 @ 92 = 92% of par = .92($1,000) = $920

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33
Q

Bond Quotes: Yield Quote

A

1 basis point = .01 of yield

Example: Yield quote — bond trading to yield 3.70 means the YTM is 3.7%

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34
Q

Callable Bonds

A

Issuer can buy back bonds as of a specified date before maturity at a specified price

Issuer will call bonds in anticipation of current interest rates falling

Allows issuer to lower the cost of borrowing

Facilitates “refunding”, replacing one issue w/ another at a lower net interest cost to the issuer

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35
Q

Convertible Bonds: Conversion Ratio

A

par / conversion price

Example: bond convertible @ $40 $1,000 / $40 = 25 share conversion ratio

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36
Q

Convertible Bonds: Parity Price of Common

A

market price of bond / conversion ratio

Example: bond trading @$1,100
Conversion ratio = 25 shares
$1,100 / 25 shares = $44 parity price of common

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37
Q

Convertible Bonds: Parity Price of Bond

A

conversion ratio x common stock price

Example: bond has 25 share conversion ratio
common stock trading @ $44
25 shares x $44 = $1,100 bond parity price

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38
Q

Bond Maturities: Term

A

entire issue matures on one date

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39
Q

Bond Maturities: Serial

A

Issue matures over a period of years

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40
Q

Bond Maturities: Balloon

A

a repayment schedule over a period of years having the largest number of bonds maturing at the final maturity date

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41
Q

Coporate Debt Securities: Secured (3)

A
  1. Mortgage bond: backed by real estate
  2. Collateral trust bond: backed by other securities the issuer owns (e.g., government debt)
  3. Equipment trust certificate: backed by equipment used in the issuer’s business, most commonly rolling stock
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42
Q

Corporate Debt Securities: Unsecured (4)

A
  1. Debenture: backed by issuer’s full faith and credit
  2. Subordinated debenture: paid last of all debt if issuer is in default
  3. Guaranteed bond: guaranteed by a third party (parent company guarantees subsidiary’s debt)
  4. Income (adjustment) bond: interest payable only if earned (risky; not suitable for investors seeking income)
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43
Q

Liquidation Priority (5)

A
  1. Secured bonds and senior notes
  2. Debentures and general creditors
  3. Subordinated debentures
  4. Preferred stock
  5. Common stock
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44
Q

Zero-Coupon Bonds

A

Issued at a discount

Mature at par

Often used for target date goals

High price sensitivity to interest rate movement

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45
Q

Treasury Receipts

A

Issued at a discount and backed by broker dealers (BDs)

Mature at par

Discounts: accrete (add, adjust cost basis up)

Premiums: amortize (subtract, adjust cost basis down)

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46
Q

Treasury STRIPS

A

Issued at a discount and backed by U.S. Treasury

Mature at par

Discounts: accrete (add, adjust cost basis up)

Premiums: amortize (subtract, adjust cost basis down)

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47
Q

Collateralized Mortgage Obligations (CMOs)

A

Sold by financial institution

Backed by pool of mortgage securities

Associated w/ refinancing and prepayment risk

Securities separated into tranches

Investor chooses tranche and signs suitability statement

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48
Q

T-bill

A

52 weeks or less

Annualized % discount from par

Not callable

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49
Q

T-note

A

2-10 years

% of par in 32nds

Not callable

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50
Q

T-bond

A

10 years and over

% of par in 32nds

Not callable

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51
Q

Government National Mortgage Association (GNMA)

A

Backed by full faith and credit of U.S. government

Approves lenders who issue pass-through certificates created from a pool of FHA- an VA- insured mortgages

Monthly check to investor includes both principal and interest

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52
Q

Federal Farm Credit System

A

Backed by the issuing agency

Loans to farmers

Finance land purchases

Finance farm equipment purchases

Establishes buying co-ops to achieve economies of scale when purchasing agricultural goods

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53
Q

Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)

A

Backed by the issuing agencies

Lines of credit w/ the U.S. Treasury

Mortgage backed paper associated w/ prepayment risk

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54
Q

Modern Portfolio Theory (MPT)

A

diversifies a portfolio using negative correlation of securities to all but eliminate unsystematic risk

Perfect negative correlation is -1.0

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55
Q

Capital Asset Pricing Model (CAPM)

A

Used to derive expected return of an asset on the basis of the asset’s systematic risk

systematic risk cannot be diversified away

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56
Q

Alpha

A

The actual returns that a portfolio manager generates in excess of the risk adjusted returns as defined by the CAPM

If the risk adjusted return that is expected is 8% and the actual return is 9%, then the alpha is a positive 1% and indicates investor’s return was greater than the risk they took

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57
Q

Beta

A

Measures the volatility of a security compared to the market as a whole

The beta of the market is 1.0

A security w/ a beta > 1 is more volatile than the market

A security w/ a beta < 1 is less volatile than the market

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58
Q

2 Classifications of Municipal Securities

A

General Obligation Bonds (GOs) and Revenue Bonds

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59
Q

General Obligation Bonds (GOs)

A

backed by issuing municipality (taxes)

voter approval required

may be subject to statutory debt limits

generally competitive bid underwritings

analysis based on tolerance to taxes, debt statement, and debt ratios

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60
Q

Revenue Bonds

A

backed by user fees (self supporting)

voter approval NOT required

may be subject to additional bonds test limits

underwritings generally negotiated

analysis based on feasibility studies and debt service coverage ratio

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61
Q

Types of GOs (2)

A
  1. Unlimited tax bond: Issuer pledges all of its unrestricted resources to meet debt service, including an unlimited property tax on all taxable property w/in the district
  2. Limited tax bond: Issued when issuer’s ability to raise taxes is limited to a specified tax
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62
Q

Types of Revenue Bonds (6)

A
  1. Industrial development revenue bonds: Backed by corporations w/ lease back payments made to issuer
  2. Special tax bonds: Backed by taxes other than real estate; examples include alcohol and tobacco taxes
  3. Special assessment bonds: Only assess property owners who benefit from the bond issue
  4. Moral obligation bonds: Legislative authority is required to pay back bondholders if revenues are insufficient
  5. Public and New Housing Authority bonds (Section 8): Bonds provide financing for low and moderate income housing and are backed by the full faith and credit of the U.S. government
  6. Anticipation notes: Short term borrowing in advance of receiving funds from long term debt; examples include tax, (TANs), revenue, (RANs), and bond (BANs) anticipation notes
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63
Q

Municipal Indices and Ratios: Found in the Bond Buyer
GO index:

A

20 specific GO bonds each w/ 20-year maturities

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64
Q

Municipal Indices and Ratios: Found in the Bond Buyer
Revdex

A

25 specific revenue bonds each w/ 30-year maturities

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65
Q

Municipal Indices and Ratios: Found in the Bond Buyer
30-day visible supply:

A

total par value of all new municipals to be offered in the next 30 days

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66
Q

Municipal Indices and Ratios: Found in the Bond Buyer
Placement ratio:

A

total par value of all municipals sold / total par value of all municipals offered w/in the previous week

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67
Q

Municipal Taxation:
Federal Level

A

Exempt

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68
Q

Municipal Taxation:
State level – in state investor

A

Exempt

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69
Q

Municipal Taxation:
State level – out of state investor

A

Taxable

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70
Q

Municipal Taxation:
Local level – local municipality investor

A

Exempt

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71
Q

Municipal Taxation:
Local level – out of municipality investor

A

Taxable

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72
Q

Municipal Taxation:
Territorial Bonds

A

exempt at all levels (e.g., Puerto Rico, U.S. Virgin Islands)

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73
Q

Capital Gains

A

Taxable – compare cost basis to proceeds

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74
Q

Premiums Amortize

A

adjust cost basis down

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75
Q

Discounts Accrete

A

adjust cost basis up

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76
Q

Tax Equivalent Yield

A

Municipal yield /
(100% - investor’s tax bracket)

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77
Q

Tax Free Equivalent Yield

A

Corporate yield x
(100% - investor’s tax bracket)

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78
Q

Management Company

A

Portfolio managed by specific objective
Examples: growth, income, specialized (banking, tech, geographic area)

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79
Q

Open-End Company

A

Continuous primary offering; every share is an IPO

Prospectus required

Can issue common shares only

Company must redeem shares

No secondary market trading

Priced by formula, forward pricing
Public Offering Price (POP) = NAV + $SC

8.5% maximum sales charge

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80
Q

Closed-End Company

A

Number of shares fixed

No prospectus required after IPO

can issue common and preferred shares; can issue debt instruments

Shares are not redeemable

After IPO, shares trade in secondary markets (exchanges and OTC)

Priced by supply and demand

Commissions

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81
Q

Net Asset Value (NAV) Per Share

A

(Fund assets - fund liabilities) / number of outstanding shares

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82
Q

Public Offering Price (POP) Per Share

A

NAV + $SC (sales charge)

or

NAV / (100% - SC%)

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83
Q

$SC

A

POP - NAV

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84
Q

%SC

A

(POP - NAV) / POP

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85
Q

Variable Annuity

A

Insurance company product

Priced like mutual fund (NAV + SC = POP)

No maximum sales charge

Early redemption fees

All earnings (dividends and capital gains) reinvested

Earnings grow tax deferred

Non-qualified unless stated otherwise

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86
Q

VA Withdrawal Type
Lump Sum

A

all earnings above cost basis taxed

cost basis returned tax free

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87
Q

VA Withdrawal Type
Random

A

LIFO

all earnings withdrawn first and are taxable

after all earnings are withdrawn, cost basis is returned tax free

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88
Q

VA Withdrawal Type
Annuitize

A

lifetime monthly income

each payment represents part earnings and part cost basis being returned

only taxed on earnings portion; cost basis is returned tax free

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89
Q

Annuitization: Life Only

A

monthly payment

payments end w/ life of annuitant

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90
Q

Annuitization: Period Certain

A

protects heirs

period certain length specified in contract

payments continue for length of period certain, even if annuitant dies

if annuitant outlives period certain length, payments continue until annuitant dies

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91
Q

Annuitization: Joint and Last Survivor

A

annuity on more than 1 life

payments continue until last annuitant dies

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92
Q

Annuitization: Assumed Interest Rate (AIR)

A

conservative estimate of return on investments in the separate account

each period, the actual earnings of the separate account are compared w/ AIR

Greater than AIR, greater than previous month’s payment

Same as AIR, same as previous month’s payment

Less than AIR, less than previous month’s payment

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93
Q

Direct Participation Programs (DPPs)

A

Business structure that reports to the IRS, but is not taxed as a business entity

All tax consequences flow through to partners

Net operating income is passive income to investors

Net operating loss is passive loss to investors

Interests in partnerships considered illiquid (not easily transferable)

Partnership dissolves on predetermined date or event; assets liquidated, and proceeds distributed to partners

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94
Q

General Partners

A

Manages the partnership

May appoint others to manage the assets

Unlimited liability; can lose more than invested

Fiduciary responsibility to partners; can be sued

May not compete w/ the partnership

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95
Q

Limited Partners

A

No management responsibility; passive investors only

Limited liability; cannot lose more than invested

No fiduciary responsibility

No limitations applied to other investments

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96
Q

Real Estate: Raw Land

A

Appreciation potential only objective

very speculative

no depreciation deductions for raw land

97
Q

Real Estate: New Construction

A

no immediate cash flow

rental income potential can only be estimated

tends to appreciate faster than older properties

depreciation deductions allowed

98
Q

Real Estate: Existing Properties

A

immediate cash flow

tends to be safer than new construction because cash flow is known

depreciation deductions allowed

99
Q

Real Estate: Government-Assisted Housing

A

tax credits for investing in public housing

cash flow via rental income can be suspect

appreciation is minimal

100
Q

Equipment Leasing

A

typically airline and railroad equipment or computers

high depreciation potential of equipment due to obsolescence

101
Q

Oil and Gas Drilling: Exploratory

A

drilling in new areas

high risk and reward

102
Q

Oil and Gas Drilling: Developmental

A

drilling in areas where resource has been previously found

103
Q

Oil and Gas Drilling: Balanced

A

both exploratory and developmental drilling

104
Q

Oil and Gas Income

A

buying existing producing wells

immediate production and income

safest of all oil and gas partnerships

105
Q

Qualified Plans

A

IRS approval required

Contributions tax deductible

Plan cannot discriminate

Tax on accumulation is deferred

All withdrawals taxed

Plan is set up w/ trustee

106
Q

Nonqualified Plans

A

No IRS approval needed

Contributions NOT tax deductible

Plan may allow only certain employees to participate

Tax on accumulation may be deferred

Only excess over cost basis is taxed at time of withdrawal

No plan trustee required

107
Q

Tax Favored (Individuals)

A

Individual retirement accounts (IRAs, both traditional and Roth)

108
Q

Qualified Plans (Employer Sponsored)

A

Simplified employee pension plans (SEPs)

Tax sheltered annuities (TSAs), both 403(b) and 501(c)(3)

Savings incentive match plans for employees (SIMPLEs)

401(k)s, both traditional and Roth

109
Q

NonQualified Plans Examples

A

Payroll deduction

deferred compensation

section 457 plans

110
Q

Regulation T

A

50% initial margin

set by the Federal Reserve

111
Q

Long Account

A

Long market value - debit = equity

LMV - Dr = equity

Dr = 50% LMV

112
Q

Short Account

A

Credit - short market value = equity

Cr - SMV = equity

Cr = SMV + 50%SMV

113
Q

Combined Account

A

LMV - Dr + Cr - SMV = equity

114
Q

Minimum Maintenance Long Account 25%

A

How low can LMV fall before a maintenance call?

Debit / (1 -.25) = Dr / .75

115
Q

Minimum Maintenance Short Account 30%

A

How high can SMV rise before a maintenance call?

Credit / (1 + .3) = Cr / 1.3

116
Q

Excess Equity

A

Equity above Reg T (50%) = equity

credits special memorandum account (SMA)

117
Q

Restricted account

A

Equity below Reg T (50%)

Buy stock: deposit 50%

Sell stock: 50% retention to pay down debt

Withdrawal securities: deposit into account 50% of securities value

118
Q

Maintenance Call

A

Equity below minimum maintenance

Deposit cash (1 x call amount)

Deposit securities (2 x call amount)

119
Q

Special Memorandum Account (SMA)

A

applicable to long and short accounts

line of credit for future purchases or loans

buying power = 2 x SMA

loan value = 1 x SMA

generated by the increase in market value, nonrequired deposit, sale of stock (50% to SMA), dividends, or interest

decreased by the purchase of securities or cash withdrawal

Note: market value increases, add to SMA; market value decreases, do not take SMA away; to lose SMA, account holder must use SMA

120
Q

Margin Account Agreement Form Agreement Type:
Credit

A

required agreement

truth in lending statement

details all margin account requirements and obligations

121
Q

Margin Account Agreement Form Agreement Type:
Hypothecation

A

required agreement

investor pledges collateral (securities) to BD

122
Q

Margin Account Agreement Form Agreement Type:
Loan consent

A

optional agreement

allows BD to lend customer securities to other customers

123
Q

Exchange

A

listed securities

physical location, auction market

124
Q

Over the counter (OTC)

A

unlisted negotiated market

125
Q

Day Orders

A

cancel any unexecuted portion at end of day

126
Q

Good Til Canceled (GTC) Orders

A

any unexecuted portion remains working until the last trading day of April or October

127
Q

SLoBS / BLiSS

A

Sell Limit and Buy Stop / Buy Limit and Sell Stop

128
Q

Market (buy or sell)

A

entered at the market

execute immediately at next available price

129
Q

Buy limit

A

entered below CMV

buy at limit price or better (lower)

execution not guaranteed

130
Q

Sell limit

A

entered above CMV

sell at limit price or better (higher)

execution not guaranteed

131
Q

Buy stop

A

entered above CMV

triggered at or above stop price

execute immediately at next available price

132
Q

Buy stop limit

A

entered above CMV

triggered at or above stop price

execute at limit price or better (lower)

execution not guaranteed

133
Q

Sell stop

A

entered below CMV

triggered at or below stop price

execute immediately at next available price

134
Q

Sell stop limit

A

entered below CMV

triggered at or below stop price

execute at limit price or better (higher)

execution not guaranteed

135
Q

Fill or Kill (FOK)

A

execute entire order immediately or cancel entire order

136
Q

Immediate or Cancel (IOC)

A

execute any portion available immediately

cancel any balance remaining

137
Q

All or None (AON)

A

execute all if available

if entire order can not be executed, hold order as good til canceled (GTC)

138
Q

Market at Open

A

execute at or near the open of the day

not guaranteed exact opening price

139
Q

Market on Close

A

execute at or near the close of the day

not guaranteed exact closing price

140
Q

Markup Policy

A

guide for listed and unlisted transaction charges

applies to markups, markdowns, and commissions

141
Q

Order Tickets

A

approved by a principal promptly after execution

changes to tickets must be approved by a principal

142
Q

Regular way settlement (corporate and municipal)

A

trade date + 2 business days (T+2)

143
Q

Regular way settlement (government)

A

trade date + 1 business day (T+1)

144
Q

Cash Settlement

A

same day; BD approval required

145
Q

Receipt or delivery vs payment RVP or DVP Settlement Type

A

up to 35 calendar days

146
Q

Seller’s option/buyer’s option Settlement Type

A

no sooner than first day after regular way (3rd business day for corporate and municipal); no later than date specified in settlement contract

147
Q

Net worth

A

assets - liabilities

148
Q

Book value

A

net worth - (preferred and intangibles)

149
Q

Book value per share

A

book value / number of outstanding common shares

150
Q

Current assets

A

cash and equivalents
accounts receivable
inventory

151
Q

Current liabilities

A

accounts payable
accrued wages
taxes payable

152
Q

Working capital

A

current assets - current liabilities

153
Q

Current ratio

A

current assets / current liabilities

154
Q

Total capitalization

A

long term debt + net worth

155
Q

Debt ratio

A

long term debt / total capitalization

156
Q

Earnings per share EPS

A

earnings available to common / total outstanding common shares

157
Q

Price to earnings ratio P/E

A

CMV / EPS

158
Q

Dividend payout ratio

A

common dividends / EPS

159
Q

Technical Analysis Concepts

A

Uses price and volume history to forecast future price movements

Use of charts to plot movement and establish points of entry or exit

Example: trend lines, levels of resistance and support, breakouts, consolidation, and head and shoulder patterns (for reversals)

160
Q

Securities Act of 1933

A

Paper Act; Prospectus Act

Regulates new issues; requires registration of securities

161
Q

Securities and Exchange Act of 1934

A

People and Places Act

Regulates exchanges, BDs, and associated persons; requires registration

Created SEC

Antifraud provision; defined inside information

162
Q

Trust Indenture Act of 1939

A

Applicable to corporate bond offerings of greater than $50 million in 12 months

Establishes a contract b/t the issuer and the trustee for the bondholder’s benefit

163
Q

Investment Company Act of 1940

A

Classifies and regulates the three types of ICs

164
Q

Employee Retirement Income Security Act of 1974 (ERISA)

A

Established to prevent abuse or misuse of pension funds

Applicable to private-sector retirement plans

Mandates guidelines for plan: participation, funding, vesting, communication, nondiscrimination, and beneficiaries

165
Q

Regulation S-P

A

Enacted by SEC to protect the privacy of customer information

Requires initial and annual privacy notice describing privacy policies and simple opt-out method

166
Q

Regulation SHO

A

Mandates a locate requirement for securities to be sold short before the short sale

167
Q

FINRA Rule 2330

A

Applies to recommended purchases and 1035 exchanges of deferred variable annuities (NOT immediate) and initial subaccount allocations

Disclosure of features, costs, and surrender charges

Must note if a 1035 exchange of a variable annuity has occurred w/in the last 36 months

168
Q

Regulation A+

A

Small and medium offerings exempt transaction allowing issuers to raise up to $75 million in a 12 month period w/out full registration

Two tiers:
1. Tier 1 allows offerings up to $20 million
2. Tier 2 allows offerings up to $75 million

169
Q

Regulation D

A

Private placement exempt transaction

Up to 35 nonaccredited investors for 506(b); all accredited investors for 506(c)

Accredited investors must meet minimum net worth or annual income criteria

170
Q

Communications with the Public Types (3)

A

FINRA defines three categories of communications (written or electronic):

  1. Retail
  2. Correspondence
  3. Institutional
171
Q

Retail Communications

A

Available to more than 25 retail investors w/in any 30 calendar day period

172
Q

Correspondence Communications

A

Available to 25 or fewer retail investors w/in any 30 calendar day period

173
Q

Institutional Communications

A

Available only to institutional investors

Examples: other member firms, banks, insurance companies, registered investment companies, any entity including individuals, with $50 million or more in total assets

174
Q

0.25%

A

maximum 12b-1 fee for no load fund

175
Q

1%

A

100 basis points for bonds

Rule 144 sale volume limit

Maximum asset-based fee (12b-1 maximum of 0.75% plus FINRA 0.25% servicing fee)

176
Q

5%

A

Markup policy guideline

Of 75% of a diversified management company’s assets, no more than 5% of total assets invested in a single company (no restrictions on the other 25%)

177
Q

6%

A

Penalty for excess IRA contributions

178
Q

8.5%

A

Maximum sales charge for open end (mutual fund) company

179
Q

10%

A

Penalty for premature IRA distribution

Affiliate or control person if owning 10% or more of outstanding shares

Maximum sales charge on public limited partnerships

Of 75% of a diversified management company’s assets, no single holding more than 10% of the voting control of a single company (no restrictions on the other 25%)

180
Q

25%

A

Minimum maintenance for long stock position

181
Q

30%

A

Minimum maintenance for short stock position

182
Q

40%

A

Minimum percentage of mutual fund board members that must be noninterested members

183
Q

50%

A

Regulation T

Penalty for insufficient IRA distribution after age 72

Amount of sales proceeds credited to SMA in a margin account

Required cash deposit when withdrawing stock from a margin account

Corporate dividend exclusion

184
Q

75%

A

Minimum amount of IC’s assets that must be invested in securities of other issuers for IC to be classified as diversified

Amount of limited partnership assets that must be identified to be a specified program

185
Q

90%

A

Minimum of net investment income that a mutual fund must distribute by year end under Subchapter M

Minimum amount of net operating income that must be distributed by a REIT by year end

186
Q

100%

A

Required equity when purchasing new issues, options, and mutual fund shares

Amount of nonrequired cash deposit credited to SMA in margin accounts

187
Q

Same Business Day

A

settlement date for cash transactions

188
Q

1 Business Day

A

regular way settlement for U.S. government securities and options

ex-dividend date relationship to record date for stock

189
Q

2 Business Days

A

regular way settlement for corporate and municipal securities T+2

190
Q

4 Business Days

A

Regulation T: cash purchases must be paid in full (regular way settlement (T+2) and Regulation T payment (S+2))

191
Q

15 Calendar Days

A

maximum length of time a customer can place options orders before the signed option agreement is required

192
Q

20 Calendar Days

A

Cooling off period: minimum time b/t filing date and registration

193
Q

30 Calendar Days

A

IRS wash sale period before and after a trade

194
Q

60 Calendar Days

A

maximum time to roll over holdings from one qualified plan to another w/out penalty

195
Q

90 Calendar Days

A

maximum time for a letter of intent to be backdated

length of time cash account can be frozen for nonpayment

196
Q

13 Months

A

length of time covered by a letter of intent

197
Q

Equity Option Contract

A

1 contract = 100 shares

198
Q

Options Premiums

A

1 point = $100

Example: 1 XYZ January 35 call @ 2
Premium = 2(100 shares) = $200

199
Q

Intrinsic Value

A

Difference b/t strike price and current market value of stock

CANNOT be negative, lowest value is 0

amount one is in the money

200
Q

In, At and Out of the Money

A

an option is in the money by the amount of it’s intrinsic value

201
Q

Time Value

A

The amount of an options premium that exceeds intrinsic value

Time Value = premium - intrinsic value

Example: 1 XYZ July 30 call @ 3, XYZ stock trading @ 31
IV = in the money amount = 31-30 = 1
TV = premium - IV = 3-1 = 2 points time value

202
Q

Long Call (Basic)

A

Buy; pay out premium

Bullish

RIGHT to BUY stock at the strike price

203
Q

Short Call (Basic)

A

sell or write; receive premium

Bearish

OBLIGATION to SELL stock at the strike price

204
Q

Long Put (Basic)

A

buy; pay out premium

Bearish

RIGHT to SELL stock at the strike price

205
Q

Short Put (Basic)

A

sell or write; receive premium

Bullish

OBLIGATION to BUY stock at the strike price

206
Q

Long call
Attitude?
Max Loss?
Max Gain?
BE?

A

Bullish

ML = premium paid

MG = unlimited

BE = SP + premium

207
Q

Short call
Attitude?
Max Loss?
Max Gain?
BE?

A

Bearish

ML = unlimited

MG = premium received

BE = SP + premium

208
Q

Long put
Attitude?
Max Loss?
Max Gain?
BE?

A

Bearish

ML = premium paid

MG = BE to zero

BE = SP - premium

209
Q

Short put
Attitude?
Max Loss?
Max Gain?
BE?

A

Bullish

ML = BE to zero

MG = premium received

BE = SP - premium

210
Q

Long straddle
Attitude?
Max Loss?
Max Gain?
BE?

A

Expect volatility, unsure of direction

ML = total premiums paid

MG = unlimited (long call)

BE = 2 BEs; SP + and - total premiums

211
Q

Short straddle
Attitude?
Max Loss?
Max Gain?
BE?

A

do not expect volatility

ML = unlimited (short call)

MG = total premiums received

BE = 2 BEs; SP + and - total premiums

212
Q

Debit call spread
Attitude?
Max Loss?
Max Gain?
BE?

A

Bullish

ML = net debit paid

MG = difference in SPs - net debit paid

BE = lower SP + net debit paid

213
Q

Credit call spread
Attitude?
Max Loss?
Max Gain?
BE?

A

Bearish

ML = difference in SPs - net credit received

MG = net credit received

BE = lower SP + net credit received

214
Q

Debit put spread
Attitude?
Max Loss?
Max Gain?
BE?

A

Bearish

ML = net debit paid

MG = difference in SPs - net debit paid

BE = higher SP - net debit paid

215
Q

Credit put spread
Attitude?
Max Loss?
Max Gain?
BE?

A

Bullish

ML = difference in SPs - net credit received

MG = net credit received

BE = higher SP - net credit received

216
Q

Long stock, short call
Attitude?
Max Loss?
Max Gain?
BE?

A

covered call; neutral to slightly bullish

ML = CMV - premium received

MG = SP - CMV + premium received

BE = CMV - premium received

217
Q

Long stock, long put
Attitude?
Max Loss?
Max Gain?
BE?

A

Bullish

ML = CMV - SP + premium paid

MG = unlimited

BE = CMV + premium paid

218
Q

Short stock, long call
Attitude?
Max Loss?
Max Gain?
BE?

A

Bearish

ML = SP - CMV + premium paid

MG = CMV - premium paid

BE = CMV - premium paid

219
Q

Short stock, short put
Attitude?
Max Loss?
Max Gain?
BE?

A

covered put; neutral to slightly bearish

ML = unlimited

MG = CMV - SP + premium received

BE = CMV + premium received

220
Q

Index Options

A

Multiplier for strike prices and premium = 100

Cash settled, no delivery of underlying

221
Q

Debt Options

A

Yield-based strike price

Premium multiplier = 100

Example: 1 T-bond 68 call @ 2
Premium = 2(100) = $200
Yield-based SP = 6.8%
BE = premium + stake price = 70 or 7%

222
Q

Foreign Currency Options

A

Cash settled, no delivery of foreign currency

Stoke price in cents (except yen, in 1/100th of a cent)

Contract size = 10,000 units of currency
(except yen = 1,000,000 units of currency)

Example: 1 Canadian dollar April 80 call @ 2
SP in cents = $0.80
BE = premium + strike price = 82 or $0.82

223
Q

Options Transaction Settlement

A

All options transactions (equity, index, debt, and currency) settle next business day (T+1)

224
Q

Option Exercise Settlement

A

Settlement for the transaction resulting when an option contract is exercised will be the same as the underlying security

225
Q

Closing Transaction (Tax Rules for Options)

A

Capital gain or loss when position is closed (except for LEAPS, always short term)

226
Q

Expiration (Tax Rules for Options)

A

Capital gain or loss when position expires

227
Q

Exercise (Tax Rules for Options)

A

Cost basis of stock position adjusted when option is exercised

No gain or loss reported until stock position is closed

228
Q

Approval (Communications With The Public-Options)

A

All options advertising and sales literature (retail, correspondence, and institutional) must be approved by a Registered Options Principal (ROP)

229
Q

Filing (Communications With The Public-Options)

A

Retail communications - 10 day profiling w/ FINRA required

Correspondence/Institutional communications - no FINRA filing required

230
Q

Options more suitable for those with: (4)

A

options are considered speculative

higher incomes

higher net worth

more risk tolerance

more investment experience

231
Q

Options less suitable for those with: (4)

A

lower or fixed incomes

lower net worth

less risk tolerance

less investment experience

232
Q

Wrap Account

A

Bundles together brokerage and advisory services into a single account

233
Q

Accredited Investors

A

Any individual w/ net worth over $1 million excluding primary residence

Any individual w/ income or joint income w/ spouse excess of required minimums

Any individual currently licensed w/ S7, S65 or S82 registration

234
Q

Investment Constraints (5)

A
  1. Time horizon
  2. Liquidity
  3. Taxes
  4. Laws/regulations
  5. Unique circumstances and/or preferences
235
Q

Conversion Ratio

A

= par / conversion price

236
Q

Tax free equivalent yield

A

= corporate yield x (100% - investor’s tax bracket)

237
Q

Tax equivalent yield

A

= municipal yield / (100% - investor’s tax bracket)

238
Q

Diversified Investment Company 75-5-10 Test

A

75% of assets invested so that:
1. No more than 5% of fund assets are invested in any one issuer
2. Fund owns no more than 10% of the voting stock of any one issuer
3. There are no restrictions on remaining 25%

Series 7 (1 decks)

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