SIE 6-8 Flashcards
1
Q
Date when dividend is annouced
A
Declare date
2
Q
Date on which a person must own the stock to receive the dividend
A
Record date
3
Q
Date when stock deducts the dividend, usually one business days before record date (bc settlement date is T+2, unless in cash which is same date)
A
Ex-Date
4
Q
What is the impact of stock dividends
A
no economic gain or loss for holder, no change to issuer’s capitalization, and no change to holder’s percentage of equity. no income or cap gain tax.
5
Q
Current yield
A
annualized dividend / current market price
6
Q
Bond prices have an inverse relationship with interest rates but bond yields have the same relationship with interest rates
A
True
7
Q
Nominal Yields on Bond
A
Same as coupon, fixed annual interest rate
8
Q
Current Yield on Bonds
A
annual interest payments / current market price (NOT PAR PRICE)
9
Q
Yield to Maturity aka the Basis or “the Yield”
A
- Includes semi-annual interest payments, interest earned from reinvesting the interest (compounding or time value) any gain / loss of the difference between current value and par value
10
Q
Yield-to-Call
A
An investors yield if a bond is called at par.
11
Q
If a bond is callable you should quote what?
A
The lower of YTC or YTM (referred to as yield to works)
12
Q
If a callable bond is selling at a discount use what? If a callable bond is selling at a premium use what?
A
Discount use: yield to maturity
Premium use: yield to call
13
Q
Represents the total amount paid to acquire a security, typically includes commissions and other fees paid
A
Cost basis
14
Q
Result of the sale or redemption of an assets if the proceeds exceed the basis (holding period is measured trade date to trade date)
A
Capital gains
15
Q
Short term cap gains (less than 1 year) are taxed at
A
Ordinary rates
16
Q
Long term cap gains (greater than 1 year) are taxed at
A
max 20%
17
Q
The result of the sale of an asset if the proceeds are less than basis
A
Capital Loss
18
Q
Amount of the original investment received by the investors is considered
A
return of capital
19
Q
Total return calc
A
(ending value - beginning value) + investment income / begin value
20
Q
Real rate of return calc (inflation adjusted)
A
Rate of Return - Inflation
21
Q
Risk-Adjusted Return calc
A
Rate of Return - less risk free return
22
Q
Risk-Free Return calc
A
Rate of Return generally found on a US treasury bill
23
Q
Broad based indexes examples
A
S&P 500 (mostly NYSE stocks) and Down Jones (breakdown of three averages, industrial, transportation, and utility)
24
Q
Indexes that focus on market segments
A
narrow based index
25
the largest index and the smallest indexes
Largest - Wilshire, Smaller is Dow Jones
26
Funds that tract the investment performance to indexes
Passive - benchmark or index funds
27
The Bond Buyer Index is based on which of the following securities?
Municipal bonds
28
During periods of rising interest rates, an investor can expect
Long-term bond prices to fall more than short-term bond prices
29
Diversified Mutual fund qualifications
75% of total assets must be specifically structed so that no more than 5% is invested one company and no more than 10% of a company's voting stock is owned
30
Who sets the objectives for Mutual Funds
Board of Directors
31
What is the largest expense of a mutual funds
Investment Management fee
32
A wholesalers / distributor of a mutual fund, appointed by the board, receives a portion of the sales charge, able to buy shares at NAV
Underwriter
33
funds invest in small companies and often participate in the initial
public offerings of these companies’ shares. The stocks of these companies can be very volatile, but
historically they have also produced high returns for long-term investors
Aggressive Growth Funds
34
funds concentrate their investments to stocks in a particular
industry (e.g., high tech stocks or pharmaceuticals) or in a particular geographic location.
Specialized or Sector Funds
35
Mutual funds that focus on foreign securities are often the easiest
way for U.S. investors to invest abroad
International and Global Funds
36
Funds invest in companies that pay high dividends in relation to
their market prices. These funds usually hold positions in mature companies that have less potential for
capital appreciation, but are also less likely to decline in value than growth companies.
Equity Income Funds
37
These funds have both capital appreciation and current income as their
investment objectives. Invest in companies that are expected to show more
growth than a typical equity income stock and higher dividends than most growth stocks
Growth and Income Funds
38
Fund that's objective is current income and preservation of capital. Since the
portfolio consists of bonds only, many of these funds are susceptible to the same risks as direct investments in
bonds, including credit risk, call risk, reinvestment risk, and interest-rate risk.
Bond Funds
39
fund creates a
portfolio that mirrors the composition of a particular benchmark stock or bond index, such as the S&P 500
Index. The fund attempts to produce the same return as the index; therefore, investors cannot expect the
fund’s returns to outperform the relevant benchmark. Since index mutual funds are passively, rather than
actively managed, they typically have lower management fees.
Index Funds
40
These funds invest in “out-of-favor” companies that are considered undervalued and are
often in the process of restructuring. Due to the nature of their investments, value funds are most suitable
for investors with long time horizons
Value Funds
41
funds maintain some percentage of their assets in stocks, bonds, and moneymarket instruments (cash equivalents). Although the percentages will vary from time to time as market
conditions change, a portion of the portfolio will always be invested in each type of security
Balanced Funds
42
these funds also invest in stocks, bonds, and
money-market instruments. Fund managers determine the percentage of the fund’s assets to invest in each
category based on market condition
Asset Allocation Funds
43
Public Offering Price
NAV + Sales charge
44
Public Offering Price("ask price")
NAV + Sales charge or NAV / 100-sales change
45
NAV calc (bid or redemption price)
NET assets / shares outstanding
46
When are NAVs calculated
4pm
47
Sales charge calc
(POP-NAV)/POP
48
Max sales charge
8.5%
49
Charge a sales charge when initially investing in a MF. Total investment less sales charge is directed to portfolio
Front end loads
50
Sales charge when redeeming. Assessed at the time an investor redeems. Percentage decreasing over holding period
Back-end sales change or Contingent Deferred Sales Charge
51
Annual fee levied against funds assets, allows distribution costs to be borne by the fund. Includes continuing commissions or trailers.
12b-1 fees
52
For a fund to be no load, it must have the following:
No front end or deferred sales charges and no 12b-1 fees that exceeds .25%
53
Expense ratio calc
expenses / ANA
54
Class A, B, and C shares have what fees
A - front end and breakpoints available, B - higher 12b-1 fees and often convert to class A (no breakpoints available) C- can have front end and back end sales charge, same fees as Class B for 12b-1 and no conversion to Class A.
55
A letter of intent (optional provision that allows investors to qualify for a breakpoint without initially depositing the entire amount) is non binding, how long does this last?
13 months time period that may be back dated 90 days
56
Right to add up all purchases made from same family of funds, reduces sales charges as you reach a breakpoint
Rights of Accumulation (RoA)
57
A method of investing which involves making the same periodic investment regardless of share price over a fixed period
Dollar Cost Average (DCA)
58
fund are required to send investors the payment for their shares within x calendar days of receiving the redemption notice
7
59
Fee assessed against investors who redeem their shares after a short period, not a sales charge, returned to the funds portfolio
Redemption Fees
60
Types of sales practice violations
1. breakpoint sales (telling client to buy 49 instead of 50 for reduced fee) 2. recommending purchases from different fund families due to the potential higher sales charges 3. switching between different fund families 4. excessive purchases of class B shares since they do not qualify for breakpoints
61
type of investment company issues debt
| certificates that pay a predetermined rate of interest
Face-Amount Certificate Companies
62
Formed under a legal document that’s referred to as an indenture and
have trustees rather than boards of directors, s invest in a fixed portfolio of income-producing
securities, such as bonds or preferred stocks.
Unit Investment Trusts
63
when purchasing a CEF what would an investor pay
Market price + commissions
64
three types of investment companies
1. Mgmt companies, 2 Unit Investment Trust 3. Face-amount certificate companies
65
which are less volatile long term or shirr term bond funds
Short term funds
66
what can be purchased on margin
Shares that are listed on a national exchange, including ETFs and CEFs
67
Products that are created by insurance companies but sold by broker dealers. Investment grows tax-deferred
Annuities
68
Are fixed or variable annuities securities?
Variable annuities are securities, fixed are not
69
Fixed vs Variable annuities
Investment risk for Fixed annuities are at the insurance companies but for variable it is the annuitant. Fixed are general accounts. Variable annuities are separate account, that is kept separate from other funds in the general account. Fixed annuities are not a good inflation hedge but variable are.
70
what is a Separate account
An investment company product that is regulated under the 1940 act, registered with sec, sold by prospectus and investment may change during accumulation phase. It will have sub-accounts such as value, biotech, high yield bond etc
71
Accumulation phase in variable annuities
entire time prior to the annuity expiring. Account is valued in terms of accumulation unites - unites are purchased after tax with no deduction. Investment income is tax-deferred until withdrawn
72
withdrawing annuities
Annuitants may choose to withdrawal at any time, earnings are with dawn first and taxable, premature withdrawals are earnings prior to age 591/2 are subject to a 10% penalty and the gross amount is also added to taxable income
73
death during accumulation phase of an annuity
Payout paid to beneficiary will represent the great of total contributions or the current value of the contact
74
Annuity phase in variable annuities
payout / withdrawal phase - when receiving benefits at annuitization, accumulation units are converted into a fixed number of annuity unites.
75
How is payout calculated for variable annuities
Payout is established by multiply the fixed number of annuity units be the fluctuating value
76
Variable Annuity payout options
Straight life annuity, greatest risk and highest payout (no beneficiary) 2. Life annuity with period certain - payments are for life or to beneficiary for specific number of years 3 - joint and last survivor annuity -payments are made for life so long as one annuitant is living 4. unit refund life annuity - annuitant receives an amount at leas equal to original investment, beneficiary
77
Annuity charges and expenses
Sales charge (no max amount), mgmt fees, expense risk, admin expenses, mortality risk (if you die)
78
Qualified vs non0qualified annuities
Qualified - where annuitant is contributing pre-tax dollars, deductible pre-tax contributions which result in zero-cost basis and contribution amount is limited. Nonqualified - available to anyone, non deductible after tax contributions taxed on earnings only
79
401k for teachers and tax exempt org
403B
80
401k for State and gov employees
457 plans
81
contracts that combine the features of both fixed and variable annuities; however, they’re not required to be registered with the SEC as securities. Offer an guaranteed minimum return but offer returns which vary based on index performance
Equity-Indexed Contracts (EICs)
82
Who should invest in annuity contracts
aged 30 to 55 who are seeking tax deferred growth to offset inflation. persons who have maximized qualified plan contributions (401ks)
83
1035 exchanges
Tax free changing from one annuity to the other. customer must benefit from new annuity
84
Municipal Funds Securities examples
1. Local Government Investment Pools (LGIPs)2. prepaid tuition plans and 3. 529 plans
85
Created by state and local governments to provide municipal entities for a place to inveest funds
Local Government Investment Pools (LGIPs)
86
Locks in tuition costs by prepaying for a specific schools
repaid tuition plans
87
Type of college saving plan, funded with after tax dollars but investments grow tax deferred max withdrawals tax free of 10k for college tuition, books, supplies, and 10k in a lifetime to repay student loans or apprenticeship programs
529 Plans
88
to avoid gift tax, what is the maximum contribution per person per year, what is the front loading five years of contributions for 529 plans
1. 15k per year of 30k for married and 2. 75k or 150k for married
89
Plan designed for people who are disable and are receiving social security disability, Medicare, or private insurance payments, max contribution is 15k, payments continue if account value does not exceed 100l
Section 529A (ABLE) Plans
