Specific Topics

Question 1

Beta vs Standard Deviation

Answer 1

Beta measures volatility for overall market, measuring only market risk (systematic). Standard Deviation is a volatility measurement of a security with expected performance & systematic and unsystematic risk.

Standard Deviation measures total risk of a portfolio

Question 2

Understanding AMT

Answer 2

AMT = high income earners do not escape federal taxes
Regular taxes & figure out AMT taxes, you pay higher of the two
What can have AMT tax

Examples (there are more)
- ISO - fair market value of stock is greater than strike price even if stock is not sold that year
- Local tax on investments that do not generate income

Question 3

Yankee vs Euro

Answer 3

Yankee bonds are issued by foreign companies and are dollar-denominated.

Eurobonds are issued by foreign entities but are denominated in a currency other than that of their country of residence or the market of issuance

Question 4

GRAT is what? And how / why is it used?

Answer 4

Grantor Retained Annuity Trust

Any income is taxed to the grantor, but is used as a way to pass assets to beneficiaries, to minimize gift and/or estate taxes.

The annuity portion is paid for a number of years, and at the end of that, the beneficiaries can recieve whatever is left free of estate and gift taxes

This would be good for someone you’re concerned with who might not manage their money well being young, and so the Annuity Trust retains and makes payments to that beneficiary

Question 5

If you overheard an analyst referring to an investment’s indicative value, the discussion would most likely be about

Answer 5

ETN’s (cousin of ETF but debt instrument & still tied to an index)

Exchange traded debt securities offering a return linked to a market index or other benchmark, vs periodic payments like other debt instruments.

ETN = ELN

Risks include
- Credit
- Market
- Liquidity
- Calls
- Conflict of Interest

Question 6

ADR’s (confirm this is right, and add more)

Answer 6

They are issued by large domestic commercial banks.
They facilitate U.S. trading in foreign securities.
(add more)

Question 7

Treasury STRIPS are

Answer 7

bonds that are sold at a discount to their face value. The investor does not receive interest payments but is repaid the full face value when the bonds mature. That is, they mature “at par.”

Question 8

89 (ish) If the U.S. dollar is devalued relative to other world currencies, which of the following will occur with respect to the prices of goods?

(understand this question)

Question 9

90. Due to an escalating trade war, the portfolio manager of an equity mutual fund anticipates a negative impact on his fund’s assets. To protect his investment portfolio, the fund manager would

(figure out the answer)

Question 10

If securities of an issuer registered with the state are outstanding, how long after the effective date of registration must an issuer wait before the registration may be withdrawn?

Answer 10

12 months - Registration statements are usually effective for a period of one year from the effective date and may not be withdrawn during this period if any of the securities of the issuer of the same class are still outstanding.

Question 11

The alternative minimum tax (AMT) is assessed against

Answer 11

high annual income earners and disallows some deductions and exemptions used to calculate adjusted gross income.

Question 12

Discounted cash flow is commonly thought of as applying solely to fixed-income securities. However, forms of DCF used for the valuation of common stock also include

Answer 12

the dividend discount model
&
the dividend growth model

Question 13

A broker-dealer that operates on a fully disclosed basis is one that

A)
always discloses if it is acting in a principal or agency capacity.

B)
introduces its customers to the broker-dealer’s clearing firm.

C)
makes its fee schedule available on the non-password protected portion of its website.

D)
discloses commissions and markups (or markdowns) on customer trade confirmations.

Answer 13

introducing firms because they introduce their customers to the firm that does their clearing. The other disclosures shown as answer choices have nothing to do with being an introducing or fully disclosed broker-dealer.

Question 14

There are certain security exemptions that the USA does not grant the Administrator the power to deny

Answer 14

Included in that list is any security issued or guaranteed by any bank organized under the laws of any state.

Otherwise, they have the power to revoke & deny non-profits, Investment contracts issued by employee benefit plans, any transaction exemption, except one relating to a federal covered security, may be revoked as well

Question 15

Value of dollar goes down
Value of dollar goes up

Answer 15

exports increase, imports decrease
exports decrease, imports increase

Question 16

order ticket submitted by an agent for execution at a broker-dealer includes

Answer 16

account number, the agent’s name, and that of the BD. All order details must be listed (e.g., the number of shares, limit or market, etc.), but the current market price is never included. Once the order is executed, the execution price is entered.

Question 17

AMT

Answer 17

The excess of the alternative tax over the regular tax is added to the regular tax.

The term used to describe these items used to arrive at the taxpayer’s alternative minimum taxable income AMT is tax preference items

Question 18

The Federal Reserve Board foresees the probability of an overheated economy and the resumption of double-digit inflation. Therefore, the FRB takes actions to slow down the economy, including increasing the discount rate. Which of the following are likely effects of these moves?

An increase in the prime rate
An increase in bond yields and an accompanying decrease in bond prices
A slowdown in corporate growth
A decrease in corporate earnings

Answer 18

All of them

The FRB attempts to slow the economy and decrease the money supply with a corresponding increase in interest rates. When interest rates rise, the prime rate increases, bond yields rise, and bond prices drop. Higher interest rates have a tendency to slow corporate growth, with a resulting slowdown in earnings; these events occur in this approximate sequence.