Unit 14, 15

Question 1

Specified adult

Answer 1

A natural person age 65 and older, or
A natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests

Question 2

Regulation FD

Answer 2

Regulation Fair Disclosure
Public conference calls, press releases or press conferences, and webcasts are FD-compliant methods of public disclosure

Question 3

MNPI

Answer 3

Material non-public information

Question 4

Tender offer

Answer 4

One company attempts to take over another by acquiring a significant percentage of its voting shares
Also made by an if you were of non-callable bonds when interest rates have fallen

Question 5

Net long position

Answer 5

Shareholders of the target company are permitted to tender shares only to the extent of their net long position. Shareholders cannot sell shares back to the company that they do not own.

Question 6

MPT

Answer 6

Modern portfolio theory
The concept of minimizing risk by combining volatile and price-stable investments in a single portfolio
Negative correlation -1.0 among securities in a portfolio is best
Harry Markowitz

Question 7

CAPM

Answer 7

Capital asset pricing model
Calculate the required return based on a risk multiplier, the beta coefficient

Question 8

Beta

Answer 8

A measure of volatility in relation to the overall market (systematic risk)
1 = moves in line with the market
>1 = more volatile than the market
0 = does not move in relation to market movement

Question 9

Alpha

Answer 9

The extent to which the return exceeds or falls short of its expected return
A positive alpha is desirable and would indicate a buy recommendation

Question 10

Fundamental analysis

Answer 10

The study of the business prospects of an individual company within the context of its industry and the overall economy

Question 11

Intangible assets

Answer 11

Non-physical properties, such as formulas, brand names, contract rights, trademarks, and goodwill

Question 12

EBIT

Answer 12

Earnings before interest and taxes

Question 13

Primary components of an income statement

Answer 13

Revenue
COGS
pre-tax income (how much is left before taxes)

Question 14

Capitalization
Capital structure

Answer 14

Equity and debt
Long-term debt, bonds, debentures
Capital stock, common, preferred
Capital in excess of par
Retained earnings

Question 15

Shareholders equity
Net worth

Answer 15

Capital stock +
Capital surplus +
retained earnings

Question 16

Fundamental analyst
Technical analyst

Answer 16

Fundamental analyst focuses on the company’s books (financial)
Technical analyst ignores balance sheet and income statement (trends)

Question 17

Financial leverage

Answer 17

The company’s ability to use long-term debt to increase its return on equity
Debt to equity ratios at 50% or higher are considered highly leveraged (except utilities)

Question 18

Round lot
Odd lot

Answer 18

Round, 100 shares, standard
Odd, less than 100

Question 19

Dow theory

Answer 19

Primary trends, one year or more
Secondary trends, 3 to 12 weeks
Short-term fluctuations, hours or days