Unit 4 Flashcards
1
Q
S Corporation
A
- Taxed like a partnership
- profits and losses are passed through directly to shareholders
- no double taxation
2
Q
C Corporation
A
- best when you need to raise lots of capital
- fully separates owners from business entity
- subject to double taxation
- only look at business when determining suitability
3
Q
Sole Proprietorship
A
- easiest to form and dissolve
- owner has fully liability
- all of owners assets are liable for debts of business
4
Q
LLC limited liability company
A
- combines benefits of Corporation with tax advantages of a partnership
- owners are members not shareholders
- company survives the death of the owners
5
Q
Transfer on Death Accounts (TOD)
A
- upon death property is immediately transferred to the named beneficiaries
- is a designation of an individual account or a JTWROS
6
Q
Joint Tenants With Right of Survivorship (JTWROS)
A
- when one person dies all of the assets go to the other Tennant regardless of contributions
7
Q
Tenants in Common
A
- when TT dies their assets go into their estate
- then distributed according to their will
8
Q
Tenancy by the entirety
A
- can be created only by married people
- consent of both parties is required before selling or giving away interest in property
9
Q
Trust
A
- legal entity that offers flexibility to an individual who wishes to transfer propriety
10
Q
Settlor (maker, grantor, trustor donor)
A
- supplies property for trust
- creates the trust
11
Q
Trustee
A
- person legally holding the property held in the trust.
- a fiduciary obligated to do what is in the best interest of the beneficiaries
12
Q
Beneficiary
A
- person who benefits from the trust
- settlor can be a beneficiary
13
Q
Simple trust
A
- all in one earned must be distributed within that year
14
Q
Complex trust
A
- may accumulate income and distribute according to trust terms
15
Q
Living trust
A
- established during lifetime of maker
16
Q
Testamentary trust
A
- contents go into trust once person passes away
17
Q
Revocable trust
A
- must be living trust
- only the maker can change or revoke
- no estate tax benefit
- becomes irrevocable at death
18
Q
Irrevocable trust
A
- settlor gives up all ownership
- settlor can retain some interest in certain situations
19
Q
Grantor retained annuity trusts
A
- beneficiaries receive fixed annuity each year after death of settlor
- major tax benefits
- tax liability falls on maker
20
Q
Estate accounts
A
- similar to trusts have fiduciary oversight
- executor makes all of the investment decisions
21
Q
Fiduciary account Examples: Trusts Executor Administrator Guardian Custodian Receiver in bankruptcy Conservator for incompetent person
A
Anyone legally appointed and authorized to represent another person
22
Q
Full power of attorney
A
Allows Person who isn’t owner to
Deposit, withdraw, make investment decisions
23
Q
Limited power of attorney
A
Some but not total control of account
24
Q
Durable power of attorney
A
- POA survives mental incapabilities but not death
25
Financial profile
```
Debt
Tax status
Income sources
Balance sheet
Expenditures
Liabilities
```
26
Non financial profile
```
Investment experience
Attitude/ values
Number/ age of dependents
Employment stability
Employment of family members
Family health/ education needs
```
27
Risk tolerance
- Clients objectives
- Amount available for investing
- Clients aversion to risk
- liquidity requirements
- how much loss can you afford
- time horizon for investments
- expectations
28
Preservation of capital
1. Bank insured CDs
Money market account
Bank insured Bonds
Savings accounts
29
Current income
Government/ agency bonds
Corporate bonds/notes
Preferred stock
Utility company stocks
30
Capital growth
Stocks
31
Speculation
Highly volition stocks
High yield bonds
Options or indexes
Commodity
32
College tuition
Zero coupon bonds maturing in time for college
33
Capital needs analysis
Pay off debt
Income for survivor
College tuition
Estate taxes
34
Disability income options
SS
Workmans comp
Disability insurance
35
Constant ratio plan
Keep same amounts of stock to cash
36
Constant dollar amount
Keep same amount of dollars in account
37
Tactical asset allocation
Active management of portfolio
| - adjusting stocks to bonds ratio to capitalize on market cycles
38
Buy and hold
Low fees and maintenance
39
Growth manager
Looks for stocks generating earning momentum
- looking for high PE ratio high PB ratio
- little to no dividends
40
Value manager
Low PE ratio
High dividend
Stock with large cash surplus
41
Large cap
10 billion plus
42
Mid cap
2-10 billion
43
Small cap
300 mil- 2 billion
44
Contrarian manager
Takes position opposite of other managers or the general market
45
Barbell income strategy
Buying bonds with short term and long term maturities with nothing in the middle
46
Bullet income strategy
Pick a date and buy bonds that mature during it.
Do this for multiple years
47
Ladder income strategy
Bonds bought at same time mature at different times.
48
Sharpe ratio (risk adjusted ratio)
(Average annual return - risk free rate)/ standard deviation
49
Quick ratio
Current Assets (excluding inventory)/ Current liabilities
50
Monetary policy
- Controlled by federal reserve
| - determines size and rate of growth if the money supply
51
Fiscal policy
Controlled by president
| - way government adjusts spending and tax levels to influence nations economy
52
Summary plan document
Required to give to plan participants by plan administrator.
IA does not give it out.
53
Expected rate of return
The probability of each possible return outcome and multiplying it by the return outcome in self
54
Feasible set
All portfolios that can be constructed from a given set of stocks.
Under modern portfolio theory
55
Investment policy statement
- Methods of performance measurement.
| - way to determine cashflow needs
56
Specialist
Broker dealer who buys and sells listed securities on an exchange
57
ERISA 404(c)
Places investment risk with plan participant
58
Market maker
Broker dealer who buys and sells unlisted securities over the counter
59
Total return
How a security performed over time.
$20 stock $1 dividend, sold after a year for $24
Total return= $5 or 25% ($5/$20)
60
Customer balance sheet
Assets: Home, property, investments, jewelry, bank account
Liabilities: mortgage, loans
Not included: salary, utilities, taxes, investment income, monthly loan
61
Statement of cashflow
Salary, utilities, taxes, investment income, monthly loan
Not included: assets and liabilities
62
Index option
Gives the holder the right to buy or sell he value of an underlying index
