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Series 65 > Vocab > Flashcards

Vocab Flashcards

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Series 65 flashcards
1
Q

Accredited Investor

A

Defined in rule 501 of Reg D, any institution or individual meeting minimum net worth requirements for the purchase of securities qualifying under the Regulation D registration exemption.

An individual accredited investor is generally accepted to be one who, individually or with spouse, has net worth, (EXCLUDING the net equity primary residence) of
-$1 million or more,
OR
-has had an annual income of $200,000+ (or $300,000+ jointly with a spouse) or more in each of the two most recent years
AND
-who has a reasonable expectation of reaching the same income level in the current year

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2
Q

accumulation stage

A

the period during which contributions are made to an annuity account.

See

  • accumulation unit
  • distribution stage
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3
Q

accumulation unit

A

an accounting measure used to determine an annuitants proportionate interest in the insurers separate account during an annuity accumulation (deposit) stage

See

  • accumulation stage
  • separate account
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4
Q

acid test

A

see

  • acid test
  • quick asset ratio
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5
Q

active management style

A

analysts believe they can identify industries that are undervalued or overvalued in order to weigh them appropriately and achieve returns in EXCESS of the market

some managers engage in sector rotation, which is overweighting or underweighting industries based on current phase of the business cycle

see

  • passive management style
  • sector rotation
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6
Q

Act of 1933

A
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7
Q

Act of 1934

A
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8
Q

adjusted basis

A

the value attributed to an asset or security that reflects any deductions taken on, or capital improvements to, the asset or security.

Adjusted basis is used to compute the gain or loss on the sale or other disposition of the asset or security

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9
Q

AGI - adjusted gross income

A

It is basically the amount of income that will be subject to tax

gross income from all sources minus certain adjustments to income, such as deductible contributions to an IRA and net capital losses.

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10
Q

administrator

A

an official or agency that administers a states securities laws

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11
Q

adoption

A

a social media term meaning that a securities firm links a third party site and indicates that it endorses the content on that site

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12
Q

ADR

A
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13
Q

ADS

A
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14
Q

Advertisement

A

Any notice, circular, letter, or other written communication addressed to more than 1 person OR

any notice or other announcement in any analysis, report, or publication or by radio or tv that offers

1) any analysis, report, or publication concerning securities or that is to be used in making any determination as to when to buy or sell any security or which security to buy or sell OR
2) any graph, chart, formula, or other device used in making any determination as to when to buy or sell any security or which security to buy or sell OR
3) any other investment advisory service with regard to securities

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15
Q

agency basis

A

see agency transaction

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16
Q

agency cross transaction

A

for an advisory client, a transaction in which a person acts as an investment adviser in relation to a transaction in which that investment adviser, or any person controlling, controlled by, or under common control with that investment adviser, acts as broker for both an advisory client and for another person on the other side of the transaction

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17
Q

agency issue

A

a debt security issued by an authorized agency of the federal government. Such an issue is backed by the issuing agency itself, not by the full faith and credit of the US govt. (except GMNA issues)

See
-government security

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18
Q

agency transaction

A

a transaction in which a broker dealer acts for the accounts of others by buying or selling securities on behalf of customers.

Syn. Agency basis

See
-agent, broker, principal transaction

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19
Q

agent

A

1) individual who effects securities transactions for the accounts of others
2) under state law, a securities sales person who represents a broker dealer or an issuer when selling or trying to sell securities to the investing public; this individual is considered an agent whether he actually receives or simply solicits orders.

See
-broker dealer, dealer, principal

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20
Q

aggressive investment strategy

A

a method of portfolio allocation and management aimed at achieving maximum return. Aggressive investors place a high percentage of their investable assets in equity securities and a far lower percentage in safer debt securities and cash equivalents, and they pursue aggressive policies including margin trading, arbitrage, and option trading.

See
-balanced investment strategy; defensive investment strategy

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21
Q

AGI

A

see adjusted gross income

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22
Q

algorithmic trading/ high frequency trading

A

computerized trading using proprietary algorithms.

1) execution trading - an order (often large) is executed via algorithmic trade. The program is designed to get the best possible price. It may split the order into smaller pieces and execute at different times.
2) not executing a set order, but looking for small trading opportunities in the market. It is estimated that more than 50% of stock trading volume in the US is currently being driven by algorithmic trading

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23
Q

AON - all or none order

A

an order that instructs the floor broker to execute the entire order in one transaction; if the order cannot be executed in its entirety, it is allowed to expire

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24
Q

alpha

A

the risk adjusted returns that a portfolio manager generates in excess of the risk adjusted returns expected by the capital asset pricing model (CAPM)

suppose an index return is 10%; the RF is 3%, the portfolio beta is 1.5 and the actual return is 25%.

CAPM - the portfolio should be expected to return 1.5x the index after netting out the RF rate. BC the portfolio is 1.5x riskier than the market

Alpha -
(index return - RF) (beta)
(10-3) (1.5)

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25
Q

AMT - alternative minimum tax

A

an alternative tax computation that adds certain tax preference items back into adjusted gross income.

If the AMT is > regular tax liability for the year, the regular tax and the amount by which the AMT exceeds the regular tax are paid.

See - tax preference item

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26
Q

ADR - American depositary receipt / ADS

A
  • a negotiable certificate representing a given number of shares in a foreign corporation.
  • It is issued by a domestic bank.
  • ADR are bought and sold in the American securities markets, and are traded in English and US dollars.
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27
Q

anti dilutive covenant

A

a protective clause found in most convertible issues (preferred stock or debentures) that adjusts the conversion rate for stock splits and/or stock dividends. This ensures that the holder of the convertible will not suffer a dilution in value.

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28
Q

appreciation

A

the increase in an assets value

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29
Q

arbitrage

A

a legal strategy that generates guaranteed profit from a transaction. a common form is the simultaneous purchase and sale of the same security in different markets at different prices to lock in a profit.

*This is not considered market manipulation

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30
Q

arithmetic mean

A

the average set of numbers, such as annual returns on an investment

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31
Q

ask / offer

A

an indication by a trader or a dealer of a willingness to sell a security or a commodity; the prices at which Han investor can buy from a broker dealer

See
-bid, public offering price, quotation

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32
Q

assessable stock

A

a stock that is issued below is par or stated value. The issue and/or creditors have the right to assess the shareholder for deficiency.

*all stock issued today is non assessable

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33
Q

asset

A

1) anything that an individual or a corporation owns

2) a balance sheet item expressing what a corporation owns

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34
Q

asset class allocation

A

dividing an investment portfolio among different asset categories, such as stocks, bonds, cash and tangible assets such as real estate and precious metals and other commodities.

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35
Q

auction market

A

a market in which buyers enter competitive bids and sellers enter competitive offers simultaneously.

The NYSE is an auction market

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36
Q

audited financial statement

A

financial statement of a program, corporation, or an issuer (including the profit and loss statement, cash for and source and application of revenues statement, and balance sheet) that has been examined and verified by an independent certified public accountant.

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37
Q

average basis

A

an accounting method used when an investor has made multiple purchases at different prices of the same security; the method averages the purchase prices to calculate an investors cost basis in shares being liquidated.

The difference between the average cost basis and the selling price determines the investors tax liability

See
-FIFO, LIFO

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38
Q

back end load/ contingent deferred sales load

A

a commission or sales fee that is charged when mutual fund shares or variable annuity contracts are redeemed. It declines annually, decreasing to zero over an extended holding period - up to 8 years - as described in the prospectus.

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39
Q

balanced fund

A

a mutual fund whose stated investment policy is to have at all times some portion of its investment assets in bonds and preferred stock, as well as in common stock, in an attempt to provide both growth and income.

see - mutual fund

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40
Q

balanced investment strategy

A

a method of portfolio allocation and management aimed at balancing risk and return. a balanced portfolio may combine stocks, bonds, packaged products such as investment companies, DPP’s, REITs, and cash equivalents

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41
Q

balance of payments

A

an international accounting record of all transactions made by one particular country with others during a certain period; it compares the amount of foreign currency the country has taken in with the amount of its own currency it has paid out

See - balance of trade

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42
Q

balance of trade

A

the largest component of a country’s balance of payments; it concerns the export and import of merchandise (not services).

debit items: imports, foreign aid, domestic spending abroad, domestic investments abroad

credit items: exports, foreign spending in domestic economy, foreign investments in the domestic economy

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43
Q

balance sheet

A

a report of a corporations financial condition at a specific time

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44
Q

balance sheet equation

A

assets - liabilities = SE

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45
Q

bank holding company

A

a holding company whose primary asset is a commercial bank

see - holding company

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46
Q

basis

A

another term for yield to maturity

ie. this bond is selling at 5.78 basis

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47
Q

basis point

A

a measure of a bonds yield, equal to 1/100 of 1% of yield. a bond whose yield increases from 5.00% to 5.50% is said to increase by 50 basis points.

100 basis points = 1%

see - point

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48
Q

bear

A

an investor who acts on the belief that a security or the market is falling or will fall

see - bull

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49
Q

bear market

A

a market in which prices of certain group of securities are falling or expected to fall

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50
Q

benchmark portfolio

A

a model portfolio of a large number of assets, such as the S&P 500, against which the performance of a fund or portfolio is measured

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51
Q

beta

A

a means of measuring the co movement of the return of a security or a portfolio of securities to the return on the overall market.

beta = 1 the securities returns will be expected to exceed those of the market

beta > 1 securities securities returns will be expected to exceed those of the market

beta < 1 returns will be expected to be lower than those of the market

see - beta coefficient

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52
Q

bid

A

an indication by an investor, a trader, or a dealer of a willingness to buy a security;

the price at which an investor can sell to a broker dealer

see - offer, public offering price, quotation

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53
Q

black Scholes

A

one of the most popular options pricing models. appears frequently on the exam as an incorrect choice

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54
Q

block trade

A

a large trading order, defined as an order that consists of 10,000 or more shares of a given stock or at a total market value of $200,000 or more

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55
Q

blue sky laws

A

the nickname for the state regulations governing the securities industry.

The term was coined in 1911 by a Kansas Supreme Court justice who wanted regulation to protect against “speculative schemes that have no more basis than so many feet of blue sky”

56
Q

board of directors

A

individuals elected by stockholders to establish corporate management policies.

a board of directors decides, among other issues, if and when dividends will be paid to stockholders

57
Q

bonafide

A

“good faith” something that is genuine, authentic, real.

ie bonafide quote

58
Q

bond

A

an issuing company or governments legal obligation to repay the principal of a loan to bond investors at a specified future date.

Bonds are usually issued with par or face values of $1000, representing the amount of money borrowed

the issuer promises to pay a percentage of the par value as interest on the borrowed funds.

the interest payment is stated on the face of the bond at issue.

59
Q

bond fund

A

a mutual fund whose investment objective is to provide stable income with minimal capital risk

it invests in income producing instruments, which may include corporate, government, or municipal bonds

see - mutual funds

60
Q

bond quote

A

one of a number of quotations listed in the financial press and most daily newspapers that provide representative bid prices from the previous days bond market. Quotes for corporate and government bonds are percentages of the bonds face values (usually 1000).

corporate bonds are quoted in increments of 1/8

government bonds are quoted in increments of 1/32

municipal bonds may be quoted on a dollar basis or on a yield to maturity basis

see - quotation, stock quote

61
Q

bond rating

A

an evaluation of the possibility of a bond issuers default, based on an analysis of the issuers financial condition and profit potential.

Standard & Poors, Moody’s Investor Service, Fitch Investors Service, among others provide bond rating services

62
Q

bond ratio

A

one of the several tools used by bond analysts to asses the degree of safety offered by a corporations bonds.

It measures the percentage of the corporations capitalization that is provided by long term debt financing

calculated by dividing the total face value of the outsanding bonds by the total capitalization.

63
Q

bond yield

A

the annual rate of return on a bond investment.

types of yield include nominal, current, yield to maturity, yield to call

their relationships vary depending on if the bond in question is at a discount, at a premium, or at par

64
Q

book entry security

A

a security sold without delivery of a certificate. evidence of ownership is maintained on records kept by a central agency;

ie. the treasury keeps records of treasury bill purchasers. transfer of ownership is recorded by entering the change on the books or electronic files

65
Q

book value per share

A

a measure of the net worth of each share of common stock is calculated by

= (total net worth - intangible assets - preferred stock) / 
# of shares of common outstanding
66
Q

Brady bonds

A

debt instruments, generally from 3rd world countries, that may have US treasury bond as collateral

67
Q

breadth of market theory

A

technical analysis theory that predicts the strength of the market according to the number of issues that advance or decline in a particular trading day

68
Q

BRIC

A

acronyms referring to investments in Brazil, Russia, India and China

69
Q

bridge loan

A

a short term loan made to bridge the gap until permanent financing is arranged

70
Q

brochure

A

a written disclosure statement that investment advisers must provide to most clients and prospective clients

Form ADV part 2A may be used for this purpose

71
Q

brochure supplement

A

a written disclosure statement containing information about certain of an investment advisers supervised persons

this disclosure is usually accomplished by the delivery of Form ADV part 2B to most clients and prospective clients

72
Q

broker

A

1) an individual or a firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm
2) the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services

73
Q

broker dealer

A

a person in the business of buying and selling securities.

a firm may act as both broker (agency) and dealer (principal), but not in the same transaction.

broker dealers normally must register with the SEC. appropriate SRO’s, and any state in which they do business

see - broker, dealer, principal

74
Q

bull

A

an investor who act on the belief that a security or the market is rising or will rise

75
Q

bulletin board

A

see OTC bulletin board

76
Q

bull market

A

a market in which prices of a certain group of securities or rising or will rise

77
Q

business cycle

A

a predictable long term pattern of alternating periods of economic growth and decline.

the cycle passes through 4 stages: expansion, peak, contraction, trough

78
Q

business risk

A

the risk inherent in equity securities that poor management decisions will have a negative impact on the stocks performance.

can be reduced through diversification

79
Q

buy stop order

A

an order to buy a security that is entered at a price above the current offering price and that is triggered when the market price touches or goes through the buy stop price

80
Q

bypass trust

A

a trust that is funded with a property in an amount equal to the exemption equivalent of the transfer tax credit amount applicable to the decedent (11.4 million in 2019);

thus, the property is not subject to federal estate tax

see - generation skipping trust

81
Q

calendar year

A

for accounting purposes, a year that ends on December 31

see - fiscal year - accounting year ends any other time

82
Q

call

A

1) an option contract giving the owner the right to buy a specified amount of an underlying security at a specified price within a specified time
2) the act of exercising a call option

83
Q

callable bond

A

a type of bond issued with a provision allowing the issuer to redeem the bond before maturity at a predetermined price

84
Q

callable preferred stock

A

a type of preferred stock issued with a provision allowing the corporation to call in the stock at a certain price and retire it

85
Q

call buyer

A

an investor who pays a premium for an option contract and receives, for a specified time, the right to buy the underlying security at a specified price

86
Q

call date

A

the date, specified in the prospectus of every callable security, after which the securities issuer has the option to redeem the issue at par or at par plus a premium

87
Q

call feature

A

see call provision

88
Q

call protection

A

a provision in a bond indenture stating that the issue is a noncallable for a certain period (ie 5 years, 10 years) after the original issue date

89
Q

call provision

A

the written agreement between an issuer and its bondholders or preferred stockholders giving the issuer the option to redeem its senior securities at a specified price before maturity under certain conditions

90
Q

call risk

A

the potential for a bond to be called before maturity, leaving the investor without the bonds current income.

because this is more likely to occur during times of falling interest rates, the investor may not be able to reinvest his principal at a comparable rate of return

91
Q

call writer

A

an investor who receive a premium and takes on, for a specified time, the obligation to sell the underlying security at a specified price at the call buyers discretion

92
Q

capital appreciation

A

an increase in an assets market price

93
Q

capital asset

A

all tangible property, including securities, real estate, and other property, help for the long term

94
Q

CAPM - capital asset pricing model

A

a securities market investment theory that attempts to derive the expected return on an asset on the basis of the assets systematic risk

95
Q

capital gain

A

the profit realized when a capital asset is sold for a higher price than the purchase price

96
Q

capitalization / invested capital

A

the sum of a corporations long term debt, stock, and surpluses

97
Q

capitalization ratio

A

a measure of an issuers financial status that calculates the value of its bonds, preferred stock, or common stock as a percentage of its total capitalization

98
Q

capital loss

A

the loss incurred when a capital asset is sold for a price lower than the purchase price

99
Q

capital market

A

the segment of the securities market that deals in instruments with more than 1 year to maturity - long term debt and equity securities

in contrast, the money market is the raising of short term capital such as treasury bills and commercial paper

100
Q

capital stock

A

all of a corporations outstanding preferred stock and common stock, listed at par value

101
Q

capital structure

A

the composition of long term funds (equity and debt) a corporation has as a source for financing

102
Q

capital surplus

A

the money a corporation receives in excess of the stated value of stock at the time of first sale

103
Q

capping

A

an illegal form of market manipulation that attempts to keep the price of a subject security from rising. it is used by those with a short position

see - pegging

104
Q

cash account

A

an account in which the customer is required by the SEC’s regulation T to pay in full for securities purchased not later than two days after the standard payment period set by industry practice codes

105
Q

cash dividend

A

money paid to a corporations stockholders out of the corporations current earnings or accumulated profits.

the board of directors must declare all dividends

106
Q

cash equivalent

A

a security that can be readily converted into cash.

ie. treasury bills, certificates of deposit, money market instruments and funds

107
Q

cash flow

A

the money received by a business minus the money paid out

CF = net income + depreciation

108
Q

CBOE

A

Chicago board operations exchange

109
Q

CD

A

certificate of deposit

110
Q

cease and desist order

A

used by the admin when it appears that a registered person has or is about to commit a violation.

may be issued with or without a prior hearing

111
Q

certificate of deposit (CD)

A

a traditional cd pays a fixed interest rate over a specific period of time. When that term ends you can withdraw your money or roll it into another cd. these are insured up to 250k by the FDIC and are considered the best method of preservation of capital

112
Q

chartist

A

a securities analyst who uses charts and graphs of the past price movements of a security to predict its future movements

113
Q

Chicago board options exchange

A

the self regulatory organization with jurisdiction over all writing and trading of standardized options and related contracts listed on that exchange

also the first national securities exchange for the trading of listed options

114
Q

Chicago stock exchange

A

registered stock exchange located in Chicagos downtown loop. referred to with the initials CHX

115
Q

Chinese wall

A

a descriptive name for the devision within a brokerage firm that prevents insider information from passing from corporate advisers to investment traders, who could make use of the information to reap illicit profits

116
Q

Chinese wall

A

a descriptive name for the devision within a brokerage firm that prevents insider information from passing from corporate advisers to investment traders, who could make use of the information to reap illicit profits

the preferred term today is information barriers

117
Q

churning

A

excessive trading in a customers account by an agent who ignores the customers interests and seeks only to increase commissions

violates NASAA policies on unethical business practices

118
Q

chx

A

chicago stock exchange

119
Q

class a share

A

a class of mutual fund shares issued with a front end sales load.

a mutual fund offers different classes of shares to allow investors to choose the type of sales charge they will pay

120
Q

class b share

A

a class of mutual fund share issued with a back end load

121
Q

class c share

A

a class of mutual fund shares issued with a level load

122
Q

closed end investment company

A

an investment company that issues a fixed number of shares in an actively managed portfolio of securities. the shares may be of several classes; they are traded in the secondary marketplace, either on a stock exchange or over the counter.

the market price of the shares is determined by supply and demand, and not by net asset value (NAV)

123
Q

closing purchase

A

an options transaction in which the seller buys back an option in the same series; the 2 transactions effectively cancel each other out and the position is liquidated

124
Q

CMO

A

collateralized mortgage obligation

125
Q

coincident indicator

A

a measurable economic factor that varies directly and simultaneously with the business cycle, thus indicating the current state of the economy

ie. non agricultural employment, personal income, industrial production

126
Q

collateral

A

certain assets set aside and pledged to a lender for the duration of the loan.

if the borrower fails to meet obligations to pay principal or interest, the lender has claim to the assets

127
Q

collateralized mortgage obligation (CMO)

A

a mortgage backed corporate security. these issues attempt to return interest and principal at a predetermined rate

128
Q

collateral trust bond

A

a secured bond backed by stocks or bonds of another issuer. the collateral is held by a trustee for safekeeping

129
Q

collateral trust certificate

A

see collateral trust bond

130
Q

combination privilege

A

a benefit offered by a mutual fund whereby the investor may qualify for a sales charge breakpoint by combining separate investments in two or more mutual funds under the same management

131
Q

commercial paper

A

unsecured, short term promissory note issued by a corporation for financing accounts receivable and inventories

usually issued at a discount reflecting prevailing market interest rates

maturity is up to 9 months or 270 days

132
Q

commingling

A

the combining by a brokerage firm of one customers securities with another customers securities and pledging them as joint collateral for a bank loan

unless authorized by the customers, this violates SEC rule 15c2-1

133
Q

commission

A

a service charge an agent assesses in return for arranging a securities purchase or sale

a commission must be fair and reasonable, considering all the relevant factors of the transaction

134
Q

common stock

A

security that represents ownership in a corporation. holders of common stock exercise control by electing a board of directors and voting on corporate policy.

135
Q

complex trust

A

a trust that accumulates income over time and is NOT required to make scheduled distributions to its beneficiaries

136
Q

conduit theory

A

a means for an investment company to avoid taxation on net investment income distributed to shareholders

if a mutual fund acts as a conduit for the distribution of net investment income, it may qualify as a regulated investment company and be taxed only on the income the fund retains

137
Q

confirmation

A

a printed document that states the trade date, settlement date, and money due from or owed to a customer. it is sent or given to the customer on or before the settlement date

Series 65 (5 decks)

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