Series 65 – Kaplan

person, other than b/d who represents b/d in effecting or attempting to effect the purchase/sale of issuer’s securities, generally work for a b/d but can represent an issuer.

Broker/Dealer (B/D)
person engaged in the business of effecting transaction in securities for the account of others or for the person’s own account

People Who are NOT B/D
Agents, issuers, banks/saving institutions, a person who has no place of business in the state if: he effect transactions with an issuer, other b/d, banks/savings inst, trust comp, insurance comp, investment comp, the person is licensed in the state deals with people who are not residents of the state.

Agent, broker, commission

Principal, dealer, markup

People who are not Investment Advisors
Investment advisor reps, L A T E, b/d or agent who does not receive compensation for offering investment advise, publisher of bon a fide newspaper, a federal covered investment advisor, bank

B/D registration
Must register with state and fed

Investment Advisor Registration
Must register with either SEC or State

Federal Covered Security
covered under section 18 B of the USA.

Section 18 B of USA/ federal covered securities
Securities listed on the NYSE, AMEX, The national market system, NASDAQ, securities issued by an investment company

Investment Advisor Rep registration
Must register with the state, unless it has a place of business in the state

A person that issues or proposes to issue a security

Issuer Transaction
If the company makes money off the transaction

Offer to purchase
includes an attempt or offer to obtain, or solicitation of an offer to sell, a security or interest in a security for value.

Not a Security
an insurance contract or annuity, an interest in a contributory or noncontributory pension or welfare plan

Non-Exempt Security
A security not exempt from State laws, must register with the state, however if a NON-EXEMPT stock is traded in an exempt transaction, it would NOT violate the USA

Exempt Transactions vs. Exempt Securities
A transaction exemption must be established for each transaction, whereas a security exemption retains its exemption when issued and in trading.

P/E Ratio
Earnings per share/ current market price

Form 1o-Q
Financial Reporting analysis filed 3 times a year

Bond Duration
Shorter the duration (maturity), the lesser impact interest rates have on the bond’s price. Longer the duration (maturity) the greater the impact

Market Risk/Systematic risk
Uncertainty the price of a stock will drop even when earnings are strong

Real Return
Return minus inflation

Technical Analysts
Looks at market trends and timing activity

Fundamental Analysts
Looks at financial ratios of a company

Coincident Economic Indicators
Industrial Production

Leading Economic Indicators
Stock prices, manufacturing orders

Inflation Risk
Uncertainty an investment’s purchasing power will decrease due to the shrinking value of currency

Duration Definition
The effects of interest rate change on the price of a bond

Drop in GDP for 2 consecutive quarters

Accounting equation
Assets-Liabilities=Share Holder’s Equity

stocks volatility compared to overall market

Unsystematic Risk/Company risk
risk an individual stock will perform badly, diversification can lower reduce risk

Inherited Stock Basis
fair market value of the stock on the day the descendent dies

Value Manager
seeks companies the market has ignored by analyzing financial statements

Buying Put Option
betting stock price goes down, right but not the obligation to buy at strike price

Buying Call option
betting stock price goes up, right but not the obligation to sell at strike price

Writing Call option
looking for capital gains on stock, believes the stock price will stay the same or go down

Large Capitalization Style
distinguishes between investing in a small cap company versus a large capitalization company

Gifts of securities
the market value at date of gift is used to determine if any gift taxes are due, however donor’s cost basis is passed to the recipiant

Growth Managers
focus on earnings momentum

Contrarian Manager
takes positions opposite those of the market as a whole. They are buying when others are selling and selling when others are buying

NSMIA Federal Covered Advisor
a person who is either required to register with the SEC under the Investment Advisers Act of 1940 or who is specifically excluded from the definition of investment adviser under that act.

Exempt Securities under Act of 1933
Treasury securities, agency securities, and municipal securities

Commercial Paper
debt security, loans to the issuing company, issued to raise working capital, are senior to preferred stock

supply side economics
heavy taxing and government intervention have negative effects on the economy

457 Plan
retirement plan for municipal employees and independent contractors

Preemptive Rights
allows common stock holders to get additional shares of stock before they are offered to the public to maintain there percentage of ownership

Variable Annuities
variable payments, variable rate of return, investment risk assumed by annuitant, portfolio of stocks, bonds, money market funds, separate account, resistant to inflation, need insurance and securities license/regulations

Fixed Annuities
guaranteed fixed payments, guaranteed interest rate, investment risk assumed by insurance company, fixed income securities, general account, vulnerable to inflation, need insurance regulation only

Index Annuities
allows for market participation with a guarantee against loss, helps overcome inflation risk and market risk

Participation rate
when an annuitant is credited with a specific percentage of the growth of the index

Accumulation Stage
The pay in period for an annuity

Accumulation Units
represents an investors share of ownership in the separate accounts

the investor converts from the accumulation stage to the distribution stage, locks in a specified payment option

Variable Annuity Payments
do not guarantee a payment amount b/c the insurance company cannot guarantee the separate account’s performance

Joint Life with Last Survivor Annuity
annuity covers two or more people, and payment is conditioned on all of their lives

Face Amount Certificate Companies
pay a fixed rate of return, do not trade on the secondary market, redeemed by the issuer, classified by investment companies

Unit Investment Trust
do not have board of directors, do not employee investment advisors, do not actively trade securities, organized under a trust

Open End Fund
do not specify the exact number of shares it intends to issue, can raise an unlimited amount of investment capital, sells redeemable securities

NAV per share plus any sales charge

net asset value, calculated daily, calculated by removing the funds liabilities from its total assets

Close End Fund
conducts common stock offering when issues new shares, fixed number of shares are offered, known as publicly traded funds, buy/sell shares on secondary market, supply and demand determine bid/ask price, may trade at premium/discount to NAV, no sales charge

Bid price
price the investor can sell at

Ask price
price the investor can buy at

Front End Load Fees
difference between POP and net NAV, reflected in the funds public offering price

Back End Load Fees
contingent deferred sales loads

12b-1 Fees
asset based fees, not a sales charge

Class A shares
front end load fees, fees added to the NAV when investor purchases

Class B shares
back end load fees, aka contingent deferred sales charge, charged when the investor redeems shares, decline over time

Class C shares
continuous 12b-1 fees, level load, no sales charge to purchase

Letter of Intent
promise to invest more money with the same mutual fund, helps lower overall sales charge, must complete within 13 months

money market funds

Life Insurance
Contract between an insurance company and an individual that provides money to named beneficiaries in an event of the insured’s death

Term Insurance
Insurance for a specific period, pay the death benefit only if the person dies during the designated term, do not accumulate cash

Whole Life Insurance
Protection for the whole life, premium remains the same, the death benefit is the face of the policy, accumulates cash which = the cash surrender value which is held in the insurer’s general account

Universal Life Insurance
Pay higher interest rates to combat inflation, flexible death benefit and premiums, surrender value grows according to current interest rates

Current Annual Rate
Varies with current interest rates and market conditions

Contract Rate
the minimum guaranteed interest rate

Option 1 (A)
Death benefit for universal life insurance – provides a level death benefit equal to the face amount of the policy

Option 2 (B)
Death benefit for universal life insurance – provides an increasing death benefit equal to the policy’s face amount plus the cash value account

Variable life Insurance
Premiums are invested in equities, considered a security, offers a minimum guaranteed death benefit plus a variable death benefit on the cash that was invested

General Partners
active investors in a limited partnership who assume responsibility for all aspects of the partnership

Limited Partners
passive investors with no management ties to the company

Private Placement Partnerships
usually offered to accredited investors, limited partners contribute a large amount of money, are exempt from registration with the SEC

Writing Puts
believes the stock price will rise, keeps premium if the option goes unexercised, means of buying stock at a reduced price

Forward Contracts
exchange a commodity between buyer and seller at a time agreeable to both

Futures Contracts
exchange traded obligations, the buyer goes long and is responsible for the full contract

Exchange Specialist
member of the NYSE stock exchange who executes orders for others and who acts as a market maker to keep an orderly market

Market Maker
preforms similar duties as the specialist in the OTC (over the counter) markets

Traditional IRA
Tax deductible annual contribution of 5500 (single) or 11000 (couple). Income and capital gains are taxed when funds are withdrawn at ordinary income levels. Distributions must start at 70 1/2 years of age

Roth IRA
Contributions are not tax deductible. Regular distributions are withdrawn tax fee as long as the account as been opened for 5 years. Contribution limits of 5500 (single) or 11000 (couple). No required distributions at any age.

Simplified employee pension plans, for self employed individuals, allows employer to contribute tax deductible contributions to an IRA for employees

Eligible Employee for SEP IRA
must be 21 years old, performed services for the employer for 3 of the last 5 years, and received $550 in compensation in the current year

Keogh Plans
qualified plans for self employed individuals and owner/employees of unincorporated business

Keogh Plan Employee Eligibility
Full time employee who worked at least 1000 hours, tenured employees who have completed one or more years of employment, adult employees who are 21 years or older

403 b Plans
qualified tax deferred retirement plans for employees of public schools, and tax exempt nonprofit organizations such as churches and charitable institutions, max 17,500 contribution limit

501 c Plans
qualified tax deferred retirement plans for employees of private colleges and universities, trade schools, parochial schools, zoos, museums, research foundations, private hospitals, and medical schools

Section 457 Plans
Deferred compensation plan used for state workers and certain tax exempt organizations, except churches. The plans are exempt from ERSIA, no rollover ability, no 10% penalty for early withdrawal

Employee Retirement Income Security Act of 1974: Eligibility, Funding, Vesting, Communication, Nondiscrimination. Must be set up with a trust agreement

Funding Under ERISA
If a company offers a retirement plan, all employees are covered if they are at least 21 years old, have one year of service, and work 1000 hours per year

Funding under ERISA
Funds contributed to the plan must be separate from other assets. The plan’s trustee must follow the prudent investor guidelines

Vesting under ERISA
Employees must be entitled to their entire retirement within a certain time

Communication under ERISA
plan must be in writing, and employees must be kept informed of benefits, availability, account status, and vesting procedure no less than annually.

Nondiscrimination Under ERISA
formula determines the employee benefits and contributions. This ensures fair treatment

Nonqualified Plans
does not allow the employer a tax deduction for contributions, instead the employer receives a tax deductions when the money is paid out.

Deferred Comp Plan
Nonqualified plan, employee agrees to defer compensation until retirement

Payroll Deduction Plan
Funds are deducted from paycheck, after taxes are with held, and may be invested

Coverdell Education Savings Accounts
After tax contributions which accumulate on a tax deferred basis for student beneficiaries, must be made before the beneficiary turns 18, funds used for education expenses, funds must be distributed by the beneficiaries 30th birthday, yearly contribution limit is 2,000 per beneficiary

529 Plans
state operated investment plans which offer tax deductions for education expenses

Prepaid 529 plan
allow people to prepay for tuition at current prices. Maximum contributions is 70,000 if single, 140,000 if married with gift tax consequences. Earnings exempt from federal taxes and most state taxes (if a home state plan)

College Savings 529 plan
allows an account owner to set up an account for a beneficiary for all education expenses. After tax funds are invested and used for any college or university. Maximum contributions is 70,000 if single, 140,000 if married with gift tax consequences. Earnings exempt from federal taxes and most state taxes (if a home state plan)

New Account Info under USA Patriot Act of 2001
Full name, date of birth, address and telephone #, social security number or EIN number

Power of attorney/discretionary power
allows a part other than the account owner to make investment decisions

Margin Account
allows a customer to borrow money for investing. investors use financial leverage b/c they increase the potential for gain/loss.

Short Sale
the investor borrows stock from a b/d and sells it in anticipation of a market decline in order to buy it back at a lower price and profit by the difference between the sale price and the purchase price

Joint TIC account
if someone dies their fraction of the interest in the account is retained by the other tenants estate and not passed on to the surviving beneficiaries. When the last account owner passes the funds are divided dependent upon terms of the person’s will. Does not have to be divided equally

Joint tenants with right of survivorship (JTWROS)
the deceases interest pass to the surviving account tenants. the account owners have an equal and undivided interest of the funds. when all account owners pass the trust is passed down to the survivors and the other party becomes sole owner of the account

TOD accounts
Easiest way for accounts that are held at brokerage firms from becoming subject to probate when someone passes. When the account owner dies the funds are transferred to beneficiaries. The clients will does not determine who gets the funds.

Anyone legally appointed and authorized to represent another person, act on that person’s behalf, and make decision necessary to the prudent management of that person’s account. Trades made by the fiduciary must be consistent with the trust’s investment objectives

Full Power of Attorney
allows someone who is not the owner of the account to deposit or withdraw cash or securities and make investment decisions for the account owner

Limited Power of Attorney
allows someone to have some but not total control over the account

Durable power of Attorney
allows someone to have control over the account upon the grantor’s incapacitation, however upon death the power is terminated

Custodial Accounts
the custodian for the owner enters all the trades

Discretionary Accounts
decide which security, the number of shares, and to buy or sell. It does not apply to timing

Simple Trust
Income earned on the assets of the trust must be distributed during the year

Complex Trust
income earned on the assets may accumulate

the person who receives the remaining balance of the trust

a person who’s property is held in the trust

person who supplies property to the trust

person who holds legal title to the property for the benefit of another person in the trust

Testamentary Trust
the settlor retains control over the assets until he dies

Revocable Trust
must be a living trust b/c the living grantor has the right to change the trust

Irrevocable trust
the settlor must give up all ownership in property transferred into the trust

allows profits and losses to flow directly through to the investor. easy to start, easy to end.

limited liability, and flow through of taxable earnings. owner’s are not liable for debt

S Corp
taxed like a partnership, offers limited liability, profits and losses are passed through to the shareholders, may not have more than 100 shareholders

C Corp
separate entity from it’s owners

Financial Profile
Includes: current expenditures, debts, tax status, income sources, balance sheet, and liabilites

Preservation of capital
investing in bank cds

Current Income
fixed income investments and mutual funds

stock investments

highly volatile stocks, junk bonds, options, commodity futures

Constant Ratio Plan
investment plan that attempts to maintain 70/30 split of stocks to bonds, periodically it is rebalanced to bring it back to the desired ratio

Constant dollar plan
investment plan to maintain a constant dollar amount in stocks and other investments depending on the plan

Strategic Asset allocation
Spread investments among different asset classes for the long term

Tactical Asset allocation
short term adjustments to investments of different asset classes

Active management
management style where the manger is picking stocks based on market timing and the ability to outperform market indexes

Passive management
no management style based on an index such as the s&p

Value Managers
focus on undervalued whose earnings are comparable to the company’s book value

small cap
market cap less than 300 million

mid cap
market cap between 300 million – 2 billion

large cap
market cap above 2 billion

Dollar cost averaging
invest consistent amounts of money in a mutual fund at a regular periodic intervals.

Inherited Securities cost basis
when someone dies the cost basis steps up to the date of death value

Fundamental Analysis
analysis that takes into consideration the financial statements and economic conditions

Technical analysis
analysis that focuses on pricing and trading volume patterns and charts

type of economics that focues on small units of the economy

type of economics that focuses on the economy as a whole

Monetary Policy
refers to the central bank’s actions on the quantity of money. controlled by the board of governors of the federal reserve

Fiscal Policy
gov’t’s use of spending. controlled by the president through congress

Business Cycles
expansion, peak, contraction, trough

business cycle, increasing business activity in sales, manufacturing, and wages

business cycle, when economy cannot expand anymore

business cycle, when business activity declines

business cycle, when business activity stops declining and levels off

Nominal rate of interest
actual amount of interest a borrower pays for loanable funds

Real Rate of Interest
the nominal rate of interest minus the expected rate of inflation

Federal Funds Rate
the interest rate the banks of the fed reserve charge other banks on over night loans of a million dollars or more

the measure of the general retail price level, compares the current cost of buying a basket of goods with the cost of buying the same basket of goods a year ago.

Leading Indicators
economic indicators that tend to turn down before the beginning of a recession or turn up before an expansion

Coincident Indicators
current indicators, change directly with the business cycles

Lagging Indicators
indicators that change six months after the economy has begun a new trend

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