Series 65 – Kaplan – Flashcards

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Agent
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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.
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Broker/Dealer (B/D)
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person engaged in the business of effecting transaction in securities for the account of others or for the person's own account
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People Who are NOT B/D
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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.
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ABC
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Agent, broker, commission
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PDM
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Principal, dealer, markup
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People who are not Investment Advisors
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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
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B/D registration
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Must register with state and fed
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Investment Advisor Registration
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Must register with either SEC or State
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Federal Covered Security
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covered under section 18 B of the USA.
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Section 18 B of USA/ federal covered securities
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Securities listed on the NYSE, AMEX, The national market system, NASDAQ, securities issued by an investment company
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Investment Advisor Rep registration
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Must register with the state, unless it has a place of business in the state
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Issuer
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A person that issues or proposes to issue a security
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Issuer Transaction
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If the company makes money off the transaction
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Offer to purchase
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includes an attempt or offer to obtain, or solicitation of an offer to sell, a security or interest in a security for value.
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Not a Security
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an insurance contract or annuity, an interest in a contributory or noncontributory pension or welfare plan
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Non-Exempt Security
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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
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Exempt Transactions vs. Exempt Securities
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A transaction exemption must be established for each transaction, whereas a security exemption retains its exemption when issued and in trading.
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P/E Ratio
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Earnings per share/ current market price
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Form 1o-Q
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Financial Reporting analysis filed 3 times a year
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Bond Duration
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Shorter the duration (maturity), the lesser impact interest rates have on the bond's price. Longer the duration (maturity) the greater the impact
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Market Risk/Systematic risk
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Uncertainty the price of a stock will drop even when earnings are strong
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Real Return
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Return minus inflation
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Technical Analysts
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Looks at market trends and timing activity
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Fundamental Analysts
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Looks at financial ratios of a company
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Coincident Economic Indicators
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Industrial Production
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Leading Economic Indicators
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Stock prices, manufacturing orders
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Inflation Risk
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Uncertainty an investment's purchasing power will decrease due to the shrinking value of currency
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Duration Definition
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The effects of interest rate change on the price of a bond
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Recession
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Drop in GDP for 2 consecutive quarters
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Accounting equation
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Assets-Liabilities=Share Holder's Equity
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Beta
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stocks volatility compared to overall market
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Unsystematic Risk/Company risk
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risk an individual stock will perform badly, diversification can lower reduce risk
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Inherited Stock Basis
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fair market value of the stock on the day the descendent dies
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Value Manager
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seeks companies the market has ignored by analyzing financial statements
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Buying Put Option
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betting stock price goes down, right but not the obligation to buy at strike price
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Buying Call option
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betting stock price goes up, right but not the obligation to sell at strike price
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Writing Call option
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looking for capital gains on stock, believes the stock price will stay the same or go down
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Large Capitalization Style
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distinguishes between investing in a small cap company versus a large capitalization company
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Gifts of securities
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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
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Growth Managers
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focus on earnings momentum
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Contrarian Manager
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takes positions opposite those of the market as a whole. They are buying when others are selling and selling when others are buying
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NSMIA Federal Covered Advisor
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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.
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Exempt Securities under Act of 1933
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Treasury securities, agency securities, and municipal securities
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Commercial Paper
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debt security, loans to the issuing company, issued to raise working capital, are senior to preferred stock
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supply side economics
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heavy taxing and government intervention have negative effects on the economy
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457 Plan
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retirement plan for municipal employees and independent contractors
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Preemptive Rights
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allows common stock holders to get additional shares of stock before they are offered to the public to maintain there percentage of ownership
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Variable Annuities
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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
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Fixed Annuities
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guaranteed fixed payments, guaranteed interest rate, investment risk assumed by insurance company, fixed income securities, general account, vulnerable to inflation, need insurance regulation only
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Index Annuities
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allows for market participation with a guarantee against loss, helps overcome inflation risk and market risk
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Participation rate
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when an annuitant is credited with a specific percentage of the growth of the index
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Accumulation Stage
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The pay in period for an annuity
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Accumulation Units
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represents an investors share of ownership in the separate accounts
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Annuitizing
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the investor converts from the accumulation stage to the distribution stage, locks in a specified payment option
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Variable Annuity Payments
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do not guarantee a payment amount b/c the insurance company cannot guarantee the separate account's performance
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Joint Life with Last Survivor Annuity
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annuity covers two or more people, and payment is conditioned on all of their lives
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Face Amount Certificate Companies
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pay a fixed rate of return, do not trade on the secondary market, redeemed by the issuer, classified by investment companies
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Unit Investment Trust
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do not have board of directors, do not employee investment advisors, do not actively trade securities, organized under a trust
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Open End Fund
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do not specify the exact number of shares it intends to issue, can raise an unlimited amount of investment capital, sells redeemable securities
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POP
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NAV per share plus any sales charge
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NAV
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net asset value, calculated daily, calculated by removing the funds liabilities from its total assets
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Close End Fund
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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
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Bid price
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price the investor can sell at
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Ask price
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price the investor can buy at
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Front End Load Fees
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difference between POP and net NAV, reflected in the funds public offering price
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Back End Load Fees
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contingent deferred sales loads
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12b-1 Fees
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asset based fees, not a sales charge
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Class A shares
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front end load fees, fees added to the NAV when investor purchases
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Class B shares
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back end load fees, aka contingent deferred sales charge, charged when the investor redeems shares, decline over time
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Class C shares
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continuous 12b-1 fees, level load, no sales charge to purchase
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Letter of Intent
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promise to invest more money with the same mutual fund, helps lower overall sales charge, must complete within 13 months
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Liquidity
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money market funds
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Life Insurance
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Contract between an insurance company and an individual that provides money to named beneficiaries in an event of the insured's death
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Term Insurance
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Insurance for a specific period, pay the death benefit only if the person dies during the designated term, do not accumulate cash
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Whole Life Insurance
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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
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Universal Life Insurance
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Pay higher interest rates to combat inflation, flexible death benefit and premiums, surrender value grows according to current interest rates
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Current Annual Rate
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Varies with current interest rates and market conditions
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Contract Rate
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the minimum guaranteed interest rate
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Option 1 (A)
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Death benefit for universal life insurance - provides a level death benefit equal to the face amount of the policy
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Option 2 (B)
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Death benefit for universal life insurance - provides an increasing death benefit equal to the policy's face amount plus the cash value account
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Variable life Insurance
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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
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General Partners
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active investors in a limited partnership who assume responsibility for all aspects of the partnership
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Limited Partners
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passive investors with no management ties to the company
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Private Placement Partnerships
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usually offered to accredited investors, limited partners contribute a large amount of money, are exempt from registration with the SEC
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Writing Puts
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believes the stock price will rise, keeps premium if the option goes unexercised, means of buying stock at a reduced price
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Forward Contracts
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exchange a commodity between buyer and seller at a time agreeable to both
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Futures Contracts
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exchange traded obligations, the buyer goes long and is responsible for the full contract
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Exchange Specialist
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member of the NYSE stock exchange who executes orders for others and who acts as a market maker to keep an orderly market
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Market Maker
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preforms similar duties as the specialist in the OTC (over the counter) markets
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Traditional IRA
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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
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Roth IRA
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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.
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SEP IRA
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Simplified employee pension plans, for self employed individuals, allows employer to contribute tax deductible contributions to an IRA for employees
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Eligible Employee for SEP IRA
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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
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Keogh Plans
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qualified plans for self employed individuals and owner/employees of unincorporated business
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Keogh Plan Employee Eligibility
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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
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403 b Plans
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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
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501 c Plans
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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
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Section 457 Plans
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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
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ERISA
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Employee Retirement Income Security Act of 1974: Eligibility, Funding, Vesting, Communication, Nondiscrimination. Must be set up with a trust agreement
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Funding Under ERISA
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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
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Funding under ERISA
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Funds contributed to the plan must be separate from other assets. The plan's trustee must follow the prudent investor guidelines
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Vesting under ERISA
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Employees must be entitled to their entire retirement within a certain time
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Communication under ERISA
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plan must be in writing, and employees must be kept informed of benefits, availability, account status, and vesting procedure no less than annually.
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Nondiscrimination Under ERISA
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formula determines the employee benefits and contributions. This ensures fair treatment
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Nonqualified Plans
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does not allow the employer a tax deduction for contributions, instead the employer receives a tax deductions when the money is paid out.
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Deferred Comp Plan
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Nonqualified plan, employee agrees to defer compensation until retirement
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Payroll Deduction Plan
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Funds are deducted from paycheck, after taxes are with held, and may be invested
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Coverdell Education Savings Accounts
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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
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529 Plans
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state operated investment plans which offer tax deductions for education expenses
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Prepaid 529 plan
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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)
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College Savings 529 plan
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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)
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New Account Info under USA Patriot Act of 2001
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Full name, date of birth, address and telephone #, social security number or EIN number
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Power of attorney/discretionary power
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allows a part other than the account owner to make investment decisions
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Margin Account
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allows a customer to borrow money for investing. investors use financial leverage b/c they increase the potential for gain/loss.
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Short Sale
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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
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Joint TIC account
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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
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Joint tenants with right of survivorship (JTWROS)
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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
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TOD accounts
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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.
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Fiduciary
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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
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Full Power of Attorney
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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
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Limited Power of Attorney
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allows someone to have some but not total control over the account
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Durable power of Attorney
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allows someone to have control over the account upon the grantor's incapacitation, however upon death the power is terminated
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Custodial Accounts
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the custodian for the owner enters all the trades
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Discretionary Accounts
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decide which security, the number of shares, and to buy or sell. It does not apply to timing
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Simple Trust
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Income earned on the assets of the trust must be distributed during the year
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Complex Trust
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income earned on the assets may accumulate
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Remainderman
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the person who receives the remaining balance of the trust
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Beneficiary
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a person who's property is held in the trust
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Settlor
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person who supplies property to the trust
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Trustee
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person who holds legal title to the property for the benefit of another person in the trust
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Testamentary Trust
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the settlor retains control over the assets until he dies
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Revocable Trust
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must be a living trust b/c the living grantor has the right to change the trust
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Irrevocable trust
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the settlor must give up all ownership in property transferred into the trust
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Partnership
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allows profits and losses to flow directly through to the investor. easy to start, easy to end.
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LLC
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limited liability, and flow through of taxable earnings. owner's are not liable for debt
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S Corp
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taxed like a partnership, offers limited liability, profits and losses are passed through to the shareholders, may not have more than 100 shareholders
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C Corp
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separate entity from it's owners
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Financial Profile
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Includes: current expenditures, debts, tax status, income sources, balance sheet, and liabilites
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Preservation of capital
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investing in bank cds
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Current Income
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fixed income investments and mutual funds
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Growth
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stock investments
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Speculation
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highly volatile stocks, junk bonds, options, commodity futures
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Constant Ratio Plan
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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
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Constant dollar plan
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investment plan to maintain a constant dollar amount in stocks and other investments depending on the plan
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Strategic Asset allocation
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Spread investments among different asset classes for the long term
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Tactical Asset allocation
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short term adjustments to investments of different asset classes
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Active management
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management style where the manger is picking stocks based on market timing and the ability to outperform market indexes
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Passive management
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no management style based on an index such as the s&p
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Value Managers
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focus on undervalued whose earnings are comparable to the company's book value
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small cap
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market cap less than 300 million
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mid cap
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market cap between 300 million - 2 billion
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large cap
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market cap above 2 billion
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Dollar cost averaging
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invest consistent amounts of money in a mutual fund at a regular periodic intervals.
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Inherited Securities cost basis
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when someone dies the cost basis steps up to the date of death value
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Fundamental Analysis
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analysis that takes into consideration the financial statements and economic conditions
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Technical analysis
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analysis that focuses on pricing and trading volume patterns and charts
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Microeconomics
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type of economics that focues on small units of the economy
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Macroeconomics
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type of economics that focuses on the economy as a whole
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Monetary Policy
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refers to the central bank's actions on the quantity of money. controlled by the board of governors of the federal reserve
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Fiscal Policy
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gov't's use of spending. controlled by the president through congress
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Business Cycles
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expansion, peak, contraction, trough
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Expansion
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business cycle, increasing business activity in sales, manufacturing, and wages
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Peak
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business cycle, when economy cannot expand anymore
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Contraction
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business cycle, when business activity declines
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Trough
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business cycle, when business activity stops declining and levels off
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Nominal rate of interest
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actual amount of interest a borrower pays for loanable funds
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Real Rate of Interest
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the nominal rate of interest minus the expected rate of inflation
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Federal Funds Rate
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the interest rate the banks of the fed reserve charge other banks on over night loans of a million dollars or more
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CPI
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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.
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Leading Indicators
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economic indicators that tend to turn down before the beginning of a recession or turn up before an expansion
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Coincident Indicators
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current indicators, change directly with the business cycles
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Lagging Indicators
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indicators that change six months after the economy has begun a new trend
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