66-11 Flashcards
(169 cards)
1
Q
True or False: All corporate officers may effect transactions for the corporation.
A
False, only those named in the Corporate Resolution
2
Q
A ___________________ is required to open an account for a partnership.
A
partnership agreement
3
Q
___________ stock fluctuates with the business cycle.
A
cyclical
4
Q
____________ stock is resistant to recession.
A
defensive
5
Q
What instruments are used to facilitate trading of foreign securities in the U.S.?
A
ADRs
6
Q
What is a derivative?
A
A financial product that derives its value from the value of underlying assets such as stocks, bonds, or mortgages
7
Q
Is a CMO considered a derivative?
A
yes
8
Q
What are TIPS?
A
Treasury Inflation Protected Securities
9
Q
The principal value of TIPS may be adjusted based on changes to the __________________________.
A
Consumer Price Index (CPI)
10
Q
True or False: The interest rate on TIPS is fixed, but the principal may be adjusted.
A
True
11
Q
Money-market securities have a maturity of __________________.
A
one year or less
12
Q
Name some of the different types of money-market instruments.
A
T-Bills, Bankers’ Acceptances (BAs), Commercial Paper, Negotiable CDs
13
Q
With options, what terms are synonymous with buyer?
A
Owner, holder, long
14
Q
A call option gives the owner the right to _____.
A
buy
15
Q
With options, what terms are synonymous with seller?
A
Writer, short
16
Q
If exercised against, the writer of an equity call option is obligated to _____ the underlying stock.
A
sell
17
Q
A put option gives the owner the right to ______.
A
sell
18
Q
If exercised against, the writer of an equity put option is obligated to ____ the underlying stock.
A
buy
19
Q
True or False: Options are derivatives since their value is based on the changing value of an underlying instrument.
A
True
20
Q
Name three important factors for determining the premium of an equity option
A
The stock’s market price versus the strike price, time left until expiration, and volatility of the underlying security
21
Q
Calls and puts are the two ________ of options.
A
types
22
Q
Sandra buys 1 ABC Dec 70 Call at 4. What is Sandra’s strategy?
A
Bullish
23
Q
An investor writes 1 DEF May 55 Call at 6. What is the investor’s strategy?
A
Bearish
24
Q
An investor writes 1 DEF May 55 Call at 6. Later at expiration, if DEF has fallen to 53, would there be a gain or loss?
A
gain of $600 on premium
25
An investor holds 1 XYZ Jan 80 Put at 5. What is her strategy?
Bearish
26
When may American Style options be exercised?
anytime
27
After the initial offering, where are shares of a closed-end management company purchased?
secondary market
28
What price is paid for closed-end management company shares?
Market price plus a commission
29
True or False: The market price of closed-end shares could be higher, lower, or equal to the NAV.
True
30
If a client's goal is preservation of principal, what fund would be most appropriate?
money-market
31
The annuity with growth dependent on the performance of securities in a separate account is called a __________ annuity.
variable
32
Which type of annuity is considered a security, fixed or variable?
variable
33
True or False: Variable annuities are subject to registration requirements of the Act of 1933 and sold by prospectus.
True
34
In a Non-Qualified Annuity, how is the payout taxed?
Only the earnings portion is subject to tax as ordinary income
35
At annuitization (payout), accumulation units are exchanged for __________ units.
annuity units
36
At annuitization (payout), what will determine the annuitant's payment?
A fixed number of annuity units with a fluctuating value per unit
37
_________________ is the payout option that provides payments for the annuitant's whole life and will cease at death.
straight-life
38
What is the benefit of the Straight-Life payout option to the annuitant?
This option provides the highest monthly income
39
What modification is made to the Straight-Life payout option to guarantee payments for a minimum number of years?
Straight-Life with Period Certain
40
What payout option requires the insurance company to provide payments for as long as one of two people remain alive?
Joint and Last Survivor
41
What are the two types of partners in a limited partnership?
General partner and limited partner
42
Describe the liability of the two partners in a limited partnership.
General partners have unlimited liability, while limited partners have limited liability.
43
The _________ partner is in charge of management and decision-making for the partnership
general
44
What actions are considered a violation for the general partner of a limited partnership?
Admit another general partner, change the partnership, compete with the program, personally use partnership assets
45
What are some of the acceptable actions for the limited partner?
Inspecting partnership books, suing the general partner, voting on major issues affecting the partnership, competing
46
To invest in a limited partnership, an investor must complete the _________________________.
subscription agreement
47
What does a Limited Partnership's Subscription Agreement state in regard to a purchaser?
He's aware of risks, can meet suitability standards, has read disclosure document, and knows the required investment.
48
Over-development and high leverage are the risks associated with a __________________ Program.
new construction
49
Exploratory Drilling Programs are also referred to as _______________.
wildcatting
50
What type of oil and gas program drills for new oil reserves in unproven areas?
exploratory
51
________________ Drilling Programs drill in proven areas.
developmental
52
True or False: Income Programs purchase already producing wells, but offer few intangible drilling costs.
True
53
Passive losses can only be used as deductions against ____________________.
passive income
54
True or False: Passive income is income derived from dividends and interest generated by securities in a portfolio.
False. Passive income is derived from an investment in a direct participation program (e.g., limited partnership).
55
What happens when an investor's passive losses exceed her passive income?
She is able to carry forward the passive losses
56
True or False: Limited partnership units are illiquid and require permission of the general partner to sell.
True
57
What does it mean to say "a limited partnership is a pass-through investment?"
The results of the business venture (profits and losses) flow through directly to the investor.
58
Is income generated by a limited partnership taxed once or twice?
once
59
Identify the position: An investor buys 1 GDG Mar 50 call at 4 and buys 1 GDG Mar 50 put at 4.
a straddle
60
An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor's strategy?
volatility
61
An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor's strategy?
stability
62
True or False: To hedge a stock position, buying options provides more protection than writing options.
True
63
Investors wishing to generate income on a stock position should ______ an option.
sell
64
True or False: Covered call writing is a conservative option strategy designed to generate income.
True
65
What is a covered call position?
The sale of a call (obligation to sell) against stock that is owned
66
An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. Is the investor bullish or bearish on IBM?
bullish
67
An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What's the reason for selling the call?
income
68
True or False: Cash forwards can be for any amount of a commodity.
True, cash forward transactions are negotiated between a buyer and seller and can be for any amount.
69
Which is easier to offset, a futures contract or a cash forward?
Futures contract are easier to offset; forwards are generally non-transferrable.
70
What is the breakeven point? Buy 1 XYZ Jan 75 Call at 1.90
76.90
71
What is the breakeven point? Sell 1 RFQ Feb 60 Call at 1.90
61.90
72
What is the breakeven point? Long 1 MNO March 75 Put at 1.30
73.70
73
What is the breakeven point? Short 1 XYZ Apr 80 Put at 3.30
76.70
74
What is the breakeven point? Buy 100 shares of XYZ at 80 and Write 1 XYZ July 80 Call at 8.25
71.75
75
True or False: An American Depositary Receipt (ADR) is a security.
True
76
What restrictions exist in describing a fund as no-load?
It may have no front-end or deferred sales charge, and a 12b-1 fee may not exceed .25%.
77
In a limited partnership, which partner has unlimited personal liability and which has limited liability?
General partners (GPs) have unlimited liability, while the limited partners (LPs) have limited liability.
78
Is a hedge fund investment considered liquid?
no
79
May hedge funds sell stocks short and use margin?
yes
80
What is a fund of funds?
A mutual fund that invests in other mutual funds
81
What is the dollar limit that may be contributed annually to a non-qualified annuity?
unlimited
82
True or False: The AIR is a guaranteed minimum rate of return.
False
83
If performance in a given period is greater than the AIR, the next payment will ___________.
increase
84
If performance in a given period is below the AIR, the next payment will ___________.
decrease
85
If performance in a given period equals the AIR, the next payment will __________________.
remain constant
86
True or False: Performance must be negative for a variable annuity's payment to fall.
False. Performance below the AIR will cause the payment to fall, even if the investment result was positive.
87
What technique can be used to roll assets from one annuity into another without taxation?
a 1035 exchange
88
Variable contract assets are placed in the insurance company's ___________ account.
separate
89
Prospectus delivery is required for all ___________ insurance contracts.
variable
90
Who assumes the investment risk in a variable insurance contract?
the client
91
May loans be taken against variable life policies?
yes
92
Traditional contract assets are placed in the insurance company's __________ account.
general
93
Clients redeeming mutual fund shares must be paid within ___ calendar days.
7
94
Can a variable life policy's death benefit grow over time?
yes
95
True or False: In a straight-life annuity payout option, no beneficiary will receive payments at the annuitant's death.
true
96
Which annuity payout option provides for the greatest monthly payment?
straight-life
97
A client has annuitized her contract under the straight-life option and soon dies. What is her death benefit?
$0
98
Identify the acronym: AIR
Assumed Interest Rate
99
Identify the acronym: VLI
Variable Life Insurance
100
Identify the acronym: EIA
Equity Indexed Annuity
101
All variable contract premiums are placed in the insurance company's ________account.
separate
102
What is a 1035 Exchange?
A tax-free exchange of one annuity for another, allowed under Section 1035 of the Tax Code
103
What's a no load fund?
A mutual fund with no front-end sales charge, no deferred sales charge, and no 12b-1 fee exceeding .25% per year.
104
Define insured.
The person whose life is covered by an insurance contract
105
Describe term life insurance.
A life insurance policy that pays a death benefit to a beneficiary if the insured dies within the term specified
106
Describe whole life insurance.
A life insurance policy that has a fixed death benefit, fixed premium payments, and builds cash value over time
107
Describe universal life insurance.
A permanent life insurance policy designed so the policy owner may adjust the death benefit and premium payments
108
Describe variable life insurance.
A life policy where the death benefit varies depending upon the performance of the investment options
109
Define futures contract.
An agreement to buy or sell a specific amount of a commodity on a stipulated date in the future
110
True or False: Forward contracts are exchange traded.
False
111
What are the two main uses of futures?
The two main uses are hedging and speculation.
112
True or False: LEAPS and interest Rate Swaps are derivatives.
True
113
True or False: A Section 3(c)(1) hedge fund may contain performance based fees.
True
114
List some of the characteristics of hedge funds.
Hedge funds are often leveraged, unregistered, and illiquid.
115
Identify the position: An investor sells 1 ELG May 75 call at 6 and sells 1 ELG May 75 put at 6
straddle
116
Define decreasing term life insurance.
A type of term policy with level premiums and a death benefit that declines at a pre-determined rate.
117
If Erin wants to cover her mortgage in the event she passes away, what type of life insurance would be most suitable?
Decreasing term life policies are often used to cover large liabilities (e.g. mortgage) in the event of death.
118
True or False: Decreasing term insurance is beneficial for investors with no insurance coverage.
False. It's usually a supplement to an existing policy
119
True or False: Contribution limits and employment requirements apply to both qualified and non-qualified plans.
False, they apply to qualified plans only
120
A _____________ plan has no contribution limit.
non-qualified
121
A 62-year-old investor withdraws everything from her non-qualified fixed annuity. What are the tax consequences?
earnings are taxed as ordinary income
122
True or False: An investor may roll a non-qualified annuity into an IRA without taxes.
False. Withdrawing from a non-qualified annuity would be taxable. A 1035 exchange does not apply to non-qualified plans.
123
Give some examples of financial derivatives.
Rights, warrants, swaps, forwards, options, and structured or exchange-traded notes
124
What is not considered a derivative?
Mutual funds, stocks, bonds, and notes
125
A variable annuity would be most suitable for a client who is seeking ____________________ over a long period.
capital appreciation
126
________ life insurance is suitable for a client who is willing to assume market risk.
variable
127
What type of insurance policy expires at the end of a specified period?
term
128
A ____ life policy expires at the end of a specified period.
term
129
True or False: Deferred compensation plans are tax-deductible.
False. Employee deferrals and corporate contributions are not tax-deductible until actually paid
130
A mutual fund that focuses on a company's year-to-year earnings momentum would be considered a ______ fund.
growth
131
Define leveraged investing.
Using borrowed funds to buy securities (e.g., margin trading) that may lead to greater returns and losses
132
True or False: On average, variable annuities have lower fees and expenses than mutual funds.
False
133
What type of fund uses leverage, derivatives, and short positions, and invests in illiquid asset classes?
hedge funds
134
True or False: Investors sell covered options in order to generate income.
True
135
True or False: Investors may buy options in an effort to hedge stock positions.
True
136
Long (buying) calls may be used to hedge a _____ stock position.
short
137
Long (buying) puts may be used to hedge ____ stock positions.
long
138
Is a person who invests in a variable annuity more susceptible to legislative risk or investment risk?
investment risk
139
An investor wants to invest in bonds so she can buy a car in two years. What would be an appropriate recommendation?
Buying bonds with less than two years to maturity would be best. Money-market securities would also be suitable.
140
True or False: Buying call options is a leveraged position.
True. Buying options allows you to pay a little to have control of a larger position.
141
Which contracts trade on centralized exchanges—futures or forwards?
futures
142
When is a limited partner taxed on income generated by a partnership?
in the year in which the income is reported
143
True or False: Limited partners are taxed when they receive a distribution from the partnership.
False. Partners are taxed in the year in which the income is reported, not in the year in which it is received.
144
The money invested in a variable annuity is used to buy ________________________.
accumulation units
145
Does an equity-indexed annuity transaction require the delivery of a prospectus?
no
146
Is registration required for a Section 3(c)(1) hedge fund?
no
147
True or False: A registered representative (RR) may present variable annuity performance projections.
False
148
If an approved formula is used, may an IAR project the future performance of a variable annuity?
No, predicting future performance for a variable annuity is never permitted
149
Who assumes the investment risk in a traditional insurance contract?
Insurance company
150
Identify the acronym: TSA
Tax Sheltered Annuity
151
Describe a whole life policy.
A policy providing death benefit protection for life or to age 100, cash value, level death benefit, and level premium
152
Are life insurance death benefits taxable?
no
153
Does a variable life policy have a guaranteed minimum death benefit?
yes
154
Does a term life policy have cash value?
no
155
True or False: An investor may lose money when investing in an Equity Indexed Annuity.
False
156
What is the primary benefit of including insurance in a financial plan?
To transfer to an insurance company the risk of losing a person's wages due to death
157
What economic factor may impact the value of ADRs, but not domestic stocks?
change in exchange rates
158
__________ is a form of life insurance that may be suitable for people with a fixed time horizon.
term life
159
True or False: Closed-end fund shares are valued at their NAV at the close of the market each day
False
160
When calculating the POP for a mutual fund, the sales charge is added to the ______.
NAV
161
An __________ policy is a type of life insurance that pays face value at the end of a period.
endowment
162
True or False: European options are considered derivatives because they may only be exercised at expiration.
False. European options are considered derivatives because their value is derived from an underlying security.
163
An investor buys a March corn contract at $6.00. If the contract expires and settles at $6.05, what is the profit/loss?
Since corn futures have 5,000 bushels/contract and the investor makes $.05/bushel, the profit is $250 ($.05 x 5,000).
164
Bill shorts July soybeans at $15.00. If he later covers the sale at $15.25, what is his profit/loss?
Since soybean futures have 5,000 bushels/contract and Bill lost $.25/bushel, his total loss is $1,250 ($.25 x 5,000).
165
Who typically buys hedge funds?
Accredited (sophisticated) investors through Reg. D offerings
166
What type of bond is collateralized by specifically issued 30-year U.S. Treasury bonds?
Brady Bonds. The bonds convert U.S. bank loans made to Latin American countries into more widely traded bonds.
167
When a term life policy expires and is renewed, will the premium be higher, lower, or stay the same?
Higher, since the insured is older and riskier to insure
168
Which of the following is not a security - an equity-indexed annuity, variable life policy, bank stock, or swap contract?
equity-indexed annuity
169
True or False: An investor who has already annuitized a variable annuity may roll it over into an IRA.
False. Once annuitization begins, a rollover is no longer permitted.
