66 Flashcards
(138 cards)
1
Q
a tips bond is issued in the principal amount of $1,000, paying 3.5%. over the security’s 5 year term, the inflation rate is 4%. what is the amount of the final semiannual interest check?
A
17.50. $1,000 X 102% ten times = $1,219 X 3.5% and then divide by 2 equals 17.50.
2
Q
how are unit values and cash values computed in a variable life separate account valuation?
A
unit values are computed each day. cash values are a monthly computation.
3
Q
ERISA covers?
A
private employee pension plans
4
Q
what is the sharpe ratio?
A
is used to measure risk-adjusted returns.
5
Q
what kind of investment is tax exempt to a corporation?
A
municipal bond interest
6
Q
in which asset allocation program is most likely that commission expenses will have a significant impact on portfolio performance?
A
tactical
7
Q
one way in which internal rate of return (IRR) differs from most computations is that..
A
it takes into consideration the time value of money
8
Q
investing the same amount at regular intervals is the formula method of investing known as?
A
dollar cost averaging
9
Q
a growth investor looks for stocks with?
A
above average price to earnings ratio
10
Q
a value investor looks for stocks with?
A
low PE ratios and high dividend yields
11
Q
when an investor’s original value is subtracted from the ending value, and then has the income received over that time period added to it which is then divided by the original cost, the result is?
A
holding period return
12
Q
a firm whose exclusive business is placing client’s assets into model portfolios is considered a?
A
investment cousel
13
Q
what types of business have an income tax filing due date of march 15th?
A
multiple LLC electing to be treated as a corporation
s corporation
14
Q
what type of industry is most exposed to regulatory risk?
A
public utilities
15
Q
a limited liability company is..
A
a company with tax consequences similar to a partnership
16
Q
what would most likely limit the amount of interest earned on an index annuity?
A
the cap rate
17
Q
what is found on an order ticket?
A
account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order.
18
Q
why are “country” funds organized as closed-end funds?
A
because it is often difficult to liquidate the foreign securities to get their value into the U.S.
19
Q
an investment of $1,000 made ten years ago is now worth $4,000. using the rule of 72, the approx compounded annual rate of return is?
A
14.40%
the investment has quadrupled in 10 years. using rule of 72, we know how to compute the rate of return when an investment doubles. the on has doubled every 5 years. dividing 72 by 5 years gives us an appx rate of 14.4%.
20
Q
what would be a fitting description of an alternative investment?
A
DPP and Hedge funds
21
Q
which investment generally carries the least reinvestment risk?
A
newly issued stock in a small, over the counter growth corporation
22
Q
what kind of investment typically has the lowest volatility?
A
a money market fund
23
Q
an application to register securities may be filed under the USA by who?
A
- broker/dealer acting on behalf of the issuer
- person on whose behalf the offering is made
- issuer
24
Q
risk management tools would include?
A
beta
sharpe ratio
standard deviation
25
if one were analyzing mutual funds, the one with the highest standard deviation would most likely be what kind of fund?
small-cap fund
26
a mutual fund would have net redemptions when..
the number of shares being liquidated by investors exceeds those being purchased.
27
a well-diversified investor following a rebalancing portfolio strategy in a rising market will most likely..
sell part of the stock in the portfolio
28
a strategy that seeks to maintain a constant ratio of a portfolios original investment allocation would be?
portfolio rebalancing
29
what are the three components of modern portfolio theory?
capital asset pricing model
feasible set
efficient set
30
what is the def of future value?
what will an investment made today at a given rate be worth at some point in the future?
31
what factors must be taken into consideration with future value?
- initial capital
- time capital will remain invested
- anticipated rate of return
32
what is the def of present value?
how much needs to be given today at a given rate to equal specific value at a point in the future.
33
what factors must be taken into consideration with present value?
- future goal
- time to reach goal
- anticipate rate of return
34
rule of 72 rule
appx formula for doubling investment
72 / return percentage = years to double
72 / number of years = percentage return needed to double
35
IRR
internal rate of return
- the discount rate that results in a net present value of zero for a series of future cash flows.
- yield to maturity of a bond reflects IRR
36
net present value
difference between an investment's present value of future revenues and its cost.
- used by corps to determine feasibility of capital investments
- positive NPV desirable
37
time weighted returns
used to evaluate the performance of portfolio managers
38
dollar weighted returns
used to evaluate the individuals account performance
39
total returnom
gains + income = total return
40
after-tax return/yield
pretax return x (1.00-tax rate) = after tax return
41
inflation adjusted return / real rate of return
received rate - inflation rate = inflation adjusted return
42
holding period return
gain received / original investment
43
annualized return
time value x (gain received / original investment)
44
efficient market hypothesis
all investors have equal access to the same market information
-cant beat market (throw darts)
45
three forms of EMH
weak form-info everyone knows
semi-strong form-info available with some effort
strong form-info available to insiders, still no benefit
46
monte carol simulation
runs hundreds or thousand of trials based on varying factors and measures the probability of meeting specific objectives based on varying conditions.
-predicting sustainability
47
dividend discount model
a method used to value the common stock of a company that is based on present value of the expected future dividends
48
dividend growth model
a method to value the common stock of a company on the basis of assumed constant growth of dividends in the future
49
mean
arithmetic mean- simple average
| geometric mean-always lower
50
median
the middle number
51
mode
the most frequently occurs number
52
range
distance from top to bottom
53
modern portfolio theory
diversify by using securities with a low or negative correlation, thereby reducing portfolio volatility
54
positive coorelation
two securities move in similar directions
55
negative coorelation
two securities move in opposite directions
56
standard deviation
measures volatility of investment compared with its own past returns
57
systematic risk is measured by?
beta
58
standard deviation measures?
total risk (systematic and nonsystematic risk)
59
alpha measurements
comparing actual returns to expected returns
| positive alpha is good and outperforming expectations
60
sharpe ratio
measures risk adjusted return
(actual return-risk free return) / standard deviation = sharpe ratio
higher the better
61
duration
measures volatility of bonds by weighing the time the bond interest take to pay for the bond
62
market risk
systematic - measured by beta
- risk that overall market will affect individual securities adversely regardless of company's circumstances
- cannot be diversified away
63
business risk
(nonsystematic)
- risk that a business will perform poorly as a result of specific characteristics of company or industry in which it operates.
- can be diversified away
64
interest rate risk
(systematic)
| -risk that a change in interest rates will affect a security adversely
65
inflation risk
(purchasing power) (systematic)
- erosion of a dollar's buying power
- fixed dollar investments are affected the most
- TIPS offer protection
66
```
which of the following quantitative tools is used to measure risk-adjusted returns?
correlation
sharpe ratio
beta
standard deviation
```
sharpe ratio
67
sharpe ratio
used to measure risk-adjusted returns.
68
formula methods of investing that involve selling equities in rising markets and buying them in falling markets would include?
constant dollar plan
| constant dollar ratio
69
a mutual fund would have net redemptions when..
the number of shares being liquidated by investors exceeds those being purchased
70
the tactical approach to the asset allocation review process ..
intentionally deviates from the normal asset mix to take advantage of market opportunities
71
rule 482
describes a from of allowable mutual fund advertising, commonly referred to as an omitting prospectus.
72
what is the standard benchmark used to measure the "risk-free" rate of return?
90-day treasury bill
73
if there are material changes to a brochure, a copy must be sent to customers when?
within 120 days of the end of the fiscal year
74
An investment adviser representative is looking for a suitable investment for a client. The IAR wishes to find something that will offer an attractive return commensurate with its systematic risk. The choices have been narrowed down to Security C and Security L and the selection will be based on alpha. C has a beta of 1.0 and earned 13% while L has a beta of 0.8 and earned 10.1%. The alpha of Security L is:
-.3
Alpha is obtained by comparing how a security actual performed to the performance one would have expected based upon its beta. A beta of 1.0 is used to indicate the expected volatility of the overall market. Because Security C has a beta of 1.0, its 13% return matches that of the “market”. With a beta of .8, one would expect Security L to produce a lower return, but how much lower? Its return should be 80% of the “market” or, in this case, 80% of 13% which computes to 10.4%. However, its actual return fell short of that by 0.3% giving it a negative alpha of 0.3. Had its actual return been 10.7%, it would have had a 0.3 positive alpha. Although this question doesn’t ask it, based upon the criteria given, the IAR would have selected Security C.
75
when would a preorganization subscription be an exempt transaction?
no more than 10 subscribers
| no commissions paid (directly or indirectly)
76
what does a fund with net redemptions mean?
- less money coming in than is going out.
| - fund's manager is going to have to sell securities.
77
describe a prudent investor
someone who invests with reasonable care, skill, and caution.
78
what does a fund with net redemptions mean?
- less money coming in than is going out.
| - fund's manager is going to have to sell securities.
79
describe a prudent investor
someone who invests with reasonable care, skill, and caution.
80
what does a fund with net redemptions mean?
- less money coming in than is going out.
| - fund's manager is going to have to sell securities.
81
describe a prudent investor
someone who invests with reasonable care, skill, and caution.
82
what does a fund with net redemptions mean?
- less money coming in than is going out.
| - fund's manager is going to have to sell securities.
83
describe a prudent investor
someone who invests with reasonable care, skill, and caution.
84
what does a fund with net redemptions mean?
- less money coming in than is going out.
| - fund's manager is going to have to sell securities.
85
describe a prudent investor
someone who invests with reasonable care, skill, and caution.
86
what does a fund with net redemptions mean?
- less money coming in than is going out.
| - fund's manager is going to have to sell securities.
87
describe a prudent investor
someone who invests with reasonable care, skill, and caution.
88
positive margin
profits exceed interest cost
89
a person is not?
a minor
dead person
or someone declared mentally ill
90
name the things that are NOT securities
```
retirement plans
non-variable insurance
collectibles
commodities
condos used as personal residence
currencies
```
91
a security registered by qualification becomes effective when?
after an active review of registration info and n the day ordered by the administrator
92
what are the common exempt transactions?
isolated non issuer transaction
unsolicited orders
transactions with institutions
transaction between issuer and underwriter
transactions by fiduciaries
private placements (10 or fewer offers in a year)
93
who notifies admin if a IAR leaves a state covered and fed covered IA?
state- only the IA
| federal- only the iAR
94
snowbird rule?
provides an exemption from registration when dealing with vacationing clients. subject to 30 day rule for change of residence
95
how long do BDs and IAs have to keep records?
BDs-3 years
| IAs- 5 years
96
when must a civil suit be filed under USA?
within 3 years of alleged infraction or 2 years from discovering the violation. FED law is 1 year from discovery
97
right of rescission
is the offer to return a customers money, when a sale has taken place in violation of the USA. clients have 30 days to accept or reject
98
stop order
used t stop registration of securities issue.
| can be appealed within 60 days in court
99
cease and desist
used to halt activities of a person
| no need for prior hearing.
100
summary action
admin may summarily suspend the reg of any person or security as long as a hearing is granted within 15 days.
101
LATE
lawyers, accountants, teachers, engineers
102
IAs exercising discretion need?
10,000 net worth or a surety bond (USA)
103
iA maintain custody of customer accounts need?
35,000 net worth or a surety bond (USA)
104
rule on use of third-party research reports?
if it is distributed, attribution must be given.
| it if is used as the basis for the IAs report, no mention is necessary
105
form ADV
requires info on how adviser will be compensated.
106
form ADV-E
annual financial examination of an IA completed by the IA and submitted by an independent accountant
107
term insurance
is pure protection and has no cash value
108
whole life insurance
guaranteed cash value with policy loans
109
universal life insuracne
has flexible premiums - insufficient payments could cause policy lapse
110
variable life insurance
guaranteed minimum death benefit
cash value based on sub account performance
minimum 75% loan after 3 years
exchange privileges
111
types of derivatives
options, futures, and forwards
112
forwards
not standardized and do not trade on exchanges
113
futures
are standardized and trade on exchanges
114
limit order
an order that instructs BD to buy or sell at a certain price
115
buy stop order
used to stop losses by persons with short position. can accelerate the direction of a bull market.
116
sell stop order
used to stop losses by persons with long position. can accelerate the direction of a bear market.
117
investing in a fixed dollar amount on a regular basis and purchasing at different prices
dollar cost averaging
118
investor looks for stocks that trade at higher PE ratios. Earnings momentum is important.
growth
119
investor looks for stocks that are cheaper and trading at low PEs. higher dividends
value
120
investor thinks majority is wrong, so does opposite of what most investors are doing
contrarian
121
done periodically to bring a portfolio back to target allocation percentages
rebalancing
122
someone who attempts to profit by finding the best performing sectors of the economy and buying stocking in that sector.
top-down analyst
123
attempts to profit by identifying individual companies that will outperform other in the industry.
bottom-up analyst
124
placed in a portfolio to reduce inflation risk
tangible assets
125
clients in need for cash in the near term should invest in?
money market instruments, like T-bills
126
simple trusts must do what?
distribute all income each year
127
the grantor of the trust can also be what?
trustee and beneficiary
128
sole proprietors file taxes on?
schedule C
129
who files taxes on a Schedule K-1?
LLCs, limited partners, and shareholders in S corps
130
C corps report income on what?
Form 1120
131
one dying without a will has estate handled by?
an administrator in intestacy
132
size of a small cap
300 million to 2 billion
133
size of a mid cap
2 billion to 10 billion
134
size of a large cap
over 10 billion
135
tracking small cap securities is done by measuring against the?
Russell 2000
136
tracking mid cap securities is done by measuring against the?
S&P 400
137
tracking large cap securities is done by measuring against the?
S&P 500
138
section 28e of the securities exchange act of 1934 provides what?
a safe harbor for research and brokerage services provided in exchange for directed transactions.
