From the book 66 part 1 unit 4 Flashcards
weak vs strong vs semi strong
weak-fundamental anal and insider
The weak form of the EMH states that all market information has already been incorporated into the current stock price. Therefore, having that information is of no help in predicting movements in the market.
semi- insider
strong- random walk
he strong form of EMH maintains that there is no information, public or private, that can assist an investor in achieving consistently superior investment returns.
If a client who holds a convertible preferred stock believes the company may go bankrupt within the next 3 years, what would you advise the client to do with the stock?
In the event of bankruptcy, all debt holders have priority over equity holders in claims on the assets of the corporation in liquidation. The safest alternative is to sell the stock. Buying puts on the underlying common stock would be an effective hedge, but with a 3-year wait, the position would have to be renewed several times because the usual option only has a life of 9 months; this would lead to increased transaction costs.
An investor would have to pay the alternative minimum tax when
A taxpayer must pay the alternative minimum tax in any year that it exceeds regular tax liability.
Section 404(c) of ERISA deals with
To comply with Section 404(c) of ERISA,
Under ERISA Section 404(c), plan participants must be able to reallocate plan assets
fiduciary responsibilities
the plan must offer at least 3 different investment choices, including a stable value option, an income option, and a conservative growth option
once every 3 months
A distribution from an IRA taken in equal annual amounts over the owner’s life is
not subject to the 10% premature distribution penalty even if started before age 59½. This is one of the exceptions that apply to IRAs.
In a qualified plan, if the employer makes all the contributions, the employee’s cost basis is
zero
The 457 plan allows participants to
withdraw funds at any time, not just after age 59½, without incurring the 10% tax penalty. Income taxes would, of course, be due, but no penalty.
An investment policy statement would likely include
expected returns of the recommended strategy and the expected range of these returns
recommended allocations among differing asset classes
strategies used for selecting specific stocks in the equity portion of the portfolio
the definition of prudent investor as expressed in the Uniform Prudent Investor Act of 1994
requires reasonable care, skill, and caution.
Most loans from a 401(k) plan are required to be repaid within
5 years
The investment policy statement would include information on how
the investment performance of the plan is measured as well as the investment parameters to be followed by the portfolio managers
.
determination for meeting future cash flow needs
Contributions to a Keogh must be based on
self employment income
Under IRS rules, if part of your retirement plan assets includes company stock, taking that as a distribution (not rolling it over into an IRA) subjects the cost basis to
ordinary income tax and any unrealized appreciation is taxed as long-term capital gain when sold.
The contribution limit has to be aggregated when participating in both
a 401(k) and a 403(b)
The 457 plan is a
nonqualified deferred compensation plan for municipal employees, as well as for independent contractors performing services for those entities.
The document that gives the Administrator the right to process complaints against a registrant is known as
consent to service of process
Customer assets held in custody by an investment adviser must be
segregated, and the adviser must send a statement every 3 months.
Charging an unreasonable commission (or markup or markdown) is a
prohibited practice, but it is not considered fraud.
If you want to sell, the dealer will pay you
his bid price.
rules regarding exempt and nonexempt securities in discretionary accounts
Once a discretionary account has been properly documented, the agent handling the account can trade exempt and nonexempt securities.
The total return of a mutual fund is equal to
the return attained by reinvestment of all dividend and capital gains distributions
If an investor holds stock for 12 months or less and has no other transactions, any gain on the sale of the stock is taxed at the same rate as
ordinary income
Why are “country” funds organized as closed-end funds?
Because it is often difficult to liquidate the foreign securities to get their value into the U.S.
the term covered account applies to
individuals
A positive NPV means the security is available for a price
With a negative NPV, the price is
With a zero NPV
below its present value—it is a good buy.
too high
accurately priced
How often must an investment company file reports with the SEC as required by the Investment Company Act of 1940?
annually
which of the following statements is TRUE concerning variable life separate account valuation?
Unit values are computed daily and cash values are computed monthly.
The sale of a life insurance policy in the secondary market by a terminally ill individual is known as
viatical settlement
terms found in modern port theory
feasible set
capm
efficient set
A variable life insurance plan may charge a maximum sales charge of
9% over a period not to exceed 20 years.
Formula methods of investing that involve selling equities in rising markets and buying them in falling markets would include
constant dollar plan
constant ratio plan
In both a constant dollar plan and a constant ratio plan, the goal is to maintain a balance between equity and debt securities in the portfolio.
It is unlawful for an investment adviser, registered or required to be registered in a state, to have custody of client funds or securities unless the investment adviser
notifies the Administrator promptly in writing on Form ADV that the investment adviser has or may have custody.
A bond portfolio manager who anticipates periods of rising interest rates should
decrease the duration of a bond portfolio to minimize the price decline.
