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Series 66 Flash Cards > Investment Vehicles > Flashcards

Flashcards in Investment Vehicles Deck (47):
1

A "derivative" security is

A security that has its value derived from the price movements of an underlying security or commodity

2

Options are derivatives based on

A security's price movement

3

Futures are derivatives based on

Commodity, currency and index price movement

4

Forward contracts are

Custom contracts for delivery of an underlying asset at a fixed price on a future date that are negotiated between buyer and seller.

Forward contracts are not subject to federal regulation.

5

Call contract allows the holder to?

Buy a security from the writer at a fixed price at any time during the life of the option

6

Put contract allows the holder to?

Sell a security to the writer at a fixed price at any time during the life of the option

7

The writer of a put contract is

Obligated to buy the securities at the fixed price

8

The writer of a call contract is

Obligated to deliver the securities to the holder at the fixed price

9

Strike price

The fixed price specified in the contract at which the holder can either "call away" the security or "put" the security is called the strike price or exercise price

10

The life of an options contract is specified by

Expiration date

11

First option style which can be exercised at any time is an

American style option

12

Option that can be exercised only at expiration, not before is an

"European style" option

13

A speculative option strategy

Attempts to profit if the market price of the underlying security rises or falls

14

Strategies that profit from falling markets are

Bear strategies

15

Strategies that profit from a rising market are

Bull strategies

16

What speculative option strategies are "Bullish"

Long Call
Short Put

17

What speculative option strategies are "Bearish"

Short Call
Long Put

18

Max gain and loss of a long call is

Max Gain = Unlimited
Max Loss = Premium paid

19

Max gain and loss of a short naked call is

Max Gain = Premium received
Max Loss = Unlimited

20

Max gain and loss of a long put is

Maximum Gain = Strike price - Premium (Occurs when stock price falls to zero)

Maximum Loss = Premium paid

21

Max gain and loss of a short naked put is

Maximum Gain = Premium

Maximum Loss = Strike price - Premium (Occurs when stock price falls to zero)

22

Long put stops what

Downside loss on long stock

23

Long call stops what

Upside loss on a short stock

24

When are Income strategies suitable

Only in a stable market

25

What establishes a collar position

Long out of the money put and a Short out of the money call

26

What is the largest Futures exchange in the U.S.

Chicago Mercantile Exchange (CME)

27

Max potential gain on a Long Stock/Long Put position is

Unlimited

28

A narrow based index option is either ?? or ??

Industry specific or country specific

29

What style are equity options exercised

American style

30

What style are index options exercised

European style

31

The purchaser of a futures contract has the

Obligation to buy the underlying commodity at a fixed price at the expiration date, unless the contract is closed by trading.

32

The seller of a futures contract has the

Obligation to deliver the underlying commodity at a fixed price at the expiration date, unless the contract is closed by trading

33

Forward contracts are issued

Over the counter (OTC)

34

Swaps are

Custom contracts that transfer interest rate risk from one party to another in return for a fee

35

Tax preference items subject to AMT (Alternative Minimum Tax) are


Memory Tool: D E E M

- Depreciation in excess of straight line (accelerated depreciation)

- Excess intangible drill cost

- Excess of percentage depletion

- Municipal bonds that are for "Private Purpose"

36

What are the 3 ways to measure equity linked annuities


Memory Tool: Annual High Point

Annual Reset - Return of each year added to annuity

High Water Mark - Get the highest point index reached during time

Point to Point - Compares starting point to ending point

37

Types of Life Insurance Policies

Term Life
Whole Life
Universal Life
Variable Life

38

Term Life Insurance characteristics

No investment feature

Covers you for a specified amount of time

39

Whole Life Insurance characteristics

Permanent protection - Premium does not change

Cash value - Invested in the General Account earning interest

40

Universal Life Insurance characteristics

Flexible - Changes are allowed

Permanent - But you can pay more than the minimum to build cash value

41

Variable Life Insurance characteristics

Whole life policy

Difference is that the excess is invested in separate account

Invested in the market, which adds risk

42

Characteristics of a corporation

- Continuity of life
- Free transferability of shares
- Limited liability
- Centralization of management

43

How many of the characteristics of a corporation are needed to be consider a corporation

3 of the 4

44

How many of the characteristics of a corporation are needed to be consider a partnership

2 of the 4

Normally Centralization of Management and Limited Liability

45

Types of Real Estate LP's

- Existing housing
- New construction
- Government assisted housing
- Raw land (cannot depreciate raw land)

46

Types of Oil and Gas participation Units

- Income Well (Stripper well)
- Developmental Well (Step out well)
- Exploratory Well (Wildcat wells)

47

Non-deductible items in AMT

- Personal Exemptions
- Standard deductions
- State and local tax deductions
- Miscellaneous deductions (i.e. tax prep fees)