Series 7: QuickSheet Flashcards
(162 cards)
1
Q
Dividend Yield
A
Annual Dividend / Current Market Value
2
Q
Ex-Dividend Date
A
- One business day before record date
- Date is set by FINRA
3
Q
Cash Dividend
A
- Price of stock adjust downs by the amount of the dividend on ex-dividend date
- Taxable when received
4
Q
Stock Dividend
A
- Price of stock adjust down for dividend
- Aggregate value remains the same
- Taxable when shares are sold
5
Q
Even Split & Odd Split
A
- Number of shares is increased while price decreases
Example Even Split - 100 shares at $30 : 2 for 1 split
2/1 x 100 shares = 200 shares
1/2 x $30 = $15
Example Odd Split - 100 shares at $30 : 3 for 2 split
3/2 x 100 = 150 shares
2/3 x $30 = $20
6
Q
Reverse Stock Split
A
- Number of shares is decreased while price is increases
- Aggregate value remains the same
7
Q
Non-cumulative Preferred Stock
A
Missed dividends are not payable
8
Q
Cumulative Preferred Stock
A
Missed dividends are payable and must be paid before common stock holders
9
Q
Callable Preferred Stock
A
- Issuer may buy back shared after a specified date at a specified price
- Issuer will buy back when interest rates drop
10
Q
Participating Preferred Stock
A
Issuer may pay more than stated dividend
11
Q
Adjustable Rate Preferred Dividend
A
Dividend is tied to another rate (e.g., T-bill rate)
12
Q
Rights
A
- Available to existing shareholders
- Short term (30-45 days)
- When issued exercise price is below CMV (allows purchase at a discount)
- Not marginable
13
Q
Warrants
A
- Offered with other securities as “sweeteners”
- Sold as units
- Long term (2-5 years)
- When issued exercise price is above CMB (anticipated value with time)
- Marginable
14
Q
American Depositary Receipts (ADRs)
A
- Facilitate U.S. citizens owning foreign shares
- Foreign shares held by bank (bank issues receipt)
- ADR is U.S. security traded in U.S. markets (quoted in US dollars)
- Dividends declared in foreign currency, but paid in US dollars
- ADRs have currency risk
15
Q
Real Estate Investment Trust (REIT)
A
- Traded on exchanges or OTC
- Provide liquidity for real estate investors
- 75% of assets must be invested in operating income producing real estate or mortgages to qualify as a REIT
- 90% of net operating must be distributed for REIT to avoid taxation as a trust
16
Q
Coupon, Nominal or Stated Yield
A
Annual Interest / Par Value
17
Q
Current Yield
A
Annual Interest / Current Market Value
18
Q
Yield-to-Maturity (YTM)
A
Annualized return if held to maturity
19
Q
Yield-to-Call (YTC)
A
Return reflecting early redemption and acceleration of discount gain or premium loss
20
Q
Price Quote
A
1 bond point = 1% of par = $10
21
Q
Yield Quote
A
1 basis point = .01 of yield
22
Q
Callable Bonds
A
- Issuer can buy back bonds as of a specified date before maturity at a specified price
- Issuer will call bonds in anticipation of current interest failing
- Allows issuer to lower the cost of borrowing
- Facilitates “refunding” replacing one issue with another at a lower net interest cost to the issuer
23
Q
Conversion Ratio
A
Par / Conversion Price
Example: Bond convertible at $40
$1000/$40 = 25 shares
24
Q
Parity Price of Common
A
Market Price of Bond / Conversion Ratio
Example:
Bond trading at $1,100
Conversion Ratio: 25 shares
$1,100/25 = $44 parity price of common
25
Parity Price of Bond
Conversion ratio x common stock price
Example:
Bond has 25 share conversion ratio
Common stock trading at $44
25 x $44 = $1,100
26
Term Maturity
Entire issue matures on one date
27
Serial Maturity
Issue matures over over a period of years
28
Balloon Maturity
A repayment schedule over a period of years having the largest number of bonds maturing at the final maturity date
29
Mortgage Bond
- Backed by real estate
| - "Secured"
30
Collateral Trust Bond
- Backed by other securities the issuer owns (e.g. government debt)
- "Secured"
31
Equipment Trust Certificate
- Backed by equipment used in the issuers business
| - "Secured"
32
Debenture Bond
- Backed by the issuer's full faith and credit
| - Unsecured
33
Subordinated Debenture Bond
- Paid last of all debt if issuer is in default
| - Unsecure
34
Guaranteed Bond
- Guaranteed by a 3rd party (parent company guarantees subsidiary debt
- Unsecured
35
Income (Adjustment) Bond
- Interest payable only if earned
- Risky
- Not suitable for investor seeking income
36
Liquidation Priority
```
Secured Bonds
Debentures & General Creditors
Subordinated Debentures
Preferred Stock
Common Stock
```
37
Zero Coupon Bonds
- Issued at a deep discount
- Matures at par
- Often used for target goals
- Very price sensitive to interest rate movement
38
Treasury Receipts
- Issued at a discount and backed by broker dealers
- Matures at par
- Discounts: accrete (add, cost basis up)
- Premium: amortize (subtract, adjust cost basis down)
39
Treasury STRIPS
- Issued at a discount and backed by the US Treasury
- Matures at par
- Discounts: accrete (add, cost basis up)
- Premium: amortize (subtract, adjust cost basis down)
40
Collateralized Mortgage Obligations (CMOs)
- Sold by financial institutions
- Backed by pool of mortgage securities
- Associated with refinancing risk
- Securities separated into tranches
- Each tranche has different risk characteristics
- Investor chooses tranche and signs suitability statement
41
T-Bill
Maturity: 1 year or less
Quoted: Discount from par
Callable: No
Example: Quoted at 1.3%
Price = Par (100) - Discount
Price = 100 - 1.3 = 98.7% = $987
42
T-Note
Maturity: 2-10 years
Quoted: % of par in 32nd
Callable: No
```
Example: Quoted at 94.08
Price = 94% of par + 8/32
Price = 940 + 0.25 x 10
Price = 940 = 2.5
Price = $942.50
```
43
T-Bond
Maturity: 10 or more years
Quoted: % of par in 32nd
Callable: Yes
```
Example: Quoted at 94.08
Price = 94% of par + 8/32
Price = 940 + 0.25 x 10
Price = 940 = 2.5
Price = $942.50
```
44
Government National Mortgage Association (GNMA)
- Backed by the full faith and credit of the US Government
- Approves lenders who issue pass-through certificates created from a pool of FHA and VA insured mortgages
- Monthly check to investor includes both principal and interest
45
Federal Farm Credit System
- Backed by the issuing agency
- Loans to farmers
- Finance land purchases
- Finance farm equipment purchases
- Establishes buying co-ops to agricultural goods
46
Federal National Mortgage Association (FNMA) & Federal Home Loan Mortgage Corporation (FHLMC)
- Backed by the issuing agencies
- Lines of credit with the US Treasury
- Mortgage-backed paper associated with pre-payment risk
47
Modern Portfolio Theory (MPT)
- MPT diversifies a portfolio using a negative correlation of securities to all but eliminate unsystematic risk
- Perfect negative correlation is -1.0
- "Efficient Frontier"
48
Capital Asset Pricing Model (CAPM)
- Used to derive expected return of an asset on the basis of the assets systematic risk
- Systematic risk cannot be diversified away
49
Alpha
- The actual returns that a portfolio manager generates in excess of the risk-adjusted returns as defined by the CAPM
- If the risk-adjusted return is expected is 8% and the actual return is 9%, then the alpha is a positive 1%, this means that the investors return was greater than the risk he took
50
Beta
- Measures the volatility of a security compared to the market as a whole
- The beta of the market is 1.0 (S&P 500)
- Beta greater than 1 is more volatile than the market
- Beta less than 1 is less volatile than the market
51
General Obligation Bonds (GOs)
Backed by: taxes
Voter Approval: required
Limits: subject to statutory debt limits
Underwriting: competitive bids
Analysis: tolerance to taxes, debt statement, and debt ratios, ad volerem
52
Revenue Bonds
```
Backed by: user fees (self-supporting)
Voter Approval: not required
Limits: subject to additional bond test
Underwriting: negotiated
Analysis: feasibility studies and debt service coverage ratio
```
53
GO Limited Tax Bond
Issued when issue's ability to raise taxes is limited
54
GO Double-Barreled Bond
Bond issue debt funded by project revenue, but backed by the issuer's full faith and credit (taxes)
55
Industrial Development Revenue Bonds
Backed by corporations with lease back payment made to issuer
56
Special Tax Bonds
- Backed by taxes other than real estate (alcohol & tobacco)
- Revenue bonds
57
Special Assessment Bonds
- Only asses property owners who benefit from the bond issue
58
Moral Obligation Bonds
Legislative authority is required to pay back bondholders if revenues are insufficient
59
Public and New Housing Authority Bonds (Section 8)
Bonds provide financing for low and moderate income housing and are backed by the full faith and credit of the US government
60
Anticipation Notes
- Short-term borrowing in advance of receiving funds from long-term debt
- Examples include tax, revenue, bond and grant anticipation notes
61
GO Index
20 specific GO bonds each with 20-year maturities
62
Revdex
25 specific revenue bonds each with 30 year maturity
63
30-Day Visible Supply
Total par value of all new municipals to be offered in the next 30 days
64
Placement Ratio
Total par value of all municipals sold/total par value of all municipals offered within the previous week
65
Premium Amortize
Adjust cost basis down
66
Discount Accrete
Adjust cost basis up
Example: Original issue discount (OID) bond sold at $950 maturing in 10 years
$1,000 - $950 = $50
Annual Accretion = $50 / 10 years = $5 (cost basis increases every year until maturity )
**No gain if held to maturity**
67
Tax Equivalent Yield (TEY)
Municipal Yield / (100% - investors tax bracket)
Example: Municipal bond yielding 3.5%, investor in 15% tax bracket
TEY = 3.5 / 100 - 15
TEY = 3.5 / 85
TEY = 0.04117 x 100 = 4.12%
68
Tax-Free Equivalent Yield (TFEY)
Corporate Yield x (100% - investor's tax bracket)
Example: Corporate bond yielding 7.2%, investor in 15% tax bracket
TFEY = 7.2% x (100% - 15%)
TFEY = 7.2% x 85%
TFEY = 612 / 100 = 6.12%
69
Management Company
Portfolio managed by specific objective
| - growth, income, specialized (banking, technology, geographic area)
70
Open-End Company
- Continues primary offering: every share is an IPO
- Prospectus required
- Can issue common shares only
- Company must redeem shares
- No secondary market trading
- Priced by formula, forward pricing
- NAV + sales charge = POP
- 8.5% max. sales charge
71
Closed-End Company
- Numbers of shares is fixed
- No prospectus is required after IPO
- Can issue common and preferred shares and debt instruments
- Shares are not redeemable
- After IPO, shares trade in the secondary markets (exchanges &OTC)
- Priced by supply and demand
- Commissions
72
Net Asset Value Per Share
NAV = Fund Assets - Fund Liabilities / Number of Outstanding Shares
73
Sales Charge
$ SC = POP - NAV
| % SC = POP - NAV / POP
74
Public Offering Price
POP = NAV / (100% - % SC)
75
Variable Annuity
- Insurance company product
- Priced like mutual funds (NAV + SC = POP)
- No maximum sales charge
- Early redemption fees
- Must re-invest all dividends and gains
- Earnings grow tax deferred
76
Lump Sum Payout
- All earnings above cost basis is taxed
| - Cost basis is returned tax-free
77
Assumed Interest Rate (AIR)
- Conservative estimate of return on investments in the separate account
- Each period, the actual earnings are compared with AIR
- Greater AIR; greater than last months payment
- Same AIR; same as last months payment
- Less AIR; less than previous months payment
78
Direct Participation Programs (DPPs)
- Business that reports to the IRS but is not taxed as a business entity
- All tax consequences flow through to partners
- Income is reportable
- Expense is deductible
- Interests in partnerships are considered illiquid (nor easily transferable)
- Partnership dissolves on pre-determined date, assets liquidated, and proceeds distributed to partners
79
General Partner
- Manages the partnership
- May appoint other to manage the assets
- Unlimited liability; can lose more than invested
- Fiduciary responsibility to partners; can be sued
- May not compete with the partnership
80
Limited Partner
- No management responsibilities
- Passive investors only
- Limited liability; cannot lose more than invested
- No fiduciary responsibilities
- No limitations applied to other investments
81
Real Estate: Raw Land
- Appreciation potential only objective
- Very speculative
- No depreciation deductions for raw land
82
Real Estate: New Construction
- No immediate cash flow
- Rental income potential can only be estimated
- Tends to appreciate faster than older properties
- Depreciation deductions allowed
83
Real Estate: Existing Properties
- Immediate cash flow
- Tends to be safer than new construction because cash flow is known
- Depreciation deductions allowed
84
Real Estate: Government Assisted Housing
- Tax credits for investing in public housing
- Cash flow via rental income can be suspect
- Appreciation is minimal
85
Equipment Leasing
- Airline and railroad equipment or computers
| - High depreciation potential of equipment due to obsolescence
86
Oil & Gas Drilling: Exploratory
- Drilling in new areas
| - High risk and reward
87
Oil & Gas Drilling: Developmental
Drilling in areas where resource has been previously found
88
Oil & Gas Drilling: Balanced
Both exploratory and developmental drilling
89
Oil & Gas: Income
- Buying existing producing wells
- Immediate production and income
- Safest of all oil and gas partnerships
90
Qualified Retirement Plan
- IRS approval required
- Contributions are tax deductible
- Plan cannot discriminate
- Tax on accumulation is deferred
- All withdrawals are taxed
- Plan is set up with a trustee
91
Non-Qualified Retirement Plan
- No IRS approval required
- Contributions are not tax deductible
- Plan may allow only certain employees to participate
- Tax on accumulation may be deferred
- Only excess over cost basis is taxed at time of withdrawal
- No plan trustee is required
92
Qualified Plans
- IRA
- Roth IRA
- Simplified Employee Pension Plan (SEP) IRA
- Tax-sheltered Annuities (TSAs), both 403(b) and 501(c)(3)
- Savings Incentive Match Plans for Employees (SIMPLE)
- 401(k); traditional and ROTH
93
Non-Qualified Plans
- Payroll deductions
- Deferred compensation
- Section 457 plans
94
Regulation T
- 50% initial margin
| - Set by the Federal Reserve
95
Long Margin Account
- Long Market Value - Debit Balance = Equity
- LMV - DR = Equity
- Minimum maintenance call is 25%
96
Short Margin Account
- Credit - Short Market Value = Equity
- CR - SMV = Equity
- Minimum maintenance call is 30%
97
Combined Account
LMV - Dr + CR - SMV = Equity
98
Excess Equity
- Equity above 50% of Reg. T
| - Credits Special Memorandum Account (SMA)
99
Restricted Account
- Equity below 50% of Reg. T
| - Buy, sell, withdrawal stock 50% of Reg. T
100
Maintenance Call
- Deposit Cash; 1 x call amount
| - Deposit Stock; 2 x call amount
101
Special Memorandum Account (SMA)
- Applicable to long accounts
- Line of credits for future purchases or loans
- Buying Power = 2 x SMA
- Loan Value = 1 x SMA
- Generated by the increase in market value
- Decreased by the purchase of securities or cash withdrawal
**Market value increases, add to SMA. Market value decreases, do not take away from SMA. To lose SMA, account holder must use SMA.**
102
Credit Agreement
- Required when opening a margin account
- Truth in lending statement
- Details all margin account requirements and obligations
103
Hypothecation Agreement
- Required when opening a margin account
| - Investor pledges collateral (securities) to BD
104
Loan Consent
- Optional when opening a margin account
| - Allows BD to lend customer securities to other customers
105
Exchange Market
- Listed securities
- Physical location
- Auction market
106
Over-The-Counter (OTC)
- Unlisted securities
| - Negotiated market
107
Day Orders
Cancel any unexecuted portion at the end of day
108
Good Til Canceled (GTC) Orders
Any unexecuted portion remains working until the last trading day of April or October
109
Market Limit & Stop Orders
SL | BS | BSL Above Market Price
-------------------
BL | SS | SSL Below Market Price
* * SL & BL execution is not guaranteed**
* * BS & SS execution immediately at the next available price**
* * BSL & SSL are triggered at price**
110
Market Order
Execute immediately at the next available price
111
Fill or Kill (FOK)
Execute entire order immediately or cancel entire order
112
Immediate or Cancel (IOC)
- Execute any portion available immediately
| - Cancel any balance remaining
113
All or None (AON)
- Execute all if available
| - If entire order cannot be executed, hold order GTC
114
Market at Open
- Execute at or near the open of the day
| - Not guaranteed exact opening price
115
Market on Close
- Execute at or near the close of the day
| - Not guaranteed exact closing price
116
Order Tickets
- Approved by principal promptly after execution
| - Changes to tickets must be approved by a principal
117
Order Department or Wire Room
After execution of with trade details returns to the order department
118
Purchase & Sales Department
Issues confirmation with trade details to customer
119
Margin Department
Calculates any margin requirements due
120
Cashier
Takes receipt and delivery of cash and securities
121
Regular Way Settlement
- T + 2 ; All corporate and municipal securities
| - T + 1 ; All government securities
122
Cash Settlement
Same day ; BD approval required
123
Receipt or Delivery vs. Payment ( RVP or DVP) Settlements
Up to 35 calendar days
124
Seller's Option Settlement
No sooner than the first day after regular way (3rd business day for corporate and municipal); no later than date specified in settlement contract
125
Fundamental Analysis
- Net worth
- Book value (per share)
- Current Assets (cash, accounts receivable, inventory)
- Current liabilities (accounts payable, accrued wages, taxes payable)
- Current ratio
- Total capitalization
- Debt ratio
- Earnings per share (EPS)
- Price to earnings (PE)
- Dividend payout ratio
126
Technical Analysis
- Uses price and volume history to forecast future price movements
- Use of charts to plot movement and establish points of entry or exit
Examples: trend lines, levels of resistance and support, breakouts, consolidation, and head and shoulder patterns
127
Securities Act of 1933
- Paper Act ; Prospectus Act
| - Regulates new issues ; requires registration of securities
128
Securities & Exchange Act of 1934
- People and Places Act
- Regulates BDs and associated person's ; requires registration
- Anti-fraud provision ; defined inside information
129
Trust Indenture Act of 1939
- Applicable to corporate bond offerings of greater than $50 million in 12 months
- Establishes a contract between the issuer and the trustee of the bondholder's benefit
130
Investment Company Act of 1940
Classifies and regulates the three types of Investment Companies
1. Management Companies ; open-end, closed-end, Mutual Funds
2. Face Amount Certificate
3. Unit Investment Trusts (UIT)
131
Employee Retirement Income Security Act of 1974 (ERISA)
- Established to prevent abuse or misuse of pension funds
- Applicable to private sector retirement plans
- Mandates guidelines for plan, participation, funding, vesting, communication, non-discrimination, and benefits
132
Regulation S-P
- Enacted by the SEC to protect the privacy of customer information
- Requires privacy notice describing policies
133
Regulation SHO
Mandates a locate requirement for securities to be sold short before the short sale
134
FINRA Rule 2330
- Applies to recommended purchases and 1035 exchanges of deferred variable annuities (not immediate) and initial sub-account allocations
- Disclosure of features, costs, and surrender charges
- Must note if a 1035 exchange of a variable annuity has occurred in the last 36 months
135
Regulation A+
- Small and medium offerings exempt transaction allowing issuers to raise up to $50 million in a 12 month period without full registration
- Tier 1 ; allows offerings up to $20 million
- Tier 2 ; allows offerings up to $50 million
**Max 30%**
136
Regulation D
- Private placement exempt transaction
- Up to 35 non-accredited investors
- Accredited investors must meet a minimum net worth or annual income criteria
137
Retail Communication
Available to more than 25 retail investors within any 30 calendar-day period
138
Correspondence
Available to 25 or fewer retail investors within any 30 day calendar day
139
Institutional Communication
Available only to institutional investors
Examples: member firms, insurance companies, banks, registered investment companies, any entity with $50 million or more in assets
140
0.25%
- Maximum 12b-1 fee for no load fund
141
1%
- 100 basis points for bonds
- Rule 144 sale volume limit
- Maximum 12b-1 fee (.75 for advertising and promotion, .25 for shareholder services)
142
5%
- Markup policy guideline
| - No more than 5% of a diversified investment company's assets can be invested in any one company
143
6%
- Penalty for excess IRA contributions
144
8.5%
- Maximum sales charge for open-end (mutual fund) company
145
10%
- Penalty for premature IRA distribution
- Affiliate or control person if owning 10% or more of outstanding shares
- Maximum sales charge on public limited partnerships
- Maximum amount of one company's stock that a diversified investment company can own
146
25%
Minimum Maintenance for long stock position
147
30%
Minimum maintenance for short stock position
148
40%
Minimum percentage of mutual fund board members must be non-interested members
149
50%
- Regulation T
- Penalty for insufficient IRA distribution after age 72 (71 1/2 before 2020)
- Amount of sales proceeds credited to SMA in a margin account
- Required cash deposit when withdrawing stock from a margin account
- Corporate dividend exclusion
150
75%
- Minimum amount of Investment Company's asset that must be invested in securities of other issuers for the Investment Company to be classified as diversified
- Amount of limited partnerships assets that must be identified to be a specified program
151
90%
- Minimum of net investment income that a mutual fund must distribute by year-end under Subchapter M
- Minimum amount of profits that must be distributed by a REIT by year-end
152
100%
- Required equity when purchasing new issues, option, and mutual fund shares
- Amount of non-required cash deposit credited to SMA in margin accounts
153
Same Business Day
Settlement date for cash transactions
154
1 Business Day
- Regular way settlement for US government securities and options
- Ex-dividend date relationship to record date for stock
155
2 Business Days
-Regular way settlement for corporate and municipal securities (T+2)
156
4 Business Days
- Regulation T: cash purchases must be paid in full (regular way settlement (T+2) and Regulation T payment (S+2)
157
15 Calendar Days
Maximum length of time a customer can place options orders before the signed option agreement is required
158
20 Calendar Days
Cooling off period: minimum time between filing date and registration
159
30 Calendar Days
IRS wash sale period before and after a trade
160
60 Calendar Days
Minimum time to rollover holdings from one qualified plan to another without penalty
161
90 Calendar Days
Maximum time for a letter of intent to be backdated
162
13 Months
Length of time covered by a letter of intent
