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Series 7 > Unit 13 > Flashcards

Unit 13 Flashcards

1
Q

When are gift taxes due?

A

At the time of individuals tax return (April 15) while estate taxes are due nine months after death

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2
Q

How much is the annual gift tax exclusion?

A

$16,000 (2022)

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3
Q

Either stepped up or down to it’s fair market value at the date of death

A

Cost basis of inherited property

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4
Q

An accounting method used when an investor has made multiple purchases at different prices of the same security; the method averages the purchase prices to calculate an investors cost basis in shares being liquidated. The difference between the average cost basis and the selling price determines tax liability.

A

Average Cost Basis

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5
Q

An accounting method that identifies the specific shares selected for liquidation in the event an investor wishes to liquidate shares.

Used to identify specific per share cost basis

A

Share identification

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6
Q

What are 3 qualities the IRS looks at when determining if debt securities are substantially identical?

A
  1. Maturity
  2. Coupon
  3. Issuer
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7
Q

The sale of a bond and the simultaneous purchase of a different bond in a like account.

Used to control tax liability, extend maturity or update investment objectives.

Loss is not disallowed.

A

Tax Swapping

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8
Q

Selling a security at a loss for tax purposes and within 30 days before or after, purchasing the same or a substantially identical security. IRS will disallow the claimed loss.

Total period= 61 days

Applied to only realized loss, not gains

A

Wash sale

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9
Q

The profit made by a dealer when seeing a security to a customer. Dealers purchase at one price and sell to their clients at a higher price.

Difference between the lowest current offering price among dealers and the higher price a dealer charges a customer.

A

Mark-Up

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10
Q

Provides the most up-to-the-minute information

A

Thomson Muni Market Monitor

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11
Q

The percentage of the total dollar value of new issues sold versus the total dollar value of new issues offered for sale the prior week.

A

Placement or acceptance ratio indexes

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12
Q

The total dollar volume of municipal offerings- not including short term notes- expected to reach the market in next 30 days

A

30 day visible supply

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13
Q

Published every business day and serves as an authoritative source of information on primary market municipal bonds.

Publishes 30 day visible supply and the placement or acceptance ratio indexes

Compiles the 40 Bond Index, 20 Bond Index, 11 Bond Index and Revdex 25

A

The Bond Buyer

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14
Q

Refers to the number of shares that have been sold short

A

High=bullish
Low=bearish

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15
Q

In technical analysis, a theory that assumes small investors are nearly always wrong. Therefore if sales are up, signifying that small investors are selling, it is a good time to buy.

A

Odd lot theory

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16
Q

According to DOW Theory, the primary trend in a bear market is

A

A series of lower highs and lower lows

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17
Q

According to DOW Theory, the primary trend in a bull market is

A

A series of higher highs and higher lows

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18
Q

A technical market theory that long term trends in the stock market may be confirmed by analyzing the movements of the Industrial Average and Transportation Average.

A

Dow Theory

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19
Q

If market indexes are rising but the number of declining stocks relative to the number of advancing stocks is rising, the market is ready for correction.

Considered bearish

A

Overbought

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20
Q

If market indexes are declining but the number of declining stocks relative to the number of advancing stocks is falling the market is likely to reverse itself.

Considered bullish

A

Oversold

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21
Q

Indicates a bullish reversal

Stock price declines -> plateau -> 2nd decline -> rise -> decline again -> rise and continue to rise

A

Head and shoulders bottom

(Inverted)

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22
Q

Indicates the beginning of a bearish trend in the stock

Stock price rise -> plateau -> 2nd rise -> fall -> rise again -> fall and continues to fall

A

Head and shoulders top

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23
Q

On a technical analysts trading chart, a pattern that has three peaks

Indicates a market reversal

A

Head and shoulders

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24
Q

Reversal of an uptrend

A

Inverted saucer

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25
Q

Reversal of a downtrend

A

Saucer

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26
Q

Indicates that an upward or a downward trend line has halted and the stocks price is moving in the opposite direction

A

Reversal

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27
Q

Technical analysis term for a narrowing of the trading range for a commodity or security that may be interpreted as a mark indecisiveness

Tread line is horizontal

A

Consolidation

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28
Q

What are 3 common patterns in stock price tread-lines?

A
  1. Consolidations
  2. Reversals
  3. Support and resistance levels
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29
Q

A tool used by technical analysts to trace a security’s movement by connecting the reactions lows in an upward trend or the rally highs in a downward trend

Upward=bullish
Downward=bearish

A

Tread line

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30
Q

A technical analysis tool representing the total of the differences between advances and declines of security prices

Considered the best indicator of market movement as a whole

Aka: breadth-of-market theory

A

Advance/Decline Line

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31
Q

The number of issues closing up or down on a specific day

Declines outnumber advances=bearish
Advances outnumber declines=bullish

A

Market breadth

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32
Q

Rise through the resistance level

A

Bullish Breakout

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33
Q

Decline through the support level

A

Bearish Breakout

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34
Q

Top of trading range

A

Resistance level

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35
Q

Bottom of trading range

A

Support level

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36
Q

View changes in the trading volume of a stock to be an important predictor of future price movements

A

Technical Analysts

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37
Q

Attempts to predict the direction of prices on the basis of historic price and trading volume patterns when laid out graphically on charts

A

Technical Analysis

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38
Q

Concentrates on broad based economic trends; current business conditions within an industry; and the quality of a particular corporations business, finances and management

A

Fundamental Analysts

39
Q

Portfolio managers concentrate an undervalued or out-of-favor securities whose price is low relative to the company’s earnings or book value and whose earnings prospects are believed to be unattractive by investors and securities analysts.

Seek to buy undervalued securities before company reports positive earnings.

Buy stock at low end of 52 week price range

A

Value Style

40
Q

Portfolio managers focus on stocks of companies whose earnings are growing faster than most other stocks and are expected to continue to do so.

Likely to buy stocks that are at the high end of the 52 week price range.

Buying overvalued stocks

A

Growth Style

41
Q

What is the EPS formula if a stocks market price and P/E ratio are known?

A

Current market price of common stock ➗ P/E ratio

42
Q

What is the formula for P/E ratio?

A

Current market price of a common share ➗ EPS

43
Q

A tool for comparing the prices of different common stocks by dividing the current market price of the stock by the earnings per share

A

Price to earnings ratio

44
Q

Helps a fundamental analyst to evaluate a company’s performance without incorporating internet expenses or income tax rates

Operating profitability in single measure of success

A

Earnings before interest and taxes (EBIT)

45
Q

What are the 3 components of generating cash flow?

A
  1. Operating activities
  2. Inverting activities
  3. Financing activities
46
Q

Reports a businesses sources and uses of cash and the beginning and ending values for cash and cash equivalents each year

A

Statement of cash flow

47
Q

What is the formula for dividend payout ratio?

A

Annual dividends per common share ➗ EPS

48
Q

Measures the proportion of earnings paid to stockholders as dividends

A

Dividend payout ratio

49
Q

What is the formula for CY?

A

Annual dividends per common share ➗ market value per common share

50
Q

Assumes that all convertible securities, such as warrants and convertible bonds and preferred stock, have been converted into the common

A

EPS after dilution

51
Q

What is the formula for EPS?

A

Earnings available to common ➗ # of shares outstanding

52
Q

Measures the value of a company’s earnings for each common share

A

Earnings per share (EPS)

53
Q

Identifies significant financial and management issues that may affect the company’s overall performance, such as accounting methods used, extraordinary items, pending litigation and management philosophy.

Generally found on the bottom of financial statements and is several pages long

A

Footnotes

54
Q

A measure of the net worth of each share of common stock. It is calculated by subtracting intangible assets and preferred stock from total net worth, then dividing the result by the number of shares of common outstanding.

Aka: net tangible assets per share

Similar to NAV

A

Book value per share

55
Q

The ratio of total long term debt to total stockholders equity

Used to measure leverage

A

Debt to equity ratio

56
Q

A company’s ability to use long term debt to increase its return on equity.

High ratio of long term debt to equity=highly leveraged.

Stockholders benefit if the return on borrowed money exceeds the debt service costs

A

Financial leverage

57
Q

A measure of a corporations liquidity, calculated by adding cash, cash equivalents and accounts and notes receivable, but not inventory, and dividing the result by total current liabilities.

More stringent test of liquidity

A

Acid test ratio

58
Q

What is the formula for current ratio?

A

Current assets ➗ current liabilities

59
Q

A measure of a corporations liquidity - that is its ability to transfer assets into cash to meet current short term obligations. It is calculated by dividing total current assets by total current liabilities

Higher ratio=more liquid

A

Current ratio

60
Q

What is the formula for working capital?

A

Current assets - current liabilities

61
Q

What are the 4 elements of capital structure?

A
  1. Long term debt
  2. Capital stock
  3. Capital in excess of par
  4. Retained earnings
62
Q

Relative amounts of debt and equity that compose a company’s capitalization

A

Capital structure

63
Q

Combined sun of a company’s long term debt and equity securities

A

Capitalization

64
Q

The amount of a corporations net income that remains after all dividends have been laid to preferred and common stockholders.

Aka: surplus

A

Retained earnings

65
Q

The amount of money over par value that a company received for issuing the stock in a primary offering.

Par value is an arbitrary amount selected when the company is formed

A

Capital in excess of par

66
Q

What is the formula for net worth?

A

Total assets - total liabilities

67
Q

Stockholders claim on a company’s asset after all its creditors have been paid.

Equals total assets less total liabilities

Aka: new worth

A

Shareholder equity

68
Q

What does an income statement show?

A
  1. What came in
  2. What went out
  3. How much is left (before taxes)
69
Q

What are the three primary components of an income statement?

A
  1. Revenue
  2. COGS
  3. Pretax income
70
Q

Amount of taxable income

Operating income less interest payment expenses

A

Pretax income

71
Q

Determined by subtracting COGS and other operating costs (rent and utilities) from sales to arrive at net operating profit.

Resulting figure is EBIT

A

Pretax margin

72
Q

Costs of labor, material and production (including depreciation on assets employed in production) used to create finished goods.

Subtracting this from revenues shows gross operating profit

Normally reflects higher costs of more recently purchase inventory

A

Cost of goods sold (COGS)

73
Q

Indicate the firms total sales during the period (the money that came in)

A

Revenues

74
Q

A financial statement spanning a period showing the accounting profit or loss for the period

Judges the efficiency and profitability of a company’s operation

A

Income statement

75
Q

Financial obligations due for payment after 12 months

Ex: bonds and mortgages

A

Long term liabilities

76
Q

A corporations debt obligations due for payment within the next 12 months

EX: accounts payable, accrued wages payable and current long term debt

A

Current liabilities

77
Q

Represent all financial claims by creditors against the corporations assets

A

Total liabilities

78
Q

A property owned that is not physical

Ex: formula, copyright or goodwill

Generally carry little value to other entities

A

Intangible assets

79
Q

A tangible, physical property used in the course of a corporations everyday operations

Ex: buildings, equipment, land

Cost can be depreciated or deducted from taxable income

A

Fixed asset

80
Q

Cash and other assets that may be converted into cash within the next 12 months

Ex: cash and equivalents (T-Bills), accounts receivable, inventory and prepaid expenses

A

Current assets

81
Q

A financial statement showing the assets, liabilities and shareholders equity at a particular moment.

Does not indicate if business is improving or deteriorating

Assets appear in order of liquidity

A

Balance sheet

82
Q

What is the balance sheet calculation?

A

Assets- liabilities =equity

Or

Assets= liabilities + equity

83
Q

Provide a fundamental analyst with the information needed to assess that corporations profitability, liquidity, financial strength and operating efficiency.

Determines how financially viable a company is

Companies issue quarterly and annual reports to SEC

A

Financial statements

84
Q

The study of the business prospects of an individual company within the context of its industry and overall economy

A

Fundamental analysis

85
Q

Extent to which an asset or portfolio return exceeds or falls short of it’s expected return

+(positive) = buy recommendation which is desirable

A

Alpha

86
Q

Measure of a security or portfolio volatility in relation to the overall market (systematic risk)

Beta of 1= moves in line with market
Beta > 1 = more volatile than market
Beta <1 = less volatile than market
Beta = 0 does not move in relation to market

A

Beta and beta coefficient

87
Q

Made up of nonsystematic risk and systematic risk

A

Total risk

88
Q

Used to calculate the return that an investment should achieve based on the risk that is taken

Calculates a required return based on a risk multiplier called the beta coefficient

A

Capital asset pricing model (CAPM)

89
Q

Employs a scientific approach to measuring risk, and by extension, to choosing investments.

Involves calculating projected returns of various portfolio combinations to identify those that are likely to provide the best returns at different levels of risk

Concept of minimizing risk by combining volatile and price stable investments in a single portfolio.

Appeals to those with lower risk tolerance

Wants securities to have negative correlation

A

Modern portfolio theory ( MPT)

90
Q

Refers to short term portfolio adjustments that adjust the portfolio mix between asset classes in consideration of current market conditions

An active strategy

Ex: fee based accounts

A

Tactical asset allocation

91
Q

Refers to the proportion of various types of investments composing a long term investment portfolio

A passive strategy

A

Strategic asset allocation

92
Q

Refers to the spreading of portfolio funds among different asset classes with different risk and return characteristics based on the investment policy statement

Takes into consideration the investors desire for preservation of capital income, capital growth of a combination of both

A

Asset allocation

93
Q

A risk management technique that mixes a wide variety of investments within a portfolio, thus minimizing the impact of any one security on overall portfolio performance

A

Diversification

Series 7 (12 decks)

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