Unit 4 Flashcards Preview

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Flashcards in Unit 4 Deck (62):
1

S Corporation

-Taxed like a partnership
- profits and losses are passed through directly to shareholders
- no double taxation

2

C Corporation

- best when you need to raise lots of capital
- fully separates owners from business entity
- subject to double taxation
- only look at business when determining suitability

3

Sole Proprietorship

- easiest to form and dissolve
- owner has fully liability
- all of owners assets are liable for debts of business

4

LLC limited liability company

- combines benefits of Corporation with tax advantages of a partnership
- owners are members not shareholders
- company survives the death of the owners

5

Transfer on Death Accounts (TOD)

- upon death property is immediately transferred to the named beneficiaries
- is a designation of an individual account or a JTWROS

6

Joint Tenants With Right of Survivorship (JTWROS)

- when one person dies all of the assets go to the other Tennant regardless of contributions

7

Tenants in Common

- when TT dies their assets go into their estate
- then distributed according to their will

8

Tenancy by the entirety

- can be created only by married people
- consent of both parties is required before selling or giving away interest in property

9

Trust

- legal entity that offers flexibility to an individual who wishes to transfer propriety

10

Settlor (maker, grantor, trustor donor)

- supplies property for trust
- creates the trust

11

Trustee

- person legally holding the property held in the trust.
- a fiduciary obligated to do what is in the best interest of the beneficiaries

12

Beneficiary

- person who benefits from the trust
- settlor can be a beneficiary

13

Simple trust

- all in one earned must be distributed within that year

14

Complex trust

- may accumulate income and distribute according to trust terms

15

Living trust

- established during lifetime of maker

16

Testamentary trust

- contents go into trust once person passes away

17

Revocable trust

- must be living trust
- only the maker can change or revoke
- no estate tax benefit
- becomes irrevocable at death

18

Irrevocable trust

- settlor gives up all ownership
- settlor can retain some interest in certain situations

19

Grantor retained annuity trusts

- beneficiaries receive fixed annuity each year after death of settlor
- major tax benefits
- tax liability falls on maker

20

Estate accounts

- similar to trusts have fiduciary oversight
- executor makes all of the investment decisions

21


Fiduciary account
Examples:
Trusts
Executor
Administrator
Guardian
Custodian
Receiver in bankruptcy
Conservator for incompetent person


Anyone legally appointed and authorized to represent another person

22

Full power of attorney

Allows Person who isn't owner to
Deposit, withdraw, make investment decisions

23

Limited power of attorney

Some but not total control of account

24

Durable power of attorney

- POA survives mental incapabilities but not death

25

Financial profile

Debt
Tax status
Income sources
Balance sheet
Expenditures
Liabilities

26

Non financial profile

Investment experience
Attitude/ values
Number/ age of dependents
Employment stability
Employment of family members
Family health/ education needs

27

Risk tolerance

-Clients objectives
-Amount available for investing
-Clients aversion to risk
- liquidity requirements
- how much loss can you afford
- time horizon for investments
- expectations

28

Preservation of capital

1. Bank insured CDs
Money market account
Bank insured Bonds
Savings accounts

29

Current income

Government/ agency bonds
Corporate bonds/notes
Preferred stock
Utility company stocks

30

Capital growth

Stocks

31

Speculation

Highly volition stocks
High yield bonds
Options or indexes
Commodity

32

College tuition

Zero coupon bonds maturing in time for college

33

Capital needs analysis

Pay off debt
Income for survivor
College tuition
Estate taxes

34

Disability income options

SS
Workmans comp
Disability insurance

35

Constant ratio plan

Keep same amounts of stock to cash

36

Constant dollar amount

Keep same amount of dollars in account

37

Tactical asset allocation

Active management of portfolio
- adjusting stocks to bonds ratio to capitalize on market cycles


38

Buy and hold

Low fees and maintenance

39

Growth manager

Looks for stocks generating earning momentum
- looking for high PE ratio high PB ratio
- little to no dividends

40

Value manager

Low PE ratio
High dividend
Stock with large cash surplus

41

Large cap

10 billion plus

42

Mid cap

2-10 billion

43

Small cap

300 mil- 2 billion

44

Contrarian manager

Takes position opposite of other managers or the general market

45

Barbell income strategy

Buying bonds with short term and long term maturities with nothing in the middle

46

Bullet income strategy

Pick a date and buy bonds that mature during it.

Do this for multiple years

47

Ladder income strategy

Bonds bought at same time mature at different times.

48

Sharpe ratio (risk adjusted ratio)

(Average annual return - risk free rate)/ standard deviation

49

Quick ratio

Current Assets (excluding inventory)/ Current liabilities

50

Monetary policy

- Controlled by federal reserve
- determines size and rate of growth if the money supply

51

Fiscal policy

Controlled by president
- way government adjusts spending and tax levels to influence nations economy

52

Summary plan document

Required to give to plan participants by plan administrator.
IA does not give it out.

53

Expected rate of return

The probability of each possible return outcome and multiplying it by the return outcome in self

54

Feasible set

All portfolios that can be constructed from a given set of stocks.
Under modern portfolio theory

55

Investment policy statement

- Methods of performance measurement.
- way to determine cashflow needs

56

Specialist

Broker dealer who buys and sells listed securities on an exchange

57

ERISA 404(c)

Places investment risk with plan participant

58

Market maker

Broker dealer who buys and sells unlisted securities over the counter

59

Total return

How a security performed over time.

$20 stock $1 dividend, sold after a year for $24
Total return= $5 or 25% ($5/$20)

60

Customer balance sheet

Assets: Home, property, investments, jewelry, bank account

Liabilities: mortgage, loans

Not included: salary, utilities, taxes, investment income, monthly loan

61

Statement of cashflow

Salary, utilities, taxes, investment income, monthly loan

Not included: assets and liabilities

62

Index option

Gives the holder the right to buy or sell he value of an underlying index