Brian Lee Quicknotes

Question 1

8k is

How long does info need to be sent for?

Answer 1

“reportable events”, i.e. material information, must send w/in 4 days

Question 2

10Q

Answer 2

10Q – Quarterly financial report

Question 3

IRR

Answer 3

Is expected return
Time value of money
IRR makes Net Present Value (NPV) = 0

Question 4

Central Tendency

Answer 4

(mean, median, mode, range)

Question 5

Standard Deviation

Answer 5

1 stand. dev. 67% of time, 2 stand. dev. 95%

Question 6

Correlation

Answer 6

low to negative correlation = diversification

Question 7

Systematic risk

Answer 7

Market (beta)
interest rate

PRIME
Purchasing power
Reinvestment
Interest rate
Market
E (insert)

Question 8

Unsystematic risk

Answer 8

Business (alpha), regulatory, political

Question 9

Money Market Instruments

Answer 9

Not insured
Highly liquid – short-term “parking garage” for money

short-term Treasuries (T-bills), certificates of deposit (CDs), commercial paper, repurchase agreements (repos), and money market mutual funds

Question 10

Insured Deposits

Answer 10

demand deposits & CD’s

Question 11

Safest securities for capital preservation and Income

Answer 11

Bills, Notes, Bonds

Question 12

Corporate Bonds

Answer 12

For investors who want to maximum income, risk determined by credit rating

Question 13

Long term bonds
Convertible bonds
Zero coupon bonds

Answer 13

Long-term bond prices more volatile than short-term bonds
convertible bonds – lower coupon rates and less interest rate sensitive
Zero Coupon bonds MOST volatile

Question 14

Duration is

Answer 14

a measure of volatility, NOT MATURITY

Question 15

Discounted cash flow

Answer 15

How much income does a bond generate (principal, coupon rate, maturity date).

Question 16

Municipal Bonds

Answer 16

Interest is Fed. tax exempt and State tax exempt if you are a resident of the state. High tax bracket investors are most suitable

• General Obligation Bonds – backed by taxes, i.e. income, sales, property
• Revenue Bonds – backed by user fees, i.e. tolls, leases (
• Industrial Development Bonds) IDR’s maybe subject to AMT

Question 17

Tax-Equivalent Yield – comparing tax-exempt bonds to taxable bonds

Answer 17

muni yield/ (100% - tax bracket)= equivalent corporate yield 2. Corp. yield x (100% - tax bracket) = equivalent muni yield

Question 18

ADR’S

Answer 18

facilitate domestic trading of foreign securities to diversify stock portfolio,
risk: fluctuating currency

Question 19

Restricted Stock

Answer 19

private placement (Reg. D) stock, restricted for 6 months, only
accredited investors ($1mill Net Worth–less home or $200k ann. Inc.)

Question 20

Open-end Investment Companies (mutual funds) - priced at end of day based on NetAsset Value (NAV) of the portfolio – A vs B vc C

Answer 20

a. Class A – Front-end load
b. Class B – Back-end load, contingent deferred sales charge (reduces over time)
c. Class C – Level load, flat annual fee (12b-1)

Question 21

Futures

Answer 21

a. Exchange traded
b. Consumers buy futures to lock in cost
c. Producers sell futures to lock in price

Question 22

Insurance-Based Annuity’s

Answer 22

1. Fixed Annuities
   a. Guaranteed return (No investment risk, has inflation risk, not a security)
2. Variable Annuity – Non-qualified, Tax deferred (10% penalty for dist. Prior to 59 1⁄2)
   a. Taxed in excess of basis (LIFO) as ordinary income
   b. Surrender charges
3. Index-Based Annuity
   a. Participation Rate determines return
4. Index up 10% + Part. Rate 80% → Investor Return = 8% 2. Valuation done by using point-to-point method

Question 23

Balance Sheet

Answer 23

assets, liabilities, net worth. Does not include income

Question 24

Statement of cash flow

Answer 24

income, expenses, taxes

Question 25

Most important non-financial information

Answer 25

Investment Objective

Question 26

Objectives – Capital Preservation w/ income

Answer 26

money market

Question 27

Nearly retired/retired

Answer 27

Time horizon is life expectancy Balanced (equity and debt)

Question 28

Diversification

Answer 28

Match investments w/ negative correlation, i.e. U.S. equities and Intl. equities

Question 29

Sector Rotation

Answer 29

Invest in industry sectors based on economic cycles, i.e. cyclical, non-cyclical

Question 30

Gift Tax how much & who pays it?

Answer 30

Gifts of >$15,000 – tax paid by donor

Question 31

Non-qualified plans

Answer 31

Higher cost basis = lower taxes @ retirement

Question 32

ERISA (Private Sector only) Investment choices

Answer 32

Investment choices - @ least 3

Question 33

404(c) Safe harbor

Answer 33

Investment choice, selection and communication

Question 34

Investment policy statement (not required)

Answer 34

includes plan objectives, asset allocation style, performance monitoring methods (does not include the Summary Plan Document which is required), also does not include specific securities included

Question 35

Trading Securities

Answer 35

1. Market makers – B/D’s in the OTC 2. Specialists – B/D on exchanges 3. Broker (agency) transactions – commissions 4. Dealer (principal) transactions – markups 5. Underwriting – spreads 6. Types of Orders a. Market Orders – filled immediately at the current Bid (sell) or Ask (buy) b. Limit Orders – Specifies a price to buy or sell c. Stop Orders – Specifies a condition (If/then) – to protect from loss (stop loss) SL BS - above market price BL SS - below market price

Question 36

Time weighted Return

Answer 36

measures portfolio manager’s return based solely on volatility of investments (Does not include cash flows by investors).

Question 37

Internal Rate of Return

Answer 37

expected return (YTM for bonds)

Question 38

Inflation-adjusted (real) return

Answer 38

actual return less the rate of inflation

Question 39

Benchmark portfolios

Answer 39

For which our performance can be compared, i.e. Russell 2000= small cap

Question 40

Broker dealer must register if Broker dealer does not register if

Answer 40

* OFFICE IN STATE * CLIENTS IN STATE(RESIDENTS) * SOLICIT IN STATE(MAIL) -- NO OFFICE ▪ NO CLIENTS (NOT RESIDENTS) ▪ CLIENTS ARE INSTIT/ISSUERS ONLY

Question 41

Agents must register if

Answer 41

Works for B/D, AND ▪ Sells or solicits securities(including sales asst., interns) Works for Non-Exempt Issuer (i.e. Corp.) ▪ Sells or solicits securities

Question 42

Agents don't have to register if

Answer 42

Works for B/D, AND ▪ Clerical duties only (Sales Asst., Interns) Works for Exempt issuer(i.e. Muni)

Question 43

IA don't have to register if they're one of the following:

Answer 43

▪ Foreign Adv. ▪ Venture Cap. Adv. ▪ Private Fund Adv. ▪ Advice to Insurance Co. only ▪ Intrastate

Question 44

IAR registers

Answer 44

W/ STATE ADMIN. any state the IAR has No office an office Automatically registered as IAR’s- officers, directors, partners

Question 45

illegal to sell an

Answer 45

unregistered, non-exempt security, EXEPT: ▪ Unsolicited ▪ Financial Inst. ▪ Issuer/UW ▪ Private Placements ▪ Fiduciaries o Sherriff, trustee in B/K o IsolatedNon-issuertrans.

Question 46

EXEMPT registered securities

Answer 46

U. S. Govt’s. Muni’s Bank/Insurance Co. Non-Profit/Religious Common Carriers (Trucking Co., Railroads, etc.) Canadian Gov’t (Fed and all subdivisions) Foreign Govt’s. (Fed only) Commercial Paper Maturity < 270 days Face value > $50,000

Question 47

ADMINISTRATOR (PROVISIONS)

Answer 47

Jurisdiction – over any offer/sale that originates, directed or accepted in their state * Subpoena – may compel testimony in all states, may designate someone to serve * Deny, revoke, suspend registration – in the public’s interest and: insolvency, lack of knowledge and training (never lack of experience solely), felony conviction, enjoinment from any regulatory authority * Cease and desist – people * Stop orders – securities * No order unless: notice and hearing (except summary (temporary)) * Criminal Penalty – 3yrs. jail/ $5,000 fine * Civil Penalty – Statute of Limitation – 3 yrs. from occurrence/ 2yrs. from discovery Right Of Rescission (30 days) – All monies + interest + court costs – div./interest

Question 48

FORM ADV

Answer 48

Part 1A – Business name, past 5 years affiliations, certified balance sheet. Officer, director, partner (Automatic Reg. as IAR) No Net Capital Req. Effective – w/ SEC 45 days Withdraw – Form ADV-W

Question 49

Client Custody of Funds/Securities

Answer 49

a. Receive 3rd party checks – must forward w/in 72 hrs. b. Receive securities – must forward w/in 72 hrs. c. Trading Authorization - B/D’s = no w/out client sign (except price/time)- IA’s = oral for up to 10 days d. Custody – Notify customers of location of securities, must segregate, qtly. statements to customers, surprise independent audit (Form ADV-E)

Question 50

QDRO

Answer 50

Qualified Domestic Relations Order allows distribution of a qualified retirement plan without penalty prior to 59 1⁄2. -Who can be a recipient - -former spouse -Dependents might qualify to receive the ordered benefits to make payment to an individual with legal responsibility for that payee. This can include a guardian as well as a trustee who serves as the agent of the individual -How it's taxed Once the distribution is made, the former spouse becomes responsible for any taxes due. -What they can roll it into to an IRA in your own name. If you choose to do the IRA rollover, the rollover is tax-free and those IRA funds are now yours.

Question 51

TAXES

Answer 51

alimony payments are no longer tax-deductible for the payer, and they aren't considered taxable income For the person receiving them and child support payments aren't deductible by the payer or taxable to the recipient.

Question 52

Access person

Answer 52

supervised person who has access to nonpublic information regarding clients' purchase or sale of securities, is involved in making securities recommendations to clients or who has access to such recommendations that are nonpublic.

Question 53

Stop Orders For each test question, determine:

Answer 53

Specify a condition when to buy or sell (If/then) 1. Does customer own (sell) or want to own(buy/long) 2. Attitude: Market up/market down SL BS BL SS

Question 54

Sally has a large gain in XYZ, and is concerned about a possible correction. As the IAR, which would you recommend? SLOB / BLISS

Answer 54

Sell Stop

Question 55

A customer has been researching XYZ and would like to take advantage if the stock should break through resistance. Which would you recommend?

Answer 55

Buy Stop

Question 56

Your customer is confidant their stock will continue to rise and would like to sell when it gets to a specific price. As the IAR you would most likely recommend

Answer 56

Sell Limit

Question 57

Your customer places an order to sell 100 shares 43.50 Stop. Using the trade sequence below, at what price is the order executed? 43.78 43.65 43.52 43.55 43.50 43.47 43.45 43.40

Answer 57

43.47

Question 58

Hedge strategies for call & puts

Answer 58

---------Long/buy. Short/sell. Call. Protect -------- income Put. Protect -------- income Hedge a short stock -- Buy a call or sell a put Hedge a long stock -- sell a call or buy a put