Securities and Investments

Securities and Investments

Study Guide

Vocabulary

●Analytical Information = Numbers behind stock

●APR = Annual Percentage Rate

●Bond = debt security, under which the issuer owes the holders the debt along with interest (the coupon) that accrues with it

●Capital Appreciation = an increase in the price or value of assets. It may refer to the appreciation of company stocks / bonds, an increase in land valuation

●Capital Gains = a profit from the sale of property or of an investment

●Churning = excessive trading by a broker in a client's account largely to generate commissions

●Codicil = an addition or supplement that explains, modifies, or revokes a will or part of one.

●Commercial Paper = short-term unsecured promissory notes issued by companies

●Commodities = Wheat, Barley, AKA Natural Resources

●Compounding = Interest that compounds on itself.

●CPI = consumer price index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.

CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. This is because large rises in CPI during a short period of time typically denote periods of inflation and large drops in CPI during a short period of time usually mark periods of deflation.

●Criterial Standard = Cant find it 3728472784928492484892838

●Custodial Account = set up for the benefit of a beneficiary, and administered by a responsible person, known as a custodian, who has a fiduciary obligation to the beneficiary

●Defined Benefit Plan = a company pension plan in which an employee's pension payments are calculated according to length of service and the salary they earned at the time of retirement.

●Estate = everything comprising the net worth of an individual, including all land, possessions and other assets.

●Executor / Executrix (Female) = the person appointed to administer the estate of a person who has died leaving a will which nominates that person

●Futures Market = people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future

●GDP = the broadest quantitative measure of a nation's total economic activity. More specifically, GDP represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time.

●Indemnification = the part of an agreement that provides for one party to bear the monetary costs, either directly or by reimbursement, for losses incurred by a second party.

●Insurable Interest = An insurable interest is an economic stake in an event for which an insurance policy is purchased to mitigate risk of loss. An insurable interest is a basic requirement for an insurance company to issue a policy. Entities not subject to financial loss from an event do not have an insurable interest and cannot purchase an insurance policy to cover that event.

●Investment Club = group of people who pool their money to make investments. The group decides to buy or sell based on a majority vote of the members

●IPO = It’s Probably Overpriced OR Initial Public Offering

●IRA = Individual Retirement Account, and it's basically a savings account with big tax breaks

Traditional IRA deductible now and taxed on way out

ROTH IRA Taxed on way in, and grow interest free.

●Junk Bond = a high-yield, high-risk security, typically issued by a company seeking to raise capital quickly in order to finance a takeover.

●Leverage = use of various financial instruments or borrowed capital to increase the potential return of an investment. More debt than equity.

●Mortgages

●Negotiated Commissions = Generally applies only to large transactions / clients

●Odd Lot (stocks) = An odd lot is a number of shares less than 100 (1-99)

●Par Value = nominal value of a security

●Personal Risks = risks that affect someone directly such as illness / disability / death

●Point (stocks) = one point equals one dollar. Lost 4 points = Lost $4

●Prospectus = a printed document that advertises or describes a school, commercial enterprise, forthcoming book, ETC.

●Pure Risk = which loss is the only possible outcome. Beyond your control

●Round Lot (stocks) = A "Round Lot" is 100 shares of stock EX) 1200

●SIPC = Securities Investor Protection Corporation Restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins.

●Speculation = the forming of a theory or conjecture without firm evidence.

●Speculative Investments = engaging in risky financial transactions in an attempt to profit from fluctuations in the market. Not 100% sure.

●Stock Option = a benefit in the form of an option given by a company to an employee to buy stock in the company at a discount or at a stated fixed price

●Stockbroker = professional individual, usually associated with a brokerage firm or broker-dealer, who buys and sells stocks and other securities for both retail and institutional clients

●SWAPS = swaps are customized contracts that are traded in the over-the-counter (OTC) market between private parties. agreement between two parties to exchange sequences of cash flows for a set period of time

●Treasury Bill = a short-dated government security, yielding no interest but issued at a discount on its redemption price.

Things to Know

●Purpose of form 10-K = A 10-K is a comprehensive summary report of a company's performance that must be submitted annually to the SEC

●Types of brokerage accounts

There are three types of brokerage accounts: cash, margin and option.

In a cash account, the client must pay, in full and by the settlement date, the amount due on any transaction. All money and securities in a cash account are wholly owned by the client and entirely held in her name.

A margin account allows the client to borrow money or securities from the broker-dealer in order to gain greater leverage on her transactions - that is, to buy as much as double what she could with a cash account. Before the account is activated, the client must sign a hypothecation agreement, which will be discussed soon. The broker-dealer must document that the client has been informed of all risks associated with trading on margin. A margin account must have at least $2,000 in invested capital; a day trader's margin account must have at least $25,000.

An option account is a margin account approved by the broker-dealer for trading on the CBOE. The client will get such approval only if the broker-dealer determines that there is adequate equity in the account, that the client has adequate net worth and that the client is sophisticated enough to invest prudently in the riskier realm of options trading. A more detailed risk disclosure statement is required.

Customer Account Ownership

There are several arrangements for ownership of a customer account, and these are the two most important:

1) Individual: A simple account with the name of one, and only one, real person attached.

2) Joint: Typically used by people who are married or cohabiting. Joint accounts are almost always for two people who are residing together. However, this is a matter of social convention rather than law, and it is not inconceivable to have joint accounts with more than two names attached. There are two flavors here:

●The small company financial index = Russell 2000 index is an index measuring the performance approximately 2,000 small-cap companies. serves as a benchmark for small-cap stocks in the United States.

●The largest stock exchange in the world = 1) NYSE 2) NASDAQ 3) London Stock Exchange

●Reasons for diversification in investing = EASY

●Purpose of an investment trust = has a fixed number of shares. The fund manager can invest and sell assets when they feel the time is right; not when investors join or leave a fund.

●Purpose of ownership with rights of survivorship =

●Formula for the P/E Ratio = the market value per share divided by the earnings per share

●Purpose of the stock index = a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.

●Income Stock = pays regular, often steadily increasing dividends, high yield

●Types of life insurance policies

Term Insurance = simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years.

●Level term means that the death benefit stays the same throughout the duration of the policy.

●Decreasing term means that the death benefit drops, usually in one-year increments, over the course of the policy’s term.

Whole life Insurance = pays a death benefit whenever you die—even if you live to 100! There are three major types of whole life or permanent life insurance—

traditional whole life = insurance payout is made to the contract's beneficiaries. These policies also include an investment component, which accumulates a cash value that the policyholder can withdraw or borrow against.

universal life insurance = the excess of premium payments above the current cost of insurance is credited to the cash value of the policy

variable universal life = offers increased flexibility and growth potential over a traditional cash-value whole life insurance policy

●Reasons to complete client policy statements

statement provides the general investment goals and objectives of a client and describes the strategies that the manager should employ to meet these objectives. Specific information on matters such as asset allocation, risk tolerance, and liquidity requirements would also be included in an IPS.

●401K vs. 403B

403b for teachers and ministers

403B allows a higher amount of funds to be taken from gross earnings and saved in the deferred savings account

W2 Form (monthly)

The W-2 form reports an employee's annual wages and the amount of taxes withheld from his or her paycheck.

W4 Form (when hired) - tells the employer the correct amount of tax to withhold from an employee's paycheck based on the employee's marital status, number of exemptions and dependents and other factors.

●Types of tax forms (1099-INT, 1099-DIV, etc.)\

●1099-INT = Interest Income

●1099-DIV = Interest from dividends

●Interest on loans that are tax deductible

Interest on home loans (including mortgages and home equity loans)

Interest on outstanding student loans

Interest on money borrowed to purchase investment property

Interest as a business expense

●Parts of a will

Title of the Document

Declaration

Name of the Executor

Name of Guardian for Minor Children

Details of Beneficiaries

Details About the Assets

Bequests

Funeral Arrangements

Signatures

●Types of Trusts

Living Trust = usually created by the grantor during his or her lifetime through a transfer of property to a trustee. The grantor generally retains the power to change or revoke the trust. When the grantor passes away, this trust becomes irrevocable

Testamentary trusts = sometimes called trusts under will, are trusts that are created by a will after the grantor dies.

Funded = A trust may be fully or partially funded by the grantor during his or her lifetime or after death. In the case of a funded trust, it means that property has been put inside the trust.

Unfunded = An unfunded trust is simply the trust agreement. Some trusts remain unfunded until the death of the grantor, or may just stay unfunded.

●Examples of secondary markets = A secondary market is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges - such as the New York Stock Exchange and the NASDAQ are secondary markets.

●Formula for Net Asset Value = fund's net assets divide by the number of shares outstanding

●Types of investment transaction costs

agent's commission and closing costs such as title search fees, appraisal fees and government fees.

●Types of yields for bonds

Fixed Rate Bonds: The coupon rate or nominal yield will be fixed and will not change over the lifetime of the bond.

Floating Rate Bonds: The coupon payments/nominal yield will change over the life of the bond as dictated by changes in the referenced rate of interest.

Indexed Bonds: The coupon payments/nominal yield will change in response to movement within its underlying index.

The nominal yield is the return of a bond as determined by the percentage of the face value the bond’s annual coupon payments amount to

running yield is a measurement of a bond’s return or yield each year as represented as a percentage of the bond’s current market value or price.

●Types of bonds

Bills - debt securities maturing in less than one year.

Notes - debt securities maturing in one to 10 years.

Bonds - debt securities maturing in more than 10 years.

Zero Coupon Bond= no coupon payments but instead is issued at a considerable discount to par value.

Municipal Bonds = Cities don't go bankrupt that often, but it can happen. The major advantage to munis is that the returns are free from federal tax.

Corporate Bond = A company can issue bonds just as it can issue stock.

●Priorities in a bankruptcy (who gets paid first) =

1)Goes to persons who become creditors after the company files for bankruptcy

2)Secured creditors, such as banks lending money backed by a mortgage on real estate

3)General creditors, such as suppliers of goods and services, and other lenders and bondholders, have a greater potential for recovering their losses than stockholders

4)Stockholders are last in line

●Purpose of the Office of Investor Education and Advocacy = help you to invest wisely and avoid fraud. Don’t tell u what to invest in.

●The Fair Disclosure Rule (Regulation FD) = mandates that all publicly traded companies must disclose material information to all investors at the same time