Flashcards
The peak is the top phase of the business cycle. It follows the expansion and precedes the contraction.
A pension plan is a contract between an individual and an employer, labor union, a government entity, or another institution that provides for the distribution of a defined benefit at retirement.
Performance based fees are investment advisory fees based upon the gains in the account only. State registered investment advisers can never charge performance based fees. Federally registered investment advisers may charge performance based fees to clients that meet the definition of high net worth individuals and to qualified clients. Charging a fee based on overall performance (a percentage of assets under management) is always allowed because it takes the gains and the losses into account.
Under securities law, a person is broadly defined. It does not include a minor, a dead person, or an incompetent person. The term person includes an individual, corporation, partnership, joint-stock company, fund, trust, government, or a political subdivision of a government.
A point is a unit that measures price fluctuations in the market. A point on a stock is $1. A point on a bond is worth $10, 1% of the par value.
The POP is the public offering price. On a new issue, the public offering price is the fixed price that the new share will be sold to the public in the initial public offering. The POP is listed in the prospectus.
An investor’s position is either the number of shares owned (a long position) or owed (a short position) by an individual. A dealer will also take positions in specific securities to maintain an inventory to facilitate trading.
A pre-emptive right is the right of the stockholder to maintain his proportionate share of the corporation by purchasing shares in a new issue in direct proportion to those already owned before the new issue is offered to the general public. Rights are short-term options, good for 30 days.
Preferred stock is a form of equity, an ownership interest in a company. Different from common stock, preferred stock is issued with a fixed or stated dividend. Preferred stock dividends are always paid before common stocks’ dividends. Although the dividend rate is fixed, the company is under no obligation to distribute the dividend.
The preliminary prospectus is the first prospectus that is distributed during the cooling-off period and that includes the essential facts about the forthcoming offering. The preliminary prospectus does not include the underwriting spread, the final public offering price, or the date the shares will be delivered. The preliminary prospectus is often called a red herring.
When referring to the sale price of a bond, a bond that is selling at an amount above its face value is selling at a premium
A preorganization certificate is an indication of interest in the purchase of a new issue. Under state law, the issuance of preorganization certificates is considered to be an exempt transaction, so long as there are no more than ten subscribers in 12 months.
The price-earnings ratio for a stock compares the current market price to the company’s earnings per share. It is a ratio that is good for comparison purposes within the same industry only. The formula for the PE ratio is the current market price of the stock divided by the issuer’s earnings per share.
A primary distribution is the sale of a new issue of securities to the general public. A prospectus is required when selling a primary distribution.
The primary market is where brand new shares of stock sold in an IPO trade. Also called an issuer market. Shares trade in the primary market only one time.
In a primary offering the issuer is selling securities to raise capital. The issuer may be selling stock or debt. A primary offering is also called an issuer transaction.
A prime brokerage account is an account set up for an institutional client in which one firm is responsible for providing custody and other services (prime broker) while a different firm is responsible for the execution of transactions (executing broker).
The prime rate is the interest rate that major banks charge their best commercial borrowers. The prime rate is an interest rate that is set by the bank, not by the Federal Reserve.
A principal is anyone who is actively engaged in the management of an investment banking or securities business. This designation includes sole proprietors, officers, directors, or partners of a company, or managers of offices of supervisory jurisdiction. The term principal also includes an investment banker who assumes risk by actually buying securities from the issuer and reselling them, it is the dealer side of broker-dealer. The term principal can also refer to an investor’s capital. Additionally, the term principal can be used to refer to the face value (par value) of a bond.
A principal transaction is the dealer side of broker-dealer. When acting as a principal the firm is buying and selling for its own account. Also referred to as a market maker. Engaging in principal transactions involves risk for the firm. When acting as a dealer with a client the firm will charge a mark-up or mark-down.
A private key is the encrypted code that allows direct access to the investor’s cryptocurrency. Like a bank account password, the private key should never be shared.
A private placement is a type of securities transaction in which very specific rules are followed. A private placement allows for the legal sale of unregistered non-exempt securities. SEC Regulation D is the federal private placement rule. Regulation D allows for the sale of securities to an unlimited number of accredited investors and up to 35 non-accredited investors. Under the Uniform Securities Act, the definition of a private placement is stricter. Under state law, a minimum of 10 offers can be made in a 12-month period of time, and no commission may be paid.
A profit-sharing plan is a type of qualified plan that an employer may offer to its employees. Contributions to a profit-sharing plan are at the discretion of the employer.
A tax is progressive when it increases as a person’s income increases. Income tax rates in the United States are progressive. The more an individual earns, the higher the income tax rate will be.
A prospectus is a legal document that must be given to every investor who purchases registered securities in a primary offering. It describes the details of the company and the particular offering.
A proxy is a power of attorney given by a stockholder to another person authorizing the holder to vote in place of the stockholder.
The Prudent Investor Act of 1994 sets forth the guidelines for fiduciaries to follow when purchasing securities. It built upon Modern Portfolio Theory replacing the Prudent Man Rules.
A public appearance is when a registered representative engages in a seminar, webinar, interactive electronic forum, radio or television interview, or other public speaking activity.
A public key generally refers to an investor’s crypto wallet’s address, which is similar to a bank account number. A public wallet key can be shared with people or institutions so they can send money or take money from the investor’s account when authorized to do so by the investor.
The public offering price is the price at which open-end mutual fund shares are sold to the public. In a fund that charges a sales charge the POP is equal to the net asset value per share plus the sales charge.
Purchasing power risk is the risk that a certain amount of money will not purchase as much in the future as it does today. Purchasing power risk is also known as inflation risk. Fixed income securities have purchasing power risk. Common stock is a hedge against inflation.
A put is an option contract that allows the owner to sell shares to the seller at the strike price when the market price is below the strike price. The buyer of the put is bearish. The buyer of the put pays a premium to the seller for the option. The put is good for up to nine months.
With a put bond, the owner of the bond has the power to deliver the bond to the issuer for par value at the owner’s discretion or within a time described in the bond indenture.
The buyer of a put has the power to sell shares at the strike price if the market price is below the strike. The put buyer is also referred to as being long the option, which simply means that they have bought the option.
The put writer receives a premium from the buyer for the obligation to buy shares at the strike price if the market price should be below the strike. The writer of an option is also referred to as being short the option, which simply means they have sold the option. The writer of a put is bullish. The writer would also be fine if the price moved sideways, staying out-of-the-money, and expiring worthless.
Qualified default investment alternatives (QDIAs) are options to create portfolio growth for defined contribution (DC) plan participants while protecting plan fiduciaries. QDIAs were introduced in 2006 by the Pension Protection Act (PPA) and offer a path for plan sponsors to designate default investment alternatives for participants who fail to choose investments. A QDIA must be either managed by an investment manager, or an investment company registered under the Investment Company Act of 1940. A QDIA must be diversified to minimize the risk of large losses. A QDIA may not invest participant contributions directly in employer securities. A QDIA may be one of these three: a life-cycle or targeted-retirement-date fund, a balanced fund, or a professionally managed account.
A qualified charitable distribution (QCD) is a distribution made out of an IRA paid directly to a 501(c)(3) organization. An individual must be age 70 1/2 or older to be eligible to make a QCD. The individual may not deduct the amount of the QCD as a charitable contribution on Schedule A. A QCD allows for the appreciation donated to be tax-free (excluded from taxable income). There is an annual limit on QCD, currently $108,000 in 2025. For a QCD to count as an RMD it must be paid by the RMD deadline.
A QDRO is an order done most commonly in a divorce settlement, allowing for the premature distribution of retirement plans assets to pay the spouse, former spouse, or child support, without the 10% early withdrawal penalty. A QDRO can only be issued against a qualified plan, not a SEP-IRA or an IRA.
A QLAC that meets IRS requirements allows the annuitant to exclude the values in these contracts from RMD calculation until the annuitant is age 85.
A qualified retirement plan follows the Employees’ Retirement Income Security Act (ERISA). Qualified plan contributions that are made by the employer are tax-deductible to the employer.
A Section 529 plan is a qualified tuition program.
The quick ratio takes the business’s current assets minus inventory divided by current liabilities. The quick ratio is also called the acid test ratio and is the most stringent measurement of a company’s liquidity.
Bond prices are quoted in the financial press. Corporate bonds are quoted in points with fractions, up to seven/eighths. Government bonds are quoted in points and up to 31/32nds. The quotes for corporate and government bonds are a percentage of the bond’s face value ($1,000). A corporate bond quoted at 97 ½ would have a price of $975.
Stocks and mutual funds are quoted in the financial press in dollars and cents.
The range is the difference between the security’s high and low price, for a particular period of time.
Bonds are rated for safety by various organizations such as Standard & Poor’s and Moody’s. These firms rate the companies issuing bonds as to their ability to repay and make interest payments. S&P ratings are from AAA, AA, A, BBB to C or D, with AAA representing the highest rating and C or D representing a company in default.
A REIT is a pooled investment vehicle that holds either buildings or mortgages or a combination of the two, in its portfolios. REITs may be listed or unlisted. Listed REITs trade in the secondary market and are used to expose an investor to real estate as an asset class. A mortgage REIT has mortgages in its portfolio. An equity REIT owns properties and depends upon rental income to be successful. It is the hybrid REIT that would have both mortgages and properties in its portfolio.
A realized gain occurs when an investor sells a capital asset for more than its cost basis. Realized gains are taxable. The rate at which the gain is taxed depends upon the investor’s holding period.
A recession is an economic contraction that is defined by at least two consecutive quarters of decline in GDP.
The record date is the date on which the corporation determines which stockholders are eligible for dividends. All stockholders of record on that date receive the dividend even though they may subsequently have sold their stock.