Flashcards

An interstate offering is a securities offering that will be sold across state lines. Interstate offerings must be registered, prior to sale, with the SEC, as well in each state in which the security will be sold.

To die intestate is to die without a will. The state will appoint an administrator to oversee the settling of the decedent’s estate. The process will be public, going through the probate court, and opening up the estate to the claims of creditors.

An intrastate offering is a securities offering that takes place in one state only.

A call option has intrinsic value when the market price is above the strike. A put option has intrinsic value when the market price is below the strike price. An option with intrinsic value is said to be in-the-money. An option with intrinsic value may be exercised by the owner of the option.

An inverse ETF is an exchange-traded fund designed to capitalize on intraday bearish movements in the markets. An inverse ETF trades on the stock market and is designed to perform the inverse (opposite) of the index it tracks. When the underlying target index goes down, the value of the inverse ETF is designed to go up. The target index may be broad-based, like the S&P 500, or it could be a basket chosen to follow a specific area of the economy, such as the financial sector.

An inverted yield curve is one where the highest yields are on short-term debt, and the lowest yields are on the long-term debt. An inverted yield curve is also called a negative yield curve. An inverted yield curve is often the precursor to an economic contraction.

An investment adviser is a firm that manages money for the accounts of others. An investment adviser files Form ADV to register as an investment adviser, either with the SEC or at the state level, depending upon current rules. An investment adviser to a mutual fund has the day-to-day responsibility of investing the cash and securities held in a mutual fund’s portfolio. The adviser must adhere to the objective as stated by the client or found in the fund’s prospectus.

Amended by the Dodd-Frank Act in 2010, investment advisers are required to register at the federal level (with the SEC) if they manage a mutual fund or have $100 million or more in assets under management (AUM). Investment advisers with assets under management under $100 million are required to register at the state level. Investment advisors are the firms that either charge a flat fee for investment advice or an asset-based advisory fee.  The investment advisory fee of a mutual fund is the fund’s largest expense.

The investment banker is a broker-dealer that is hired by a corporation or government to raise capital by marketing new issues.  Sometimes called the underwriter, sponsor, or distributor.

An investment company is engaged primarily in the business of investing and trading in securities. There are three types of investment companies under the Investment Company Act of 1940: face-amount certificate companies, unit investment trusts, and management companies. All mutual funds are management companies. Management companies employ investment advisers (investment managers) to manage the assets in the portfolios.

The Investment Company Act of 1940 regulates investment companies.  The act requires any investment company that is engaged in interstate commerce to register with the SEC.

Investment grade securities are debt instruments that are rated BBB/Baa or higher. They are often purchased by fiduciaries.

The investment objective is the goal of the client or the goal of the mutual fund portfolio. There are many different investment objectives including safety/preservation of capital, income, and growth.

A person’s income may affect how much they pay in premiums for Medicare Part B and Part D. This adjustment is commonly referred to as IRMAA – income-related monthly adjustment amounts. IRMAA is calculated based on a person’s MAGI on their tax returns two years prior. For example, in 2023 an individual with MAGI over $97,000 (over $194,000 if MFJ) will pay higher premiums for Medicare Part B and D. The income that is used for the IRMAA calculation is a person’s MAGI from their tax return two years prior, in this case 2021. Most people do not pay any premium for Medicare Part A, but even if they do, there is no income-related surcharge, so Medicare Part A premiums are not affected by income. How much IRMAA affects Part B premiums depends on the household’s income. In 2023, Medicare Part B’s premium is $164.90. IRMAA can add up to $395.60 a month to the Part B premium. In 2023, IRMAA can increase Part D’s premium by as much as $76.40.

A named beneficiary whose rights to life insurance policy proceeds are vested and whose rights cannot be canceled by the policy owner unless the beneficiary consents.

Issued stock is the stock that has been sold to the public. The corporate charter lists authorized stock, which is the maximum number of shares that the issuer may sell.

The issuer is a corporation, municipality, or the U.S. government that offers or proposes to offer its securities for sale.

Coverage that is offered to an employee (and often his or her family) by an employer.

In a joint account there are two or more individuals who possess power over the account. Joint accounts must be designated as either tenants in common or joint tenants with right of survivorship.

A joint and last survivor life annuity is an annuity that pays until the last party dies. After the death of the first party, the payments will continue for the lifetime of the survivor, usually at a reduced rate.

This payout option covers two or more lives, and pays an amount monthly until the last party dies.

A life insurance policy that covers two insureds and pays when the last party dies.

A life insurance policy that covers two insureds and pays when the first party dies.

Joint tenants in common is an ownership designation where two or more individuals hold fractional interests in an undivided asset. At the death of one of the tenants, the decedent’s interest passes to his or her heirs, not to the other tenants, going through the probate process. The asset may be owned unequally.

Joint tenants with right of survivorship is an ownership designation whereby the entire asset is owned by two or more individuals equally.  At the death of one of the tenants, the decedent’s interest passes to the survivor(s), avoiding probate.

Junk bonds are also called high yield bonds. They are bonds issued by issuers that have poor credit ratings. Junk bonds are risky bonds.

Life insurance covering the lives of children who are within specific age limits, generally under parental control.

Qualified retirement plan for the self-employed.

A Keogh plan is a qualified tax-deferred retirement plan for persons who are self-employed and unincorporated or who earn extra income through personal services aside from their regular employment. Keoghs are also called HR 10 plans.

Key person life insurance is purchased by the business on a company executive. The policy is owned by the business. Key person life insurance would pay the face amount to the business if the key person dies. Premiums paid for key person life insurance are not tax-deductible to the business since it is a policy that benefits the business. Life insurance proceeds are not taxable.

Keynesian economists believe that active government intervention in the market is best for strengthening the economy.

FINRA rule 2090, Know Your Customer, requires firms to use reasonable diligence in regard to the opening and maintenance of every account, and to know the essential facts concerning every customer. The know your customer obligation arises at the beginning of the customer-broker relationship and does not depend on whether or not the broker has made a recommendation.   Essential facts include those required to; effectively service the customer’s account, act in accordance with any special handling instructions for the account, understand the authority of each person acting on behalf of the customer, and comply with applicable laws, regulations, and rules.

A lagging economic indicator will take 3-12 months to change after the economy has entered a new phase. Lagging indicators include the duration of unemployment and corporate profits.

The rate at which life insurance policies terminate because of failure to pay the premiums. When policies lapse before enough premium payments are made to cover early policy expenses, the company must make up this loss from remaining policyholders. Therefore, the lapse rate will affect the cost of the policy.

In general, a group health plan that covers employees of an employer that has 51 or more employees. In some states, large groups are defined as 101 or more.

Last in, first out is an accounting method in which the assets sold are assigned a cost basis from the most recent purchases, generally resulting in the smallest gain, thus the smallest tax bill due.

The law of large numbers is a statistical concept that calculates the average number of events or risks in a sample or population to predict something. The larger the population is calculated, the more accurate the predictions. In the field of insurance, the Law of Large Numbers is used to predict the risk of loss or claims of some participants so that the premium can be calculated appropriately.

Leading economic indicators change 3-12 months before the economic cycle changes. They predict where the economy is heading. Building permits, new orders for durable goods, and initial unemployment claims are all leading indicators.

Regardless of the type of municipal bond issued, the bond must be accompanied by a legal opinion of counsel.  The opinion of counsel affirms that the issue is a municipal issue and that interest is exempt from federal taxation, among other items.

For an insurance policy to be a legal contract it must include four elements. C – O – A – L. L stands for legal purpose and capacity. The policy must be purchased for a legal purpose and the owner must be the age of majority in the state and of sound mind.

The amount of policy reserves (cash on hand) required under state insurance laws.

Legislative risk is the risk that tax law could change.

A letter of intent allows the investor to qualify for the reduced sales charge currently by promising to invest an amount qualifying for a breakpoint within 13 months from the date of the letter. The letter is a unilateral agreement; the client is not bound to the terms of the letter.  A letter of intent may be back-dated up to 90 days, leaving 10 months going forward. Shares will be held in an escrow account to pay the additional sales charge owed if the client does not fulfill the letter of intent. Reinvested dividends and capital gains distributions do not count toward a letter of intent.

Leverage financing is the process of raising capital through the sale of bonds. Leverage is the use of borrowed funds for investment. A highly leveraged company would represent a type of financial risk to the client.

A liability is money owed. Current liabilities include monies owed in the next 12 months. Long-term liabilities are those owed in over one year.

For more than 40 years, the London Interbank Offered Rate—commonly known as LIBOR—was a key benchmark for setting the interest rates charged on adjustable-rate loans, mortgages, and corporate debt. LIBOR was set each day by collecting estimates from up to 18 global banks on the interest rates they would charge for different loan maturities, given their outlook on local economic conditions. LIBOR was based upon estimates, not actual transactions. Over the last decade, LIBOR has been burdened by scandals and crises. LIBOR has been replaced by the Secured Overnight Financing Rate (SOFR), which many experts consider a more accurate and more secure pricing benchmark.

Required for an insurance producer (agent) to legally engage in the business of insurance in a state. Issued for a period of time, states will require a fee and many require continuing education to be completed to renew a license.

A life annuity is a type of annuity that pays the annuitant monthly, until death. A life annuity has the highest risk to the annuitant, thus it will pay the highest monthly payment. There is no beneficiary on a life annuity. Life annuities are also called life only or straight life annuities.

A life annuity with a period certain has a guarantee that payments will continue for a set number of years.   If the annuitant dies before the set period has expired, payments will be made to a beneficiary for its duration.