Flashcards
The maturity date is the date on which a company is scheduled to repay the principal of a bond to the bondholder. Corporate bonds mature in up to 30 years.
It is this 1945 Act that exempts insurance from federal law to the extent that it is regulated by state law.
The mean is the average of the set of numbers.
The median is the middle number of the set of numbers.
An organization that collects medical data on life and health insurance applicants for member insurance companies.
Mining refers to complex mathematical processes used to develop new coins, such as bitcoin, or verify new transactions. Mining usually involves many computers working to solve complex mathematical calculations on a block of transactions. Once solved or “mined,” the new coin is added to the blockchain.
A false statement of a material fact, accidental or intentional.
The falsification of the applicant’s birth date or gender on the insurance application. When discovered, the coverage will be adjusted to reflect the correct age or gender according to the premium paid in.
Master Limited Partnerships (MLPs) are publicly listed limited partnerships that trade on a national securities exchange, therefore they are typically more liquid than traditional limited partnerships. Most MLPs have general partners and many limited partners (the investors). The general partners manage the day-to-day operations, while the limited partners purchase shares in the MLP and provide capital in return for cash distributions from the entity’s operations. MLPs primarily focus on natural resource-related activities, including oil, gas, coal, timber, and certain ways of transporting commodities.
The mode is the number that occurs most frequently in the set of numbers.
The frequency of premium payment is referred to as the mode of payment. The more often the premium is paid the more expensive it will be due to service fees.
Modern Portfolio Theory is the work of Harry Markowitz. Modern Portfolio Theory states that investments should not be viewed in isolation but in relationship to each other. Modern portfolio theory’s goal is to build the most efficient portfolio. An efficient portfolio offers the most return for a given level of risk or the least risk for a given amount of return. A collection of efficient portfolios is called an efficient frontier.
A MEC is a whole life insurance policy that fails the seven-pay test. When a life insurance policy’s cash value exceeds the premiums paid in the first seven years the policy loses its tax favorability. Any withdrawals (including loans and partial surrenders) taken from cash value accumulation are taxed LIFO (last in, first out – earnings come out first). Earnings are taxable as ordinary income. Additionally, MECs have a 10% penalty for distributions made under age 59 1/2 (premature distributions).
Monetary policy is set by the Federal Reserve. Monetary policy includes buying and selling U.S. government securities through open market operations, setting the target for the federal funds rate, setting the discount rate, and determining banks’ reserve requirements. Monetary policy is designed to control the economy through manipulation of the money supply.
Money laundering involves the conversion of illegally obtained funds into legal tender. There are three stages to money laundering: placement, layering, and integration. Broker-dealers must have Anti-Money Laundering procedures designed to detect this practice.
The money market is the market where short-term debt issues trade. Money market instruments are forms of debt that mature in one year or less and are very liquid. Treasury bills make up the bulk of trading in the money market.
In the portfolio of a money market fund are short-term debt instruments, with a maximum maturity of one year. Money market funds are conservative investments. They attempt to maintain a stable NAV of $1 per share but do not guarantee it. Money market funds are good for investors looking for safety and liquidity. They pay very little income.
A Monte Carlo Simulation is a statistical method used to determine the most likely outcomes by assigning random values based on the risk and return characteristics for a specific security or a portfolio of securities.
Moody’s is a rating company. They rate bonds, commercial paper, preferred and common stock, and municipal short term debt. Moody’s rates consist of both uppercase and lowercase letters. Baa or higher are considered investment grade securities.
Hazard arising out of an insured’s character, habits, financial responsibilities, etc. A liar represents a moral hazard.
Moral obligation bonds occur when a state government, through its legislature, shows its intent to appropriate funds in the future if the primary obligor (municipality) defaults. With a moral obligation bond, the payment of interest and principal is not legally binding on the legislature.
Hazard arising out of an indifference to loss because of the existence of insurance. A careless person represents a morale hazard.
The incidence of death at each attained age; frequency of death.
The cost of the insurance protection based upon actuarial tables which are based upon the incidence of death, by age, among given groups of people. This cost is based on the amount at risk under the policy, the insured´s risk classification at the time of policy purchase, and the insured´s current age.
The mortality guarantee is part of a variable annuity contract under which the company agrees to continue annuity payments even if the annuitant lives longer than the mortality tables predicted.
Listing of the mortality experience of individuals by age. This table allows an actuary to calculate, on average, how long an individual will of a given age and gender may be expected to live.
The most common type of secured bond is a mortgage bond. A mortgage bond is a type of corporate debt that is backed by real estate collateral; land, or buildings owned by the corporation. In the event of a corporate liquidation, the land or buildings will be sold to pay off the mortgage bondholders.
A type of term life insurance that can pay off or reduce the balance owing on a real estate purchase or refinance mortgage. Death benefit amounts track with the balances due on the loans. Coverage may be available on a group basis through creditors or licensed agents (producers) on an individual basis.
Municipal bonds are debt issued by any district, authority, or government (state, county, city, township, and so on) other than the federal government. The debt is issued at face value, paying a stated interest rate semi-annually. Interest on municipal debt is federal income tax-free, but capital gains are taxable. If the investor purchases municipal debt issued in the same state that they live in then the interest is double-exempt, tax-free at both the state and federal levels.
The portfolio of a municipal bond fund consists of municipal bonds, offering the investor federally income tax free dividends.
Municipal Notes are short-term notes issued by municipalities in anticipation of taxes, bond issues, or revenues. They are issued for cash-flow purposes, as temporary financing for projects or payment of interest or principal. Municipal notes are secured by the general obligation pledge of the issuer.
The MSRB is the self-regulatory agency for the municipal securities industry. The MSRB has rule-making authority but does not have enforcement ability. MSRB rules are enforced by various regulatory agencies, including FINRA and the SEC.
An open end mutual fund is a type of management company that continuously offers new shares. The shares are redeemable and represent ownership in a pool of securities (the fund’s portfolio). The shares are redeemed at their next determined net asset value per share, within seven calendar days. Mutual funds must be sold with a prospectus. The prospectus will describe the costs associated with the fund and the fund’s investment objective.
An insurance company owned by its policyholders. Mutual insurance companies usually issue participating policies. The policyowners of participating policies may receive dividends.
When an investor sells a call and does not own the underlying security they are said to be naked. To sell a naked call exposes the investor to unlimited risk. Uncovered is used to describe selling an option on a security that the investor does not own.
NASDAQ, or the National Association of Securities Dealers Automated Quotation system, lists the bid and offering prices for the securities that are listed on the NASDAQ. Market makers enter their prices into this negotiated marketplace.
The association of state insurance Commissioners. They work together to solve insurance regulatory issues and form and recommend model legislation and requirements.
The NSCC is an organization that acts as the middleman between broker-dealers and exchanges.
It is the National Securities Markets Improvement Act of 1996 that created federally covered securities and federally covered advisers.
A negotiable CD is sold by banks to institutional investors. They are money market instruments, with high face amounts. Negotiable CDs are backed by the FDIC, up to $250,000. They are sold at face value and pay semi-annual interest.
The over-the-counter market (OTC) is a negotiated market.
A fund’s total net asset value is calculated by subtracting fund liabilities from fund assets. The net asset value per share is the net value of the fund divided by the number of shares outstanding. NAV per share is also known as the bid price or redemption price.
Net capital requirements are how much in cash, and readily convertible into cash, the firm must maintain under customer protection laws. The SEC or state set net capital requirements for broker-dealers and investment advisers.
Net investment income of a mutual fund is the total dividends received from common and preferred stock held in the portfolio and all interest income received from bonds and other debt instruments. To this sum, any net short-term gains from trading securities are also added. The sum of dividends, interest, and short-term gains is the gross investment income of the fund. The fund will subtract expenses for operation (adviser’s fee, custodial fee, utilities, salaries, accounting costs, etc.). The result is net investment income. Dividends are paid from the net investment income of a mutual fund.
The net present value of an investment looks at the future dollars created, discounts them to their present value, then subtracts the cost of the initial investment. Net present value is a dollar amount, it is not a rate of return. A positive NPV is desirable. A negative NPV is not desirable. If the NPV is equal to zero, the discount rate being used is the investment’s internal rate of return.
A client’s assets minus their liabilities equals their net worth. For a business, the net worth is shareholders’ equity.
New clients must fill out a new account form. The new account form includes the name of the account owner, trading authorization, payment method, and types of securities appropriate for the customer.
A new issue is a security that is being sold to the public for the first time. A prospectus is required when selling a new issue.
A no-load fund is a mutual fund that does not impose a sales charge. In a no-load fund, the bid price is equal to the ask.
The nominal yield is the percentage return stated on the face of a bond. It is fixed from the date of issue. The nominal yield is also called the coupon rate. The nominal yield is the annual interest payment on a bond. Bonds pay interest semi-annually.