Flashcards

Additional amounts of life insurance purchased using dividends; these insurance amounts require no further premium payments.

Painting the tape is a form of market manipulation and is prohibited. Painting the tape occurs when a group of investors works together to create the misleading appearance of active trading.

Par value on common stock is an arbitrary dollar value assigned to each share of stock at the time of issuance. Par value also references the face value (principal) amount of a bond, usually $1,000. The par value of preferred stock is $100.

Parity is the intrinsic value of a convertible security in terms of the common stock into which it can be converted.  Parity means equal.

A partial surrender occurs when the owner takes a withdrawal from the cash value portion of the life insurance policy. When the owner does this the policy death benefit is permanently reduced, and there are no interest payments.

A life insurance policy under which the company agrees to distribute to policyowners the part of its surplus that its Board of Directors determines is not needed at the end of the business year. The distribution serves to reduce the premium the policyowners had paid.

Participating preferred stock is preferred stock with a special feature. Issuers like to add special features so that the fixed dividend rate can be lowered. A participating preferred stockholder is entitled to its preferred dividend and also will be paid the common stock dividend, participating in the common stock dividend.

A partnership is a form of business organization. A partnership is considered a general partnership unless a certificate of limited partnership is filed with the state. Partnerships are flow-through tax entities, with the owners receiving form K-1 with their percentage of profits or losses for the year, that they then declare on their personal income tax return.

Passive income includes earnings from a limited partnership received by a limited partner, rental income when the individual does not actively participate in the management of the property, and income from any other enterprise in which the individual does not actively participate. Passive losses can only be used to offset passive income.

A pattern day trader is any customer who executes four or more trades within five business days. The minimum equity required for the accounts of customers deemed to be pattern day traders is $25,000. The minimum equity must be deposited in the account before such a customer may continue day trading and must be maintained in the customer’s account at all times.

The payable date is the date on which the dividend is paid to the owners of the stock that appear on the records of the issuer as of the record date.

Payment for order flow occurs when a brokerage firm directs its retail orders to a wholesaler, who then executes the orders, providing money back to the brokerage firm for its retail business. Not all firms engage in this practice. The SEC notes that wholesalers typically execute trades “without providing any opportunity for other market participants to compete to provide a better price.”

The payor benefit rider is a rider that may be added to a juvenile life insurance policy. With the payor benefit rider if the payor should die or become disabled the policy will remain in force until the child reaches the age of majority in their state (18 or 21), or the payor is no longer disabled, whichever is first. When the payor benefit rider is enacted the juvenile life policy remains in force even though the premium is not paid.

With a payroll deduction plan the employee authorizes the employer to take a deduction from their paycheck and deposit it into the retirement plan. A 401(k) is an example of a payroll deduction plan. It may be a qualified or nonqualified plan.

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.

Death proceeds are split equally among the living primary beneficiaries.

Under the per stirpes rule if one of the primary beneficiaries has died before the insured when the insured dies the proceeds are paid amongst the living primary beneficiaries, and the deceased beneficiary’s share is paid to their living decedants.

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.

A peril is a cause of loss. Life insurance covers death due to two perils: accident and sickness.

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.

The placement ratio compares the sale of new municipal issues during the week to the actual number of bonds available for sale.  A high number reflects good market absorption.

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 printed legal document stating the terms of an insurance contract that is issued to the policyowner by the company.

An advance made by a life insurance company to a policy owner. The advance is secured by the cash value of the policy.

The amount paid on a life insurance policy at death or when the policyowner receives payment at surrender or maturity.

The terms or conditions of an insurance policy as contained in the policy clauses.

The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership, or a corporation. The policy owner usually is the one who pays the premium and is the only person who may make changes to a policy.

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.

Portfolio margin accounts are margin accounts that utilize an alternative method for computing the equity requirements. Portfolio margin accounts are only available to specific types of investors. In a portfolio margin account, there is a goal to set margin requirements that reflect net risk, which often translates into lower margin requirements and a more effective use of capital. Portfolio margin accounts align the equity requirements with the portfolio’s overall risk based on the net exposure of all positions, not just individual ones.

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.

The OCC sets limits on large investors to prevent them from controlling the options market.  Limits vary according to the number of outstanding shares and the past six-month trading volume of the underlying stock. Position limits (and exercise limits) range from 25,000 to 250,000 contracts on the same side of the market.

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.

A risk whose physical condition, occupation, avocation, mode of living, and other characteristics indicate a long life ahead.

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

The payment, or one of the periodic payments, a policyowner agrees to make for an insurance policy. Depending on the terms of the policy, the premium may be paid in one payment or a series of regular payments, e.g., annually, semi-annually, quarterly, or monthly. The premium charged reflects the expectation of loss, expenses, and profit contingencies.

The three main factors considered when determining the premium for life insurance include; mortality, interest, and expenses.

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.

The primary beneficiary is the beneficiary that will receive the life insurance policy proceeds when the insured dies.

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.