Flashcards
Resistance is the highest the security’s price has been historically, it is used by technical analysts.
A margin account becomes a restricted account when the ongoing equity falls below Regulation T. When a client sells securities out of a restricted account 50% of the proceeds must be used to pay down the debit balance.
Under FINRA rules a retail communication is a written communication (including electronic) that is distributed or made available to more than 25 retail investors in any 30-calendar day period. Retail communications are subject to the principal pre-approval requirement under FINRA rules.
A retail investor is an individual or a noninstitutional client.
Retained earnings are one of the four components of a company’s shareholders’ equity. Retained earnings represent the cumulative total of the company’s net profits and losses over time. A company’s retained earnings are found on its balance sheet.
Retention of risk is the net amount of any risk that an insurance company does not reinsure but keeps for its own account.
Retrospective review examines coverage after treatment. The review includes evaluating requests for medical treatment and determining, on a case-by-case basis, whether that treatment is necessary.
The return of premium rider when added to life insurance ensures that if the insured lives to the end of the policy period all premiums paid will be returned to the insured tax-free. This rider costs extra.
RANs are issued in anticipation of future revenue, such as gate revenue at a stadium.
A revenue bond is a type of municipal bond that is issued to provide capital for the construction of a revenue-producing facility. The interest and principal payments are backed to the extent that the facility produces revenue to pay. Revenue bonds are often used to finance toll roads, stadiums, and airports. Revenue bonds have a higher risk to the investor than general obligation bonds, thus they pay a higher nominal yield.
In a reverse stock split the shareholder will have fewer shares at a higher price per share. Reverse splits are often done to ensure that the stock’s market price does not get so low that the stock gets delisted. In a reverse split, just like in a stock split, the investor’s overall market value remains unchanged.
A beneficiary designation that does not affect the policyowner’s rights. A revocable beneficiary can be changed at any time.
A revocable trust is a trust that may be changed at any time by the grantor. A revocable trust does not offer asset protection. With a revocable trust, the income is distributed to the grantor during his or her lifetime. After the grantor’s death the property transfers to the beneficiaries.
A rider is an amendment to an insurance policy. Some riders cost extra and make a policy better, for example, an accidental death benefit rider. Impairment riders are free and take away coverage.
Rights, also called stock rights, are stock purchase options issued to existing stockholders only. The right is an option to purchase a company’s new issue of stock at a predetermined price that is less than the price the shares will be offered to the general public. An investor who exercises the rights will maintain proportionate ownership (preventing dilution). The right is issued for a short period of time, normally for 30 days, with the option expiring after that time. Rights may also be sold in the secondary market.
Rights, also called stock rights, are stock purchase options issued to existing stockholders only. The right is an option to purchase a company’s new issue of stock at a predetermined price that is less than the price the shares will be offered to the general public. An investor who exercises the rights will maintain proportionate ownership (preventing dilution). The right is issued for a short period of time, normally for 30 days, with the option expiring after that time. Rights may also be sold in the secondary market.
The right of accumulation allows a client to qualify for reduced sales charges at any time that the aggregate value of the shares previously purchased and the shares currently being purchased in the account go over a breakpoint. If a mutual fund offers the right of accumulation it will describe this right in the fund’s prospectus.
In a rights offering the existing shareholders are given the right to buy additional shares at a fixed price to maintain their proportion of ownership (prevent dilution). A right is a short-term option that is good for 30 days.
Risk is the chance of loss. Pure risk is insurable. Pure risk involves no chance of gain.
Risk-adjusted return is the return on an investment adjusted for the market risk it carries. The Sharpe Ratio is often used to measure risk-adjusted return.
The process by which a company decides how its premium rates for life insurance should differ according to the risk characteristics of individuals insured (e.g., age, occupation, sex, state of health) and then applies the resulting rules to individual applications.
Risk-free return is the rate of return found on a 13-week treasury bill.
The basic premise of insurance, a large number contribute to cover the losses of a few.
The risk premium is the amount of return over the risk-free return that an investor expects to earn to account for the additional risk in the investment.
Risk tolerance is a subjective measurement of how comfortable an investor is with losing some or all of the original amount invested.
A rollover involves the transfer of funds from one qualified plan to another. In a direct rollover, the funds are paid directly to the new qualified plan. If instead the funds are paid to the individual, the entire account balance must be deposited into the rollover account within 60 days, to defer taxes. Only one indirect rollover is allowed in 365 days.
An individual retirement arrangement established with funds transferred from another IRA or qualified plan that the owner has terminated.
A Roth 401(k) is a qualified plan that an employer may allow an employee to fund with after-tax dollars. With a Roth 401(k) there is no five-year rule. Earnings that are paid out on or after 59 ½ are federally income tax free. Through 2023, a Roth 401(k) is subject to the RMD rules unless the participant is still working. Beginning in 2024, under SECURE 2.0, Roth 401(k)s are no longer subject to RMDs. There is no income limitation on funding a Roth 401(k), but not all employers offer them.
A Roth IRA is an individual retirement account that may only be funded by individuals with earned income, who do not earn too much (phaseout AGI varies each year). Roth IRAs are always funded with after tax dollars. If a distribution is made from a Roth that has been open for a minimum of 5 years and that is paid out on or after age 59 ½, the earnings are tax-free. Roth IRAs are not subject to the required minimum distribution rules.
A retirement account that may be funded by individuals whose earned income is less than that year’s threshold. Roth IRAs are always funded with after-tax dollars. Qualified distributions are federally income tax-free.
A round lot is a fixed unit of trading, 100 shares or five bonds.
SEC Rule 144 governs the sale of restricted stock and control stock. There are holding period requirements for restricted stock. There are volume limitations for the sale of control stock. Form 144 must be filed when the sale of control stock exceeds the threshold limit.
SEC Rule 147 is the rule that allows a new issue that is going to be sold in one state only (intrastate) to be an exempt security federally. Under Rule 147 the shares must be registered at the state level only.
The rules of conduct are the rules adopted by FINRA to guide members in the observance of high standards of commercial honor and just and equitable practices of trade. They are FINRA’s code of ethics.
An S corporation is a type of business that may have up to 100 shareholders. The shareholders have limited liability. It is a flow-through tax entity. An S corporation files Form 1120S with the IRS each year by March 15th. The shareholders receive Form K-1 with the appropriate distribution of profits or losses.
Safe harbor provisions under ERISA are found in Section 404(c). These provisions protect fiduciaries from liability as it relates to the investments an employee chooses for their retirement account. There are also safe harbor provisions within the Securities Exchange Act of 1943 under Section 28(e). These provisions allow for soft dollar compensation to be paid by broker-dealers to investment advisers.
The sales charge on a mutual fund is the amount added to the net asset value per share to cover the fund’s sales and advertising expenses. When buying a mutual fund share that has a front-end load, the investor will pay the NAV per share plus the sales charge, which equals the offering price (ask).
Schedule K-1 is the form that pass-through tax entities prepare and distribute to the owners of the business showing the distribution of profits or losses for the year. Schedule K-1 is also called Form K-1.
A secondary distribution occurs when an issuer sells additional shares of stock to the public. Different from an initial public offering, in a secondary distribution the shares that are being sold were owned by major stockholders (such as the founder of the company). In a secondary distribution, the proceeds raised are not paid to the corporation but instead are paid to the major stockholders who are selling their shares. A secondary distribution does not increase the number of shares issued. A secondary distribution is also referred to as a secondary offering.
The secondary market, also called the non-issuer market, is where securities are traded from one investor to another (shareholder to shareholder). Listed securities trade on an exchange. The three major exchanges include the NASDAQ Stock Market (a negotiated marketplace), the NYSE (a hybrid/auction marketplace), and the BATS Exchanges (a negotiated marketplace). Non-listed securities trade in the OTC marketplace, such as the Pink List or the OTCBB (Over the Counter Bulletin Board).
Existing shareholders can sell their shares in the IPO if their shares are included in and registered as part of the offering. Most large IPOs include only new shares that the company sells to raise capital. However, in some cases, shares held by existing shareholders are included in the IPO and the shareholders are called “selling shareholders.” The proceeds from the sales by selling shareholders do not go to the company and instead, go to the selling shareholders. When selling shareholders sell shares this is often referred to as a secondary offering.
Section 28(e) of the Securities Exchange Act of 1934 establishes safe harbor provisions related to soft-dollar compensation.
A Section 457 plan is a type of deferred compensation plan that may be established by employees of a state, political subdivision of a state, and any agency of a state. Section 457 plans may also be offered to certain tax-exempt organizations. Churches are not eligible to establish these plans.
Deferred compensation plans for employees of state or local governments. Funded with pre-tax employee contributions.
A sector fund is a mutual fund that focuses the investments that are held within its portfolio on a certain sector of the economy. Sector funds represent a higher level of risk. They are also referred to as specialized funds.
Sector rotation is an active portfolio management strategy that attempts to profit from the expansion and contraction of segments of the economy as the phases of the business cycle change.
SECURE 2.0 increases the age at which RMDs begin to age 73 for those individuals who turn 72 on or after January 1, 2023. Notably, an individual who attains age 72 in 2023 is not required to take an RMD for 2023. The RMD age changes again in 2033 from 73 to 75. SECURE 2.0 also removes the RMD requirement for Roth 401(k) and Roth TSA distributions, beginning in 2024.
A secured bond is a bond secured by the pledge of some specific asset or assets of the issuing corporation. Secured bonds include mortgage bonds, collateral trust certificates, and equipment trust certificates.
As of January 2022, LIBOR is no longer used to issue new loans in the U.S. and has been replaced by the Secured Overnight Financing Rate (SOFR), which many experts consider a more accurate and more secure pricing benchmark. SOFR is based on actual transactions — namely, overnight loans between U.S. financial institutions. These transactions take the form of Treasury bond repurchase agreements, otherwise known as repos agreements. They allow banks to meet liquidity and reserve requirements, using Treasuries as collateral. SOFR comprises the weighted averages of the rates charged in these repo transactions. LIBOR was based on estimates. SOFR is based upon actual transactions, making it a more accurate means of measuring the cost of borrowing money. Because these transactions can be observed by anybody, SOFR is also less easily manipulated.
The Securities Act of 1933 is a federal statute enforced by the Securities and Exchange Commission regulating interstate commerce of new securities that are being offered for sale to the public. The Securities Act of 1933 requires the filing of the registration statement and the delivery of the prospectus. It is commonly referred to as the Paper Act.