Flashcards

Another party or parties who will receive the life insurance proceeds if the primary beneficiary should predecease the person whose life is insured.

In most cases, an insurance policy. A policy is a contract between the insurance company and the policyholder.

Insurance contracts are contracts of adhesion, where one party (the insurer) states the provisions of the contract while the other party (the insured) is not involved in its drafting, but whose participation is in either agreeing with it or declining it.

Contraction is a phase of the business cycle. It follows the peak and precedes the trough. A contraction is characterized by a general economic decline.

In a contributory group life plan the employee pays part of the premium. The participation percentage for a contributory life policy is 75%. 75% of the eligible employees must participate.

A contributory plan is a retirement plan in which both the employer and the employee contribute.

A control person includes: a director or officer of an issuer and a shareholder who owns more than 10% of any class of a corporation’s outstanding securities, as well as their immediate family members.

Securities held by control persons are referred to as control securities.

The ability, in some states, to switch from job-based coverage to an individual policy when a person loses eligibility for job-based coverage. Family members not covered under a job-based policy may also be able to convert to an individual policy if they lose dependent status (for example, after a divorce).

The right to change (convert) insurance coverage from one type of policy to another. For example, the right to change from an individual term insurance policy to an individual whole life insurance policy.

A convertible bond may be exchanged for some other security of the issuer at the option of the holder.  It is usually converted into common stock based upon a fixed conversion ratio, or conversion price.

Convertible preferred stock is preferred stock that may be converted into common stock at the option of the holder.

A convertible term insurance policy may be converted to whole life insurance regardless of the insured’s health. The premium on the whole life insurance policy will be based on the insured’s current (attained) age.

The cooling-off period is the time between the filing date of a registration statement and the effective date of the registration.  Twenty days is the minimum cooling-off period, it is usually longer.

Helps to reinforce the principle of indemnity when a person has more than one health insurance policy. One policy will be primary coverage, and the other will be excess (secondary). Ensures that there is nonduplication of coverage.

A fixed amount ($20, for example) a person pays for a covered health care service after they have paid the deductible. Copayments can vary for different services within the same plan, like drugs, lab tests, and visits to specialists.

A corporation is a form of business organization in which the total worth of the organization is divided into shares of stock, each share representing a unit of ownership.  By law, a corporation has certain rights and responsibilities.  It is characterized by a continuous life span and the limited liability of the owners.

Correlation measures the extent to which two securities move in the same direction. A perfect position correlation of +1 means that the securities move identically. A perfect negative correlation of -1 means the securities move exactly opposite of each other, adding diversification to the portfolio.

Cost basis is the money in an investment in which taxes have been paid. A return of cost basis is a return of capital and is not subject to tax. Cost basis is sometimes called tax basis or just basis.

A rider that is available for an additional premium that provides for an automatic increase in benefits. The increase may be a set percentage as stated in the policy or may be tied to the Consumer Price Index (CPI), offsetting the effect of inflation.

The percentage return stated on the face of a bond.  It is fixed from the date of issue. Also called the nominal yield. The nominal yield is the annual interest payment on a bond. Bonds pay interest semi-annually.

A covenant is a promise in a trust indenture or other formal debt agreement that certain acts will be performed and others refrained from. Covenants are designed to protect the lender’s interest and cover such matters as working capital, debt-equity ratios, and dividend payments. Also called restrictive or protective covenants.

A Coverdell Educational Savings Account is a savings vehicle for education expenses. It may only be funded for an individual under the age of 18. It is funded with after tax dollars. There are AGI limitations on who can contribute to an ESA, as well as annual contribution limits. If the earnings are used for qualified educational expenses there is no income tax owed. Coverdell ESAs were originally called Educational IRAs. Educational savings accounts must follow the use by age 30 rule, with the exception of special needs children.

A covered call is an option contract that an investor has sold, in which they own the stock that the call is written on. The writer of a covered call has made a promise to sell shares at the strike price if the market price should exceed the strike price. Selling a covered call has limited risk.

Community property with rights of survivorship (CPWROS) is a fairly new legal designation and was created by the California legislature in 2001. Community property with rights of survivorship is a form of holding title to assets that is only available to married couples and only in community property states. Community property with rights of survivorship is a legal distinction that allows two spouses to equally share assets through marriage as well as pass on assets to the other spouse upon death without going through probate.

In a short margin account the credit balance consists of the client’s short sale proceeds plus the 50% equity they must deposit to open up the trade.

Credit disability insurance protects the balance of a debt. If the borrower becomes unable to work due to illness or injury the policy helps pay off loan payments.

A type of group term life insurance that can pay off or reduce the balance of a consumer loan or a loan for the purchase of consumer goods in the event of the insured’s death. Credit life is decreasing term insurance, meaning that over time the death benefit amount tracks with the loan balance due. If the borrower dies with the loan outstanding the credit life policy will pay the balance due.

Credit risk is also called financial risk. Credit risk is related to the financial health of the issuer. Credit risk is a type of nonsystematic risk.

The credit spread is the difference between the cost that two issuers must pay to issue debt of the same maturity. Commonly the credit spread compares the cost associated with issuing debt for the U.S. Government versus a U.S. corporation. The narrowing of the credit spread is positive, whereas the widening is a negative sign for the economy.

There is also an options position known as a credit spread. A credit spread involves the purchase of an option and the sale of an option (buy/sell call, or buy/sell put), on the same stock. The two options will be different in strike prices, expiration dates, or both. In a credit spread, more money is collected for the sale of the option than paid for the purchase of the option. In a credit spread, the client is hoping that the spread will narrow and the options will expire unexercised.

Health insurance coverage under any of the following: a group health plan; individual health insurance; student health insurance; Medicare; Medicaid; CHAMPUS and TRICARE; the Federal Employees Health Benefits Program; Indian Health Service; the Peace Corps; Public Health Plan (any plan established or maintained by a State, the U.S. government, a foreign country); Children’s Health Insurance Program (CHIP); or, a state health insurance high-risk pool. When a person has prior creditable coverage, it reduces the length of a pre-existing condition exclusion period under new job-based coverage.

Crop insurance is coverage for crops in the event of loss or damage by insured perils, including hail, fire, and lightning. Prior to the passage of the Federal Crop Insurance Act in 1938, it was virtually impossible to obtain insurance protection against crop damage. Today coverage is available from the Federal Crop Insurance Corporation as well as from private sources. Exclusions from coverage include the perils of war and nuclear disaster.

A crypto key is a piece of information, usually a string of numbers or letters that are stored in a file which, when processed through a cryptographic algorithm, can encode or decode cryptographic data. There are public keys, such as an email address, and private keys, which use an alphanumeric code such as a password that is used to access the investor’s cryptocurrency.

These are platforms that allow users to trade cryptocurrencies (and, in some cases, other assets). Platforms serve as centralized intermediaries that enable trading and recording of ownership of cryptocurrencies, as well as facilitate holding cryptocurrencies.

A crypto wallet is a type of software that can be installed on any internet-connected device that stores the investor’s public and private crypto keys. Cryptocurrency wallets include desktop wallets, mobile app wallets, and online wallets.

Cryptocurrency, or crypto, is a broad term for any virtual currency that represents a stored value secured through cryptography, which uses highly sophisticated encryption techniques to store and pass information.

Cumulative preferred stock is a type of preferred stock that has a special feature. When an investor owns cumulative preferred stock, if the issuer should skip a dividend, the omitted dividend must be paid, along with the current dividend to the preferred stockholder, and then the issuer may distribute dividends to common stockholders. Cumulative preferred stock has a lower fixed dividend rate than straight preferred stock due to this special feature.

Cumulative voting is a type of shareholder voting in which the number of shares held is multiplied by the number of directors to be elected to determine the number of votes a shareholder may cast. With cumulative voting, the shareholder may allocate the votes in any way, including casting them all for one director. Cumulative voting is more beneficial for small shareholders than statutory voting.

Current assets include cash, accounts receivable, and inventory. Current assets are cash or expected to be cash in the next 12 months.

Current dollars are actual dollar amounts.  Current dollars are not adjusted for inflation.

Current liabilities include accounts payable and accrued expenses. Current liabilities are monies owed in the next 12 months.

Current assets divided by current liabilities is a company’s current ratio. The current ratio is good for comparison purposes between companies of differing sizes. It is a measurement of liquidity. The higher the ratio the better.

Current yield is a stock’s annual dividends divided by its current market price. On a bond, the current yield would be the bond’s annual interest divided by the current market price.

A custodial account is used for minor children. Minor children cannot hold securities in their names.

The Investment Company Act of l940 requires the fund’s assets to be held by an independent custodian.  The custodian is responsible for the safekeeping of all securities and cash held by the fund. Typically, a commercial bank will perform the duties of a custodian, as appointed by the directors. The securities in the portfolio are registered to the custodian.

Custody includes having physical custody of a customer’s cash and/or securities, or having the authority to obtain possession of them.

Cyclical industries expand during an economic expansion. Cyclical industries produce durable goods, raw materials, and heavy equipment.

A donor advised fund (DAF) is an investment account that an individual can establish to benefit IRS-qualified public charities. It is a separate account opened with and maintained by a 501(c)(3) “sponsoring organization” (donor advised fund provider). The individual can fund the DAF account with cash or a wide range of acceptable assets (complex assets, stocks, gold, bonds, and real estate). The fair market value of the contribution is an immediate tax deduction. Donating appreciated assets saves the individual capital gains taxes, allowing more dollars to be available for charitable donations, as well as increasing the individual’s tax savings.

Dark pools are where many institutional transactions take place. Dark pools are alternative trading systems run by large broker-dealers, offered to their best clients. Trading information from dark pools is very limitedly disclosed.