Series 65 cheat sheet

GDP = C + I + G + (X − M); nominal GDP uses current prices, while real GDP is adjusted by a price index so changes in output can be measured apart from inflation.

Open market operations are the Fed's primary tool: buying securities adds reserves and pushes short-term rates down; selling drains reserves and pushes rates up.

M1 = currency in circulation + checkable deposits + traveler's checks; M2 = M1 + savings deposits + small time deposits + retail money market fund shares.

Leading indicators (building permits, initial jobless claims, stock prices, yield spread) turn before the economy; coincident indicators turn with it; lagging indicators (CPI, prime rate, average unemployment duration) turn after.

Business cycle order: expansion, peak, contraction, trough, recovery; peaks and troughs are identified only in hindsight.

Yield curve shapes: normal (upward sloping), flat, and inverted (short rates above long rates); a prolonged inversion has historically preceded recessions.

Real return is approximately nominal return minus the inflation rate; a 7% nominal return with 3% inflation leaves roughly a 4% real return.

Liquidity and leverage ratios: current ratio = current assets ÷ current liabilities; quick ratio = (current assets − inventory) ÷ current liabilities; debt-to-equity = total debt ÷ shareholders' equity.

SEC filings: Form 10-K is the audited annual report, Form 10-Q the unaudited quarterly report, Form 8-K discloses material events, and the DEF 14A proxy precedes shareholder votes.

Bond prices and yields move inversely; at the same maturity, a lower coupon produces greater price volatility for a given change in yield.

Duration approximates the percentage price change for a 1% change in yield; duration rises with longer maturity and lower coupon.

Current yield = annual coupon ÷ market price; yield to maturity also accounts for the gain or loss realized by holding the bond to par.

Accrued interest uses a 30/360 day count for corporate and municipal bonds and an actual/actual count for Treasury issues.

Investment grade is BBB−/Baa3 and above; lower ratings are speculative (high yield or junk) and carry greater default and price risk.

General obligation bonds are backed by the issuer's full taxing power; revenue bonds are backed only by receipts from a specific project or facility.

NAV = (fund assets − liabilities) ÷ shares outstanding; open-end funds transact at NAV, while closed-end funds trade at market prices that may be premiums or discounts to NAV.

Option intrinsic value: call = max(0, stock price − strike); put = max(0, strike − stock price); call breakeven = strike + premium; put breakeven = strike − premium.

A preemptive right lets existing shareholders buy new shares at a subscription price below market before a public offering; a warrant grants a longer-term right to buy stock at a stated price and creates dilution.

CAPM: expected return = risk-free rate + beta × (market return − risk-free rate); beta captures systematic risk, which cannot be diversified away.

Sharpe ratio = (portfolio return − risk-free rate) ÷ standard deviation, measuring return per unit of total risk; Treynor ratio uses the same numerator divided by beta.

Jensen's alpha = actual return − CAPM-required return; a positive alpha means the manager exceeded the return justified by the portfolio's beta.

Standard deviation measures total volatility; combining assets with low or negative correlation lowers portfolio standard deviation without necessarily reducing expected return.

An investment policy statement sets return objectives and risk tolerance plus five constraints: liquidity, time horizon, tax situation, legal and regulatory factors, and unique client circumstances.

Wash sale rule: a loss is disallowed when substantially identical securities are purchased within 30 days before or after the sale; long-term capital gain treatment requires holding more than one year.

Roth IRA contributions are after-tax and qualified withdrawals are tax-free; traditional IRA contributions may be deductible, withdrawals are taxed as ordinary income, and required minimum distributions apply.

529 plan earnings grow tax-deferred and qualified education withdrawals are tax-free; nonqualified withdrawals are taxed and hit with a 10% penalty on earnings.

Covered call: sell a call against owned stock to collect premium, capping upside above the strike; protective put: buy a put to set a floor under the stock at the cost of the premium.

The Securities Act of 1933 regulates new issues through registration and a prospectus; the Securities Exchange Act of 1934 created the SEC and governs secondary trading, broker-dealers, and periodic reporting.

The Investment Company Act of 1940 regulates mutual funds; the Investment Advisers Act of 1940 governs federal adviser registration and fiduciary conduct.

NSMIA divides adviser registration: SEC registration is generally required at $110 million or more in assets under management, while state registration applies below that level, with notice filings permitted.

Form ADV Part 1 is the regulatory filing; Part 2A is the plain-English brochure (delivered 48 hours before contract signing, or at signing with a 5-day cancellation right); Part 2B is the brochure supplement on advisory personnel.

State adviser registration exemptions include the de minimis rule (no place of business in the state and fewer than 6 clients in the prior 12 months), banks, and professionals whose advice is incidental to their practice.

Federal covered securities such as exchange-listed stock, investment company shares, and Rule 506 offerings are exempt from state registration, though states may require notice filings and fees.

Rule 10b-5 prohibits fraud, material misstatements or omissions, and insider trading in connection with the purchase or sale of any security.

Prohibited practices include churning, unauthorized trading, front-running, selling away, commingling client funds, guaranteeing against loss, and market manipulation.

An adviser with custody must place client assets with a qualified custodian, notify clients, and ensure account statements are sent; discretionary authority requires the client's written authorization.