Series 65 flashcards
Series 65 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Real GDP
- Gross domestic product adjusted for inflation using a base-year price index; it measures actual growth in output, while nominal GDP can rise from price changes alone.
- Leading indicators
- Economic statistics such as building permits, initial jobless claims, and stock prices that typically change before the overall economy does, making them useful for forecasting turning points.
- Inverted yield curve
- A yield curve in which short-term interest rates exceed long-term rates; it signals tight monetary policy and has historically preceded recessions, though it does not guarantee one.
- M2 money supply
- M1 plus savings deposits, small-denomination time deposits, and retail money market mutual fund balances; this broader measure is watched for signals about future inflation and liquidity.
- Cost-push inflation
- Inflation caused by rising input or production costs, such as higher wages or oil prices, that producers pass through as higher consumer prices; it is distinct from demand-pull inflation.
- Form 10-K
- The annual report filed with the SEC by a public company; it contains audited financial statements, management discussion and analysis, and risk disclosures, and is a primary source for fundamental analysis.
- Quick ratio
- Current assets minus inventory, divided by current liabilities; it tests short-term liquidity using only the most liquid assets and is a stricter measure than the current ratio.
- Coincident indicators
- Economic measures such as nonfarm payrolls, personal income, and industrial production that change roughly in step with the business cycle, confirming rather than predicting the current phase.
- Duration
- A measure of a bond's price sensitivity to interest rate changes, expressed in years; a duration of 5 means price moves about 5% for a 1% change in yield.
- Current yield
- Annual coupon interest divided by the bond's current market price; it ignores any capital gain or loss to maturity, so it differs from yield to maturity.
- Net asset value
- A fund's total assets minus liabilities, divided by shares outstanding; open-end mutual funds issue and redeem shares at NAV, which is computed at least once each business day.
- Revenue bond
- A municipal bond secured only by the revenue of a specific project, such as a toll road or water utility; it is generally riskier than a general obligation bond because it lacks taxing power.
- Convertible bond
- A corporate bond the holder may exchange for a fixed number of common shares; the conversion feature gives upside participation in the stock while the coupon provides some downside support.
- Warrant
- A long-term security, usually issued with bonds or preferred stock, giving the holder the right to buy common shares at a set price; warrants typically expire within a few years and add to dilution.
- Call option breakeven
- The underlying price at which a call buyer neither gains nor loses at expiration, equal to the strike price plus the premium paid; below that level the premium is lost.
- Closed-end fund
- An investment company that issues a fixed number of shares once, then trades on an exchange at a market price that may be above (premium) or below (discount) net asset value.
- Sharpe ratio
- Excess return over the risk-free rate divided by the portfolio's standard deviation; it measures return per unit of total risk and allows comparison of portfolios with different risk levels.
- Beta
- A measure of a security's volatility relative to the overall market; a beta of 1.2 means the security historically moves about 20% more than the market in either direction.
- Efficient frontier
- The set of portfolios offering the highest expected return for each level of risk; portfolios below it are inefficient because another combination offers more return for the same risk.
- Wash sale rule
- A capital loss is disallowed if substantially identical securities are purchased within 30 days before or after the sale; the disallowed loss is added to the cost basis of the replacement shares.
- Jensen's alpha
- The difference between a portfolio's actual return and the return predicted by the capital asset pricing model; a positive alpha indicates outperformance after adjusting for systematic risk.
- 529 plan
- A state-sponsored education savings vehicle offering tax-deferred growth and tax-free withdrawals for qualified education expenses; earnings withdrawn for nonqualified purposes face income tax plus a 10% penalty.
- Protective put
- Buying a put on stock already owned; it sets a floor sale price and works like insurance against loss, at the cost of the premium paid, while the stock retains upside potential.
- Investment policy statement
- A written document defining a client's return objectives and risk tolerance along with constraints such as liquidity, time horizon, taxes, legal requirements, and unique circumstances; it guides portfolio decisions.
- Form ADV Part 2A
- The adviser's plain-English brochure describing services, fees, conflicts of interest, and disciplinary history; it must be delivered 48 hours before signing a contract, or at signing with a five-day cancellation right.
- Rule 10b-5
- An SEC rule under the Securities Exchange Act of 1934 prohibiting fraud, misstatements, and insider trading in connection with the purchase or sale of any security, whether registered or not.
- De minimis exemption
- Allows an adviser with no place of business in a state to avoid state registration if it had fewer than six clients in that state during the preceding twelve months.
- Federal covered security
- A security exempt from state registration, such as an exchange-listed stock, an investment company share, or a Rule 506 offering; states may still require notice filings and fees.
- Churning
- Excessive trading in a client's account to generate commissions rather than to benefit the client; it is a prohibited practice judged against the client's objectives and the size of the account.
- Custody rule
- Requires investment advisers holding client funds or securities to use a qualified custodian, notify clients, and ensure account statements are sent, or to meet a net worth or surety bond alternative under state rules.
- Front-running
- Trading for one's own account ahead of a client order or a research recommendation that is likely to move the price, an unethical practice that puts personal interest before the client's.
- Selling away
- An agent's sale of securities outside the employing broker-dealer without permission; it violates firm policy and state rules and deprives the client of the firm's supervision and recourse.