Series 66 cheat sheet

GDP = C + I + G + (X − M); real GDP adjusts for price changes, nominal GDP does not.

Leading indicators (building permits, average weekly jobless claims, stock prices, M2, yield-curve spread) turn before the economy; coincident indicators turn with it; lagging indicators (CPI, prime rate, average unemployment duration) turn after.

Expansionary monetary policy: the Fed buys securities, lowers the discount rate, or lowers reserve requirements, so reserves and the money supply rise and short-term rates fall.

Contractionary fiscal policy: raising taxes or cutting government spending reduces aggregate demand; expansionary fiscal policy does the reverse.

The CPI tracks a fixed basket of consumer goods and services; core CPI excludes food and energy. Inflation erodes the purchasing power of fixed-income payments, while deflation raises the real burden of debt.

A normal yield curve slopes upward; an inverted curve (short rates above long rates) often precedes recession; a flat curve signals policy uncertainty.

Current ratio = current assets ÷ current liabilities; quick (acid-test) ratio = (current assets − inventory) ÷ current liabilities.

Balance sheet identity: assets = liabilities + shareholders' equity.

The Fed's three classic tools are open market operations, the discount rate, and reserve requirements; open market operations are used most frequently.

Current yield = annual coupon ÷ market price. Yield to maturity is the discount rate that equates the bond's cash flows to its current price.

Bond prices move inversely to yields; percentage price change ≈ −duration × change in yield, with convexity refining the estimate.

Premium bond: coupon > YTM, price > par. Discount bond: coupon < YTM, price < par. Price converges to par as maturity approaches.

Zero-coupon bonds pay no periodic interest, sell at a deep discount, have duration equal to maturity, and carry no reinvestment risk.

Municipal general obligation bonds are backed by the issuer's taxing power; revenue bonds are backed only by revenues from a specific project.

Call intrinsic value = max(0, stock price − strike price); put intrinsic value = max(0, strike price − stock price); time value = premium − intrinsic value.

Fund NAV = (total assets − liabilities) ÷ shares outstanding; open-end funds transact at NAV, while closed-end funds trade at market prices that may differ from NAV.

Class A shares carry a front-end load, Class B shares a contingent deferred sales charge, and Class C shares level 12b-1 fees with a small CDSC.

Preferred stock ranks ahead of common in dividends and liquidation, generally has no voting rights, and may be callable or convertible.

Suitability requires matching a recommendation to the client's objectives, risk tolerance, time horizon, liquidity needs, and financial situation.

Beta measures systematic risk; a portfolio's beta is the weighted average of the betas of its holdings.

CAPM: expected return = risk-free rate + beta × (market return − risk-free rate).

Sharpe ratio = (portfolio return − risk-free rate) ÷ standard deviation; a higher ratio indicates better risk-adjusted return.

Diversification reduces unsystematic risk; systematic (market) risk remains regardless of how many holdings are added.

Correlation ranges from −1 to +1; low or negative correlation between assets increases the diversification benefit.

Asset allocation should shift toward fixed income and cash as the time horizon shortens or liquidity needs increase.

Dollar-cost averaging purchases more shares when prices fall; lump-sum investing has higher expected return in rising markets but greater timing risk.

Wash sale rule: a realized loss is disallowed if a substantially identical security is purchased within 30 days before or after the sale.

Securities Act of 1933: requires registration of new issues and prospectus delivery and imposes antifraud liability; it governs primary distributions, not secondary trading.

Securities Exchange Act of 1934: created the SEC and governs secondary trading, periodic issuer reporting (10-K, 10-Q, 8-K), and broker-dealer registration.

Investment Advisers Act of 1940: imposes fiduciary duty and Form ADV requirements; SEC registration generally applies at $100 million or more in AUM, with states covering smaller advisers.

Investment Company Act of 1940: regulates mutual fund structure, diversification, and disclosure, including limits on affiliated transactions.

Uniform Securities Act: model state law under which state administrators register securities, broker-dealers, agents, and advisers and may deny, suspend, or revoke registration.

Form ADV Part 2 is the plain-English brochure delivered to clients; Part 1 is the regulatory filing submitted to the SEC or state.

Prohibited practices include churning, unauthorized trading, excessive markups (generally above 5%), insider trading, and market manipulation.

Gifts to employees of other firms are limited to $350 per person per year under FINRA rules; pay-to-play rules restrict adviser political contributions to officials of government clients.

Custody of client funds requires a qualified custodian plus a surprise examination or audited account statements; commingling client and firm assets is prohibited.