Title Details

ABOUT THE SERIES 6 EXAM XV

ABOUT THIS BOOK XIX

ABOUT THE TEST BANK XXI

ABOUT THE SECURITIES INSTITUTE OF AMERICA XXIII

CHAPTER 1

SECURITIES MARKETS, INVESTMENT RISKS, AND POLICIES 1

What Is a Security? 1

Equity = Stock 2

Debt = Bonds 2

Capitalization 2

The Balance Sheet Equation 3

Common Stock 3

Corporate Time Line 3

Values of Common Stock 5

Rights of Common Stockholders 5

Why Do People Buy Common Stock? 8

What Are the Risks of Owning Common Stock? 9

How Does Someone Become a Stockholder? 9

Preferred Stock 11

Features of Preferred Stock 11

Types of Preferred Stock 12

Types of Dividends 14

Dividend Distribution 15

Taxation of Dividends 17

Selling Dividends 17

Dividend Disbursement Process 17

Rights 17

Possible Outcomes for a Right 18

Standby Underwriting 19

Warrants 19

How Do People Get Warrants? 19

Possible Outcomes of a Warrant 20

Options 20

Calls 20

Puts 21

Bullish vs. Bearish 21

Characteristics of All Options 22

Exercise Price 22

Buyer vs. Seller 22

Possible Outcomes for an Option 22

American Depositary Receipts/American Depositary Shares 23

Currency Risks 23

Securities Markets 23

The Exchanges 24

Over the Counter/Nasdaq 24

Market Makers 24

Third Market 25

Fourth Market 25

Broker vs. Dealer 25

Debt Securities/Bonds 26

Corporate Bonds 26

The U.S. Government 26

U.S. Government Agencies 27

Municipal 27

Types of Bond Issuance 27

Bond Certificate 28

Bond Pricing 29

Par Value 29

Discount 30

Premium 30

Corporate Bond Pricing 30

Treasury Bond and Note Pricing 30

Treasury Bill Pricing 31

Municipal Bond Pricing 31

Types of Corporate Bonds 33

Secured Bonds 34

Unsecured Bonds 35

Zero Coupon Bonds 35

Convertible Bonds 36

Converting Bonds into Common Stock 36

Parity Price 37

The Trust Indenture Act of 1939 37

Treasury Bills, Notes, and Bonds 38

Purchasing Treasury Bills 38

Treasury STRIPS 39

Treasury Receipts 39

Nonmarketable Government Securities 39

Agency Issues 40

Collateralized Mortgage Obligation (CMO) 41

CMOs and Interest Rates 42

Municipal Bonds 42

Legal Opinion 43

Municipal Bond Insurance 44

Tax Equivalent Yield 44

Purchasing a Municipal Bond Issued in the State in Which the Investor Resides 45

Triple Tax-Free 45

Capital Gains 45

The Money Market 45

Money Market Instruments 45

Corporate Money Market Instruments 46

Government Money Market Instruments 47

Interest Rates 47

Economics 48

Gross Domestic Product 49

Recession 50

Depression 50

Economic Policy 50

Tools of the Federal Reserve Board 51

Fiscal Policy 52

The Consumer Price Index 53

Inflation/Defl ation 53

Real GDP 53

International Monetary Considerations 54

Issuing Corporate Securities 54

Types of Underwriting Commitments 55

Types of Off erings 56

Awarding the Issue 56

The Underwriting Syndicate 57

Selling Group 57

Customer Suitability 58

Investment Objectives 59

Tax Benefits 60

Liquidity 60

Speculation 61

Beta 61

Risk vs. Reward 62

Pretest 65

CHAPTER 2

INVESTMENT COMPANIES, MUTUAL FUNDS,

NEW ACCOUNTS, AND TAXES 71

Investment Company Philosophy 71

Types of Investment Companies 72

Open End vs. Closed End 73

Diversified vs. Nondiversifi ed 74

Investment Company Registration 75

Registration Requirements 75

Investment Company Components 77

Mutual Fund Distribution 79

Selling Group Member 79

Distribution of No-Load Mutual Fund Shares 79

Distribution of Mutual Fund Shares 80

Mutual Fund Prospectus 80

Characteristics of Open-End Mutual Fund Shares 81

Mutual Fund Investment Objectives 82

Other Types of Funds 84

Bond Funds 84

Exchange-Traded Funds (ETFs) 85

Exchanged-Traded Notes (ETNs) 85

Money Market Funds 86

Money Market Guidelines 86

Valuing Mutual Fund Shares 86

Changes in the NAV 87

Sales Charges 88

Other Types of Sales Charges 89

12B-1 Fees 89

Calculating a Mutual Fund’s Sales Charge Percentage 90

Finding the Public Off ering Price 91

Sales Charge Reductions 91

Breakpoint Schedule 92

Letter of Intent 92

Backdating a Letter of Intent 93

Breakpoint Sales 93

Rights of Accumulation 93

Automatic Reinvestment of Distributions 94

Other Mutual Fund Features 94

Taxation of Mutual Funds 95

Distribution of Capital Gains 96

Receiving and Reinvesting Distributions 97

Calculating Gains and Losses 98

Cost Base of Multiple Purchases 98

Deducting Net Capital Losses 99

Wash Sales 99

Other Tax Rules 100

Voting Rights 100

Mutual Fund Recommendations 101

Customer Accounts 103

Holding Securities 104

Transfer and Ship 105

Transfer and Hold in Safekeeping 105

Hold in Street Name 105

Mailing Instructions 105

Trading Authorization 106

Types of Accounts 106

Death of a Customer 107

Corporate Accounts 108

Operating a Discretionary Account 108

Managing Discretionary Accounts 109

Uniform Gifts to Minors Act (UGMA) 109

Accounts for Employees of Other Broker Dealers 111

Purchasing Mutual Fund Shares 111

Withdrawal Plans 115

Pretest 117

CHAPTER 3

VARIABLE ANNUITIES, VARIABLE LIFE INSURANCE,

AND RETIREMENT PLANS 123

Annuities 123

Annuity Purchase Options 127

Accumulation Units 127

Annuity Units 128

Annuity Payout Options 128

Factors Aff ecting the Size of the Annuity Payment 129

The Assumed Interest Rate 129

Taxation 130

Types of Withdrawals 130

Annuitizing the Contract 131

Expenses and Guarantees 131

Other Charges 132

Variable Annuity vs. Mutual Fund 132

Life Insurance 132

Premiums and Death Benefi ts 134

Assumed Interest Rate 136

Variable Policy Features 136

Sales Charges 137

Life Settlements 138

Retirement Plans 139

Individual Plans 139

Individual Retirement Accounts (IRAs) 139

529 Plans 142

IRA Contributions 142

IRA Accounts 143

IRA Investments 143

It Is Unwise to Put a Municipal Bond in an IRA 143

Rollover vs. Transfer 143

Keogh Plans (HR-10) 144

Tax-Sheltered Annuities/Tax-Deferred Accounts 145

Corporate Plans 147

Nonqualifi ed Corporate Retirement Plans 147

Qualifi ed Plans 148

Types of Plans 148

Profi t Sharing Plans 149

401(k) Thrift Plans 150

Rolling Over a Pension Plan 150

Employee Retirement Income Security Act of 1974 (ERISA) 150

Pretest 153

CHAPTER 4

SECURITIES INDUSTRY RULES AND REGULATIONS 159

Issuing Securities 159

The Prospectus 160

The Final Prospectus 160

SEC Disclaimer 161

Misrepresentations 161

Tombstone Ads 161

Free Riding and Withholding/FINRA Rule 5130 162

The Securities Exchange Act of 1934 162

The Securities Exchange Commission (SEC) 163

Extension of Credit 164

The National Association of Securities Dealers (NASD) 164

Becoming a Member of FINRA 166

Registration of Agents/Associated Persons 167

Disciplinary Actions Against a Registered Representative 167

Resignation of a Registered Representative 168

Termination for Cause 168

Retiring Representatives/Continuing

Commissions 168

State Registration 169

Continuing Education 169

Firm Element Continuing Education 169

Regulatory Element 169

Registration Exemptions 170

Persons Ineligible to Register 170

Retail Communications / Communications with the Public 171

FINRA Rule 2210 Communications with the Public 172

Broker Dealer Websites 174

Blind Recruiting Ads 175

Generic Advertising 175

Tombstone Ads 175

Testimonials 176

Free Services 176

Misleading Communications with the Public 177

Securities Investor Protection Corporation Act of 1970 (SIPC) 177

Net Capital Requirement 177

Customer Coverage 178

Fidelity Bond 178

The Insider Trading and Securities Fraud Enforcement Act of 1988 178

Firewall 179

The Telephone Consumer Protection Act of 1991 180

Exemption from the Telephone Consumer Protection Act of 1991 180

Recommendations to Customers 180

Recommending Mutual Funds 181

Periodic Payment Plans 182

Mutual Fund Current Yield 182

Professional Conduct in the Securities Industry 183

The Role of the Principal 183

Fair Dealings with Customers 183

Sharing in a Customer’s Account 186

Borrowing and Lending Money 187

Disclosure of Client Information 187

Numbered Accounts 187

Gift Rule 187

Outside Employment 188

Private Securities Transactions 188

Violations and Complaints 188

Resolution of Allegations 189

Minor Rule Violation 189

Code of Arbitration 190

The Arbitration Process 190

Simplifi ed Arbitration 191

Larger Disputes 191

Awards Under Arbitration 191

Mediation 191

Annual Compliance Review 192

Currency Transactions 192

The Patriot Act 192

U.S. Accounts 193

Foreign Accounts 194

Regulation S-P 194

Business Continuity Plan 194

Pretest 195

ANSWER KEYS 201

GLOSSARY OF EXAM TERMS 207

INDEX 273