ABOUT THE SERIES 6 EXAM XV
ABOUT THIS BOOK XIX
ABOUT THE TEST BANK XXI
ABOUT THE SECURITIES INSTITUTE OF AMERICA XXIII
CHAPTER 1 EQUITY SECURITIES 1
What Is a Security? 1
Equity = Stock 2
Common Stock 2
Preferred Stock 12
Options 20
Calls 20
Puts 20
Bullish vs. Bearish 21
Characteristics of All Options 21
Exercise Price 22
Buyer vs. Seller 22
Possible Outcomes for an Option 22
Currency Risks 23
Functions of the Custodian Bank Issuing ADRs 23
Real Estate Investment Trusts (REITs) 23
Issuing Corporate Securities 24
Types of Underwriting Commitments 24
Types of Offerings 25
Awarding the Issue 26
The Underwriting Syndicate 26
Selling Group 26
Securities Markets 27
The Exchanges 28
Over the Counter/Nasdaq 28
Market Makers 29
Third Market 29
Fourth Market 29
Broker vs. Dealer 29
Pretest 31
CHAPTER 2 DEBT SECURITIES 35
Corporate Bonds 35
Types of Bond Issuance 36
Bond Certificate 37
Bond Pricing 37
Corporate Bond Pricing 38
Bond Yields 38
Bond Maturities 41
Types of Corporate Bonds 42
Converting Bonds into Common Stock 45
Advantages of Issuing Convertible Bonds 46
Disadvantages of Issuing Convertible Bonds 46
Convertible Bonds and Stock Splits 46
The Trust Indenture Act of 1939 47
Bond Indenture 47
Ratings Considerations 47
Retiring Corporate Bonds 48
Collateralized Mortgage Obligation (CMO) 50
CMOs and Interest Rates 50
Types of CMOs 51
Private-Label CMOs 52
Exchange-Traded Notes (ETNs) 53
Pretest 55
CHAPTER 3 GOVERNMENT AND MUNICIPAL SECURITIES 59
Series EE Bonds 59
Series HH Bonds 60
Treasury Bills, Notes, and Bonds 60
Treasury Bond and Note Pricing 61
Treasury Strips 62
Treasury Receipts 62
Treasury Inflation-Protected Securities (TIPS) 63
Agency Issues 63
Government National Mortgage Association (GNMA) 63
Federal National Mortgage Association (FNMA) 64
Federal Home Loan Mortgage Corporation (FHLMC) 64
Federal Farm Credit System (FFCS) 64
Municipal Bonds 65
Legal Opinion 66
Municipal Bond Insurance 66
Tax Equivalent Yield 67
Purchasing a Municipal Bond Issued in the State in Which the Investor Resides 67
Triple Tax-Free 68
Capital Gains 68
Pretest 69
CHAPTER 4 THE MONEY MARKET 71
Money Market Instruments 71
Corporate Money Market Instruments 71
Government Money Market Instruments 73
Municipal Money Market Instruments 74
International Money Market Instruments 74
Interest Rates 74
Pretest 77
CHAPTER 5 ECONOMIC FUNDAMENTALS 79
Gross Domestic Product (GDP) 79
Recession 81
Depression 81
Economic Indicators 81
Economic Policy 83
Tools of The Federal Reserve Board 83
Fiscal Policy 86
Consumer Price Index (CPI) 87
Inflation/Deflation 87
Real GDP 87
International Monetary Considerations 88
Pretest 89
CHAPTER 6 MUTUAL FUNDS 93
Investment Company Philosophy 93
Types of Investment Companies 94
Open-End vs. Closed-End Funds 95
Diversified vs. Nondiversified 96
Investment Company Registration 97
Investment Company Components 99
Mutual Fund Distribution 101
Selling Group Member 101
Distribution of No-Load Mutual Fund Shares 102
Distribution of Mutual Fund Shares 102
Mutual Fund Prospectus 102
Characteristics of Open-End Mutual Fund Shares 103
Mutual Fund Investment Objectives 104
Other Types of Funds 106
Bond Funds 106
Valuing Mutual Fund Shares 108
Changes in the NAV 109
Sales Charges 109
Calculating a Mutual Fund’s Sales Charge Percentage 111
Finding the Public Offering Price 112
Sales Charge Reductions 112
Breakpoint Schedule 113
Letter of Intent 113
Backdating a Letter of Intent 114
Breakpoint Sales 114
Rights of Accumulation 114
Automatic Reinvestment of Distributions 115
Other Mutual Fund Features 115
Cost Base of Multiple Purchases 119
Purchasing Mutual Fund Shares 120
Sales Charges 123
45-Day Free Look 123
Withdrawal Plans 123
Pretest 125
CHAPTER 7 VARIABLE ANNUITIES AND LIFE INSURANCE 131
Annuities 131
Equity Indexed Annuity 134
Annuity Purchase Options 135
Accumulation Units 136
Annuity Units 136
Annuity Payout Options 136
Factors Affecting the Size of the Annuity Payment 138
The Assumed Interest Rate (AIR) 138
Taxation 139
Types of Withdrawals 139
Annuitizing the Contract 139
Expenses and Guarantees 140
Other Charges 140
Life Insurance 141
Premiums and Death Benefits 143
Assumed Interest Rate 144
Variable Policy Features 145
Pretest 147
CHAPTER 8 RETIREMENT PLANS 151
Individual Plans 151
Individual Retirement Accounts (IRAs) 152
Traditional IRAs 152
Roth IRAs 153
Simplified Employee Pension IRA (SEP IRA) 154
Death of an IRA Owner 156
Educational IRA/Coverdell IRA 156
Tax-Sheltered Annuities (TSAs)/Tax-Deferred Accounts (TDAs) 158
Corporate Plans 160
Rolling Over a Pension Plan 162
Employee Retirement Income Security Act of 1974 (ERISA) 162
ERISA 404C SAFE HARBOR 164
Pretest 165
CHAPTER 9 CUSTOMER ACCOUNTS 169
Holding Securities 171
Mailing Instructions 172
Types of Accounts 172
Commingling Customer’s Pledged Securities 182
Wrap Accounts 182
Regulation S-P 182
Pretest 183
CHAPTER 10 CUSTOMER RECOMMENDATIONS, PROFESSIONAL CONDUCT, AND TAXATION 187
Professional Conduct in the Securities Industry 188
Fair Dealings with Customers 188
Periodic Payment Plans 193
Mutual Fund Current Yield 193
Information Obtained from an Issuer 193
Disclosure of Client Information 194
Borrowing and Lending Money 194
Gift Rule 194
Outside Employment 195
Private Securities Transactions 195
Customer Complaints 195
Investor Information 195
NYSE/FINRA Know Your Customer 196
Investment Objectives 197
Risk vs. Reward 199
Alpha 200
Beta 201
Tax Structure 201
Investment Taxation 201
Calculating Gains and Losses 202
Cost Base of Multiple Purchases 202
Deducting Capital Losses 203
Wash Sales 203
Taxation of Interest income 204
Inherited Securities 204
Donating Securities to Charity 205
Gift Taxes 205
Estate Taxes 205
Withholding Tax 206
Corporate Dividend Exclusion 206
Alternative Minimum Tax (AMT) 206
Taxes on Foreign Securities 206
Pretest 207
CHAPTER 11 SECURITIES INDUSTRY RULES AND REGULATIONS 213
The Securities Exchange Act of 1934 213
The Securities and Exchange Commission (SEC) 214
Extension of Credit 215
The National Association of Securities Dealers (NASD) 215
Becoming a Member of FINRA 217
Registration of Agents/Associated Persons 217
Disciplinary Actions Against a Registered Representative 218
Resignation of a Registered Representative 218
Continuing Education 219
Firm Element Continuing Education 219
Regulatory Element 220
Termination for Cause 220
Retiring Representatives/Continuing Commissions 221
State Registration 221
Registration Exemptions 221
Persons Ineligible to Register 221
Communications with the Public 222
FINRA Rule 2210 Communications with the Public 223
Broker Dealer Websites 225
Blind Recruiting Ads 226
Generic Advertising 226
Tombstone Ads 226
Testimonials 227
Free Services 227
Misleading Communication with the Public 228
Securities Investor Protection Corporation Act of 1970 228
Net Capital Requirement 228
Customer Coverage 228
Fidelity Bond 229
The Insider Trading & Securities Fraud Enforcement Act of 1988 229
Firewall 230
The Telephone Consumer Protection Act of 1991 230
Exemption from the Telephone Consumer Protection Act of 1991 231
The Role of the Principal 231
Violations and Complaints 232
Resolution of Allegations 232
Minor Rule Violation 232
Code of Arbitration 233
The Arbitration Process 233
Mediation 234
Currency Transactions 235
The Patriot Act 235
U.S. Accounts 236
Foreign Accounts 236
Annual Compliance Review 237
Business Continuity Plan 237
Sarbanes-Oxley Act 237
The Uniform Securities Act 239
Pretest 241
ANSWER KEYS 247
GLOSSARY OF EXAM TERMS 257
INDEX 323
