well greetings series 7 test takers this is the series 7 guru coming to you from my studio here in a fabulous las vegas uh time to demonstrate that i'm a series 7 og you know back in the day they used to give the series seven as two three hour sessions 250 test questions and they did it on the third saturday on a campus and then you'd find out and receive your results uh days later in the mail and since i knew all the test takers were going to be down there i would go down with some donuts and you know coffee and uh you know uh wish everybody uh bone shones uh mess of me good luck my friends and i did a little uh answered any questions they had and did a little whiteboard presentation of an overview flyover at ten thousand feet of the series seven in uh 16 minutes you obviously ain't going to learn anything but the idea is maybe you can get some rhythm uh your brain doesn't naturally sometimes think what uh starts thinking series seven so it's a way to get your brain kind of thinking series seven stuff so uh that lesser was very popular and that was you know many many many years ago uh but lately people on the channel have been using two of our videos uh the day before night before or morning of their exam and i think for kind of a similar purpose and that's tips tricks and memory aids uh that video series seven tip tricks and memory age is our most popular piece of content on the channel it has over 35 000 views and another one that test takers seem to be using that uh same kind of a thing for is series seven all the math you know just all the calculations so i thought what i would do is add a third a piece of video that you could use the day before or night before or morning of your exam just kind of get your brain housing group uh fired up thinking series seven with some testable issues so i have revived the series seven and sixty minutes uh lecture from yesteryear uh to repurpose it uh for today's environment uh on youtube so um i'm gonna hit some of the highlights of the exam uh that you will encounter either tomorrow or uh this afternoon depending on when you're watching this i would stress to you please don't watch this if you're not you know a day out or two from your test it's not designed as a video that's in the normal uh playlist routine in terms of if you're watching the other lectures we have i'm still gonna put it in the front of the playlist on series 7 just because a lot of people are using the channel as a supplement to their study efforts and maybe they're just looking for something else they can do all right so let's get started let me turn over my egg timer here and set it for 60 minutes and see in theory should be easier right if we only have 125 questions in today's environment uh then perhaps should be easier all right let's start with equity securities uh in the equity securities category right we have corporations and the first thing that all corporations must issue is common stock there's no such thing as a corporation that has not issued a common stock that's how it all begins right in terms of capitalizing the company now the board can meet and decide that we have excess capital and one thing boards do when they have excess capital is perhaps authorize the corporation to buy back its stock so that treasury stock is stock that has been reacquired by the corporation and i would definitely know that treasury stock pays no dividends and has no voting rights so again the other thing they could do is declare a dividend if they declare a dividend the board can declare either a cash dividend or a stock dividend and the board is going to decide who are the shareholders of record because our share list is always changing and so the board is going to decide uh whether or not your shareholders have a record on you know whatever the date happens to be and then the payable date is when they are simply going to pay the uh pay the dividend and they could have they could have either a cash dividend or stock dividend so you know the cash dividend in theory if the company was worth x number of dollars with that cash still in the corporate shell and now that's going to be distributed it should be less and so we would expect the stock to go down by the amount of the dividend on the x date the x date is not set by the board of directors the x date is a function of the uniform practice code and i should definitely know the x data is the first date on which the stock no longer trades with the dividend detached it's one business day prior to record and be careful rtfq read the full question if i'm asking you when's the last day you can buy the stock and get the dividend which would not be very smart because you'd be creating an unnecessary tax situation that would be the day before the x so be careful what you're being asked i'd like to put you sometimes on the cusp of that line either tomorrow or this afternoon so make sure you're reading that question and what they're asking now remember selling dividends is a big no-no that's using that dividend that impending x-state as a artifice an archit sense of urgency that does uh not exist uh i would be able that cash dividend no it's taxable and i would know based on that cash dividend what is the current yield now be careful on your exam if they give you the quarterly dividend to figure out the current yield you're gonna have to multiply by four and once you multiply by four you would take what the investment pays you annual dividend in stock divided by the current market price you get that current yield by the way if you can't decide what math to do on your exam uh divide if you can't decide what to do take the first number divided by the second number that takes care of you know uh 90 of the math i'd be doing you a service to cover every key except that key uh remember a dividend of one corporation paid to another corporation is 50 tax excludable now the other thing the board could do is declare a stock dividend or a stock split and stock dividends and stock splits are not taxable what you have to do is just adjust your cost base now again uh this is a video that isn't about lectures you know all these all these things i'm going to be touching on are found in narrative lectures and like i say too late you know you're going uh tomorrow or this afternoon so i want to give you a couple tricks when it comes to stockton and stock splits you want to shop the answer set and what you're looking for is more shares at a lower price and sometimes they're only going to be one that has more shares at a lower price so that's the first trick the second trick is you always have the same value so if i bought 100 shares of 50 that 5000 will be a constant so the other thing you could do is take your offers the you know i think of the answers that there is offers they're offering you four answers to whatever question they've asked you rtfa that's they have to read the full answer set and i would see you know which one still adds up to five grand if i multiply it and that again might only be one choice now if it's a reverse split it would be the opposite the reverse plate you're going to have lower share a less lower amount of shears the share count that you have goes down and the price goes up which is the point of the reverse split now a lot of times i have a student series seven test takers who tell me that they have a lot more preferred stock questions than they were expecting i don't know what they're expecting i mean you know in terms of that but it's called preferred stock because of test question you have preferential treatment in two areas now i'm not i don't have slides here which i usually have powerpoint slides and presentations and the reason i'm not doing it is because most people tell me when they're using this as a day before or morning of they're using it in audio format primarily where they're just listening as they're on their way to their hotel the night before or they're on their commute or whatever they're using they're listing an audio format so i'm not going to have slides i'm going to put that up on on the you won't see any slides in this uh series 7 and 60 minutes presentation but it's called preferred stock because of two things right you have preferential treatment and dividends very testable the issuer cannot pay a dividend to common if they're in arrears to the preferred stockholders and preferential treatment and liquidation you are senior to the common in liquidation so you're going to have to rate the securities from junior to senior common stock preferred stock unsecured debt secured debt or senior junior liquidation secured debt unsecured debt preferred stock common now remember there's two types of preferred stock there's straight non-cumulative where there's no arrears and then there's cumulative where again you might have to calculate how far they're in arrears they have to take care of the arrears of the current dividend before they can pay a dividend to common and while preferred stock is considered equity it's in this category of discussion we're having right now called equity securities it's actually a fixed income investment vehicle because even if you own a six percent preferred you're not getting more than six percent that state is a maximum not a minimum you might even get less and so it's a fixed income investment vehicle so please reno as a fixed income investment vehicle the suitability questions are going to be more bond like what do i mean by that interest rates go up preferred stock price goes down interest rates go down it makes it more likely the issue is going to call the preferred stock away from you so it's more bond like in terms of suitability because it like a bond it's a fixed income investment vehicle uh rights versus warrants you definitely should be able to contrast rights versus warrants rights very testable or short-term exercisable below the current market price it's the only one at issuance that always is exercisable below the current market price remember that's your uh originally the rights are given to the existing shareholders so if they choose to they can maintain their proportion ownership uh and then warrants are long-term and exercisable above the current market price and they're typically used as a sweetener to get people to buy bonds for for example so be able to contrast rights with versus warrants uh adrs i can't imagine any draw you know draws high probability low probability you know i'm wishing for you a dream draw everything you studied shows up you know i don't know what the big deal was you know but you got to be able to take down a dream draw or face a death draw and then in terms of probability of the performance opportunities or test questions you're going to see some things are high probability some things are lower probability it is very high probability that you're going to be asked about american depository receipt and the things you need to know about american depository receipts is it facilitates u.s citizens owning foreign securities because when you own an american depository receipt that's trading in the u.s as a u.s security basically what you actually own or a beneficial owner of is the foreign securities are in a uh overseas branch of a domestic bank so it facilitates u.s citizens owning foreign securities and the second high probability test question is understand you have currency risk right if the underlying business is conducted in the foreign currency you have foreign currency risk so i would imagine you're definitely going to see that uh on your exam now in the equity category that we're talking about you know i personally would probably put reits elsewhere but you know reads are considered equity securities and you buy a read for the same reason you buy a mutual fund professional management diversification ease of ownership whether you're not buying a diversified portfolio of securities you're buying a diversified or proportion ownership diversified portfolio of real estate and the yk mutual fund a reit must pass through 90 at least 90 percent of its net investment income all right so let's talk about some debt securities we're talking about the investment vehicles because that's function three according to the finra content outline and that function three is 91 questions you know uh it makes sense when you think about it the functions of finra in the test content outline function one is can you find a customer function two is can you open the account function three is once you have an account can you put an investment in it and the function four is what happens behind the scenes after you've done the trade so that's the narrative of the content outline that frindler chooses and three the investment vehicle part of the exam is 91 questions a lot of people will sometimes refer to the series 7 as the stock brokers exam and i really think that's not what they should be referring it to because it really should be called the bond brokers exam there are way way more questions about bonds than there are stocks and the two risks and bonds are interest rate risk and credit risk now remember in interest rate risk i'm going to do my teeter-totter right if interest rates go up the bond price goes down interest rates go down the bond price goes up in inverse relationship my head is the nominal yield the coupon the fixed or stated rate of return that does not fluctuate right and then as we look at this if interest rates go down the bond goes up nominal yield current yield yield of maturity yield the call you're more likely to encounter a bond at a premium on your exam and remember it's a bond at a premium it's likely to get called and so we should quote yield to call now we're not going to make you crunch yield a maturity and yield a call but we are going to ask you where it's at in relationship to that and the one they like more than often than not is the bond at the premium so you know as a test taker listen there's not a lot of time for you time is the time horizon timeline has collapsed right your study effort is like a option contract and time value is eroding i'm being facetious here but i'm telling you that if i was a test taker on my exam and i shot my answer set and one of my choices was yield to call i'd be predisposed to say that's what they're looking for and i go back to the question and say okay is this a bond at a discount or a premium premium yield a call remember discount would be a yield to maturity now that's remember only if you're participating in the secondary market you know does this fluctuating thing matter because we're going to send you a statement test question every quarter unless you have a penny stock and we'll send it to you monthly but you know i said well what do we care what the secondary price of the bond is right now unless we're buying it or we're going to sell it whatever the case may be you should only be able to do current yield you should definitely be able to do current yields on a bond you should know for the most part all debt denominated securities trade over the counter in a negotiated quote driven market and that means there's going to be a bond desk and a bond desk is going to give you a bid and an offer now price at which that bond desk is willing to buy the bond into its inventory and we're willing to sell it out of its inventory that spread and i would definitely know that a bond point is ten dollars you know one percent of par and i would know that if i'm working the bond desk for corporates and minis my minimum spread is going to be an eighth and if i'm working a treasury note of treasury bond desk my minimum spread is going to be at 32nd and so that's how we're going to have our spreads denominated so the minimum i'm going to make is a dollar 25 an eighth or half that yeah excuse me less spread than that um by the way if you get asked about you know a point or what it is you can just take like if they say half a point one divided by two times ten and i'll tell you what that is and sometimes they'll have like an example of saying you made a half a point on 50 000 bonds and you got to figure out you know what was that in dollar amount so just a heads up for you um callable bonds remember you have call risk if interest rates go down uh what prevents the issuer from calling the bonds is called protection which is time and price and uh i would expect a convertible bond question a convertible bond allows you to switch your status from being a creditor of the corporation to becoming an owner and what's really important for your exam uh tomorrow or this afternoon is to make sure that you understand you need the conversion ratio to do any kind of a parity calculation so what you're going to do if they don't give it to you if they give it to you say thank you very much but if not what you're going to do is you're going to take your par and divide by the conversion price to establish that conversion ratio now more often than not what they're going to ask you to calculate is parity of the common again division so we'll take the current market price of the convertible we'll divide by the conversion ratio and that would give us parity to common uh i can't imagine you're not going to be asked to calculate perry now but with the stock you'd go the other direction uh if they ask you period of the bond you'd multiply if they gave you the current market price of the stock and the conversion rate should go the other way i think it's more likely you're going to get the division one where you're going to have to take the current market price of the convertible divide by the conversion ratio to establish uh whatever that parity is now there are two types of maturities in bonds right we have term maturity where all the bonds come to at once and serial maturity where the bonds come through at different times you know term bonds as i said are quoted as a percentage of par price and you know serial maturities where those different maturity dates are typically quoted on a yield to maturity basis you know what because what you care about is what you're going to make by holding it to maturity types of bonds so in the corporate three issuers right you got corporate issuers you've got municipal issuers and you've got the us government and the corporate issuers basket or bucket you've got secured bonds and unsecured bonds remember that very testable secured bonds are senior to the unsecured bonds uh types of secured bonds that you might encounter on your exam are mortgage bonds secured by real property um collateral trust bonds secured by marketable securities placed in escrow and uh what's uh oh uh equipment trust certificates uh that's our bonds are secured by major removable equipment in the unsecured category you're gonna have debentures subordinated debentures you're gonna have income or adjustment bonds income or adjustment bonds only pay interest when and if earned they trade flat meaning no calculation of accrued interest you know it's important to know that there are some bonds where the buyer does not need to pay the seller the accrued interest that would be income or adjustment bonds zero coupon bonds and bonds in default so uh income adjustments we have guaranteed bonds where the parent company is guaranteeing the debt of one of its uh subsidiaries and as i said you better make sure you understand the liquidation priority secure debt unsecured debt preferred common or common preferred unsecured debt secured debt going uh the other way um in the zero coupon category again we have three issuers but all zero coupon bonds there's an imputed interest you're receiving and so you have to do straight line amortization upward called accretion and you're going to taxes on that imputed interest at accredited amount unless the original issue discount the zero was from a municipality other than that you're gonna owe uh taxes on that uh zeros don't have any reinvestment risk because you're not getting paid every six months so you're not gonna have to decide you know what to do with the uh the income stream because there isn't one remember other bonds pay semi-annually but zeros don't there is zero coupons zero income so uh they're good for somebody who needs to set some money at some future a day all right so let's move on to other types of securities we have treasury securities we have t-bills that are issued and trade at a discount and there's nothing safer than a treasury bill because treasury bills don't have interest rate risk and no treasury securities have credit risk there's no better credit quality than that of the united states government remember corporations are rated by standard and poor's as either aaa double a single a triple b you know there's only two corporations that have triple a credit quality and that's microsoft and johnson and johnson and the idea there is i'm going to talk to you first in those bonds about interest rate risk and then credit risk if i sell you a junk bond less than triple b on the test less than investment grade well then we you know probably have a greater risk of default but we don't have that risk when we're talking about treasury securities now in treasury notes and treasury bonds you do have interest rate risk and none of you hold it to maturity but in the secondary market remember if interest rates go up the uh treasury note of bond is going down and you sell you might have a loss on that so uh the treasury uh bonds notes and bonds remember also different than corporates corporates and munis settled t plus two and the accrued interest is based on a 30-day calendar whereas in treasuries or goofy treasury notes and trading runs are goofy they don't trade nate's they trade in 30 seconds they're t plus one and they use an actual calendar so they're goofy we also have government sponsored enterprises very high probability jenny may jenny may three things you need to know about jennie mae for your test either this afternoon or tomorrow jenny mays pay interest in principal month monthly it's the only one we have that pays interest in principal monthly you know they're fully taxable you know treasury securities are taxed by the u.s treasury but not states and not local governments but these are fully taxable right they have the full faith in credit united states government they pay interest in principle monthly and they are that's how they're different by the way uh that they're fully taxable interest in principal monthly directly backed by the u.s treasury a fannie mae and freddie mac the other two have an implied backing now sometimes uh men and women in structured finance carve up the jenny maypool into various cascading cash flows called tranches and those are called cmos collateralized mortgage obligation bonds and what you need to be aware of on your exam about cmos is that tax the early cash flows plan amortization classes have less risk and more predictability than the later cash flows the tax targeted amortization classes and you also need to know that the buyer needs to sign a suitability statement saying they understand they're buying a derivative security and not proportionate ownership in a pool of uh mortgages because that's what you're doing when jenny may that's not what you're doing in a cmo all right so i wouldn't worry too much about modern portfolio theory on the test and quantitative analysis if you're coming back uh 466 it becomes a little more testable but i would have a general understanding of a beta beta as a measurement of a stock or fund's volatility as compared to the market the s p 500 a beta of two would mean it'd be twice as volatile as the underlying market both directions uh and alpha little less uh likely you're going to encounter that but alpha is the return compared to beta for real quick if you know i have a stock with a beta f2 and the market goes up 10 i would expect the stock to go up uh 20 and if it went up 23 that three percent would be called alpha the excess return over beta uh more likely you're gonna see beta than alpha uh municipal securities you know in the municipal security category you need to know the number one reason people buy muniz is because the interest is federally tax exempt you know and i you know may or may not be state local depending on where you live and what kind of bonds you're going to buy and the two basic types of muni bonds are geos and revenues and you're going to get tormented on you know the difference between geos and revenues there's all the following are associated with you guys accept or offend with everything to accept right the big one is taxing authority is required for a go and voter approval is required for a geo and a revenue bond that is not true that is not true and remember when we're selling these uh muni bonds when they're in the primary market uh they can be issued on a negotiated basis where you know the issuer selects the underwriter and you know if the uh issuer needs a cash advance they can say to their underwriter how about a cash advance and the underwriter says not a problem here's some cash why don't you give us a bond anticipation note and then when we raise the money for you we want back our money in a little extra i think of these uh municipal notes as immunity equivalent to borrowing against receivables it's kind of like a payday loan if you will and so you would get that from your underwriter uh there's also tans tax anticipation notes uh rans revenue anticipation notes and trans and those are municipal money market securities now if it's competitive if it's competitive the municipality is going to turn that uh publish a notice of sale on the bond buyer a newspaper widely read in the municipal market various syndicates will be formed and they will submit their bids and the one who provides the issue with the lowest net interest cost is the syndicate that has won the underwriting and now owns the bonds is going to try and sell them and remember the participants in that sending it are going to be the managing underwriter first among equals the underwriters members of the syndicate and then selling group members and the selling group members are never going to be liable for unsold securities and the spread the smallest component is going to be the management fee the largest component individual component is the selling concession be careful individual component so on the test i tell you your firm's a member of the selling group and the selling concession was a half a point and you sold 50 000 bonds you'd be able to figure out 50 000 times five dollars and figure out that compensation now on the other hand uh the largest component not individual component is the total takedown that's two components that's the additional takedown and the selling concession so just be careful rtfq read that full question uh also in terms of the underwritings it's either going to be a western divided syndicate or eastern undivided remember western your liability is based on whatever you take down so if it's 100 million dollar deal and i am an underwriter and i take down 20 million that's my risk if it's eastern and i take down 20 million of the 100 that's 20 and that's my risk again these aren't lectures this is just getting a rhythm flowing so too late if you don't know how to do that again if you're not testing in the next day or two you should be watching this video you should be watching the narrative lectures on each of these things i'm talking about in the series seven and uh 60 minutes so uh remember in the uh geo category we have double barrel bonds which have two pledges a user fee of the user fee is insufficient the municipality pays and that requires a little approval right because that second barrel there's stickiness to the taxpayers and then remember in the revenue bonds the one i would be aware of there's several subcategories of revenue bonds but the high risk one for you as a test taker is industrial development revenue bonds also known as industrial development agency bonds you know those support a private activity test question corporate credit backs that bond and for certain taxpayers subject to the alternative infant tax it's going to be taxable so they'll be a suitability question if what i'm recommending to you is an industrial domain agency bond are you subject to the amt are you subject to the amt now the only component of a muni bond the only component of immunity bond that is tax free is the coupon now if you buy a bond low and you sell it high that's a capital gain even if it's immunity the capital gain is going to be taxable so the only component of unity bond that is tax-free is that coupon another one i would be aware aware of as a test taker are public housing authority bonds or new housing authority bonds those have the full faith and credit of the u.s treasury and so you know there's three ways to get that credit card direct obligations of the u.s treasury jenny mays and phas whenever there's three of a thing be careful they like to ask you about the accept now as we said the number one reason people buy muni bonds is to collect a tax-free interest we say that's the number one reason that they're buying it and this idea that you're not paying federally taxes you can't just assume that you're not paying state because that depends where you live and what kind of bonds you're going to buy for example if i'm a resident of california i buy a nevada bond california can and will tax me on that interest so i what behooves me to you know invest in california political subdivisions because california could tax maybe chooses not to to give me an incentive now if i want to diversify geographically outside of my state one thing i might want to consider a test question are territorial bonds if i buy a puerto rican bond or u.s virgin islands bond the federal government could touch me but chooses not to to give me an incentive to invest in territories like puerto rico like the us virgin islands and states would like to but cannot so that's one way i could diversify a muni bond portfolio geographically now you don't get to decide you don't get to decide about how to realize the tax consequences of a muni bond purchased at a premium this is about 50 probability so if you buy a muni bond at a premium you have to do straight line amortization downward so if i buy a bond for a mini bond for 120 that's 1200 has 10 years remaining 200 divided by 10 each year i'm going to adjust that cost basis by 20 bucks uh you should be able to do uh tax and tax free equivalent yields you know if you have don't pull over the car i guess and you know review this but there's two scenarios in each scenario on your exam the minute you get somebody's tax bracket you know what's coming next so the minute you have any question where it says the tax bracket is 38 i just made that up you go oh boy i guess i'm gonna have to do this now whether i'm asking you to take the taxable yield and go tax-free or tax-free intact to go to taxable you're always gonna have to take a hundred percent minus the tax bracket so my example 100 minus 38 is 72 or 0.72 now if they're asking me to take the taxable yield and figure out tax free i'm going to multiply so i take the taxable yield i'm going to multiply by point in my example 0.72 and if it's uh the other way i'm going to take the tax free yield and divide by 100 minus 38 which is 72 or 0.72 and that'll give me the taxable equivalent based on that meaning then i got to tell the customer what to do i'd be prepared to be able to do that math and come up with this little recommendation based on that i would tell you the default is that they're typically going to ask you to divide and the default is they're going to be either almost eyeball it either in a high enough tax bracket rich enough where you can just like almost eyeball and say okay i think that's going to be the answer mutual funds mutual funds remember you have to be able to contrast an open end fund with various other types of investments so you're going to as a test seeker have to contrast an open-end fund with a closed-end fund and contrast an open-end fund with an etf now one of the major distinctions between open-end funds and closed-in funds is closed-in funds only make a one-time ipo in the primary market and then they trade in the secondary market whereas open-end funds as you recall are continually offering new shares to the public and they are priced as by a formula in the prospectus nav plus sales charge equals public offering price now remember i can't lend you money to buy a new issue it's considered a new issue 30 days from the effective date we have to calculate because of the investment company act of 1940 we have to calculate that nav at least once per business day you know assets of the fund minus liabilities of the fund you know equals the net asset value divide that gives me nav per share i do that once per business day and we're always doing business based on the next calculation of the nab very tesla is called forward pricing forward pricing now if it is a traditional age here with a front-end load the maximum jail charge is going to be eight and a half percent and you know uh typically in an age here i'm going to have a say a break point which is a good thing quantity discount and i'm going to tell you all the ways you can qualify for that break point that quantity discount with a letter of intent good for 13 months can be backdated 90 days i'm not going to let investment clubs pull purchases for purposes of meeting that break point and traditionally the a share would be good for somebody who has a larger sum of money and is a long-term oriented investor whereas the b shares have a contingent deferred sales charge make sure not buying into misuse of no-load terminology that may be waived and that would be more appropriate for somebody who has a smaller amount to invest and again a longer time horizon uh i would be able to contrast the open-end fund with the etf etfs like closed-in funds trade supply and demand of the secondary market unlike an open-end fund they could be bought on margin and that means they can also be sold short they're typically passive passively managed for test purposes a little more tax efficient and they're more of a trading vehicle than is a mutual fund right then we can have you know leopard etfs reverse etfs all kinds of crazy things and then you want to be able to contrast an etf with an etin or eln key distinction exchange traded fund fund where you're an owner exchange traded note note your creditor exchange linked note creditor so that's where the financial institution agrees to pay you something based on whatever that referenced security index does and that's the main test point is etfs are not a debt security whereas et ends and uh elns most certainly are now we have a mutual funds with insurance wrappers called variable annuities in a variable annuity what you're going to do is take after tax money and put it into a variable annuity that's going to be your cost basis money you've already paid taxes on you're going to choose a separate account a mutual fund known as a separate counter sub account you're assuming investment risk and you hope it's going to grow now it's going to grow tax deferred and when you're 59 and a half you have some choices one thing you can do this is kind of nifty is annuitized you can turn it into an income stream and the choice that gives you the largest monthly check test question would be life only another thing you could do is random withdrawal and random withdrawal is going to be life of the last money's in or the first money is out you know whenever you get a tax question on the test always you know guess what use yeah yields the most for the us treasury right uh so you can uh do that now with that check you're going to get part of it's going to be money coming back to you that monthly check that you've already paid taxes on and part of it's going to be taxable it's going to go up or down based on the assumed interest rate we're not going to take you all over the place but if the assumed interest rates is four we get five check goes up assumed interest is four we get four check remains the same if the assumed interest rate is four we get three the check uh goes down so we're talking about the various uh types of investment vehicles on your series seven ninety-one questions you get partnerships uh partnerships are low risk you know maybe a couple questions uh the main one is know the rules of the general partner limited partner know the flow through of the tax consequences uh you know make sure you know how it's different there's no liquidity and you know it's high probability we don't recommend partnerships for somebody needs liquidity because unlike a corporate stock you need permission of the general partner to get in or out you don't need anybody's permission to sell your common stock and partnerships typically have a finite life remember all the tax consequences that flow through profits and losses are stuck there you can't use any loss a passive activity loss against any other part of your tax return so what you're trying to do there is match up you know your partnerships that have passive income with your partnerships that have passive losses so for example one type of a partnership i'd be prepared for on the test is oil and gas exploratory program and i might call you and say hey listen we have a large amount of passive income why don't we take a flyer on this exploratory wildcat program if we lose money at least we can write it off we can use that passive activity loss against our passive income now be careful you should not tell the irs that you're making an investment to lose money you know the tax advantages can be important but that can't be your primary motivation you can't let the tax tail wag the you know uh investment dog we have a uh real estate uh partnerships we have uh two types of partnerships that would qualify for tax credit i'd be aware of and that would be a partnership we formed to restore historic real estate so historic real estate rehabilitation and then low income housing would also provide us with a tax credit we have uh equipment uh leasing programs we have oil and gas income and oil and gas uh developmental step out programs we have on the test options now again i'm not sure how much time you know this is a series 7 and 60 minutes but uh in terms of options where we have nine strategies we're held accountable for uh we have our speculative strategies long call short call long put short put now good news for us call up call up you know call up as a great memory aid for break evens and call contracts strike price plus premium is the break even doesn't matter whether it's long or short that's the break you can put down market price down and put the break is going to be market price strike price minus premium call up put down that's also good for intrinsic value call up if the market price is up from the strike price the contract has intrinsic value put down if the market price is down from the strike price it has intrinsic value now remember big picture whenever we're long a speculative option position long call long put long straddle debit spread we know our loss that's one reason people buy options i lose my premium and in the speculative strategy short call short put short straddle uh credit spread where i'm selling the spread that's my max gain i agree to be a potential victim nobody victimizes me you know contractor contracts expire worthless now in the long call i'm bullish max gain is unlimited max losses the premium short call i'm bearish now it's important bears because that tells us where we want to be in relationship to the break even max kane is the premium max loss guaranteed test question is you have unlimited risk so make sure you when you're doing your test you're making it reading carefully you see is this a naked uncovered call where i'm agreeing to sell stock i don't have test question unlimited risk or is this a credit call spread or is this a covered call where i actually don't have unlimited risk in the put contracts long put max gain is when the stock goes to zero strike price less premium to zero or breakeven is zero max loss is the premium and i'm bearish if we're gonna have putters we gotta have put ease and in a short put my braking and strike price less pre make i'm saying break even i'm bullish ideally i wonder about the strike so the contractors aspires i go neanderthane or neaner my max king of supreme max losses again when somebody sticks it to me and i have to pay the strike price for worthless stock i get to keep the premium so strike price less premium 0 or break him to zero that's going to be my max loss now in terms of my other two advanced option strategies on a straddle i've got to be able to identify the straddle long two different type of contracts or short two different types of contracts calculate the break evens call up put down strike price plus total premium for the upside break even strike price minus total premium for the downside break even i have to know when i use it or where is it profitable we got a great mnemonic for where is it profitable silos short inside the break evens is where i make money if the market price is in between there and silo long outside long outside outside the two break evens it becomes profitable uh make sure it's short stop remember has a naked call in there so it has unlimited risk and then the fourth question when i use it i biostrata when i'm expecting volatility but direction's uncertain i sell a straddle i expect it to stay within the trading range now to spread i'm gonna have to determine debit or credit debit is more money out than in credits more money in than out when i net the premiums because that's what i'm spreading if it's a debit spread i want the contracts to exercise and i want the difference in the premiums white do debit exercise widen and if it's a credit i want the contracts to expire and i want the difference in the premiums in an arrow you know so you could also use credit has six letters you know expire has six letters you know narrow has six letters uh debit has five and i think white and has five but those go together the gain and loss test taker trick always equals the difference in the strikes so you're going to have one of those either the debit is the loss or the credits the gain and the balance so don't pick anything that doesn't add up to the difference in the strikes if they offer you two numbers uh you know i don't think in a series seven and sixty minutes i'm gonna go the different other strikes less than that debit i'm just gonna leave it at that now another test taking trick is the break even a spread is always between the range the floor the ceiling all the action takes place between the strikes so the braking has got to be somewhere between there now we have two great memory aids for break evens in call spreads doesn't matter debit or credit call spreads call add to the lower we add in that premium to the lower strike and push put subtract from the higher we're going to take the net premium subtractor from the higher price so those are our speculative strategies oh i'm sorry one more thing bullish or bearish and we do that by the larger premium dominates that's what's going on i'm trying to figure out what sandbox i'm playing that's the sandbox i'm playing it now we have two stock positions that we can add an option contract to you know we have the two stock positions we have our long stock and short stock and so remember if i'm long the stock i'm going to be interested in being able to sell i mean they're interested in income or protection boy i can't imagine you're not going to get asked about how do i generate additional income on a stock position you know how do i how do i how about i agree to sell high stock i just bought low that's a covered call where i'm going to sell the stock that i actually own now that is going to be a different break even right because i'm lowering my out-of-pocket cost by selling the calls so it's going to be the stock cost less the premium is going to be my break even that covered call and i don't participate past the strike price that's the downside of a covered call because i've agreed to give up that stock at that strike price right and then a put yeah that's for protection so the minute your income you know you're selling an option protection you know you're buying the option if i buy a put it's the one time now i'm going to actually add because i got to pay for the stock plus the term insurance the protection and so that's going to be my break even stock cost plus premium and the neat thing about that now is i have a floor i have a choice to sell the stock and whatever that strike price is so i have some protection i don't have to sell it i don't want to now the other position i have is a short stock position and the main one here is just recognizing that a short stock position has unlimited risk and so if you want to mitigate that risk there would be two things you could do on your exam this afternoon or tomorrow and that would be to enter a buy stop order above the market to stop the loss or to buy a call contract the neat thing about buying the call contract is you no longer have unlimited risk because you can exercise the call get back the borrowed stock and give it back to the person you borrowed it from so that would be the smart thing to do you know shorting a put is not smart if you short a put and you're short to straw stock the short put doesn't have on limiters but the short stock hasn't been changed you still are blowing in the wind in terms of risk on that because the puts expire and you still short the stock so the test question that you would encounter is just to recognize that that still exposes you uh to unlimited risk okay so we have gone through uh the investment vehicles uh in our series seven and sixty minutes and uh the next thing we wanna talk about again and we're just doing a flyover here just if you're listening this in the audio file just to get your brain kind of thinking you know series seven stuff series seven stuff so uh retirement plans i'd fly high we know retirement plans 59 and a half is when you can choose to draw down 72 is when you must take a required minimum distribution unless it's a roth uh i would know 60 days if you take physical possession to roll it over and put it back in the appropriate kind of a vehicle i would know that 10 percent is the penalty for early withdrawals and then i would know that erisa covers uh private pension plans employee retirement comes income security act it doesn't cover municipalities and you know you have to tell your employees how to convest vested is it defined benefit where the employer assumes the investment risk or is it defined contribution i would definitely know that i would know that employees of non-profits 501cs and employees of 403bs educational establishments are going to be able to uh use a tax sheltered annuity where they're going to be able to reuse pre-tax money now remember when any of these qualified plans you're using pre-tax money that means you have no cost basis so that means everything else is everything else everything coming out is taxable you know an exception would be uh a roth and the uh variable annuity uh margin you're only going to get two or three margin questions so i just want you to feel good this afternoon or tomorrow to be honest with you if you tell me that you messed up on the series seven because of margin and that's why you failed i must say i don't believe that you know the problem is we don't know what two three max four questions you're going to receive so you should definitely know the additional documentation required to open a margin account the credit agreement the hypothecation agreement the loan consent form which is optional so those first two are mandatory the loan consent form is not i would know the classical margin equation long which is long market value minus debit equals equity i would know that reg t is part of 34 and red t says customers initially need to be a risk for 50 percent uh i would know greg t says customers get two additional days to pay for their purchases so remember regularly settlement t plus two is between broker dealers we don't tell customers this because we don't wanna use our money to settle their trades but you know they actually get two additional days so that's t plus four i can't actually bother a customer until t plus two plus two uh i would know that uh maintenance long is 25 and i would know how to calculate market value and maintenance debit by 0.75 i would know the classical margin equation short which is the credit registered i'd also know that i can't sell short i can't sell short until i uh find the stuff i'll have to be better at slicing and dicing through videos i should hit stop instead of uh mute the mic now that's mom on her way home and ask me if she wants to give me anything anyways i think we're talking about the the classical margin equation short credit register minus a short market value equals equity we said there is a locate requirement you can't sell short term you locate the security and then remember we said you have unlimited risk when you do that unless you know you can mitigate that unlimited risk you can change it to limited risk by buying the call or mitigate the risk by putting in a buy stop um i would know minimum means is 30 uh i would know how to get market value of maintenance credit register uh divided by 1.3 i would know a new account is going to be either fully paid for if it's less than 2 000 in a new margin account or two grand if it's between two grand and four grand i definitely know that uh i would know uh that when a stock when my margin goes below 50 i'm restricted the restriction is i can only have half the proceeds if i have excess equity also known as sma i can either have that as cash or two times that is my uh buying power so again not a high risk on the uh on the test um trading securities trading securities so you know i'm going to be trading if i'm trading stock i'm going to be trading primarily in either an exchange market and the model intestines new york stock exchange and that can be us be characterized as an auction order driven market or i can be i'll be trading in an over-the-counter market the preeminent one being nasdaq and uh nasdaq is a negotiated quota of a market where there's market makers you know and the market maker is going to post a bid and ask so you know they're different now on the test i would know that the auction market the new york stock exchange can best be characterized as an optional order driven market there's matching buyers with sellers and the over-the-counter markets nasdaq included are negotiated quote driven markets where there's going to be a bid and ask now remember whenever you're looking on your exam on a bid and ask the customer always pays the high price the asking price or offer price and the customer always receives the low price the bid price what's that called the securities industry i'm joking that's called the spread right now the two types of orders that customers can give us now granted they're a zillion subcategories but at the end of the day it's either a market order or limit order so market order means i want immediate execution at the best available price a limit order means i want my price or better so as a buyer my price or less is a seller my price or more right very important to know where we place orders in relationship to the current market price the buy limit is below the market the settlement is above whatever the current market price is now i don't want my order to be accidentally triggered as a result of the stock going x so we're going to reduce orders below the market and those orders below the market are going to be buy limits and sell stops remember stops plural because whether you want to pull the trigger and make yourself stop a market order or pull the trigger and make it a limit order those are below the market now if you don't want to do that then you tell me dnr right this elements above the market the others that are above the market are buy stops or buy stop limits so whether you want a buy stop that turns into a market order or a buy stop that turns a limit or that's above so splash above bliss below we are going to adjust the orders below the market for cash dividends um in terms of the stop order we're using the stop order primarily there's three uses of stop orders but the big one is to stop the loss you know and so you know we waste a cell stop to stop the loss in a long position or a buy stop to stop the loss in a short position we also use them to protect profits and we also use them to establish stock positions so in terms of technical analysis you get tested on the support and resistance on a chart and so as you know a technical practitioner i might put a cell stop below the support line or a buy stop above the resistance line you know to establish either a long or short position now a lot of people have buy stops and sell stops so they can accelerate the trend right so if the stock breaks through its support line these cell stops get triggered adding additional fuel to the fire same for a bicycle gets triggered it adds additional fuel can accelerate that bullish trend now there are a couple patterns besides the support resistance i'd be aware of on the test and the other charting pattern is relates to technical analysis that i be aware of is a head and shoulders pattern head and shoulders is not a shampoo you use to take in a stock market the head and shoulders pattern is a signal of a reversal the end of the bull in the beginning of the bear inverted head shoulders would be the opposite the end of the bear and beginning of the bull when we're trading in the secondary market only the secondary market does the five percent policy apply the five percent policy does not apply to the primary market you know in terms of my spread or my commission if i'm gonna charge somebody more than five percent i better have a good reason there are good reasons and bad reasons what it means is most broker dealers are going to have to have a normal pattern to their charges a normal pattern to their charges can't be making it up on the fly about what we're going to be charging people now in terms of uh we talked a little bit about technical analysis but to say you're fundamentalist does not mean you're a member of the religious right you know what we're interested in fundamental analysis one of the main things we're interested in is a balance sheet and on the balance sheet you should be aware of some liquidity things for example working capital current assets minus current liabilities you should be aware of a current ratio current assets divided by current liabilities you should be aware of the acid test or quick ratio the quick assets that's the current assets without the inventory divided by the current liabilities now in the income statement we're going to have net income earnings available to common and i would definitely know the p e ratio price divided by earnings and uh remember i said you can't decide what to do what should you do you should divide and that's usually the thing that you wouldn't want to be aware of now now as a company has earnings per share the board might decide to distribute part of that as dividends so if i have four dollars in earnings per share and the current market price is 48 48 divided by four is my p e i think that's 12. and maybe i decide to pay two dollars as given to our shareholders my dividend payout ratio in that example uh would be uh 50 all right so uh let's talk about uh some other things you should be aware of in terms of percentages and the formulas and things like that so what are some formulas you should be aware of on the exam uh you should be aware of current yield we've talked about that already uh whether it's the annual dividend or annual interest divided by current market price uh dollar cost averaging uh you know dollar cost averaging uh what makes it work is fixed dollars invested regularly you know uh number two you end up with lower average cost than the underlying shares so what you might have to do is figure out the average cost and then the average price you paid the average price will be lower than the average uh cost and it doesn't guarantee a profit now if you've been accumulating shares over several time periods and you're not going to liquidate all of them so you've been like doing dollar cost averaging you can do it any way you want share identification average cost but if not the irs is going to pose upon you fifo first in first out bonds we talked about bonds i already gave you the yield the uh formulas for parity and for equivalent yields so let's talk about some how many business days we've discussed most of this along the way but same business day is for cash settlement so i tell my broker i want to do something cash settlement be careful not a cash account cash settlement uh t plus one is for government securities and for option contracts and remember the index options the exercise is also t plus one and then the index option remember the person who's short settles up in cash whatever the intrinsic value is uh one business day we talked about that's one business day prior to the uh record is the x date we talked about that uh we said two business days and we talked about uh four business days being the appropriate rig tea right because reg t says customers get two additional days how many calendar days so 15 calendar days is when the client has to have back the option agreement so remember i give them the disclosure document i get the account approved they can do their first trade then they you know have to get back the option agreement within 15 calendar days if not i'm only going to allow them to do offsetting transactions um 30 calendar day or 20 calendar days is the quiet time uh in the cooling off period and when we make a registration statement uh 30 calendar days remember the wash sale rule if i sell a security take a loss i have to wait at least 30 calendar days to re-establish that 60 days we talked about is the rollover 90 days is the maximum that you can back data letter of intent it's also how long we're going to freeze your credit privileges if you take a free ride you buy and sell a security without paying for it okay how many months uh six months is how often mutual funds have to send reports to their shareholders six month is also the holding period for unregistered securities uh six months is also the violation of the short swing profit rule for insiders or control persons uh 13 months is the back date i assume the length of time for the letter of intent and 16 months is how long uh you can actually use a prospectus how long you're allowed to be using prospectuses all right let's finish up let's finish up our series 7 and 60 minutes with some percentages so we had one quarter of one percent 0.25 25 bits or 25 basis points we said that's the maximum that a no load fund can charge and still refer to themselves as a no load fund one percent remember one percent or the average last four weeks trading volume is the maximum number of shares you can sell with a form 144 right we file the form it's good for 90 days and one percent or the average last four trading four weeks trading observers greater is what i can sell uh we taught about five percent already we talked about eight and a half percent already uh ten percent uh ten percent could be a couple of things ten percent remember is the penalty for early withdrawal from retirement plan uh ten percent is also the maximum syndication fees that a partnership can charge uh 25 we said is the minimum maintenance in a long account minimum maintenance in a long account uh 30 is minimum maintenance uh 40 that's the a number of the board members of a mutual fund that have to be disinterested we're hoping that if it comes time to rip off the shareholders that at least four to ten people say i don't think we should do that uh 50 percent remember is the reg t deposit initially where t says customers initially got to be a risk for half uh remember another 50 is the dividend exclusion remember a dividend of one corporation paid to another corporation is a 50 tax excludable uh 75 we have the 75 5 and 10 rule which says that a diversified mutual fund they want to hold themselves out as being diversified have to have their uh portfolio invested in such a fashion that 75 of it is invested in such and fashion that five percent is in any one position and they can't be a principal stockholder you know they can't own more than 10 percent it makes sense because they can make retention requests so 75 5 and 10. uh 90 we said is important that's uh both pass through die 90 dividends on the stocks in the mutual fund portfolio plus interest on the bonds of the mutual funds portfolio less expenses they have to pass through 90. and we said that's also true of reits reits uh 300 300 is the penalty uh for insider trading so if i make 9 million i owe 27 million i'm supposed to say gee there's hardly any profit in it anymore okay well um i think we uh did a fly through here on the series seven in 60 minutes uh i'm gonna go ahead and put this on the channel remember this is for day before you know well we'll see you know let me know if you're not finding this thing productive i'll hit the delete key and uh we'll move on i've already had a request to do this for some other exams i'm you know other exams may or may not lend themselves to this but this makes three videos now that you might want to watch the day before your exam be careful you really should be kind of making sure the most important thing to do the day before is getting a good night's sleep because your reading skills are going to be really important but we have three videos now that i would suggest for people who are a day or two out tips tricks and memory aids math and now we have a third series 7 and 60 minutes so remember inch by inch series 7's a cinch yard by yard series 7 is hard and uh let me know what you think of this 60 minute video uh like dislike you know i i embrace negative feedback so you know that's what we need to change course and direction on the channel if need be but we've also been doing some shorts and let me know what you think of those shorts as well all right see you next time