Investment Analysis Flashcards

Which federal law requires most public securities offerings to be registered and governs initial distributions of securities?

Answer: Securities Act of 1933

The Securities Act of 1933 governs the registration and disclosure requirements for new securities offerings.

An adviser gives profitable trades to favored accounts after the fact and gives losing trades to other clients. What is this called?

Answer: Cherry-picking

Cherry-picking is allocating trades after execution so that winners go to preferred accounts and losers go to others.

When valuing a privately held business in a divorce or fraud case, which approach estimates value from projected future cash flows discounted to present value?

Answer: Income approach (discounted cash flow)

The income approach converts expected future economic benefits into present value with a discount or capitalization rate.

Which SEC program can pay tipsters 10% to 30% of monetary sanctions over $1 million collected in an enforcement action?

Answer: SEC Whistleblower Program

Under Dodd-Frank, the SEC Whistleblower Program pays awards of 10% to 30% when sanctions exceed $1 million.

What does SIPC protect when a member brokerage firm fails financially?

Answer: Customer cash and securities up to $500,000, including a $250,000 cash limit

SIPC restores missing customer cash and securities up to $500,000, of which up to $250,000 may be cash, when a member firm fails.

A 'guaranteed' investment promises steady monthly returns of 2% with no losses in any market condition. To an investigator, this is mainly a red flag for:

Answer: Ponzi-type fraud

Steady, unusually high returns with no volatility are a classic warning sign of a Ponzi scheme.

Placing orders with no intent to execute them, so other traders are misled about supply or demand, is known as:

Answer: Spoofing

Spoofing means bidding or offering with intent to cancel before execution, and Dodd-Frank expressly prohibits it.