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All Series 66 Formulas
Economic Factors and Business Information
3 items
Debt-to-equity ratio
, higher ratio = more leveraged (greater financial risk)
Rule of 72
; inverse: . r = annual return (%). Estimates time for an investment to double at a fixed compound rate.
Current ratio and quick ratio
; . CA = current assets, CL = current liabilities, Inv = inventory. Quick (acid-test) excludes inventory.
Investment Vehicle Characteristics
3 items
Tax-equivalent yield (municipal bond)
, where Tax-free yield = municipal bond yield, t = investor's marginal tax rate (decimal)
Current yield (bond)
, Annual Coupon = yearly interest payment ($), Current Market Price = bond's current price (not par)
Mutual fund NAV and public offering price
; . Assets/Liabilities = fund totals, Shares = shares outstanding, SC = sales charge % (decimal).
Client/Customer Investment Recommendations and Strategies
7 items
Real (inflation-adjusted) return
, R = nominal return, i = inflation rate. Exact:
After-tax return
, = after-tax return, = pre-tax return, t = investor's marginal tax rate (as a decimal)
Total return and holding period return
, = beginning value, = ending value, Inc = income (dividends/interest) received during the period.
Sharpe ratio
, = portfolio return, = risk-free rate, = standard deviation of portfolio. Measures total-risk-adjusted return.
CAPM expected return
, = risk-free rate, = beta (systematic risk), = expected market return, = market risk premium
Treynor ratio
, = portfolio return, = risk-free rate, = portfolio beta. Uses systematic risk (beta); Sharpe uses total risk (std dev).
Alpha
, = actual portfolio return, = risk-free rate, = beta, = market return. Positive means outperformance vs CAPM expected return.
Series 66 Limits and Thresholds
Economic Factors and Business Information
8 items
A P/E of 25 means investors pay $25 per $1 of current earnings.
The market portfolio has a beta of 1.0 by definition, so a stock with beta 1.5 tends to move 1.5% for every 1% market move.
With a 3% risk-free rate and an 11% market return, Fund B (9% return, σ 10%, β 0.7) posts a Sharpe of 0.60, a Treynor of 8.57, and a Jensen's alpha of +0.4%.
A bond yielding 5% in a 6% inflation environment delivers a negative real return of roughly -1%.
With a 3% risk-free rate and an 11% market return, Fund A (11% return, σ 18%, β 1.4) posts a Sharpe of 0.44, a Treynor of 5.71, and a Jensen's alpha of -3.2%.
A fund returning +50% then -50% has an arithmetic mean of 0% but a geometric mean of -13.4% per year, leaving the account down 25%.
A Sharpe ratio of 1.0 is solid, 2.0 is excellent, and below zero means the portfolio underperformed the risk-free asset.
Using CAPM with a 4% risk-free rate, 10% market return, and beta 1.2, the required return equals 11.2%.
Investment Vehicle Characteristics
16 items
FDIC insures deposits to $250,000 per depositor per bank per ownership category; SIPC covers brokerage to $500,000 total with a $250,000 cash sublimit.
A SPAC must merge with a private target typically within 18 to 24 months or IPO investors get their cash back from the trust account.
Negotiable CDs trade in the secondary market and are issued in minimum denominations of $100,000, targeting institutional buyers.
Zero-coupon bonds have duration equal to maturity, so a 20-year zero has duration of 20, roughly twice a 20-year 6% coupon bond.
Treasury bills are sold at a discount with maturities of 4, 8, 13, 17, 26, and 52 weeks.
Commercial paper has a maximum maturity of 270 days to qualify for the Securities Act Section 3(a)(3) registration exemption.
Conversion price equals $1,000 divided by the conversion ratio, while parity equals stock price times conversion ratio.
The investment-grade threshold is BBB- (S&P) / Baa3 (Moody's); anything below is high-yield, also called junk or speculative-grade.
Annuity withdrawals before age 59½ trigger a 10% IRS penalty on gains, taxed as ordinary income.
Hedge funds typically charge "2 and 20": a 2% management fee plus a 20% performance fee above a hurdle, often subject to a high-water mark.
Gold ETFs holding physical metal are taxed at the 28% collectibles rate, while mining-stock ETFs are taxed at standard 15%/20% LTCG rates.
Futures use very low initial margin of about 5-15% of contract value, creating extreme leverage where a small adverse move can wipe out the deposit.
Class A breakpoints begin reducing the front-end load at $25,000, and a letter of intent valid for 13 months lets clients reach a breakpoint over time.
Private funds avoid Investment Company Act registration under Section 3(c)(1) with no more than 100 beneficial owners or 3(c)(7) limited to qualified purchasers holding ~$5M in investments.
FINRA caps 12b-1 fees at 0.75% marketing plus 0.25% service, for a 1.00% maximum, and over 0.25% disqualifies no-load status.
REITs must distribute at least 90% of taxable income, and distributions are taxed as ordinary income, not qualified dividends.
Client/Customer Investment Recommendations and Strategies
16 items
Asset allocation explains roughly 90% of portfolio return variation across time, while security selection and market timing explain the rest.
ERISA §404(c) provides a fiduciary safe harbor when participants direct their own investments and the plan offers diverse options.
Diversification reduces risk whenever correlation is below +1.0, and perfect negative correlation of -1.0 could theoretically eliminate risk entirely.
At a 32% federal bracket, a 4.5% municipal bond delivers a tax-equivalent yield of 6.62%, computed as 4.5% ÷ (1 − 0.32).
An account earning 10% then 3.125% around a mid-year deposit posts a time-weighted return of 13.44% but a dollar-weighted IRR of about 9.5%.
JTWROS passes 100% to the survivor, TIC passes each share through the estate, and TBE is spouse-only and adds creditor protection.
ERISA holds fiduciaries to the prudent expert standard, and QDIAs that protect the fiduciary when a participant fails to elect are typically target-date funds.
Active funds typically charge 80-150 bps while passive index funds charge 5-25 bps, and fewer than 25% beat their benchmark over 15-year periods.
Long-term capital gains and qualified dividends are taxed at 0%, 15%, or 20% for assets held more than one year, while short-term gains hit ordinary rates up to 37%.
The Net Investment Income Tax adds 3.8% on investment income for MAGI above $200,000 single or $250,000 married filing jointly.
The 2026 IRA contribution limit is $7,500 ($8,600 age 50+) and the 401(k) elective deferral limit is $24,500.
The 2026 annual gift tax exclusion is $19,000 per recipient, and the lifetime unified estate-and-gift exemption sits around $15 million per person.
Stable-value funds qualify as a QDIA only for the first 120 days after enrollment, after which defaulted balances must roll into a target-date or balanced fund.
Traditional IRAs and 401(k)s require RMDs starting at age 73, while Roth IRAs require none during the original owner's life.
Reg T initial margin is 50% and FINRA maintenance margin is 25% long and 30% short.
2026 HSA contribution limits are $4,400 self-only and $8,750 family, with a $1,000 catch-up at age 55+.
Laws, Regulations, and Guidelines
16 items
The Form ADV annual updating amendment is due within 90 days of fiscal year end, while material changes require a prompt amendment generally within 30 days.
A federal covered adviser must notice file in a state where it has a place of business or more than 5 non-institutional clients in the prior 12 months.
A written customer complaint is U4-reportable if it alleges damages of $5,000 or more, or if settled or adjudicated for $15,000 or more.
The federal private fund adviser exemption from registration applies to advisers with under $150 million in private fund AUM.
When an agent or IAR leaves a firm, the former employer files Form U5 within 30 days of termination.
Advisers Act Rule 204-2 requires keeping records for 5 years, with the most recent 2 years readily accessible at the principal office.
A state-registered IA must switch to SEC at $110M AUM and a federal IA must deregister below $90M; $100M is the federal-registration minimum.
NASAA's IAR CE rule requires 12 credits per year split into 6 Products and Practice plus 6 Ethics and Professional Responsibility.
Reg S-P's 2024 amendments require notifying affected customers within 30 days when a breach involves sensitive customer information.
Under ITSFEA, trading on MNPI carries treble (3x) damages with individual criminal penalties up to $5 million and 20 years in prison.
The USA civil rescission window runs the earlier of 2 years from discovery or 3 years from sale, whichever is earlier.
Under the Uniform Securities Act, a private placement is an exempt transaction with no more than 10 non-institutional offerees in 12 months.
Performance-based fees require a qualified client with $2.7 million net worth (excluding primary residence) or $1.4 million AUM with the adviser.
Marketing Rule testimonials and endorsements require a written agreement and reasonable oversight once compensation exceeds $1,000 over the prior 12 months.
AML rules require a CTR for cash transactions over $10,000 filed within 15 days and a SAR for suspicious activity at or above $5,000 filed within 30 days.
Under the Uniform Securities Act, the criminal maximum is a $5,000 fine and 5 years in prison, with a statute of limitations of 5 years from the violation.
