SERIES 65 CHEAT SHEET: ECONOMIC FACTORS & BUSINESS INFORMATION

EXAM ALLOCATION

Section I Weight: 15% (~20 questions) | Priority: Lower — allocate study time proportional to weight

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BUSINESS CYCLE PHASES & INDICATORS

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Leading Indicators (predict future): Consumer confidence, building permits, stock prices, unemployment claims Lagging Indicators (confirm past): Unemployment rate, corporate profits, inflation

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INFLATION & YIELD MEASURES

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Key Relationship: Nominal Yield (coupon) is fixed; Current Yield & YTM fluctuate with price changes.

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INTEREST RATES & YIELD CURVE

Federal Reserve Tools (Monetary Policy)

• Discount Rate: Rate Fed charges banks for emergency borrowing | ↑ = tighten; ↓ = ease

• Reserve Requirements: % of deposits banks must hold | ↓ = stimulate; ↑ = restrict

• Open Market Operations (OMO): Buy/sell Treasury securities | Most frequently used tool

• FOMC: Federal Open Market Committee — sets Fed Funds Rate target

Yield Curve Shapes

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Inverse Relationship Rule: Bond price ↑ when interest rates ↓ (and vice versa).

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CREDIT SPREADS & RISK PREMIUMS

Spread = Corporate Bond YTM − Treasury YTM

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FINANCIAL STATEMENTS & RATIO ANALYSIS

Income Statement

Net Income = Revenue − COGS − Operating Expenses − Interest − Taxes

Balance Sheet

Assets = Liabilities + Shareholders' Equity

Cash Flow Statement

Operating CF + Investing CF + Financing CF = Net Change in Cash

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KEY FINANCIAL RATIOS (Exam-High-Yield)

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Advisor Use: Ratios assess company financial health → compare to peers and industry benchmarks.

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TIME VALUE OF MONEY (TVM)

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STATISTICS & DISTRIBUTIONS

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COMMONLY CONFUSED PAIRS

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Phase	GDP	Employment	Inflation	Interest Rates	Leading Indicator Signal
Expansion	↑	↑	Stable/↑	Rising	Strong economic growth ahead
Peak	Max	Max	↑↑	Peak	Turning point — contraction imminent
Contraction	↓	↓	May lag	Falling	Recession; advisers reduce risk
Trough	Min	Min	Stable/↓	Low	Bottom; recovery signals
Term	Definition	Exam Use
CPI	Consumer Price Index; retail prices; most cited inflation measure	Advisor adjusts portfolio for purchasing power
PPI	Producer Price Index; wholesale; leads CPI	Forecasts future consumer inflation
Nominal Yield	Annual coupon ÷ face value	Basic coupon rate
Current Yield	Annual coupon ÷ current market price	More relevant than nominal
YTM	All cash flows discounted to price; assumes reinvestment	Most comprehensive bond measure
YTC	YTM assuming bond called at call price on call date	Use for callable bonds
Shape	Meaning	Portfolio Action
Normal (upsloping)	Long-term rates > short-term	Stable economy; ladder bonds
Flat	Short ≈ Long rates	Transition/uncertainty; diversify duration
Inverted	Long < Short rates	Recession signal → reduce risk exposure
Steep	Large short-to-long spread	Recovery; consider extending duration
Widening Spread	Narrowing Spread
↑ Risk aversion	↓ Risk aversion
Credit concerns	Economic confidence
Action: Shift to higher quality	Action: Accept more credit risk
Ratio	Formula	Interpretation
P/E Ratio	Stock Price ÷ EPS	Valuation; higher = growth stock premium
Current Ratio	Current Assets ÷ Current Liabilities	Liquidity; >1.0 = healthy
Quick Ratio	(Current Assets − Inventory) ÷ Current Liabilities	Conservative liquidity test
ROE	Net Income ÷ Shareholders' Equity	Profitability/efficiency; higher = better
Debt-to-Equity	Total Debt ÷ Shareholders' Equity	Leverage; higher = more risk
Concept	Formula	Exam Trigger
Present Value (PV)	FV ÷ (1 + r)^n	"What is $1M in 10 years worth today?"
Future Value (FV)	PV × (1 + r)^n	"How much will $100K grow to?"
Net Present Value (NPV)	Sum of discounted cash flows − Initial Investment	If NPV > 0, accept project
IRR	Discount rate where NPV = 0	Compare to required return (WACC); if IRR > required, accept
Measure	Definition	Use in Advising
Standard Deviation (σ)	Square root of variance; volatility measure	Assess portfolio risk; compare fund performance
Normal Distribution	Bell curve; 68% within ±1σ, 95% within ±2σ	Assumes returns are normally distributed (real returns often skewed)
Beta (β)	Systematic risk vs. market	β=1 tracks market; β>1 more volatile; β<1 less volatile
Feature A	Feature B	Quick Distinguish
Fiscal Policy (tax/spending)	Monetary Policy