66

C) I and III

A corporation calls in a portion of its long-term debt at 101. This will have the effect of decreasing working capital increasing working capital decreasing net worth increasing net worth A) I and IV B) II and IV C) I and III D) II and III

C) Because interest rates have risen after the issue of the 5% debenture, the bond's price will be discounted to result in a higher current yield (computed as annual income divided by current market price). Accordingly, the discounting of the issue will make the 5% debenture competitive with new issues offered with a 5.5% coupon.

Assume that a corporation issues a 5% Aaa/AAA-rated debenture at par. Two years later, similarly rated debt issues are being offered in the primary market at 5.5%. Which of the following statements regarding the outstanding 5% debenture are TRUE? The current yield on the debenture will be higher than 5%. The current yield on the debenture will be lower than 5%. The dollar price per bond will be higher than par. The dollar price per bond will be lower than par. A) II and III B) I and III C) I and IV D) II and IV

A) The conversion ratio always uses the par value ($1,000), never the current market price. With a par value of $1,000 and a conversion price of $50 per share, this bond is convertible into 20 shares ($1,000 / $50). Remember, the number of shares in a conversion never changes. When the market price changes, the parity price changes, but that isn't relevant to this question.

BFJ Corp's 5% convertible bond is trading at 120. The bond is convertible at $50. An investor buying the bond now and immediately converting into common stock, would receive A) 20 shares B) 2.4 shares C) 24 shares D) 20 shares plus cash for fractional shares

D) A client calling to buy based on reading a tombstone ad is considered an unsolicited order because, under the law, the tombstone ad is neither a solicitation to buy nor an offer to sell. If the question had stated that the agent had sent a prospectus out and the client was responding to that, it would have been a solicited order.

If a person offers to buy a security after reading a tombstone ad, the offer to buy would be considered A) null and void B) illegal C) solicited D) unsolicited

D) a PO Box, instead of a physical address, if it is the primary mailing address

Obtaining all of the following complies with the regulations regarding customer identification programs (CIPs) EXCEPT A) date of birth B) taxpayer identification number C) name D) a PO Box, instead of a physical address, if it is the primary mailing address

B) With a discount rate of 5% (the discount rate in a present value computation is the current market interest rate), a debt instrument with a 7% coupon rate will be selling at a premium (interest rates down, prices up). If the market is efficiently pricing that bond, its market price should be equal to its present value, resulting in an NPV of zero.

A client owns an investment-grade bond with a coupon of 7%. If similarly rated bonds are being issued today with coupons of 5%, and the market is efficient, it would be expected that the client's bond A) has a negative net present value B) has a zero net present value C) has a positive net present value D) will be selling at a discount from par

D) II, III, and IV

Among the differences between C corporations and S corporations is the liability assumed by the shareholders the number of allowable shareholders the tax treatment of the corporation's earnings residency requirements of shareholders

A) The Administrator from any state from which an offer is made, directed, or accepted has jurisdiction over the offer.

An agent based in Alabama directs a solicitation to a customer who lives in Connecticut while the customer is temporarily in Indiana. The customer does not accept the offer until he arrives back in Connecticut. According to the Uniform Securities Act, the Administrators of which of the following states have jurisdiction? A) Alabama, Connecticut, and Indiana B) Alabama and Connecticut C) Alabama and Indiana D) Indiana and Connecticut

A) This customer needs income. Of the answers provided, the bond fund would be the most suitable because it would provide income while maintaining relative safety. While the municipal bonds are probably safer, the benefits of their tax-free income would probably be lost on a client with no independent income.

An elderly widow with no independent income wishes to invest the proceeds from her recently deceased husband's life insurance. Which of the following would be the most suitable recommendation? A) High-grade corporate bond mutual fund B) Municipal bonds C) Call options D) Oil and gas exploration program that you know is going to strike

C) I, II, and III

In defining an investment adviser under SEC Release 1A-1092, which of the following would meet the business standard? A person who advertises himself as an investment adviser A person who provides securities-related advice on a frequent or regular basis A person who receives separate or additional compensation for securities-related advice A) III only B) II and III C) I, II, and III D) I and II

D) A margin account allows the customer to borrow money from the broker-dealer in order to buy securities. Although that does entail assuming greater risk on the part of the trust, there is no such thing in the Statement of Policy as a margin suitability form. However, under the Statement of Policy, the margin forms and agreements must be completed promptly after the initial margin trade. All accounts, not just margin, or trust accounts, require the approval of an appropriate supervisory person.

In order to comply with the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following is NOT required to open a margin account for a trust? A) Approval of the account by the designated supervisory person B) Specific text in the trust agreement authorizing a margin account C) A margin agreement D) A completed margin suitability form

B) The amount of a company's past earnings

In the technical analysis of the value of securities, which of the following items is NOT important? A) Resistance and support levels B) The amount of a company's past earnings C) A prevailing market trend in response to shifts in supply and demand D) The breadth of market volume

USA

Uniform Securities Act

A) II and IV

Without prior authorization from the client, an investment adviser could release information relating to the client's account in order to comply with the brochure delivery requirements of the USA when requested by the IRS as part of litigation against the client for the purpose of furnishing information for a statistical survey being compiled by the Administrator upon the receipt of a subpoena from a court of competent jurisdiction A) II and IV B) I, II, III, and IV C) I, III, and IV D) II and III

D) send a detailed financial report to the Administrator by the close of business Monday

A state-registered investment adviser maintains custody of client funds and securities. On Thursday, the chief financial officer of the firm informs the chief compliance officer that their net worth is $31,578. Under the provisions of the Uniform Securities Act, the firm would A) need to increase the amount of their surety bond B) send a detailed financial report to the Administrator by the close of business Friday C) do nothing, as their net worth is far in excess of the minimum requirement of $10,000 D) send a detailed financial report to the Administrator by the close of business Monday

B) Buy Stop

All investing carries risk of loss. Some positions have much higher risk than others. Among the riskiest is selling stock short. Which of the following types of orders would you recommend to a short seller as a potential hedge against loss? A) Buy limit B) Buy stop C) Sell stop D) Sell limit

C). She may review the company's stock 200-day moving average.

Kellie is a senior equity analyst for a large brokerage firm. She primarily uses fundamental analysis techniques to assist her in picking stocks for her firm's clients. Today, she is reviewing the XYZ Corporation. The company is a manufacturer of computer keyboards and is currently going through an expansion phase. Which of the following techniques would Kellie be least likely to use to determine whether to buy, sell, or hold this company's stock? A) She may calculate the intrinsic value of the stock using one or more of the stock valuation models. B) She may consider trends towards tablets and smart phones. C) She may review the company's stock 200-day moving average. D) She may examine the overall state of the economy, the computer industry, and then XYZ Corporation.

A) Unless an exemption applies (and there is nothing in the question that would indicate such), for an individual to sell securities in a particular state, she must be licensed in that state. This question is specifically about registration requirements, not whether client permission is needed. There is nothing in the USA that requires client consent when the agent of record on the account changes. Do not confuse this with the contract assignment rules applying to investment advisers.

Mary, who is licensed as an agent in State A, got a promotion and will turn her clients over to Julie, who is licensed only in State B. Under the registration requirements of the Uniform Securities Act, before Julie can take over the accounts, she must A) register with State A B) register with the NYSE C) register with FINRA D) receive permission from each of those clients

D) The Administrator may, by rule, prohibit advisers from having custody of client funds or securities. If no such prohibition applies, the Administrator must be notified in writing if an adviser has custody. In almost all jurisdictions, a bond or sufficient net worth is required to maintain custody. Discretionary authority does not affect an adviser's ability to have custody.

Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client if the investment adviser has insufficient net worth or is not appropriately bonded Administrator has not issued a rule prohibiting custody investment adviser does not also have discretionary authority over the account investment adviser has notified the Administrator that custody is maintained A) II, III and IV only B) II only C) I and III D) II and IV

A) Also called FinCEN

Which of the following is responsible for administration of the Bank Secrecy Act? A) The Financial Crimes Enforcement Network B) Securities and Exchange Commission C) Department of Health and Human Services D) Security Services

A) It is the Class C shares that have no front-end load, but they do have a 1% CDSC for a period of 1 year.

Which of the following mutual fund share classes generally has a 1% CDSC that is eliminated once the shares have been held more than 1 year? A) Class C B) Class 1% C) Class A D) Class B

A) A performance-based fee must be based on capital gains minus capital losses, include both realized and unrealized gains and losses and must reflect a time period of no less than 12 months. This client is well above the minimum net worth requirements of more than $2.1 million. The rule requires that the performance be measured against a recognized benchmark but does not specify one.

A client with a net worth of $5 million is compensating an investment adviser with a performance-based fee. According to the Investment Advisers Act of 1940, this arrangement must be based on A) capital gains minus capital losses, including both realized and unrealized gains and losses B) the S&P 500 index performance C) a period of no less than 6 months D) This arrangement is not permitted because the client has not met the minimum invested assets requirements

D) The definition of a derivative is that its value is based on some underlying asset. Included in the term are options, forwards, futures, and convertible securities. Some derivatives are securities, such as options on stock, while others, such as forwards and futures contracts, are specifically excluded from the definition of a security.

A financial instrument whose value depends upon the value of another asset is known as A) an investment contract. B) a security. C) a commodity. D) a derivative.

B) Socially responsible investing (SRI) is an impact investment strategy which seeks to consider both financial return and social good. In general, socially responsible investors encourage corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity. You might also see SRI referred to as sustainable responsible (not reasonable) investing.

A trust document's investment policy emphasizes that the fiduciary must follow SRI. When you are asked by the trustee to explain what that means, you would reply, A) sustainable reasonable investing. B) socially responsible investing. C) systemic responsible investing. D) safe responsible investing.

A) One of the benefits of inheriting low cost basis securities is the stepped-up basis and that does not apply to gifts. Although the donor will not be the one subject to capital gains tax, it would be the right thing to do to let her know that the donees (her grandchildren) will be receiving the stock at her cost basis. TOD would not apply to stock that is the subject of a gift; it is only when the stock remains in the grandmother's name and has been designated for the grandchildren after her death. When computing the value of a gift to determine if there is a gift tax obligation, it is the fair market value of the gift that is used. Finally, the question states these are adult grandchildren - UTMA would not apply to them.

One of your ultra-high net worth clients would like to give some low cost basis stock as gifts to her adult grandchildren. It would be prudent for you to tell her that A) unlike an inheritance, there is no stepped-up cost basis. B) making the gift under the Uniform Transfer to Minors Act is generally the most advantageous for the child. C) it would be wise for her to use a TOD account to avoid probate. D) for purposes of the gift tax, her cost basis will be used.

A) it must be disclosed that performance-based fees may motivate the investment adviser to assume greater investment risk than would apply with other compensation methods

Regarding performance-based fees charged by ​covered ​investment advisers, all of the following statements are correct EXCEPT A) it must be disclosed that performance-based fees may motivate the investment adviser to assume greater investment risk than would apply with other compensation methods B) performance-based fees are generally prohibited C) to determine performance, the results of the client's investment portfolio must be compared against an appropriate index or benchmark D) performance-based fees may be charged against the assets of a closed-end investment company listed on the NYSE

B) Bespoke software designed to give clients access to asset allocation programs

Section 28(e) of the Securities Exchange Act provides a safe harbor for certain soft dollar compensation extended from broker-dealers to investment advisers. Which of the following is most likely to be included in that safe harbor? A) Use of vacant office space in the broker-dealer's facilities B) Bespoke software designed to give clients access to asset allocation programs C) Meal expenses to attend an investment seminar sponsored by the broker-dealer D) Desks remaining after the broker-dealer re-designed its office

A) the client's spouse when this is a joint account

The NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers generally prohibits an IA from disclosing any confidential account information without specific consent of the client. However, disclosure would be permitted to A) the client's spouse when this is a joint account B) the client's accountant who is representing him before the IRS C) the client's friends on his Facebook account D) the client's attorney representing him in a lawsuit

B) the company's financial statements

There are several popular investment styles and, in many cases, portfolio managers use a blended approach to security selection. If a portfolio manager adhered to a pure value style, he would put most of his focus on A) projecting future earnings based on past earnings B) the company's financial statements C) using technical analysis D) lagging indicators

D) The effective date of an initial registration is at noon on the 30th day after receipt of a completed application; expiration, unless renewed, is each December 31st.

Those persons meeting the Uniform Securities Act's definition of a broker-dealer in a state must, unless otherwise exempted, register in that state. Which of the following is correct regarding the initial registration and expiration of the registration of a broker-dealer? A) The effective date of an initial registration is at noon on the 30th day after receipt of a completed application; expiration, unless renewed, is on the anniversary date of the initial registration. B) The effective date of an initial registration is when ordered by the Administrator and the expiration, unless renewed, is each December 31st. C) The effective date of an initial registration is when ordered by the Administrator and the same is true of the expiration date. D) The effective date of an initial registration is at noon on the 30th day after receipt of a completed application; expiration, unless renewed, is each December 31st.

A) within 120 days of the end of its fiscal year, a free, updated brochure and related brochure supplements which include or are accompanied by a summary of material changes.

Under the NASAA brochure rule requirements for investment advisers, an investment adviser (unless qualifying for an exemption) must deliver, A) within 120 days of the end of its fiscal year, a free, updated brochure and related brochure supplements which include or are accompanied by a summary of material changes. B) at least 48 hours in advance of entering into the advisory contract, a copy of the adviser's brochure. C) a free, updated brochure and related brochure supplements every year even when there are no material changes. D) within 90 days of the end of its fiscal year, a free, updated brochure and related brochure supplements which include or are accompanied by a summary of material changes.

D) Clerical and ministerial personnel are specifically excluded from the definition of investment adviser representative. Specifically included in the definition are directors, officers, partners, associates, and employees of state-registered advisers who carry out investment advisory or solicitation functions or who supervise those functions. Also included in the definition are persons who perform similar functions for SEC-registered advisers and who have a place of business in the state.

Under the Uniform Securities Act, which of the following is NOT an investment adviser representative? A) A natural person representing an SEC-registered investment advisory firm who has a place of business in the state and manages the account of a single client B) A director in a state-registered investment advisory firm who determines specific recommendations for clients C) A vice president of a state-registered investment advisory firm who supervises employees who solicit clients for the firm D) A clerk employed by a state-registered investment advisory firm

A) Because hedge funds are not registered with the SEC (or the states), there are limited disclosures—the transparency is not nearly what investors have with mutual funds. Mutual fund investment managers always register with the SEC, and the same is true of must hedge fund managers, typically those with AUM of at least $150 million. Neither hedge funds nor mutual funds trade on listed exchanges and hedge funds do not have traditional share classes; they may offer a choice of different currencies, but that is totally different from the share classes of mutual funds.

When discussing the differences between purchasing a mutual fund and a hedge fund, the investor should be aware that A) hedge funds do not offer the transparency of mutual funds. B) hedge fund shares are generally listed on an exchange while mutual fund shares are not. C) hedge funds only offer Class A shares, while mutual funds offer many different classes. D) managers of hedge funds are generally registered with the SEC while mutual fund managers are registered with the state(s).

B) The question is all about the effects of a bond's duration on its price volatility. As the duration increases, so does the price volatility. When comparing bonds, generally, a low coupon bond is more susceptible to price fluctuations than a high coupon bond and a long-term bond is more susceptible to price fluctuations than a short-term bond. The bond with the lowest coupon (8%) and longest maturity (12 years) is subject to the greatest price volatility. The bond with the shortest duration, and least price volatility, would be the one with the highest coupon (12%) and the nearest maturity (6 years).

When the market interest rate is 8%, which of the following equally-rated bonds will have the potential for the greatest relative price volatility to changes in interest rates? A) 8% coupon bond with 6 years to maturity B) 8% coupon bond with 12 years to maturity C) 12% coupon bond with 12 years to maturity D) 12% coupon bond with 6 years to maturity

D) Any person who, for compensation, engages in the business of advising others concerning the purchase or sale of securities either directly or through publications is defined by the act as an investment adviser. The factors that make up the definition include whether the person advises others on securities; whether he does it as a regular business or as part of a business; and whether he receives compensation for doing so.

Which of the following factors determine(s) whether a person is considered an investment adviser under the Investment Advisers Act of 1940? The specificity of the advice The business engaged in Whether compensation is received A) I and II B) I and III C) II only D) I, II, and III

B) Time-weighted returns are used to evaluate the performance of portfolio managers separate from the influence of additional investor deposits or withdrawals. Dollar-weighted return is more commonly used for evaluating investor performance.

Which of the following is a method for determining the internal rate of return by portfolio managers without the influence of additional investor deposits or withdrawals to or from the portfolio? A) Dollar cost averaging B) Time-weighted return C) Dollar-weighted return D) Discounted cash flow

C) If a broker-dealer has an office in the state, it must register with the state, regardless of what types of clientele it serves. The term "broker-dealer" excludes anyone without a place of business in the state who effects transactions exclusively with issuers, other broker-dealers, or institutions, or who directs an offer in the state to an existing customer who temporarily resides in the state where the offer is received, regardless of the length of time. As long as the broker-dealer is properly registered in the vacationer's state of permanent residence and does not maintain an office in the state being visited, it is not defined as a broker-dealer.

Which of the following must register as a broker-dealer under the USA? A) A broker-dealer with no place of business in the state that deals exclusively with broker-dealers with offices in that state B) A broker-dealer with no place of business in the state that effects transactions exclusively with issuers of securities in that state C) A broker-dealer with a place of business in the state that effects transactions exclusively with broker-dealers registered in other states D) A broker-dealer with no place of business in the state that has directed offers to clients who have more than 30 days' temporary residency in the state

A) The USA exempts a number of different issues from registration, including securities issued by a bank, or anything that functions like a bank (e.g., a savings and loan or credit union). Securities issued by a governmental unit are always exempt. Securities listed on the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]) are part of a group known as federal covered securities that also includes those listed on the New York Stock Exchange and Nasdaq Stock Market issues. If the common stock is listed, then any security of that issuer that is equal or senior in claim to the common is also considered exempt.

Which of the following securities are exempt from the registration provisions of the USA? Issue of a savings and loan association authorized to do business in this state General obligation municipal bond Bond issued by a company that has common stock listed on the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]) A) I, II, and III B) I only C) II and III D) II only

C) The grantor may be taxed on trust income only if the grantor actually received the income.

Which of the following statements regarding grantor trusts is NOT correct? A) If the grantor can control the beneficial enjoyment of the trust, he is treated as the owner of the trust. B) If the grantor has the power to revoke the trust, he is treated as the owner of the trust. C) The grantor may be taxed on trust income only if the grantor actually received the income. D) If the grantor can receive income from the trust, he is treated as the owner of the trust.

C) Duration does not measure the holding period return on a bond; it measures the effect of an interest rate change on the price of a bond or bond portfolio. Duration measures a bond's price volatility by weighting the length of time it takes for a bond to pay for itself. Duration is also a weighted-average term to maturity of a bond's cash flows.

Which of the following statements regarding the properties of duration is NOT true? A) Duration is a weighted-average term to maturity of a bond's cash flows. B) Duration measures a bond's price volatility by weighting the length of time it takes for a bond to pay for itself. C) Duration measures the holding period return on a bond. D) Duration measures the effect of an interest rate change on the price of a bond or bond portfolio.

D) Under the USA, only individuals can be agents. A person who sells securities for a broker-dealer is an agent. An administrative person, such as the assistant to the president of a broker-dealer, is considered an agent if he takes securities orders from clients. Corporate entities are excluded from the definition of an agent. Broker-dealers and issuers are not agents.

Which of the following would be an agent as the term is defined in the Uniform Securities Act? An individual representing a registered broker-dealer in the sale of securities to the general public An assistant to the president of a broker-dealer who accepts orders from clients on behalf of the senior partners A subsidiary of a major commercial bank registered as a broker-dealer that sells securities to the public An issuer of nonexempt securities registered in the state and sold to the general public A) I, II, III and IV B) III and IV C) I, II and III D) I and II

D) $4,000.00

Your 55-year-old client owns a nonqualified variable annuity. He originally invested $50,000 4 years ago. The annuity has grown to a value of $60,000. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? A) $4,500.00 B) $0.00 C) $3,000.00 D) $4,000.00

B) only deduct the passive loss against passive income

Your client who owns a DPP that generated a $10,000 passive loss for the year could A) deduct $10,000 against ordinary income B) only deduct the passive loss against passive income C) deduct $3,000 against ordinary income and carry over the rest D) deduct $10,000 against capital gains