66 test 1
An investment adviser representative who recommends a hedge fund to an accredited investor must confirm that the investor meets the financial test. The minimum net worth requirement is: $200,000 $1 million $2.2 million $5 million
$1 million
One month ago, a client purchased a convertible debenture, which is convertible at $20. If the underlying common stock is currently trading at $22 per share, what is the parity price of the bond? $1,020 $440 Par value $1,100
$1,100
An agent is implementing a $500-per-month dollar cost averaging strategy for his client who is purchasing stock. The price of the stock decreases from $10 per share to $5 per share. How much will the client invest next month if he wishes to continue with this strategy? $1,000 $100 $500 $2,500
$500
An investor pays $100 per share for 1,000 shares of a 6% cumulative preferred stock which has one year of dividends in arrears. One year after making the purchase, the issuer has paid its normal preferred dividend, plus the dividends in arrears. At that point, if the investor then sells the preferred stock at $104 per share, what is the total return on the preferred stock for the period? 16% 12% 10% 6%
16%
A resident of State A buys a 4% general obligation bond offered by State B. The investor is in the 30% federal tax bracket and State A imposes a 5% tax. What is the bond's taxable equivalent yield? 13.33% 5.20% 5.71% 9.00%
5.71%
Two clients of an IAR are forming their own business entity and plan to incorporate. Which of the following entities has the MOST tax disadvantages? A C Corporation An S Corporation A limited liability company (LLC) A limited liability partnership (LLP)
A C Corporation
When a limited partnership is formed, which of the following documents is filed with the state in which the partnership operates? A certificate of limited partnership The articles of incorporation A subscription agreement A private placement memorandum
A certificate of limited partnership
Which of the following fee structures is NOT permitted for broker-dealers that offer investment advisory services to retail customers? Commissions for each trade and a separate fee for each research report that is sent to the customer A fee based on a percentage of the profits of the account An initial set-up fee, a fee based on the assets under management, and commissions for each trade Commissions and service charges
A fee based on a percentage of the profits of the account
What can investment advisers include in their contracts with clients? An exculpatory clause which indemnifies them from any wrongdoing A statement that they are not required to disclose conflicts of interest That they may arbitrarily assign client contracts A guarantee of performance against a benchmark; however, if it is not met, they will surrender their fee for the year
A guarantee of performance against a benchmark; however, if it is not met, they will surrender their fee for the year
An investor is long 1,000 bushels of wheat that she purchased for 50 cents per bushel. What's the investor's gain or loss if the price of wheat has dropped to 45 cents per bushel? A gain of $5,000 A loss of $5,000 A gain of $50 A loss of $50
A loss of $50
According to the Uniform Securities Act, which of the following entities or persons must register as a broker-dealer in State A? The trust department of a bank that is located in State A. A broker-dealer that is located in State B, but conducts transactions for its customers who are vacationing in State A. A person that is located in State A and is in the business of providing advice that relates to securities. A person that is located in State A and executes securities transactions for its own account or the account of others.
A person that is located in State A and executes securities transactions for its own account or the account of others.
Which of the following persons is required to register as an agent in State A? A person who representing a broker-dealer in effecting interstate securities transactions for a client who is temporarily vacationing in a State A. An employee of the Federal Reserve Board who is located in State A and executes orders to buy and sell Treasury bills for the account of her employer. A person who represents an issuer that is domiciled in State A and effects transactions between the issuer and its underwriter. A person who represents a broker-dealer that is located in State A and solicits securities transactions on an intrastate basis for clients' accounts.
A person who represents a broker-dealer that is located in State A and solicits securities transactions on an intrastate basis for clients' accounts.
According to the Uniform Securities Act, which of the following is an exempt security? An equity transaction between the issuer and its underwriter The pledge of securities to collateralize a loan A public offering of U.S. government securities An isolated, unsolicited transaction involving non-exempt securities
A public offering of U.S. government securities
Which of the following choices is a characteristic of equity-indexed annuities? A guaranteed minimum rate of return that is equal to the value of the underlying index A rate of return that varies with the value of the underlying index A rate of return that is determined by the subaccounts selected by the contract owner A standardized rate of return that is set annually by the National Association of Insurance Companies (NAIC)
A rate of return that varies with the value of the underlying index
Of the following choices, which one is a derivative? A UIT A hedge fund A swap A REIT
A swap
If a client is interested in purchasing a stock that has a low P/E ratio, a high dividend payout ratio, and wants the issuer to have a large amount of cash reserves, what type of stock should an IAR recommend? A growth stock A value stock A large-cap stock A small-cap stock
A value stock
A broker-dealer is registered and intends to sell stock from its own account to a client. Which of the following statements is TRUE? Prior to the completion of this transaction, the firm must notify its client that it is acting in a principal capacity. Prior to the completion of this transaction, the firm must notify its client that it is acting in a principal capacity and then obtain the client's written consent. The firm is able to charge a markup as well as collect a commission for the execution of the trade. After the completion of this transaction, the firm must disclose that it acted in a principal capacity.
After the completion of this transaction, the firm must disclose that it acted in a principal capacity.
Which of the following is a risk-adjusted return? Alpha Beta Internal rate of return Standard deviation
Alpha
All the following are characteristics of passive asset allocation strategies, EXCEPT: Low transaction costs Minimal annual tax liabilities Rebalancing of a portfolio when risk levels exceed the investor's preferences Altering a portfolio in anticipation of an economic event
Altering a portfolio in anticipation of an economic event
An IAR is comparing an S Corporation and a limited partnership for a client. What is an advantage of investing in an S Corporation that is not available with a limited partnership? An S Corporation offers unlimited personal liability. An S Corporation pays higher returns. An S Corporation allows for an unlimited number of shareholders. An S Corporation provides investors with more control over management decisions.
An S Corporation provides investors with more control over management decisions.
A client sells an XYZ November 40 call and receives a premium of $300. What is the client's maximum loss? $300 $4,000 $4,300 An unlimited amount
An unlimited amount
All the following activities by an investment adviser representative are considered unethical, EXCEPT: Lending money to a client who has recently sustained an investment loss. Informing a client that the price of a stock will increase based on the impending release of a research report on a company. Executing trades of frequency and size that exceed a client's risk tolerance, but result in a higher return than the client expected. Arranging a loan for a client conducted through a broker-dealer that is affiliated to the investment adviser for the purpose of paying for stock which is recommended by the investment adviser representative.
Arranging a loan for a client conducted through a broker-dealer that is affiliated to the investment adviser for the purpose of paying for stock which is recommended by the investment adviser representative.
Under the Uniform Securities Act, an investment adviser must deliver a disclosure document (brochure) to a client: Five business days prior to signing the contract, as long as the client has two business days to rescind the contract without penalty Within three business days of an existing client's request With each statement, but at least on a quarterly basis At least 48 hours prior to signing the contract or, if given at the time that the contract is signed, the client must be given five days to rescind the contract
At least 48 hours prior to signing the contract or, if given at the time that the contract is signed, the client must be given five days to rescind the contract
An investment adviser hires a new employee and her registration became effective July 14. When is the IA required to renew the IAR's registration? On July 14 of the following year. At the calendar year end. At the end of the IA's fiscal year. If the IAR signed the consent to service of process, her registration is not required to be renewed.
At the calendar year end.
An investor is analyzing two bonds. Bond A has a 5% coupon and matures in three years; Bond B also has a 5% coupon, but matures in 10 years. If interest rates decline by 1%, what is to be expected? Bond A's price will decrease more than Bond B's price Bond A's price will increase more than Bond B's price Bond B's price will decrease more than Bond A's price Bond B's price will increase more than Bond A's price
Bond B's price will increase more than Bond A's price
A semi-retired IAR works for an investment adviser that is located in State A, but she intends to spend the winter months in her second home in State B. The IAR put the addresses of both her office in State A and her home address in State B on her business cards since she intends to continue servicing her clients that reside in State A over the winter months. If the investment adviser does not have an office in State B, which of the following statements is TRUE? Neither the IAR nor the investment adviser need to be registered in State B since they are only doing business with clients whose residence is in State A. Both the IAR and the investment adviser need to be registered in State B since the IAR's residence in State B is considered an office and it is listed on her business card. The IAR needs to register in State B, but the investment adviser does not. The investment adviser needs to register in State B, but the IAR does not since neither she nor her clients are residents of the state.
Both the IAR and the investment adviser need to be registered in State B since the IAR's residence in State B is considered an office and it is listed on her business card.
An investor has heard conflicting reports about the success of a company's latest products. Since the investor is unsure of the direction in which the stock's price will move, which option strategy should be recommended? Buy a call on the stock Sell a put on the stock Buy a call and buy a put on the stock Buy a call and sell a call on the stock
Buy a call and buy a put on the stock
According to NASAA's Model Rule on Unethical Business Practices of IAs and IARs, all of the following are prohibited, EXCEPT: Exercising discretion in a client's account without his written permission. Recommending the purchase of a security that the adviser has no reason to believe is suitable for the client. Borrowing money or securities from a client. Charging the customer a reasonable advisory fee.
Charging the customer a reasonable advisory fee.
An investment adviser is registered with the state Administrator in State A. The fee structure, which is disclosed on the registration form, indicates a flat fee which will be assessed annually. What is an investment adviser representative's responsibility as it relates to disclosing the fee structure? Clients must be provided with the IA's brochure at the time of, or before, the commencement of advisory services. Clients must be provided with a copy of the investment adviser's Form ADV five days before the contract becomes effective. Verbal disclosure is sufficient according to the USA. A copy of the disclosure form must be provided by no later than the confirmation of the client's first trade.
Clients must be provided with the IA's brochure at the time of, or before, the commencement of advisory services.
If the average current ratio for a sector is 2.0, which of the following companies has the best short-term outlook? Company A with a current ratio of 3.5 Company B with a current ratio of 1.7 Company C with a current ratio of 1.3 Company D with a current ratio of 0.7
Company A with a current ratio of 3.5
Which of the following metrics is the MOST important when attempting to diversify a stock portfolio? Correlation Asset allocation Weighted average Standard deviation
Correlation
Which of the following business types is the LEAST likely to be affected by an increase in interest rates? Manufacturing Banks Cosmetics Automotive
Cosmetics
What is the name of the process by which an investor calculates the sum of the present values of projected cash flows to determine the fair market value of an investment? Discounted cash flows IRR CAPM Net present value
Discounted cash flows
A client contacts an investment adviser representative to discuss the possibility of incorporating. Which of the following is a disadvantage of forming a C Corporation? Unlimited liability A limited life span Double taxation Flow-through taxation
Double taxation
Which of the following factors is the BEST measure of a bond's volatility? Standard deviation Effective Yield Duration Alpha
Duration
Which of the following statements is TRUE regarding American style versus European style exercise for option contracts? European style options may be exercised by the seller only on the business day before expiration. American style options may only be exercised by the buyer on the business day of expiration. European style options may only be exercised by the buyer on the business day of expiration. American style options may be exercised by the seller at any time before expiration.
European style options may only be exercised by the buyer on the business day of expiration.
According to the Uniform Securities Act, the application process for an investment adviser includes: Having net capital that is at least 2% of the assets managed Filing all client contracts with the Administrator for approval Determining the value of each account on a daily basis Filing a completed Form ADV and a Form U4 for each IAR who will be providing advisory services
Filing a completed Form ADV and a Form U4 for each IAR who will be providing advisory services
Under the Uniform Securities Act, amendments to an investment adviser's Form ADV must be filed promptly. On August 31, an investment adviser closes one of its branch offices and must therefore file an amendment. What constitutes a prompt filing with the IARD? Filing the notice by December 31 of the current year Filing the notice by October 31 of the current year Filing the notice by September 30 of the current year Filing the notice by the end of the adviser's fiscal year.
Filing the notice by September 30 of the current year
Assuming an expected rate of return, a specific holding period, and a sum to be invested, an IAR is able to determine an investment's: Present value Discount rate Future value Internal rate of return
Future value
Under the Uniform Securities Act, an investment adviser is exempt from registration if it: Does not hold itself out as an investment adviser in the state and has fewer than 10 individual clients during a 12 month period Directs communications to no more than 15 individual clients over the last 12 months Has no place of business in the state, its only clients are institutional investors, and /or the adviser does not direct communications to more than five non-institutional clients within 12 consecutive months Has a place of business in the state, but only advises institutional clients that are located outside the state
Has no place of business in the state, its only clients are institutional investors, and /or the adviser does not direct communications to more than five non-institutional clients within 12 consecutive months
According to the Uniform Securities Act, in which TWO of the following cases is an investment adviser exempt from sending clients a written disclosure document under the Brochure Rule? The adviser's clients are only investment companies. An adviser provides impersonal advisory services to online subscribers that cost $250 per year. An investment adviser has no office in the state. The adviser's clients are select institutional investors. I and II I and IV II and III II and IV
I and II
A Canadian broker-dealer may continue to effect transactions for its Canadian clients who are in the U.S. temporarily, provided it satisfies which TWO of the following? It is a member of a self-regulatory organization or stock exchange in Canada It establishes an office in the appropriate state It effects transactions only with Canadian residents who are in the U.S. temporarily It only allows investors to trade exempt securities I and III II and III II and IV I and II
I and III
According to the Uniform Gifts to Minors Act, a person may do which TWO of the following? Give an unlimited amount of cash Give only up to $15,000 in cash Give securities Revoke any gifts that are given I and II I and III II and III II and IV
I and III
The accountant for a registered investment adviser representative has expressed an interest in directing accounting clients to the IAR's firm for investment advisory services. If the accountant wants a referral fee for his efforts, which TWO of the following statements are TRUE regarding this arrangement? There must be a written agreement between the investment adviser and the accountant. The investment adviser may not pay more than $250 for each client referral. The accountant must not have been convicted of any felonies or securities-related misdemeanors. The accountant must be fingerprinted and file a copy with the state securities Administrator. I and III II and III I and II II and IV
I and III
The investment adviser of the ABC Fund typically invests a high percentage of the fund's assets in growth stocks, but has recently turned bearish on the market. Which TWO of the following strategies should be utilized based on the IA's bias? Buy puts on the growth stocks Buy calls on the growth stocks Increase cash levels in the portfolio Decrease cash levels in the portfolio I and III II and III II and IV III and IV
I and III
Which TWO of the following statements are TRUE regarding an investment adviser that maintains custody of its clients' assets? The securities must be deposited with a qualified custodian. The securities must be held in a vault that is maintained by the firm. A notice must be sent to the clients to indicate the secure location or custodian of the securities. Annual statements must be sent to each client of the investment adviser. I and II I and III II and III II and IV
I and III
A Nasdaq listed company is offering 1,000,000 shares of common stock in State A. The Administrator in State A may: Not require registration of the stock in State A. Require the issuer to perform notice filing .Require the issuer to pay a fee. Investigate the underwriter for possible fraud in connection with the offering. AI and III only I and IV only II and III only DII and IV only
I and IV only
Disadvantages of investing in a C Corporation include which of the following choices? Shareholders are taxed on dividends that they receive. The corporation is taxed on its income. Shareholders may not deduct their share of the corporation's losses on their personal tax returns. Shareholders are paid last if the corporation liquidates. I only I and II only II, III, and IV only I, II, III, and IV
I, II, III, and IV
The factors that assist in determining a client's risk tolerance include: Income Age Personality Net worth I only I and II only I, II, and III only I, II, III, and IV
I, II, III, and IV
Which TWO of the following are TRUE of most 457 plans?Contributions are non-deductible (after-tax) Contributions are deductible (pre-tax) Eligible participants are certain employees of state and local government entities Eligible participants are employees of public school systems I and III I and IV II and III II and IV
II and III
Which TWO of the following are TRUE regarding an agent selling away? The agent must provide verbal or written notification to her supervisor. The agent must provide written notification to her firm. The agent must notify the state securities Administrator or the SEC. The agent must receive her firm's written permission before executing a transaction. I and II II and III II and IV III and IV
II and IV
The retention requirements for the books and records of investment advisers and broker-dealers are: Five years for a broker-dealer with two years easy accessibility Three years for investment advisers with two years easy accessibility Three years for a broker-dealer with two years easy accessibility Five years for an investment adviser with two years easy accessibility I and II only I and IV only II and III only III and IV only
III and IV only
Which of the following types of risk is MOST associated with the purchase of a five-year T-bond? Legislative Market Liquidity Interest-rate
Interest-rate
Which of the following statements best describes an equity-indexed annuity? It is a fixed annuity that offers the potential for greater returns. It is a variable annuity that tracks a major index. It is a variable annuity that guarantees a minimum return. It is a fixed annuity that exactly mirrors the performance of a designated index.
It is a fixed annuity that offers the potential for greater returns.
Which of the following is TRUE of the investment policy statement of a qualified retirement plan? It lists the transactions that the plan's fiduciaries are prohibited from executing It is a written document that describes the plan's investment objectives and guidelines It relieves fiduciaries of liability for investment losses in 404(c) plans It lists the permissible investments, also referred to as the legal list
It is a written document that describes the plan's investment objectives and guidelines
An investor may purchase interests in a limited partnership for all of the following reasons, EXCEPT: Potential depreciation expenses Potential tax credits It is an illiquid investment The revenue generated by the partnership is not subject to corporate taxes
It is an illiquid investment
Two lifelong friends intend to open a joint trading account, with each contributing $30,000 to the account. Upon the death of either owner, each wants her share of the account to revert to her individual estate. The type of account the friends should open is: Fractional interest Joint tenants-in-common Joint tenants with right of survivorship Discretionary
Joint tenants-in-common
Which of the following types of stocks is the MOST suitable for a conservative investor who has a low-risk tolerance, but wants to invest in equity securities? Micro-caps Small-caps Mid-caps Large-caps
Large-caps
Two friends are starting their own business and are trying to decide whether to organize this new business as an S Corporation or a general partnership. What is a significant advantage of an S Corporation compared to a general partnership? Favorable tax treatment Limited liability More transparency Fewer start-up costs
Limited liability
The beta of a stock would be useful when measuring: Diversifiable risk Non-systematic risk Market risk Risk-free return
Market risk
An entertainment representative for a number of famous actors is approached by a journalist who is doing research for a favorable article about one of his clients. The client has been very outspoken about the environment and limits his investments to socially responsible companies. The representative handles his client's investments and has discretion over the account. If the journalist wants the representative to provide her with a listing of some of the client's investments, the representative: May give her the information requested since he is the client's representative and it will be a positive article May give her the information if she pays the representative a fee May use his discretion about disclosing information on his client's finances since he has discretionary authority over the investment accounts May only release the information if he receives his client's written permission
May only release the information if he receives his client's written permission
Regarding the influence of market risk on personal investments, an investor can: Minimize market risk by investing in low-risk, low-return investments Eliminate market risk with a diversified portfolio Minimize market risk by buying hedge funds Eliminate market risk by investing in companies with a beta of more than one
Minimize market risk by investing in low-risk, low-return investments
Asset A has a correlation of +0.95 with Asset B. The assets: Move in opposite directions Are uncorrelated Move in the same direction Are less risky than the overall market
Move in the same direction
An investment adviser maintains its home office in State A and is also registered there. State A has a minimum financial (net worth) requirement of $70,000. The firm intends to open an office and provide advisory services in State B, which has a minimum financial requirement of $80,000. Is any action required for the adviser to open the office in State B? Yes, it must increase its net worth by $10,000. Yes, it must increase its net worth to $150,000 to cover the requirements of both states. No, it is only required to satisfy the requirement of its home state. Yes, it must post a $10,000 bond to cover the additional requirement of State B.
No, it is only required to satisfy the requirement of its home state.
Securities that are registered through qualification may only be sold: Upon effective SEC registration Once the registration is declared effective by the Administrator The day after receiving the Administrator's approval Upon completion of the 20-day cooling-off period
Once the registration is declared effective by the Administrator
According to the Investment Advisers Act of 1940, a notice that offers advisory services and appears in a publication, on radio, or on TV is considered an advertisement if it is offered to more than: One person Five persons 10 persons 35 persons
One person
Portfolio A has a standard deviation of 3.50%, while Portfolio B has a standard deviation of 2.75%. How are these portfolios related to one another? Portfolio B has more risk than Portfolio A. Both portfolios have more risk than the market. Portfolio B will always underperform Portfolio A. Portfolio A has more risk than Portfolio B.
Portfolio A has more risk than Portfolio B.
If material information that a state Administrator has on file is no longer accurate, when is an amendment required to be filed? Within 15 days of the change By no later than 30 days after the fiscal year-end of the broker-dealer or investment adviser By no later than December 31 of the same year Promptly
Promptly
An IAR is meeting with a prospective client. The client is in his late 20s, has a higher-than-average income, has several valuable assets, and little debt other than his home mortgage. The client indicates that his main goal is to retire at age 55, but that the stock market makes him very nervous, and that he has never been comfortable investing in any assets other than CDs and money-market funds. Which of the following statements is TRUE regarding this situation? The client's low risk tolerance is inappropriate for a person in his situation and the IAR should ignore it. Since the client is financially capable of bearing some risk, the IAR may not recommend conservative strategies to him. Regardless of whether the client is capable of financially bearing some risk, the IAR must take his low-risk tolerance into account when making recommendations. Once the client reveals his low-risk tolerance, the IAR may not attempt to convince him that assuming a moderate level of risk might be suitable for him.
Regardless of whether the client is capable of financially bearing some risk, the IAR must take his low-risk tolerance into account when making recommendations.
A state Administrator is permitted to apply all of the following administrative actions, EXCEPT: Order a broker-dealer to cease conducting business in the state. Suspend a broker-dealer's registration in the state. Bar an agent from association with any other broker-dealer registered in the state. Require a higher minimum financial requirement than the state in which a broker-dealer maintains its principal office.
Require a higher minimum financial requirement than the state in which a broker-dealer maintains its principal office.
When analyzing strategic and tactical asset allocation, all of the following statements are TRUE, EXCEPT: Passive asset allocation requires a belief that markets are efficient. Unlike strategic asset allocators, tactical asset allocators believe they can time the market. Sector rotation is a form of strategic asset allocation, while buy-and-hold is a form of tactical asset allocation. Active asset allocation requires a belief that markets are inefficient.
Sector rotation is a form of strategic asset allocation, while buy-and-hold is a form of tactical asset allocation.
According to the Uniform Securities Act, if a person has no place of business in State A and is not registered in State A, which of the following actions is permitted? Representing a broker-dealer and receiving commissions for selling exempt securities to customers who are residents of the State A. Representing a broker-dealer and offering non-exempt securities to customers who are located in State A. Selling unlisted securities to institutions that are located in State A. Representing an issuer and receiving compensation for selling the issuer's securities to individuals who reside in State A.
Selling unlisted securities to institutions that are located in State A
A person who invests in a variable annuity is most concerned with the performance of the insurance company's: General account Separate account Auditors Profitability
Separate account
According to the Uniform Securities Act, which of the following activities is considered a prohibited business practice by a broker-dealer? Stating to a client that the offering price of a security is the current market price, when the broker-dealer is the only firm making a market in that security. Stating to a client that the price at which it is offering to sell a security is the current market price, when the broker-dealer is one of five registered market makers in that security. Providing a client with material, public information regarding a company in which the client has expressed interest. Lending money to a client who is purchasing securities through her margin account.
Stating to a client that the offering price of a security is the current market price, when the broker-dealer is the only firm making a market in that security.
An investor has a total of $350,000 to invest, but he wants to invest $150,000 in a manner that will follow the business cycle. This type of investing is referred to as: Strategic asset allocation Tactical asset allocation Technical asset allocation Timing asset allocation
Tactical asset allocation
If a client has no life insurance and low income, what life insurance policy should be recommended? Whole life Universal life Variable life Term life
Term life
According to NASAA's Statement of Policy on Unethical Business Practices, all of the following disclosures are required when a client enters into an investment advisory contract, EXCEPT: The investment advisory fee That no assignment of the contract will be made by the investment adviser without the consent of the client A statement regarding the amount of prepaid fees that must be returned if the contract is terminated That performance-based fees are allowed for every client
That performance-based fees are allowed for every client
An investment adviser representative and a client have similar financial resources, investment goals, and risk tolerance. However, despite the fact that the IAR recommends penny stocks as a small part of her client's portfolio, she does not personally invest in penny stocks. Which of the following statements is TRUE? As long as the recommendations to her clients are suitable for them, it does not matter what the IAR chooses to include in her portfolio. The IAR should disclose to her client that the recommendation is inconsistent with her own investment policy. An IAR is not allowed to reveal the contents of her personal portfolio to a client. Penny stocks are never suitable investments.
The IAR should disclose to her client that the recommendation is inconsistent with her own investment policy.
While advising a client who is in a low income tax bracket, an investment adviser representative recommends that he purchase municipal securities. Which of the following statements best describes this action? The advice given by the representative is unethical. Advice related to tax-free securities is excluded from the provisions of the Investment Advisers Act of 1940. The action constitutes fraud. The Administrator has no jurisdiction over municipal securities unless they are out-of-state bonds.
The advice given by the representative is unethical.
An investment advisory firm and an accounting firm have offices in the same building, but are otherwise unaffiliated. One of the investment adviser representatives pays a cash referral fee to a CPA in the other office for any clients she sends over to the adviser. All the following statements are TRUE, EXCEPT: The CPA must give the investment adviser's brochure to the clients that she refers to the adviser. The CPA must give a separate disclosure document to any clients that she refers to the adviser. The adviser must give each client that is acquired through the CPA another copy of the separate solicitor disclosure document at the time the client agrees to enter into an advisory relationship. The adviser must make a bona fide effort to ensure that the CPA is giving the clients whom she refers copies of the adviser's brochure and the separate solicitor disclosure statement.
The adviser must give each client that is acquired through the CPA another copy of the separate solicitor disclosure document at the time the client agrees to enter into an advisory relationship.
When analyzing a client's personal balance sheet, which of the following items is classified as an asset? The remaining balance on the client's mortgage. The client's monthly mortgage payment. The amount of cash the client has in a checking account. The client's weekly paycheck.
The amount of cash the client has in a checking account.
The former CEO of a public company whose stock trades on the NYSE has recently retired. He liquidates his holdings in the company by selling his shares privately and intentionally withholds material information about the company. Shortly after the sale, the company files for bankruptcy. The state Administrator wants the former CEO prosecuted for fraud in court. Which of the following statements is TRUE? Since the company is listed on the NYSE, it is a federal covered security and exempt from state registration; therefore, the state Administrator has no jurisdiction. The Uniform Securities Act does not contain any provisions which related to fraudulent actions that are committed by non-securities professionals. Since the securities were sold privately without the participation of a registered broker-dealer, the Administrator has no jurisdiction. The antifraud provisions of the Uniform Securities Act apply to any person conducting a sale of securities, regardless of the registration status.
The antifraud provisions of the Uniform Securities Act apply to any person conducting a sale of securities, regardless of the registration status.
If a client buys a futures contract and holds it to expiration, what is his obligation? The buyer is obligated to offset his position on the exchange The buyer is obligated to take delivery of the underlying commodity The buyer of a futures contract has no obligations The buyer is obligated to deliver shares of stock
The buyer is obligated to take delivery of the underlying commodity
Which of the following statements BEST describes a discounted cash flow (DCF) analysis that could lead to a recommendation to a client? The calculation results in the present value of the future cash flows exceeding the current market value The calculation results in the present value of future cash flows being equal to the current market value The calculation provides the amount of additional income that the investor will receive from the investment The evaluation of cash flows results in the fixed-income investment trading at a premium
The calculation results in the present value of the future cash flows exceeding the current market value
If an agent of a broker-dealer is granted a durable power of attorney over a client's account, all of the following statements are TRUE, EXCEPT: The broker-dealer is considered to have discretion over the client's account. The client must be an institution. The durable power of attorney must be established in writing. The agent has the authority to manage the grantor's finances even if the grantor becomes incapacitated.
The client must be an institution.
A client purchases a TIPS with a 2% coupon and, over the course of the year, the CPI increases by 1%. Which of the following statements is TRUE? The client will earn 2% on a fixed principal amount. The client will earn 3% on an adjusted principal amount. The client will earn 3% on a fixed principal amount. The client will earn 2% on an adjusted principal amount.
The client will earn 2% on an adjusted principal amount.
Under the Uniform Securities Act, an investment adviser is required to provide a balance sheet when it files Form ADV Part 2 in all of the following situations, EXCEPT when: The investment adviser requires prepayment of advisory fees of $800, seven months in advance. The investment adviser has custody over clients' funds and securities. The investment adviser inadvertently received client securities, but returned them after two business days. The investment adviser has the authority to execute transactions in an account in which a client has beneficial interest.
The investment adviser inadvertently received client securities, but returned them after two business days.
An investment adviser's sole office is located in State A and its only client is the State A Triple Tax-Free Municipal Bond Fund. The adviser exercises discretion over the fund's investments and also performs safekeeping services for the fund. Which of the following statements is TRUE? The investment adviser must be registered in State A. Since the investment adviser has discretion over a client's funds, it must meet the minimum net worth requirement of the Uniform Securities Act or State A, whichever is higher. Since the investment adviser maintains custody of a client's funds and securities, it must meet the minimum net worth requirement set by the Uniform Securities Act or State A, whichever is higher. The investment adviser is not required to meet the net worth requirements or post a bond since it is regulated at the federal level.
The investment adviser is not required to meet the net worth requirements or post a bond since it is regulated at the federal level.
What is likely to happen if an investment adviser representative fails to appear at a hearing as directed by a subpoena? The representative will lose his registration. The representative will be found in contempt of court. The representative will be suspended until he provides testimony. The hearing will be rescheduled.
The representative will be found in contempt of court.
When executing a trade for a client, an agent inadvertently misrepresents the risks associated with U.S. Treasury bonds. Under the Uniform Securities Act, which of the following statements is TRUE? If the client profits from the trade, then no violation has occurred. This activity is unethical. There is no violation since no action can be taken against inadvertent activity. Since there are no risks associated with U.S. Treasury bonds, no violation of the USA has occurred.
This activity is unethical.
An agent represents a broker-dealer that is headquartered in State A, but has offices in numerous states. The Administrator of State B has revoked the broker-dealer's registration, causing the firm to close that office. One of the agent's clients has moved to State B and the agent wants to continue to do business with her. According to the Uniform Securities Act, which of the following statements is TRUE? This is acceptable provided the broker-dealer no longer maintains a place of business in the state and the agent conducts business with existing clients who are not residents of the state. This is acceptable provided the agent's registration is in effect in State B. This is not acceptable if the broker-dealer no longer has a place of business in the state. This is not acceptable and neither the broker-dealer nor any of its agents may conduct business in State B.
This is not acceptable and neither the broker-dealer nor any of its agents may conduct business in State B.
If an adviser inadvertently receives client funds and/or securities, it can avoid the implication that it is maintaining custody of the assets by returning them to the sender within: Three business days of receiving them Three calendar days of receiving them Seven business days of receiving them Seven calendar days of receiving them
Three business days of receiving them
An investor opens an account with a local advisory firm and deposits $100,000. Some of the employees in the office recognize the investor from her early work as a child actor and begin discussing the rumors of her substantial wealth and real estate holdings. The investor indicates that she wants to trade aggressively, but refuses to give additional information about her income or net worth. Under these circumstances, what is the MOST appropriate action for the investment adviser to take? To invest the client's assets aggressively since that is her objective To invest the client's account in growth stocks in order to earn the highest rate of return To consider the client's rumored real estate holdings when making investment recommendations To presume that the client has no other assets except the $100,000 in her account
To presume that the client has no other assets except the $100,000 in her account
All of the following fall under the jurisdiction of a state securities Administrator, EXCEPT: Transactions that originated within the Administrator's state Transactions that were directed into the Administrator's state Transactions that were forwarded into the Administrator's state Transactions that were accepted in the Administrator's state
Transactions that were forwarded into the Administrator's state
An individual wants an insurance contract that will accumulate a market-competitive return on the cash value in her contract, but she also wants the ability to pay fixed premiums. She should buy a: Variable life policy Whole life policy Term life policy Universal life policy
Variable life policy
When is a mutual fund's prospectus required to be delivered? When a client places a buy order for mutual fund shares When a client is solicited to buy mutual fund shares At or prior to the confirmation of purchase of mutual fund shares Only upon request from the client
When a client is solicited to buy mutual fund shares
The difference between a corporation's current assets and its current liabilities is the: Cash flow Current ratio Working capital Liquid assets
Working capital
Which of the following options positions has the MOST risk? Writing an uncovered call Writing a covered call Buying a call Buying a put
Writing an uncovered call
An investment adviser representative indicates to his compliance officer that he believes a new stock offering shows great promise and has a significant upside. The IAR plans to purchase significant amounts for his clients as well as his personal account. The research department of the IAR's firm does not currently follow the issuing company. Does this proposed course of action violate the IAR's fiduciary responsibilities to his clients? No, since he is not discriminating between clients and he is also buying the stock for his personal account. Yes, since he does not have a reasonable basis for his recommendation and the purchase may not be suitable for each of his clients. No, since some amount of equity is good for all clients. Yes, since the research department of his firm does not follow the stock.
Yes, since he does not have a reasonable basis for his recommendation and the purchase may not be suitable for each of his clients.
A company's price-to-earnings (PE) ratio measures: Liquidity Leverage The value of $1.00 of EPS Market capitalization
the value of $1.00 of EPS
