Exam 3
An investment of $2,000 made 10 years ago is now worth $8,000. Using the Rule of 72, the approximate compounded annual rate of return is
14.4%
Halethorpe has had a difficult time passing the Series 66 examination. He just tried again and failed for the fourth time. He will be eligible to try again in
180 days
Which of the following persons are required to register in a particular state? An investment adviser who manages client accounts in excess of $100 million in value An investment adviser who manages client accounts and has less than $25 million in total assets under management An adviser to investment companies registered under the Investment Company Act of 1940 An investment adviser representative with a place of business in the state
2 and 4
Kapco Advisers registers with the Administrator on April 1. Pete Patel, an IAR with Kapco, registers on the same day. Both of them file renewal papers, accompanied by the appropriate fees, on March 31 of the following year. Which of the following statements are true? Kapco's renewal was timely. Kapco's renewal was late. Patel's renewal was timely. Patel's renewal was late.
2 and 4, must be Dec 31 of each year
Given the following information, calculate the risk-adjusted return. 91-day T-bill rate: 4% Actual return: 14% Beta = 1.4 CPI: 3% Standard deviation: 5.0
2% 14 - 4 / 5 = 2
An investor purchased 200 shares of Affinage Refining Company (ARC) common stock at $63 per share. Over the next six months, two quarterly qualified dividends of $0.50 per share were paid. The investor liquidated the position at $66 per share. If the investor is in the 32% federal income tax bracket, the approximate after-tax return is
4.6%
A farmer who produces soybeans believes that this year's crop will be the biggest ever. The farmer would most likely hedge this risk by A) going short soybean forwards. B) going long soybean forwards. C) going long soybean futures. D) going short soybean futures.
A
A variable annuity annuitant bears all of the following risks except A) mortality risk B) market risk C) interest rate risk D) inflation risk
A
One of the differences between broker-dealers and investment advisers (IAs) is the disclosures that must be made when the IA is acting as a principal or agent in a transaction with an advisory client. In the case of a firm registered in both capacities, those disclosures would not be required when A) cleared with the Administrator. B) there is a transaction with a client of both entities but the trade is not based upon advisory services rendered. C) the transaction is in an exempt security. D) approval is granted by an officer of the firm.
B
Which of the following funds would you recommend to a moderate-risk client seeking long-term capital gains who also values professional stock selection? A) An international index fund B) A large-cap growth fund C) A small-cap growth fund D) S&P 500 Index fund
B
Which of the following would be considered a precious metal? A) Lead B) Platinum C) Copper D) Tin
B
Sharon is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act, A) because Sharon has no place of business in State X and the client is an institution, Sharon may accept the order without registering in State X. B) Sharon must be registered in State X in order to accept the order. C) because Sharon has no place of business in State X and the order is unsolicited, Sharon may accept the order without registering in State X. D) because Highwater Securities is registered in all 50 states, Sharon must also be registered in all of them.
B -- BDs must be registered in every state where a client is domiciled
Investing in which of the following would maximize after-tax income and diversify the portfolio for a high-tax-bracket investor? A) Short-term municipal notes B) GNMAs C) A unit investment trust whose portfolio consists of municipal bonds D) Preferred stock mutual fund
C
What is the proper course of action for the fiduciary of a trust that has a portfolio made up of 10% cash and 90% stock of one company that has recently experienced a 40% market gain? A) Increase the cash position to 25% by taking some of the profits off the table B) Use the cash to acquire more shares of the stock C) Maintain the current allocation if, while acting in the capacity of trustee, he believes it aligns with the goal of the trust D) Begin diversifying the equity portfolio
C
One of the benefits of being a limited partner in a direct participation program is that A) the limited partner can make certain management decisions. B) any losses generated by the partnership flow through to the limited partner and can be used against ordinary income in an amount up to $3,000 per year. C) any income generated by the partnership flows through to the limited partner and is treated as a long-term capital gain. D) the general partner is the only person liable for the debts of the business.
D
Under the Uniform Securities Act, investment advisory contracts A) are cancelable without penalty for 48 hours after the customer signs. B) must list each state in which the adviser is registered. C) cannot be assigned without the Administrator's approval. D) must contain a description of fees.
D
Which of the following factors has a direct relationship to a bond's duration? A) Rating B) Coupon rate C) Yield to maturity D) Time to maturity
D
Your customer opens a Coverdell ESA for his niece. In order to meet qualified education expenses of $9,000, she takes a distribution of $10,000. The amount of the distribution in excess of her education expenses that represents earnings in the account will be A) taxable to the uncle, the donor to the plan B) nontaxable to either party C) automatically reinvested back into the plan D) taxable to the niece, the beneficiary of the plan
D
Open- and closed-end investment companies have all of the following in common except A) they actively manage their portfolios. B) they compute their net asset values. C) they have stated investment objectives. D) they trade their shares in the secondary market.
D -- open end shares don't trade in the secondary market
There are a number of different ways in which a business may be structured. For tax purposes, which form is taxed on its income?
LLC
Among the provisions of the Investment Company Act of 1940 designed to protect the interests of investors is the provision that
any change in fundamental investment policy must be approved by stockholders
preferred shareholders (do/do not) have preemptive rights
do not
For which of the following business entities would suitability be based on the objectives of all the owners on a collective basis?
general partnership
The Sharpe ratio is a measurement of a portfolio's
risk-adjusted return
A business organized as which of the following pays federal income tax on its income?
sole proprietorship
USAAdvisers is registered in 10 Midwest states. Regarding financial requirements, USAAdvisers must meet those of
the state in which the principal office is located
Which of the following are characteristics of commercial paper? It represents a loan by the holder to the issuer. It is a certificate of ownership in the corporation. It is commonly issued to raise working capital for a corporation. It is junior in preference to convertible preferred stock.
1 and 3
The SEC has determined that advertising regarding past recommendations made by investment advisers is misleading if which of these are true? Results do not reflect the deduction of fees. Actual market conditions during the referenced period are not disclosed. The advertisement does not reflect performance for a minimum period of three years. The advertisement does not disclose that it applies to only a specific group of clients.
1, 3, and 4
All of the following are true of negotiable, jumbo certificates of deposit except A) they are secured obligations of the issuing bank. B) they are readily marketable. C) they are usually issued in denominations of $100,000 to $1 million or more. D) they usually have maturities of one year or less.
A
Mountain High Securities is a broker-dealer registered in Wyoming and Colorado with its principal office located in Colorado. With reference to the Uniform Securities Act, it would be correct to state that A) Mountain High Securities must meet the recordkeeping requirements of the SEC. B) the Administrator of Colorado would have to approve of the broker-dealer's method of recordkeeping. C) it is required that any broker-dealer meet the recordkeeping requirements of each state in which they are registered. D) meeting the recordkeeping requirements of Colorado is sufficient even if those of Wyoming are more stringent.
A -- BDs in multiple states -> SEC
A major benefit of a revocable trust is A) the grantor saves on income taxes. B) the grantor retains control of the assets. C) the assets are not included in the grantor's estate. D) the settlor cannot also be the beneficiary.
B
Under the Uniform Securities Act, which of the following is a broker-dealer? A) An issuer B) A corporation that sells interests in an oil and gas limited partnership to investors, with the proceeds going to the issuer C) An agent D) A credit union that sells its own stock
B
A federal covered investment adviser (IA) has decided that it is necessary to increase its fee schedule and charge commissions on securities trades. However, they are going to leave the fee structure in place for existing customers. This information must be disclosed A) promptly to the Administrator of the state where the IA maintains its principal office. B) in the summary of material changes in the annual updating amendment to the SEC. C) promptly only to those customers who will be affected by the change through an amended brochure. D) promptly to all customers by amending the brochure.
C
Last year, an investor had a $5,000 loss after netting all realized capital gains and losses. This year, the investor has a $1,000 capital gain. After netting his gains and losses, what will be his tax situation this year? A) He will have a $1,000 loss to carry over to the next year. B) There will be no tax consequences. C) He will offset $1,000 ordinary income this year. D) He will have a $1,000 gain.
C
Jessica is an investment adviser representative for an SEC-registered investment adviser. She lives in State X and receives a letter from a former college friend requesting a contribution to the friend's political campaign for governor of State Y. As it happens, Jessica's firm provides advisory services to State Y's employee retirement fund and Jessica actively solicits business from other state agencies. Which of the following actions would be permitted to Jessica under the SEC's pay-to-play rule without causing any concerns to her firm? A) Donating a maximum of $150 to the campaign B) Sending a letter to the friend indicating that the rules would not permit her to contribute to the campaign C) Donating a maximum of $350 to the campaign D) Donating a maximum of $250 to the campaign
A
Jason, a recently divorced individual, is currently 55 years old and has built up approximately $400,000 in several initially funded and rollover individual retirement accounts (IRAs). He now wants to take an early distribution from one of these IRAs. Which one of the following distributions will escape the imposition of a tax penalty for early withdrawal? A) A distribution made to Jason's ex-wife under a qualified domestic relations order (QDRO) B) A distribution made in payment for higher-education costs of Jason's granddaughter C) A distribution made upon separation of service from Jason's current Employer D) A distribution made on account of financial hardship as determined by Jason's financial planner
B
Under the Uniform Securities Act, which of the following are not required to register as investment adviser representatives in this state? An individual who sells advisory services in several states, including this one, for AAA Advisers, Inc. United Trust Company of America An agent for a broker-dealer advising customers for a fixed separate fee stated as a percentage of the customer's assets under management An investment adviser with no office in the state that does business exclusively with other investment advisers located in the state
2 and 4
Under the Uniform Securities Act, which of the following investment advisers would be required to include a balance sheet in their brochures? An adviser who exercises discretion in client accounts An adviser who maintains custody over client funds and securities An adviser who maintains less than $35,000 in net worth An adviser who, six or more months in advance, collects prepaid fees of more than $500
2 and 4
An IAR has received several referrals from a prominent estate-planning attorney. Under the USA, the IAR would be permitted to A) refer advisory clients who need estate planning to this attorney. B) send a thank you note and nothing else. C) open a managed account for the attorney and offer a discounted fee structure based on the frequency of referrals. D) compensate the attorney with a fee based on the assets placed under management as a result of these referrals.
A
Lucy, an agent of XYZ Securities, works out of an office in Ohio. She calls her client Clark, an individual investor and a resident of Kansas, and recommends that Clark purchase 500 shares of Perfect Pasta, Inc., common stock. Lucy read a report that Perfect Pasta plans to introduce a low-carbohydrate pasta into the marketplace. Perfect Pasta, Inc., common stock is neither exchange traded nor traded on Nasdaq. At the time Lucy makes the recommendation, the stock is not registered with the securities departments of Ohio or Kansas. Which of the following statements best reflects this transaction? A) Lucy has violated the Uniform Securities Act because Perfect Pasta, Inc., failed to register its stock with the securities departments in both Kansas and Ohio. B) Lucy has violated the Uniform Securities Act because she solicited an order in an unregistered, nonexempt security. C) Lucy has violated the Uniform Securities Ac
B
The NASAA Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents contains an extensive list of prohibited practices. However, it would not be considered a violation A) if a properly registered agent were to share in the profits and losses in a customer's account proportionate to the amount of time the agent devoted to handling the account. B) to borrow money from a client who is not in the lending business. C) for two individuals employed by the same broker-dealer and with the same category of license to share in commissions without telling the client. D) when a broker-dealer sells a security out of inventory to a retail customer and indicates on the confirmation that the firm acted in an agency capacity.
C
