Rules

What best describes the interest rate that a broker-dealer pays to a bank lender when borrowing money on behalf of clients with margin accounts?

Broker's call rate

Advice to fewer than -- clients qualifies one for an exemption from registration, but only in the case of a ----- adviser with less than ------ in AUM in the United States.

15 foreign $25 million

When must corporate tax returns be filed?

15th day of 3rd month after fiscal year end. If Jan-Dec fiscal year=Mar 15

SEC pay to play rule. Jessica's solicitation activities define her as a covered employee. The rule allows covered employees to make contributions of up to $---- per official or candidate per election in which they can vote, or $--- for other elections. Because the friend is running for governor in a state that Jessica cannot vote, the lower limit applies.

350.....150

Dividends are qualified if an investor holds stock for at least ---- days of the ----days surrounding the ex-date

60, 121

The computation of the estate tax is done on IRS form ____ and the estate income tax computation is done on Form ----

706, 1041

An investor's required rate of return is 6%. If the internal rate of return of the investment offered is 6.32%, then the NPV is A) positive B) between 6% and 6.32% C) zero D) negative

A Anytime an investment's IRR is more than the required rate of return, the NPV is positive (and should probably be selected). The NPV is expressed as a dollar amount. It is the IRR which is expressed as a percentage.

Each of the following terms is commonly found in modern portfolio theory EXCEPT A) the feasible set B) the efficient set C) the internal rate of return D) the capital asset pricing model

C)IRR

The average cost of goods and services (market basket) purchased by consumers, compared to those same goods and services purchased during a base period.Measures--retail--prices.

CPI

----- is the method used for nonexempt companies that are registering with the SEC. ------- is for intrastate registration of those companies not registered with the SEC. ------- is the procedure whereby federal covered investment companies notify the states in which they want to issue shares and to whom they must pay a fee.

Coordination Qualification Notice filing

If the required rate of return is higher than anticipated in a present value calculation, the effect would be that A) the present value would be higher B) the future value would be higher C) the yield to maturity would increase D) the present value would be lower

D Try to follow me on this one. The present value computation is used to determine how much money must be deposited now (in the present) to reach a specified future goal when you know how many years you have to reach that goal. One critical component of the formula is the rate of return. As a simple example, if you need $100,000 in 18 years for your newborn's college education and you expect to earn 4%, using the rule of 72, you'll have to deposit $50,000 now (present value) to reach the goal. However, if it turns out that the earnings rate is higher than anticipated—say, 8%—you would only need to deposit half as much today ($25,000). Therefore, we answer this question by indicating that a higher rate of return will require a lower present value (deposit).

An offer of a securities investment is directed to 10 individuals in the state during a 12month consecutive period. What would this be?

Exempt Trasaction. An offer of a securities investment to 10 or fewer individuals (called a private placement) is also exempt from registration

To avoid paying gift tax, the $5,00 excess over $15,000 is reported to the IRS on

Form 709 with income tax return (Apr 15). Draws against lifetime gift tax exemption.

the sum of all consumer goods, capital goods, and services produced in the United States and net exports to other countries

GDP

The only government agency that is a direct obligation of the U.S. government is the ----- security. All of the others are ------.

Ginnie Mae, moral obligations

----- means securities from companies around the globe, including the United States. I------ exclude U.S. domiciled companies.

Global mutual fund, International funds

Set by the individual broker-dealer firm. As a cushion, and to reduce the possible sellout caused by failure to meet a maintenance call, most firms set a minimum equity level above the SRO minimum. A common house requirement is 35%. Falling below triggers a house call.

House Maintenance

------ advocate government intervention in the workings of the economy through increased government spending, which in turn increases aggregate demand.

Keynesians

Who files Form 1065?

Limited Partnership and LLC

Gives the firm permission to lend securities held in the margin account to other brokers, usually for short sales. It is not mandatory for customers to sign the loan consent agreement.

Loan Consent (optional)

----- believe that the economy and inflation are best controlled through the management of the money supply rather than through fiscal policy stimulation.

Monetarists

establishes the government's taxation, spending, and debt practices. Determined by the president and Congress

The federal government's fiscal policy

------- is charged by the banks to their stronger borrowers

The prime rate

IRR is similar to what of the bond

YTM

Book value reflects the ------ value of the company, not its intrinsic value.

liquidating

Set by the Federal Reserve Board under Regulation T. This is the initial deposit required when purchase securities on margin (the broker-dealer lends the balance of the purchase price). For equity securities, the initial margin requirement is 50% of the purchase price.

margin call

Investment advisers with custody must send statements to clients on a -------- basis.

quarterly

A portfolio that maximizes an investor's preferences with respect to return and risk is called

the optimal portfolio

To suspend all trading on an exchange, the SEC must first notify -----------. The SEC may summarily suspend trading in any nonexempt security for up to ------- without prior notice.

the president of the United States 10 days

The sale of preorganization certificates is exempt if

there is no commission for solicitation or payment by subscribers and no more than 10 subscribers (Subscribers is the word)

----- is a parallel income tax calculated using a different set of rules than the standard tax rules. The reason for the AMT is to ensure that certain high-income taxpayers pay at least a minimum amount of tax.

Alternative Minimum tax. The tax payers have to pay the higher of the AMT or the standard tax. Preference items is excluded from the standard tax calculations but counted as income for the AMT.

Which of the following vehicles make use of the unified estate tax credit?

Bypass trust Generation-skipping trust

Which of the following is not correct regarding the capital asset pricing model (CAPM)? A) The stock risk premium is the inducement necessary to entice the individual to invest in a particular stock. B) CAPM only considers the systematic risk. C) CAPM uses standard deviation as a measure of market risk. D) The market risk premium is the incentive required for the individual to invest in the securities market.

C CAPM accounts for the impact of systematic risk (as measured by beta) only and does not take into consideration unsystematic risk, which is assumed to have been diversified away.

Establishes the debtor/creditor relationship and discloses the terms under which credit is extended. SEC Rule 10b-16 requires firms to disclose the method of computing interest and the conditions under which interest rates and charges will be changed. Firms must send customers an assurance that statements accounting for interest charges will be sent with the same frequency that interest is charged (monthly or quarterly).

Credit Agreement

Which of the following business entities files a tax return on the 15th day of the 4th month after the end of the calendar (or fiscal) year? A) Partnership returns on Form 1065 B) S corporations on Form 1120s C) Multiple member LLCs on Form 1065 D) C corporations on Form 1120

D) C corporations on Form 1120. Of this group, the C corporation is the only one filing on the 15th day of the 4th month (April 15 for a calendar-year filer). The other three all file their returns along with a Schedule K-1 for each partner, member, or shareholder on the 15th day of the 3rd month, typically, March 15.

Set by the SROs. This is the minimum equity that must be maintained in a margin account. Should the equity fall below the minimum required, a maintenance call (sometimes called maintenance margin) will go out demanding an immediate deposit of enough equity to bring the account above the required level. Currently, the minimum maintenance level for long positions is 25% and for short positions is 30%.

Minimum Maintenance

The original call for funds is the --------. When the call is for additional money, it is known as --------.

Regulation T or margin call, maintenance margin If based on the firm's stricter requirement, it is a house call; if based on the requirement of the SRO, it is a maintenance call

506(b) of Regulation D

Rule 506(b) of Regulation D provides a private placement exemption for securities that are sold to no more than 35 nonaccredited investors. There is no limit to the number of shares that can be issued nor the number of accredited investors who may purchase the shares. It is Rule 506(c) of Regulation D that permits advertising as long as the issue is sold exclusively to accredited investors.

Who files Form 1120S?

S Corp

a form that must be filed with the U.S. Securities and Exchange Commission (SEC) when a person or group acquires more than 5% of a voting class of a company's equity shares

Schedule 13D

Securities registration statements are generally effective for-----

Securities registration statements are generally effective for 1 year from the effective date.

How is risk measured for the Capital Market Line?

Standard Deviation

Under the Securities Exchange Act of 1934, which body regulates the extension of credit for nonexempt securities?

The Federal Reserve Board

When does a customer have to receive the OCC Options Disclosure Document?

There are 2 alternatives for meeting the delivery requirement. It may be done before or at the time the broker-dealer approves that customer's options account or accepts the customer's first order to trade the listed options covered by the ODD.

Do trusts and estates pay tax?

Yes, Form 1041 (high rates too)

When, as per the Sharpe ratio, a stock exhibits superior performance, it implies----

a positive Alpha

The type of trust created by a will that becomes operative at death is. As in "last will and testament."

a testamentary trust

The excess of the ------- over the regular tax is added to the regular tax amount.

alternative tax

Value investors look for stocks that appear to be underpriced in the market. These stocks are characterized by prices that may be below ---, low P/E ratios, and higher dividend yields.

book value

A gift of assessable stock would be an offer or a sale

but a gift of nonassessable stock is just a gift.

The sale price of a life settlement is always more than the ------ and less than the ------.

cash value, face value

A ------ is interested in the volume of shares traded, and the short interest for that particular stock

chartist

When a bank borrows from the Federal Reserve, it does so at the --------

discount rate.

When borrowing from another bank, it is at the -----------

federal funds rate.

Interest on foreign bonds is taxed in the United States by ----------- governments.

federal, state, and local

In almost all cases, income received into a revocable (grantor) trust, whether distributed or not, is taxable to the ------

grantor

Value investors, for example, would seek securities with ------ relative to their market prices.

high book values

Gives the firm permission to use the client's margin securities as collateral for the margin loan and pledge (re-hypothecate) securities held on margin to a lending institution; a mandatory part of a margin agreement.

hypothecation agreement

In general, the most passive investment style for a portfolio would be

indexing. "set it and forget it"

Loans may be made to clients if the person making the loan is in the -------. Broker-dealers are permitted to lend money against securities held in client's portfolios. This is known as a margin loan. In fact, with $5,000 in the account, current regulations would permit a loan of up to $2,500.

lending business

An investor's --------- is the nominal rate less the inflation rate.

real rate of return

In an insurance policy or annuity, -------- represents the amount that a policyholder will receive if she cancels it. ------is calculated by taking the policy's ----- and deducting any surrender fees.

surrender value Surrender value cash value

The proper term is "----------." Those would include the following: Deductions taken for accelerated (but not straight-line) depreciation; Excess intangible drilling costs; Capital gains on incentive stock options; and Otherwise tax-exempt interest from specified private activity bonds.

tax preference items

A benefit of active investment in real estate that is not available to purchasers of REITs is

the Section 1031 exchange privilege.

One of the goals of modern portfolio theory (MPT) is to construct a portfolio that provides the highest return with the lowest risk. This would be known as

the efficient portfolio