S65 Exam Questions
Although there are a number of risks to owning a debt security that are common to all investors, which specific risk is avoided when a U.S. resident purchases a Eurodollar bond? A) Currency risk B) Interest rate risk C) Inflation risk D) Default risk
A - Eurodollar bonds are denominated in US currency
An investment adviser who has custody of customer funds and securities discovers that its net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must do which of the following? 1. Notify the Administrator by the close of business on the day after discovery 2. File a report of its financial condition with the Administrator no later than the close of business on the day after notification 3. Cease doing business
1 and 2
Which of the following statements are TRUE? 1. When an investment adviser representative begins or terminates employment with an adviser registered under the USA, only the investment adviser must notify the Administrator. 2. When an investment adviser representative begins or terminates employment with a federal covered adviser, only the investment adviser representative must notify the Administrator. 3. When an agent of a broker-dealer leaves the firm, only the broker-dealer must notify the Administrator. 4. When an investment adviser representative or a registered agent of a broker-dealer terminates employment, notice must be given to the Securities and Exchange Commission.
1 and 2, Advisers must notify one or the other, BD's must notify both
ABC Securities is a broker-dealer registered with the SEC and domiciled in State M. ABC Securities would not be defined as a broker-dealer in State N under the Uniform Securities Act if it had no offices in State N and 1. its only clients were insurance companies 2. it had contact with fewer than 6 State N residents in any 12-month period 3. its only solicitation of State N residents was through radio advertisements originating in State M but received in State N 4. it occasionally engaged in firm commitment underwriting with issuers based in State
1 and 4 Only exemptions from registering as a BD in a state are: no place of business in the state, business limited to institutions, and underwriting
The Investment Advisers Act of 1940 requires that investment advisers make certain disclosures to their customers through the delivery of the adviser's brochure. However, there are instances where the act grants an exemption if the client is 1. a broker-dealer 2. an insurance company 3. an investment company 4. a person receiving impersonal advice for which the annual fee is less than $500
3 and 4, only two exemptions to the brochure rule are investment companies and people whose advice is impersonal/worth less than 500 a year
An agent of a broker-dealer is currently doing business in one state and would like to conduct business in another state. When checking with the firm's compliance department, the agent would be told which of the following? A) If the agent is a partner, officer, or director and held that position at the time the broker-dealer was registered in that state, the individual need not register separately. B) Registration is required only if an offer is directed, accepted, and paid for in that state. C) No registration is necessary in the other state provided the agent's activities are limited exclusively to effecting transactions in certain exempted securities. D) No registration is necessary if no commission or other remuneration is paid or given directly or indirectly.
A
An analyst using the dividend growth model would take into account all of the following factors EXCEPT A) the current earnings per share B) the growth of the dividend C) the current dividend D) the investor's required rate of return
A
Proponents of which of the following technical theories assume that small investors are usually wrong? A) Odd lot B) Breadth of market C) Short interest D) Volume of trading
A
When a corporation files for bankruptcy, heading the priority for payment would be A) holders of secured debt B) taxing authorities C) common stockholders D) employees for their wages
A
The DERP Corporation has an outstanding convertible bond issue with a conversion price of $125 per share. If the current market price of the bond is 80, the parity price of the stock is A) $100.00 per share B) $156.25 per share C) $125.00 per share D) $64.00 per share
A if the bond is selling at 80% of its par-value, than the stock must be selling at 80% of the conversion value (125*.8) = 100
A new customer of your broker-dealer calls after her first stock purchase and comments she did not see a commission charged on the trade confirmation and wants to thank you for the good deal. It would be incumbent on you to A) explain that the firm acted as a principal and included a markup in the price B) explain that your firm does that on the first trade to help build the relationship C) report this to your supervisor promptly D) reply with a thank you and tell her you're looking forward to more trades
A -
A client purchased an index annuity from you 3 years ago and made an initial deposit of $100,000. The contract calls for a 90% participation rate with a 15% cap. The index had a return of +20% in the 1st year, -5% the 2nd year, and +10% the 3rd year. The investor's current value is approximately A) $125,350 B) $128,620 C) $117,829 D) $126,500
A - 20% return on first year - only 15% can be recognized because of the cap 5 percent loss in second year, but because annuity is indexed there are no reductions in a down market, so balance stayed at 115,000 3rd year had 10% gain, so 90% of that was recognized making the balance 125,350
An investor buys 100 shares of KAPCO stock for $120 per share. During the year, he receives $260 in dividends and, at the end of the year, the stock is worth $13,000. The investor's holding period return is A) 10.50% B) 2.17% C) 9.69% D) 8.33%
A - 1260/12,000
Your customer is asking if either exchange-traded funds (ETFs) or exchange-traded notes (ETNs) might be suitable investments for his portfolio. The customer makes several statements regarding his understanding of the products, but only one of them is accurate. Which is it? A) ETNs are issued by financial institutions; therefore, I should be concerned about the credit worthiness of the issuer. B) ETFs have a fixed coupon rate that I should expect to realize when they mature. C) ETNs are equity securities because they trade on exchanges. D) If I want to sell my shares of an ETF, I have to wait until the next price is calculated to value the portfolio of securities.
A - ETNs are debt securities even though they can track the index of equity securities
Under the NASAA Model Custody Rule, an investment adviser would be permitted to take or have custody of any securities or funds of any client if A) notification was given to the Administrator that he has or may have custody and custody was not prohibited by that state's rules B) permission was obtained from the Administrator and custody was not prohibited by that state's rules C) customer permission was obtained prior to entering into the contract D) the IA maintained adequate net worth or a surety bond
A - It is against the law to have custody of a client's funds if the administrator prohibits it by rule, or the administrator is not notified in the absence of a rule
A broker-dealer (BD) registered in multiple states must meet the record retention requirements of A) the SEC B) the state where the BD is incorporated C) the state where the principal office of the BD is located D) the state with the most stringent requirement
A - SEC - BD's registered in multiple states will also fall under SEC registration NSMIA - state regulations can't exceed federal
After an investigation, the Administrator wishes to have the registration of an investment adviser revoked. In order to do so, all of the following are true EXCEPT A) the investment adviser may elect to withdraw its registration B) the Administrator must be able to point to specific facts of law violated by the investment adviser C) an appeal may be filed within 60 days of the final order D) the investment adviser has a right to a hearing
A - Withdrawal is a form of non-punitive termination and cannot be employed once an investigation has begun.
A 45-year-old investor wants the greatest possible monthly income with the preservation and stability of capital as secondary objectives. Which of the following investments would you recommend? A) Long-term bond fund B) Growth mutual fund C) Money market mutual fund D) Growth and income fund
A - although a money market provides capital preservation, that is not the client's first goal. If income is the goal, the clear choice is a bond - especially one with a longer maturity
Which of the following debt instruments generally present the least amount of default risk? A) Municipal general obligation bonds B) Convertible senior debentures C) High-yield corporate bonds D) Municipal revenue bonds
A - backed by the full taxing power of the municipality
A customer with an aggressive growth investment objective and short-term (6- to 12-month) time horizon wants to invest $50,000 in a mutual fund. He has a substantial net worth, but none of it is invested in mutual funds. You inform him that mutual fund investments are intended to be long-term investments, but he expresses his intention to make the short-term investment anyway. If the XYZ fund family (one you have dealt with in the past) offers an aggressive growth fund that has a respectable track record, your recommendation should be to A) buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in 1 year and 0.75% 12b-1 fee B) decline the transaction because short-term trading of funds is not allowed C) buy the XYZ Aggressive Growth Class B shares with a declining CDSC and 0.75% 12b-1 fee D) buy the XYZ Aggressive Growth Class A shares with a 4% load and 0.25% 12b-1 fee
A - class C sales charge will be lower than A or B
To secure the debt that a subsidiary is offering, a railroad holding company transfers to a trustee the common stock of another subsidiary. The offering is one of A) collateral trust certificates B) secured income notes C) equipment trust certificates D) guarantee trust bonds
A - collateral trusts are when a company uses the securities of one subsidiary to collateralize the bond of another subsidiary
Which of the following statements regarding convertible bonds is NOT true? A) Coupon rates are usually higher than nonconvertible bond rates of the same issuer. B) Convertible bondholders are creditors of the corporation. C) If there is no advantage to converting the bonds into common stock, they would sell at a price based on their market value without the convertible feature. D) Coupon rates are usually lower than nonconvertible bond rates of the same issuer.
A - coupon rates would be lower because of the conversion feature
When comparing a time deposit account and a demand deposit account, you would expect A) a higher rate of interest paid on the time deposit account B) FDIC insurance on the time deposit account but not on the demand deposit account C) easier access to the funds in a time deposit account D) lower penalties for withdrawing funds from a time deposit account
A - demand deposit accounts are checking, time deposit accounts are for a fixed amount of time at a fixed interest
All of the following statements regarding a closed-end investment company are true EXCEPT A) it may redeem its own shares B) it differs from a mutual fund C) it is a type of management company D) it sells at the market price based on supply and demand
A - door is closed
An order to immediately buy or sell a security at the best available price is known as A) a market order B) a limit order C) a stop order D) an immediate or cancel (IOC) order
A - each of the other orders has a designated price, but not market orders
When registering a security under the Uniform Securities Act, the registrant must indicate all of the following EXCEPT A) the effective date of the offering B) all other states in which the security is to be registered C) the amount of securities to be offered in the state D) adverse rulings by a court, regulatory authority, or the SEC with respect to the offering
A - effective date is not determined by registrant
One of the asset allocation classes is fixed income securities. When an IAR is determining which securities to fill that portion of the client's portfolio, which of the following would NOT be included? A) Preferred stock B) Municipal bonds C) Mortgage-backed securities D) Treasury bonds
A - even though preferred stock is technically a fixed-income security because of it's dividend, for purposes of asset allocation it is categorized as an equity investment
Centripetal Investment Advisers (CIA) has its principal office in State X and is also registered in States Y and Z. CIA would be considered to be maintaining custody of client assets in all of the following cases EXCEPT A) checks made out to 3rd parties are forwarded within 3 business days B) checks made out to CIA are deposited within 3 business days C) CIA has a power of attorney granting authority to withdraw funds from the custodian D) CIA's advisory contract calls for the automatic deduction of advisory fees
A - if check is forwarded within 3 business days than the adviser does not have custody
Which of the following is a possible advantage of scheduled premium variable life insurance over whole life insurance? A) Possible inflation protection for the death benefit B) Greater guaranteed cash value C) Flexibility of premium payments D) Less risk in the underlying investment instruments
A - insured exchanges taking on more risk for possible inflation protection variable inherently means that insured is taking on more of the risk
An investment adviser may borrow from all of the following clients EXCEPT A) a mortgage broker who helped the adviser negotiate mortgage terms for its office building B) a broker-dealer in conjunction with a margin account C) a commercial bank in conjunction with a mortgage on the office building from which the advisory operates D) a savings and loan association that has offered to finance new computers for the adviser's office
A - mortgage brokers do not lend money themselves, that is why they are called brokers.
All of the following are advantages of universal life insurance EXCEPT A) the policy is guaranteed never to lapse B) when the cash value is sufficient, no premium payment is required C) ability to adjust the amount of premium payments D) ability to change death benefit amount
A - policy can lapse if accumulation fund drops below a certain level without the addition of a premium payment
Buying a put option on a security he holds allows an investor to A) participate in additional gains if the security continues to increase in price B) increase his profit if the security declines in price C) buy more stock if he exercises the put D) receive the premium for the purchase of the put
A - purchasing a put allows the stockholder to lock in the sale price
By viewing the bid and ask prices, which of the following OTC stocks is likely to be the most actively traded? A) 43 - 43.05 B) 17.95 - 18.25 C) 50 - 50.50 D) 22 - 23
A - smallest spread means that this is the most actively traded security from the list
In a portfolio containing common stock, straight preferred stock, convertible preferred stock, and adjustable rate preferred stock, changes in interest rates would be most likely to affect the market price of the A) straight preferred stock B) common stock C) convertible preferred stock D) adjustable rate preferred stock
A - straight preferred stock are fixed-income securities, and are extremely sensitive to interest rate volatility
All of the following statements regarding incentive stock options (ISOs) are correct EXCEPT A) the favorable tax treatment associated with ISOs is lost if the shares acquired through the ISO exercise are sold before 1 year from the date of grant or 2 years from the date of exercise B) if the holding period is satisfied, the gain upon the sale of ISO shares will be a long-term capital gain C) upon the exercise of an ISO, income for AMT purposes is created D) the exercise of ISOs does not create taxable income
A - tax treatment if shares are sold before 1 year of exercise date or 2 years after grand date
Which of the following firm's earnings are likely to exhibit the greatest degree of sensitivity to the business cycle? A) Furniture producer B) Food and beverage producer C) Telecommunications provider D) Entertainment producer
A - this is a durable good which is cyclical in nature, none of the others are typically affected by the economy
If the yield curve becomes inverted, a likely cause would be that the Fed has A) tightened short-term credit B) tightened long-term credit C) loosened long-term credit D) loosened short-term credit
A - tightened short-term credit
Which of the following would be the most important reason for an investor interested in adding foreign stocks to his portfolio to do so by purchasing an international mutual fund? A) He would have the benefit of the portfolio managers picking the stocks instead of having to rely on his own efforts. B) Purchasing foreign stocks through a mutual fund saves on foreign taxation. C) The voting rights granted to a mutual fund shareholder are much stronger than those to the holder of an ADR. D) He could select a fund whose portfolio had the proper mix of foreign and domestic stocks to maximize his diversification.
A - two primary benefits to buying into mutual funds; diversification and professional management
Which of the following statements regarding U.S. government agency securities is TRUE? A) Interest received on agency securities is exempt from federal income tax. B) They generally offer higher yields than direct U.S. obligations. C) They are direct obligations of the U.S. government. D) They generally trade on the major stock exchanges.
B - slightly higher risk, slightly higher return
When a security purchased on margin suffers a decline in market value, it may cause the equity in the account to fall to a level such that additional funds are required under the terms of the margin agreement between the client and the broker-dealer. The term that describes the request by a broker-dealer rather than an SRO for more money is A) regulation T call B) house call C) sell-out D) margin call
B
When comparing restricted stock to non-restricted stock, it is important to note that the restricted stock has a restriction placed upon its A) receipt of dividends B) resale C) priority in liquidation D) voting rights
B
A client purchases a fixed annuity that will immediately begin paying $2,000 a month for life. What is the annuitant's greatest risk? A) Capital risk B) Inflation risk C) Market risk D) Interest rate risk
B -
When a bond is selling at a premium, a bond callable at par will A) have a YTC that is more than the coupon B) have a YTC that is less than the YTM C) have a current yield that is less than the YTM D) have a YTM that is more than the coupon
B -
A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the security's 5-year term, the annual inflation rate is 6%. What is the principal value of the bond at the end of 4 years? A) $1,300 B) $1,240 C) $1,344 D) $1,267
B - 1,000 (1.03)^8
A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption? A) 10 days. B) 7 days C) 5 days D) 3 days
B - 7 days under investment company act of 1940
XYZ Securities, Inc., a FINRA member broker-dealer, is registered in all 50 states. XYZ has its principal office in State C and a branch office in State A. If the State U Administrator wished to examine certain financial records of XYZ's, the Administrator would be able to do all of the following EXCEPT A) ask the State C Administrator to perform the examination B) examine those records located in State U C) do so during normal business hours without prior notice D) ask FINRA to perform the examination
B - BD has no records in State U because they have no place of business there
Asset-based sales charges will generally be lowest when holding A) Class C shares B) Class A shares C) Class T shares D) Class B shares
B - Class A shares (front end charge but no asset based sales charge)
Your client is interested in investing in preferred stocks in an effort to receive dividend income. The client's target goal is a 6% current return on investment (ROI). If the RIF Series B preferred stock is paying a quarterly dividend of $.53, your client's goal will be achieved if the RIF can be purchased at A) $8.83 B) $35.33 C) $50.00 D) $22.55
B - Quarterly dividend times 4 (2.12) then divide that by 6
A consent to service of process allows the Administrator to A) terminate a registrant's application B) be the registrant's attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against the registrant, or the registrant's successor C) ensure that the legal appeal process is expedited as a result of the Administrator's access to information D) verify the accuracy and completeness of registration without obtaining the registrant's prior approval
B - admin can act with power of attorney to accept legal papers on behalf of registrants
Which of the following persons is required to register with the SEC as a federal covered adviser? A) An adviser who gives advice only related to U.S. government securities B) An adviser that gives advice to registered investment companies only C) An adviser that manages assets of $90 million or more D) A publisher that gives incidental investment advice only
B - advisers to companies registered under the investment advisers act of 1940 must register with the SEC
A sales agent who is only registered in State A works for a broker-dealer that is registered in all 50 states. A customer who is a resident of State B calls the agent in State A and offers to purchase securities. Under the Uniform Securities Act, the agent should A) accept the order because it is unsolicited B) reject the order because she is not registered in State B C) accept the order because her broker-dealer is registered in all 50 states D) accept the order because she received it in State A
B - both the agent and the BD must be registered even though this is an exempt transaction because the order is unsolicited
An investor would be unlikely to use internal rate of return to analyze the potential return for which of the following investments? A) Treasury notes B) Common stock C) Direct participation programs (DPPs) D) Municipal bonds
B - common stock doesn't have a maturity or anything like that
Which of the following projects is most likely to be financed by a general obligation rather than a revenue bond? A) Public golf course B) Public library C) Municipal hospital D) Expansion of an airport
B - library doesn't operate for profit, financed through GOs
The Uniform Securities Act permits amendments to a registration statement after its effective date so as to change which of the following? A) The public offering price B) The number of shares to be offered C) Changes may not be made by amendment; filing of a new registration statement is required. D) The underwriter's discounts and commissions
B - number of shares U4LO3
An investment adviser representative's client lost her father to lung cancer. Among the assets bequeathed to her were 2,000 shares of a tobacco stock. Which of the following is NOT a consideration when recommending to her what to do with the stock? A) Her financial goals B) Her father's years of investment experience C) Her employment situation D) The cause of her father's death
B - this doesn't have any effect on her investments, his cause of death could be a factor; adviser could assume something like
Seven years ago, Sarah Smith was convicted of possession of a controlled substance in a state where that violation is considered a felony. Sarah has just filed an application for registration as an agent with Kapco Securities, a registered broker-dealer in a state where that violation is only considered a misdemeanor. When viewing this agent's application, the Administrator will A) treat the crime as a financial misdemeanor B) treat the crime as any felony C) treat the crime as a nonfinancial misdemeanor D) censure the broker-dealer for even thinking of employing this individual
B - treat the crime as any felony - must be treated as is in the state in which it was committed
A customer places an order to sell 100 MS 52.25 STOP. After placing the order, MS trades as follows: 53, 52.60, 52.20, 52.10, 52.25. Which trade triggers the order? A) 52.25 B) 52.20 C) 52.10 D) 52.60
B - triggered as soon as stock trades at or through stock price
Which of the following bond strategies is the least active?
Bullet - all mature @ the same time and investor doesn't need to do anything
An investor purchasing 10 corporate bonds at a price of 102¼ each will pay A) $1,020.25 B) $1,022.50 C) $10,225.00 D) $10,202.50
C
One difference between common stock and preferred stock is that common stockholders A) have a priority claim on earnings B) own equity in the company C) have voting rights D) receive dividends when declared by the board of directors
C
Ownership in a corporation is evidenced by holding share of the company's A) common stock only B) warrants C) common or preferred stock D) bonds with a first mortgage on the property
C
The Uniform Securities Act requires that broker-dealers and investment advisers maintain certain records relating to their business operations. If the firm wished to upgrade to a modern system, such as disk storage, A) it must keep its records in paper form B) it must obtain approval from the Administrator prior to determining its method of record retention C) it could do so if the system met certain requirements, including that the information on the disk could not be altered D) the most modern form currently permitted is microfilm or microfiche
C
The dividend discount model is A) primarily used by technical analysts B) based on the dividend payout ratio C) an analytical tool used to value a common stock using the present value of future dividends D) the inverse of the price/earnings ratio
C
The issuer of an ADR is A) a domestic branch of a foreign bank B) a foreign branch of a foreign bank C) a U.S. depositary bank D) the exchange on which the ADR is traded
C
Which of the following indices or averages is based on the prices of only 65 stocks (30 industrial, 20 transportation, and 15 utility)? A) S&P Composite B) Value Line C) Dow Jones Composite Average D) Wilshire 5,000
C
Which of the following statements regarding nonqualified stock options (NSOs) is CORRECT? A) The exercise of NSOs does not create taxable income. B) The NSO is taxable to the recipient at the time of grant to the extent of the difference between the fair market value of the stock and the grant price. C) The NSO is taxable to the recipient at the time of exercise to the extent of the difference between the fair market value of the stock and the exercise price. D) Unlike ISOs, NSOs are publicly traded.
C
Which of the following would be of least interest to a technical analyst? A) Advance/decline line B) Short interest ratio C) P/E ratio D) Trading volume
C
The current yield on a bond with a coupon rate of 7.5% currently selling at 105½ is approximately A) 8.00% B) 6.50% C) 7.11% D) 7.50%
C -
One reason that a private equity fund may operate under the Section 3(c)(7) exemption of the Investment Company Act of 1940 is that A) greater liquidity would be assured B) registration would not be required of the investment adviser C) it would be able to have more than 100 investors D) investors would only need to be accredited rather than qualified
C - 3c1 limits the number of investors, 3c7 has to do with the investor classification
Your firm's market analyst believes the current bullish market in equities will continue. Your moderately conservative clients should consider investing in an ETF or index fund tracking the A) MSCI EAFE B) Russell 2000 C) S&P 500 D) Dow Jones 15 utilities
C - S&P tracks large caps which are suitable for this kind of investor
Which of the following corporate actions would have an effect on the company's working capital? A) Declaring a 15% stock dividend B) Borrowing money from the bank on a 90-date note C) Calling in a portion of a 20-year bond at par D) Paying a utility bill
C - When a bong (long-term liability) is called in, current assets are reduced but does not reduce current liabilities, effectively reducing working capital because the balance is thrown off
Question ID: 1180731 The Uniform Securities Act considers which of the following to be investment advisers subject to registration in the state? An adviser with no place of business in the state who advises wealthy customers in the state on a fee basis only An adviser with a place of business in the state whose total fee income in the state amounts to $150 An adviser with no place of business in a state who only provides advice on fixed annuities An adviser with a place of business in the state who only provides advice to open-end investment management companies registered under the Investment Company Act of 1940 A) I, II, and III B) I, II, and IV C) I and II D) I only
C - adviser w/ no place of business in the state is only exempt if their clients are institutional
When a securities firm is position trading, it is acting A) on principle B) unethically C) as a dealer D) as a broker
C - anytime a BD has a position in a security, it means the firm owns it or has sold it short
Which of the following is NOT considered to be an annuity purchase option? A) Single-premium deferred annuity B) Periodic payment immediate annuity C) Periodic payment deferred annuity D) Single-premium immediate annuity
C - cannot be receiving income and contributing at the same time
Starflier Mutual Fund, regulated under the Investment Company Act of 1940, wishes to change its investment policy. It may do so with approval of A) none of these; no need for approval B) a majority of the board of directors C) a majority of the outstanding shares D) the fund's investment adviser
C - change in investment policy requires vote of outstanding shares U14 L01
Which of the following statements is CORRECT regarding an unsolicited trade in an unregistered nonexempt security? A) The transaction is exempt if the broker-dealer does not maintain an office in the state from which the order is received. B) The Administrator may, by order, require that the customer acknowledge, upon a specified form, that the sale was unsolicited and that a signed copy of each such form be preserved by the broker-dealer for a specified period. C) The Administrator may, by rule, require that the customer acknowledge, upon a specified form, that the sale was unsolicited and that a signed copy of each such form be preserved by the broker-dealer for a specified period. D) It is only an exempt transaction if it is an order to buy; orders to sell an unregistered, nonexempt security would not be an exempt transaction.
C - may by rule USA specifically grants this power to admin to make a rule, rules apply to everyone, orders apply to someone specific
A Nasdaq market maker buys 1,000 shares of stock from a customer at its bid to satisfy a customer order. This is an example of A) a market order B) a block trade C) a principal trade D) an agency trade
C - principal (dealer)
If a new client has $200,000 to invest and wants to retire in 15 years, which of the following client information is least necessary for an adviser to recommend a suitable investment program? A) The amount of income he requires for his retirement years B) The age of the client C) Tolerance toward risk D) Current income and cash flow requirements
C - question asks about investment of a lump-sum, not about periodic additional investments
Which of the following qualifies under the Section 28(e) safe harbor provisions for soft-dollar compensation? A) Providing access to the broker-dealer's computerized accounting system, allowing the investment adviser to prepare its financial statements B) Reimbursement for travel expenses incurred to attend a seminar on the latest compliance trends for registered investment advisers C) Clearance and settlement services provided by the broker-dealer D) Rent-free use of unused space in the broker-dealer's office
C - safe harbor applies to brokerage services and research clearance and settlement are brokerage services
Which of the following statements about stop orders is NOT true? A) A stop order to buy is always set at a price that is higher than the current market price. B) A sell stop order is always placed at a price that is below the current market price. C) A sell stop order is used to protect a short sale. D) A stop order will become a market order once a security trades at or through a specified price.
C - short sellers use a buy stop order for protection, not a sell stop. Their obligation is to buy back the stock to replace the stock they borrowed when the position was established.
Under the Uniform Securities Act, which of the following would be least likely to be civilly liable for making false registration statements, using a prospectus that is untrue, or failing to meet the prospectus delivery requirements of the act? A) Every underwriter of the security B) Every expert who is named in the registration statement C) Every stockholder named in the registration statement D) Any and every person who has signed the registration statement
C - stockholders aren't liable unless they fall into another one of these categories
Which of the following statements regarding investment risk is NOT correct? A) Investors expect to earn a higher rate of return for assuming a higher level of risk. B) A stock's level of risk is a combination of market risk and diversifiable risk. C) Systematic risk may be reduced or eliminated by effective portfolio diversification. D) The beta coefficient measures an individual stock's relative volatility to the market.
C - systematic risk cannot be diversified, only unsystematic
All of the following characteristics are advantages of a REIT EXCEPT A) professional management B) diversification C) tax deferral D) liquidity
C - tax deferrals not permitted on REIT's
KAPCO common stock is listed on the New York Stock Exchange. If an executive vice president of the company buys 400 shares of the company's stock on the NYSE, she A) may sell under Rule 144 only after a 6-month holding period B) may not sell until she leaves the company C) may sell immediately subject to Rule 144 volume limitations D) may sell immediately without restriction
C - though the officer is affiliate, and thus subject to the volume restrictions, the transaction is not a private placement and therefore does not require a holding period
An investment adviser representative may share in the profits and losses of a customer's account A) as long as both the customer and the representative's employer give written consent B) if the investment adviser representative deducts the advisory fee charged the customer from any profits earned C) under no conditions D) provided a written contract is executed between the investment adviser and the client
C - under no circumstances only agents can do this
Investing in emerging market stocks is least likely to expose your client to which of the following risks? A) Currency B) Political C) Interest rate D) Liquidity
C - wouldn't be worried about interest rates as these apply to fixed income securities
The board of directors of DDC omitted dividends in 2016 on their $100 par 6% noncumulative preferred stock. In 2017, a $2 preferred dividend was paid. For DDC, 2018 has been a good year, and the board wishes to pay a common dividend. How much must be paid per share on the preferred for 2018 in order to pay a common dividend? A) $12 B) $16 C) $8 D) $6
D - cannot pay common shareholders until preferred have been payed non-cumulative - do not need to make up for the year that they didn't pay
Which of the following would most likely limit the amount of interest earned on an index annuity? A) The CDSC B) The annuity reset rate C) The participation rate D) The cap rate
D - cap rate is max that can be earned regardless of performance of the index
An investor in the 25% federal income tax bracket is considering the purchase of some fixed-income instruments. Which of the following would provide the investor with the greatest after-tax return? A) 4.8% AAA rated insured municipal bond B) 6% FDIC-insured CD C) 5% U.S. Treasury bond D) 7% Ba rated corporate bond
D - Treasury Bond, CD, and corporate bond are all taxable at the same rate even though municipal bond is not taxable, 75% of 7 is still higher (5.25%)
One measure of an investor's total return is called holding period return. The computation includes both income and appreciation and is used for both debt and equity securities. An investor's holding period return would exceed the bond's yield to maturity if A) the bond was called at a premium B) the bond was redeemed at a discount C) the investor purchased a put option on the bond D) the coupons were reinvested at a rate exceeding the yield to maturity
D - calculation of yield to maturity assumes reinvestment of the bond's interest at the coupon rate. If the question says you can earn more than the YTM, your return will be higher than the quoted YTM
"An investment company with a low expense ratio and a portfolio that doesn't change," is a description of A) an ETF B) a no-load fund C) an index fund D) a UIT
D
Investing in an emerging market mutual fund subjects the investor to all of the following risks EXCEPT A) political instability B) currency fluctuations C) market volatility D) liquidity
D
Larry purchased a deferred annuity and, at age 65, annuitized the product under a life with 15-year certain option. His spouse, Linda, is the beneficiary. Which of the following statements is CORRECT? A) Payments would be made to Larry until he is 80, then cease. B) Payments would be made to Larry until his death, then to Linda for another 15 years. C) Payments would be made to Larry until he is 80, then to Linda for the remainder of her life. D) Payments would be made to Larry as long as he lives, and then to Linda, should Larry die prior to reaching age 80.
D
A client of an IAR mentions that he has received a prospectus for a variable annuity, but does not really understand the product. It would be reasonable for the IAR to explain that a variable annuity offers an investor A) a product very similar to a mutual fund, but with lower costs and expenses B) the insurance company's backing of the annuity' performance C) lifetime income guaranteed never to drop below the initial rate D) the opportunity to invest in equity securities on a tax-deferred basis
D -
GHI common stock has a $10 par value and is selling in the market for $60 per share. If the current quarterly dividend is $1, the current yield is A) 1.7% B) 10% C) 1% D) 6.7%
D - 1*4 = 4/60 = 6.7%
Which of the following statements best explains an agency cross transaction for an advisory client? A) A sales transaction where the investment adviser receives a commission rather than a fee B) A transaction in which an investment adviser offers securities in exchange for securities owned by another registered investment adviser C) A broker-dealer activity that involves selling securities from one client to another client of the firm D) An agency cross transaction for an advisory client means a transaction in which a person acts as an investment adviser in relation to a transaction in which the investment adviser, including an investment adviser representative, acts as a an agent for both the advisory client and another person on the other side of the transaction
D - Agency cross transactions are prohibited when the securities in the transaction have been recommended to both parties by the adviser.
One of your customers notices that the short interest on KAPCO common stock is high. When she asks you for an interpretation, you should tell her that this signals A) a shortage of enough stock to go around B) that a change in interest rates is coming C) a bearish outlook D) a bullish outlook
D - each share sold must be replaced at some point, and the seller of the short will have to buy it. So when they do it could cause an upward market trend
The registration requirements of the Securities Act of 1933 would NOT apply to which of the following? A) Stocks listed on the New York Stock Exchange B) Securities issued by foreign governments with whom the United States has diplomatic relations C) Stocks and bonds issued by insurance companies D) Fixed annuities and other fixed insurance contracts
D - fixed annuities or other contracts are not investment securities because they're rates are not dependent on the market.
You have a client who wishes to manage his own portfolio of individual stocks. The simplest style for him to follow would be A) indexing B) tactical C) core D) buy and hold
D - if client did not want to manage their own account, then the correct answer would be indexing
Anyone who represents an issuer in effecting transactions between the underwriter and the issuer A) must be registered as an Administrator B) must be registered as an investment adviser C) must be registered as an agent D) is excluded from the definition of agent under the Uniform Securities Act
D - is exempt from registration
Although investing in managed investment companies can provide many benefits, investors should be aware that disadvantages could include all of these EXCEPT A) poor management performance B) unpredictability of tax consequences C) high expenses D) limited liquidity
D - liquidity is not a problem with closed-end companies because they can be redeemed at NAV in 7 days
An agent employed at First XYZ Securities produces his own research reports and provides them to a select group of personal clients. The agent has written permission from his employer to engage in this activity, provided the time spent on the project is conducted after working hours. Under the Investment Advisers Act of 1940, if the agent does not charge fees for the research but receives commissions from his employing broker-dealer for trades executed through the firm, A) the broker-dealer must register as an investment adviser and the agent as an investment adviser representative B) the agent must register as an investment adviser because the research is being done after hours C) the agent must register as an investment adviser representative D) neither the agent nor his employing broker-dealer need register as an investment adviser
D - neither need register Agent is not making special compensation from advice - just commissions through his BD
Otto and Lucy set up a 529 plan to save funds for the college education of their daughter, Marangue, who is 14. What is the most suitable investment for the largest portion of their contribution? A) A long-term bond fund B) A growth stock fund C) A large-cap stock fund D) An intermediate term bond fund
D - only one that makes sense for suitability purposes
MT Securities is a broker-dealer registered in 42 states. MT Securities makes a market in over 100 different stocks and participates in the underwriting of approximately 22 IPOs per year. Which of the following actions would be prohibited under NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents? A) Adding to its inventory of a stock in which it makes a market, hoping to gain from market appreciation B) Purchasing shares of an IPO from the issuer and then reselling those shares to the public at a higher price C) Purchasing shares of a security in which it makes a market from a client at one price and then reselling those shares to another client at a higher price D) Acquiring shares of an IPO as part of the underwriting syndicate and holding a small portion for the firm's investment account, hoping to gain from market appreciation
D - public offering must be bonafide
The NASAA Model Rule dealing with business continuity plans is NOT concerned with A) assignment of duties to qualified individuals in the event of the death or unavailability of key personnel B) office relocation in the event of temporary or permanent loss of a principal place of business C) the protection, backup, and recovery of the investment adviser's books and records D) ensuring that the investment adviser continues to generate profits during a business interruption
D - they do not care about profit
It is often said that the backbone of the over-the-counter market is the market maker. A good description of a market maker would be A) an employee of a listed exchange B) a member of FINRA C) an investment banker who participates in a firm underwriting D) a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market
D - this is the basic definition of a market maker
Under the Investment Advisers Act of 1940, which of the following would NOT meet the criteria of persons associated with an investment adviser? A) The individuals responsible for bringing new clients to an advisory firm B) A manager in an investment advisory firm who supervises 5 investment adviser representatives C) An individual whose only connection to the firm is a position on the board of directors D) An individual whose only function is posting trades to client accounts
D - this is totally clerical
A client wishing to invest $10,000 in a tax-exempt unit investment trust would be acquiring A) participation interests B) bonds C) shares D) units
D - traded in units
Which of the following is NOT a money market instrument? A) Commercial paper B) Banker's acceptances C) Treasury bills D) Newly issued Treasury notes
D - treasury note would have a maturity well over 1 year
Federal covered securities, as defined under the Uniform Securities Act, A) would not include securities senior to a common stock listed on the NYSE B) must be registered with the SEC before they can be offered in the state C) include shares of an investment company registered with the SEC under the Investment Company Act of 1940 D) must be registered in the state before they can be offered within the state
c
Which of the following cannot be purchased on margin? A) A listed bond B) An NYSE-listed stock C) A municipal bond D) A long call option traded on the CBOE.
listed options cannot be purchased on margin