S66 - 8 days

Which of the following statements is (are) TRUE regarding the jurisdiction of the SEC under the Securities Exchange Act of 1934? The SEC has jurisdiction over exchanges and SROs. The SEC has jurisdiction over broker-dealers, investment advisers, and associated persons that are required to be registered under federal law. The SEC has jurisdiction over banks and savings and loans regarding their securities activities. A) I, II, and III B) I only C) I and II D) II only

C) 1 and 2 SEC has jurisdiction over exchanges and SROs SEC has jurisdiction over BDs, IAs, and associated persons that are required to be registered under federal law 3 is not true because Banking authorities, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation, and others, regulate banks and savings and loans.

An agent's recommendation for the purchase of a municipal security to a customer who wants fixed income and is in a relatively low tax bracket would in most cases be unsuitable and unethical a securities felony grounds, in extreme cases, for suspension or revocation of the agent's license outside regulatory jurisdiction A) I only B) II and III C) I and III D) IV only

C) 1 and 3 unsuitable and unethical grounds, in extreme cases, for suspension or revocation of the agents license Municipal bonds provide a fixed income, but they are generally suitable only for high-tax-bracket individuals. In this case, such a recommendation is probably unethical and could result in suspension or revocation of the registered agent's license.

Specified in an exchange-traded futures contract would be the quantity of the underlying asset the quality of the underlying asset the time of delivery of the underlying asset the location of delivery of the underlying asset A) II and IV only B) I, II, and III only C) I, II, III, and IV D) I and III only

C) 1,2,3, and 4 Typically, there are 5 standardized parts to an exchange-traded futures contract: Quantity of the commodity (e.g., 5,000 bushels of corn or 100 oz. of gold) Quality of the commodity (specific grade or range of grades may be acceptable for delivery, including price adjustments for different deliverable grades) Delivery price (similar to exercise or strike price with options) Time for delivery (e.g., December wheat to be delivered) Location (approved for delivery)

The Investment Company Act of 1940 requires that a mutual fund do which of the following? Provide a monthly balance sheet to investors Have $100,000 minimum capitalization prior to making a public offering Provide semiannual reports to shareholders Not acquire more than 5% of the outstanding shares of another registered investment company A) II and IV B) I and III C) II and III D) I and IV

C) 2 and 3 The Investment Company Act of 1940 requires that an open-end investment company have a minimum of $100,000 in net assets prior to commencing a public offering. Reports must be sent to shareholders on a semiannual basis. No fund is permitted to own more than 3% of the outstanding shares of another registered investment company.

Abel Kane is an agent for Garden City Securities, a broker-dealer registered with the SEC and all 50 states. It would be considered an unethical or dishonest business practice for Kane to fail to make prompt delivery of certificates when requested by the customer fail to obtain written authorization for a discretionary account prior to the first trade in that account accept an order from a client's spouse without written trading authorization prior to receiving the order share commissions with another agent registered with Garden City Securities A) I and IV B) I, II, and III C) II and III D) III and IV

C) 2 and 3 fail to obtain written authorization for a discretionary account prior to the first trade in that account accept an order from a clients spouse without written trading authorization prior to receiving the order This question is tricky. The key here is that agents have no responsibility for delivering customer securities. That is an obligation of the broker-dealer.

When it comes to social media, agents need to understand the difference between interactive and static content. Which of the following would be considered static content? A) Tweets B) Comments on a Facebook posting C) A broker-dealer's profile posted on Facebook D) Emails sent to clients

C) A BD's profile posted on facebook Static content is content that remains posted until it is changed by the firm or an individual who established the account. Interactive content is generally real-time communications, such as the other three choices shown here. key here is it remains unchanged except by the firm

Which of the following securities would most likely be included in the portfolio of a mid-cap manager? ABC, $12 per share, 100,000,000 shares outstanding DEF, $150 per share, 8,000,000 shares outstanding GHI, $40 per share, 75,000,000 shares outstanding JKL, $70 per share, 200,000,000 shares outstanding A) JKL B) DEF C) GHI D) ABC

C) GHI Mid-cap stocks are those with a market capitalization between $2 billion and $10 billion. GHI, with a market cap of $3 billion, is the only company within that range. ABC's market cap is $1.2 billion, DEF's is $1.2 billion, and JKL's is $14 billion. Two of these are within the small-cap range and JKL would be considered large-cap. **You didnt even multiply the share price x outstanding shares**

IRAs and Keogh plans are similar in the following ways EXCEPT A) deferral of taxes B) there is a 50% tax penalty for insufficient distributions C) identical amounts of contributions are allowed D) distributions without penalty can begin as early as age 59½

C) Identical amounts of contributions are allowed IRAs and Keogh plans do not have identical contribution amounts; IRAs allow a maximum of $6,000 per individual or $12,000 per couple per year (with a catch-up of $1,000 for each individual aged 50 or older), whereas Keogh plans allow substantially more. Both IRAs and Keoghs allow tax-deferred growth until the individual withdraws the funds. IRAs and Keoghs have premature distribution penalties before age 59½. Once the participant reaches 70½, required minimum distributions must be made or a 50% tax penalty will be assessed.

Which of the following entities would issue a Schedule K-1? A) C corporation B) Sole proprietorship C) Limited partnership D) REIT

C) Limited parternship Schedule K-1s are issued to owners of partnerships (limited or general), LLCs with more than one member, and S corporations. Sole proprietors use a Schedule C, C corporations report dividends and/or interest paid on a Form 1099, and the same is true for distributions from a REIT.

A customer of an investment adviser inadvertently mails some stock certificates to the IA. The IA does not maintain custody of customer assets. If the certificates were received on a Monday, NASAA rules would requires that the certificates be A) forwarded to the broker-dealer promptly B) returned the same day C) returned no later than Thursday D) returned no later than Tuesday

C) Returned no later than thursday NASAA's custody rules require that an investment adviser who does NOT maintain custody must return certificates that are mistakenly sent within 3 business days. When it comes to checks, it depends on how the check is drawn. If made out to the investment adviser, it must be returned; if made out to a third party (usually the executing broker-dealer), it must be forwarded to that third party. In either case, the time limit is 3 business days (might be shown as 72 hours on the exam).

When saving money for a child's college education, one consideration is the impact that those savings will have on the child's eligibility for financial aid. Funds saved in which of the following vehicles has the most detrimental effect on financial aid? A) Prepaid tuition plan B) Coverdell ESA C) UTMA D) Section 529

C) UTMA Assets held in custodial accounts (UTMA or UGMA) are counted at 20% of their value, which compares unfavorably with the 5.64% valuation of Section 529 or Coverdell ESA assets. Please note: It is highly unlikely that you will need to know the percentages - but you will need to know that custodial accounts do not receive as beneficial treatment when applying for financial aid.

A Schedule K-1 would be received by an individual with an ownership interest in all of the following except A) an S corporation. B) an LLC. C) a C corporation. D) a partnership.

C) a C corporation C corporations pay tax on their earnings; the other business types listed here flow through the income to their owners. The owner's share of income (or loss) is reported to them on the Schedule K-1. A shareholder in a C corporation who receives dividends will have that reported on a Form 1099.

Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be considered a prohibited practice for a broker-dealer to A) maintain an office in the state, but fail to register with the Administrator B) fail to maintain the required net capital C) have a history of repeatedly delaying the delivery of securities to its customers D) inform customers that past performance is no guarantee of future results

C) have a history of repeatedly delaying the delivery of securities to its customers Broker-dealers are obligated to make prompt delivery of securities to their clients. Failing to maintain the required net capital and failing to register are violations of the law, not prohibited business practices.

If a father makes a gift of securities to his 10-year-old daughter, gift taxes would be based on A) the cost of the securities B) the market value of the securities as of April 15 of the year in which the gift is made C) the market value of the securities on the date of gift D) the market value of the securities as of December 31 of the year in which the gift is made

C) market value of securities on date of gift If a gift tax is due, it is paid by the donor and based on the gift's value on the date it is given.

A 75-year-old customer asks if it is possible to sell his $500,000 variable life insurance policy to a party other than the insurance company that issued the policy. If a sale occurs, known as a life settlement, which of the following would be a violation of industry rules? A) Requiring the customer to relinquish all ownership rights to the policy B) Not requiring the insured to pass a physical exam before the sale C) Quoting the price using an exclusive buyer that handles all the firm's life settlements D) Disclosing that the buyer becomes responsible for all premiums while the insured is living

C) quoting the price using an exclusive buyer that handles all the firms life settlements Because of the limited secondary market for life settlements, any firm that engages in these transactions should obtain several bids to ensure the customer receives a fair price for her policy.

Which of the following is not included in adjusted gross income on an individual's federal income tax return? A) Wages and tips B) State income tax refunds C) Stock dividends D) Income from a sole proprietorship

C) stock dividends Stock dividends (dividends paid as additional shares of stock rather than in cash) adjust the investor's cost basis and don't come into play until the stock is sold.

It is unlawful for a state-registered investment adviser to do any of the following EXCEPT A) fail to disclose the departure of a general partner of an investment advisory partnership who only had a minority interest in the firm B) unilaterally transfer an account to another firm if the assets fall below a minimum level C) take custody of a client's securities and funds, in the absence of a rule on custody by the state Administrator D) share in the profits of an account in relation to the amount of time devoted to the account

C) take custody of a clients securities and funds, in the absence of a rule on custody by the state administrator The NASAA Model Rule on Custody provides that an investment adviser may maintain custody over an advisory client's assets unless the Administrator, by rule, prohibits all advisers in his state from taking custody. Under the brochure rule, an investment adviser cannot share in the profits of an account based on time devoted and may not assign an account without the written permission of the client. An investment adviser organized as a partnership must disclose to clients when any partner, minority interest or not, departs from the firm.

Registration by qualification is effective A) 20 days after the filing date B) no earlier than 10 days after the filing date C) when determined by the Administrator D) when the federal registration becomes effective

C) when determined by the administrator Registration by qualification is effective when determined by the Administrator. Qualification is the only form of registration where the timing of the effective date is determined by the Administrator.

A couple, ages 63 and 66, are long-time clients of your firm and are in good health. They plan to retire from gainful employment in 4 years and wish to discuss decumulation strategies. One of the important factors to consider is the time horizon for this couple. Which of the following would be the best estimate to use? A) 4 years B) 10 years C) 8 years D) 25 years

D) 25 years Decumulation is the opposite of accumulation. Instead of focusing on how to increase the assets, the focus is on how to make sure they last as long as required. Just how long is that time horizon? Until the death of the second party. Today's statistics would indicate that a couple of these ages would likely have at least one of the two live another 25 years.

Which of the following would not be unlawful for an investment adviser under the Uniform Securities Act? A) An owner of a majority of the stock in the IA pledging that stock as collateral to a bank for a personal loan B) Signing an investment advisory contract that did not outline the compensation arrangements C) Failing to notify the Administrator that the adviser has custody of a client's securities or funds, even though the Administrator has no rule that prohibits such custody D) Including in the contract a clause that if the contract is terminated ahead of the scheduled termination date, there will be no refund of prepaid fees

D) Including in the contract a clause that if the contract is terminated ahead of the scheduled termination date, there will be no refund of prepaid fees Investment advisory contracts must outline compensation provisions and indicate the amount to be refunded, if any, if the contract is terminated. Nothing in the USA requires that there be a refund, only that the terms must be disclosed. The Uniform Securities Act also requires investment advisers to notify the Administrator if they have or will have custody of customers' funds. The USA considers that a pledge of a majority interest in an IA is considered an assignment of the IA's contracts.

What is the risk measure associated with the capital market line (CML)? A) Alpha B) Systematic risk C) Beta D) Standard deviation

D) Standard deviation In the context of the CML, the measure of risk is total risk, or standard deviation. Beta (systematic risk) is used to measure risk for the security market line (SML).

One of your very generous clients has used up her lifetime gift exclusion. Continuing to make gifts, she gives $50,000 to a grandchild and $18,000 to the child of a friend. What are the tax consequences of these gifts? A) Only the gift to the child of the friend will be taxed because one can make unlimited gifts to grandchildren. B) If the children use the money for tuition at a qualified educational institution, there is no tax. C) The tax rate on both gifts will be the same. D) The tax rate on the $50,000 gift will be higher than that on the $18,000 gift.

D) The tax rate on the $50,000 gift will be higher than that on the $18,000 gift. Gift taxes and estate taxes are progressive. The tax rate starts at 18%, and a gift of $50,000 (using the $15,000 annual exclusion to reduce the taxable amount to $35,000) is taxed at 22%. Although the test will not ask you for the specific rates, we have used them here for illustration. The relationship (or lack thereof) between the donor and the donee is of no importance. If the gifts had been made directly to a qualified educational institution instead of the children, there would have been no tax.

The National Securities Markets Improvement Act of 1996 (NSMIA), which amended the Uniform Securities Act, preempts state registration of federal covered securities. Under the NSMIA, all of the following are federal covered securities EXCEPT A) warrants trading on the OTC Bulletin Board offered by a company whose common stock trades on the Nasdaq Stock Market B) securities offered pursuant to the provisions of Rule 506 of Regulation D under the Securities Act of 1933 C) securities issued by unit investment trusts registered under the Investment Company Act of 1940 D) municipal securities of an issuer within the state of issuance

D) municipal securities of an issuer within the state of issuance The NSMIA is designed to eliminate dual registration or regulation of securities. Because these municipal securities are issued in the state in which they are offered, there is no federal authority to regulate them. They are not federal covered securities and can be regulated by the state in which they are offered (although they are exempt from registration under the USA). Securities issued by any investment company registered under the Investment Company Act of 1940 are federal covered. Securities offered pursuant to the provisions of Rule 506 of Regulation D under the Securities Act of 1933 are federal covered. Rule 506 is the exemption from registration for the private offering of securities to a limited number of investors, often called private placements. Finally, if the common stock of an issuer is traded on the Nasdaq Stock Market, then any security equal to it (rights and warrants) or senior to it (preferred stock and debt securities) is also federal covered.

The Uniform Securities Act provides for all of the following EXCEPT A) exemption from registration for federal covered securities B) criminal penalties for violations of the act C) subpoena power for the state Administrator D) specific civil penalties for up to 3 times the amount of money invested for willful violation of the act

D) specific civil penalties for up to 3 times the amount of money invested for willful violation of the act The Uniform Securities Act provides for criminal penalties of up to 3 years in prison and/or $5,000 in fines. The act describes civil liability, not specific civil penalties. Civil liability includes interest costs, rescission of trade, payment of attorney's fees, and return of principal invested. The act makes no reference to penalties of 3 times the amount of money invested. The Uniform Securities Act does provide the state Administrator with the power to issue subpoenas.

One of the exemptions from registration under state and federal law applies to investment advisers to private funds. One characteristic of all private funds is that A) they have assets of less than $150 million B) their advisers are exempt from filing reports on Form ADV C) they have no more than 100 investors D) they are not registered as investment companies

D) they are not registered as investment companies Private funds lose that distinction if they become registered as investment companies under the Investment Company Act of 1940. It is the adviser to a private fund who has a limitation on the amount of AUM, not the fund. In some cases, specifically when using the 3(c)(7) exemption, there is no limit to the number of investors. In many cases, the advisers to these funds, although exempt from registration, are considered exempt reporting advisers and must file a Form ADV Part 1 answering most of the questions on the Form.

Which of the following statements are TRUE? An agent must register in the state in which he advertises and solicits a security. To make sales, an agent need not register in a state in which the broker-dealer is already registered. Under no circumstances may an agent register with two unrelated broker-dealers. A secretary for a broker-dealer who, as a courtesy, takes orders for the broker-dealer's clients must be registered. A) III and IV B) II and III C) I and II D) I and IV

D) 1 and 4 An agent must register in the state in which he advertises and solicits a security. A secretary for a broker-dealer who, as a courtesy, takes orders for the broker-dealer's clients must be registered. An agent must be registered in the state in which a security is advertised and solicited. A secretary who takes orders for the broker-dealer's clients must be registered. If the state Administrator specifically grants an exception, an agent may be registered with two unrelated broker-dealers. The fact that a broker-dealer is registered in a state does not qualify the agent for sales unless he is also properly licensed in that state.

Under the Uniform Securities Act, which of the following negates a client's right to a civil suit for damages? The advice that is the subject of the suit was given more than 3 years ago. The client has died. The client willingly signed a statement waiving the adviser's compliance with the provision of the act on which the suit is based. A) II and III B) I and II C) I, II, and III D) I only

D) 1 only The advice that is subject to the suit was given more than 3 years ago A civil suit under the terms of the USA must be filed within 3 years of the alleged infraction, or 2 years from discovering the violation, whichever comes first. The death of the adviser or the client does not remove a cause of action for civil liability. Waivers to statements signed by the client waiving the adviser's compliance with the provision of the act on which the suit is based are never valid on the exam.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which of the following is (are) required to register as investment adviser in a particular state? An adviser who manages client accounts in excess of $100 million in value An adviser who manages client accounts with less than $100 million in value An adviser to investment companies registered under the Investment Company Act of 1940 An adviser who acts as pension consultant to employee benefit plans with assets of $200 million or more A) I only B) I, II, III, and IV C) II and IV D) II only

D) 2 only An adviser who manages client accounts with less than 100 million - its tricky because the pension consultant with 200million, but they can register with SEC and this was asking about a state

NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents would likely consider which of the following to be prohibited activities? A client is rather insistent on purchasing a security deemed unsuitable by the agent. In an effort to dissuade the client, the agent furnishes several websites of analysts who have issued negative reports on that security. ​ ​An agent takes an order from the client's attorney without written trading authorization. ​An agent takes an order from the secretary of a nondiscretionary client who is too busy to give the order h​ersel​f. ​An agent encourages a client to acquire a security on the basis of research recently published by the broker-dealer for its institutional clients. A) II and III B) I and II C) I and III D) II, III, and IV

D) 2, 3, and 4 An agent cannot take trading orders from anyone but the client unless he has written authorization on file. Using publicly available information to encourage clients to change their opinion about an unsuitable investment is acting in the clients' best interest and there is nothing wrong with using "house" research reports to develop client recommendations, as long as they are suitable.

Dan is the owner of a mutual fund that returned him a before-tax return of 15% last year. Inflation is running at an annual rate of 3%, and Dan is in a 27% marginal income tax bracket. What has been Dan's approximate inflation-adjusted after-tax return on the fund over the course of the last year (rounded to the nearest 2 decimal points)? A) 12.00% B) 8.76% C) 10.95% D) 7.95%

D) 7.95 .15 * (1-.27) = 10.95 10.95 - 3 = 7.95

All of the following are exempt transactions EXCEPT A) a pledgee liquidating securities that were put up as collateral for a loan that has now gone into default B) an administrator of an estate selling securities to liquidate the estate's assets C) a client, on his own initiative, requesting a transaction in a security that is not registered in the state D) a Certified Financial Planner selling NYSE-listed securities to numerous high-net-worth individual clients

D) A CFP selling NYSE listed securities to numerous high-net-worth individual clients A Certified Financial Planner selling NYSE-listed securities to numerous individual clients, regardless of their net worth, might be engaged in a nonexempt transaction, not an exempt transaction. This would not be true if the financial planner's clients were all financial institutions rather than individuals. Transactions by an administrator and an executor are exempt transactions, as are unsolicited nonissuer transactions. When securities that have been pledged as collateral for a loan, if that loan goes into default, the liquidation of that collateral is an exempt transaction. **EXEMPT SECURITIES DO NOT HAVE TO MEAN EXEMPT TRANSACTION**

Which of the following retirement plans is NOT legally required to establish vesting, funding, and eligibility requirements? A) Keogh plan B) Profit-sharing plan C) Defined benefit pension plan D) Payroll deduction plan

D) Payroll deduction plan A payroll deduction plan is a retirement plan not subject to eligibility, vesting, or funding standards as required by ERISA plans. A payroll deduction plan is a nonqualified retirement plan. Profit-sharing, pension, and Keogh plans must have established standards.

Small corporations that satisfy certain criteria can elect not to pay income tax at the corporate level but instead pass their earnings through to their shareholders. These corporations are known as A) Q corporations B) C corporations C) R corporations D) S corporations

D) S Corporations The type of small corporation that can elect not to be taxed at the corporate level but to pass its earnings through to its shareholders is an S corporation. The term "S corporation" comes from the subchapter of the Internal Revenue Code that governs these corporations (Subchapter S). The other type of corporation—the C corporation—is one that has not elected to be treated under Subchapter S. Its earnings are taxed at the corporate level and again at the individual level when they are paid out as dividends.

Margin regulations are determined by the Board of Governors of the Federal Reserve System. The authority for them to do so is found in A) the Securities Act of 1933 B) the Federal Reserve Act of 1913 C) the Maloney Act of 1938 D) the Securities Exchange Act of 1934

D) Securities exchange act of 1934 The Securities Exchange Act of 1934 contains the authorization for the Fed to regulate the use of credit in the securities business.

One respect in which an LLC differs from an S corporation is that A) not only income, but losses, if generated, pass through to investors in an LLC B) there is more favorable tax treatment afforded to members of an LLC C) an LLC can be formed with as little as a single investor D) there is no statutory limit on the number of investors in an LLC

D) There is no statutory limit on the number of investors in an LLC There is no limit to the number of investors (members) in an LLC, while current regulations limit the number of investors (shareholders) in an S corporation to 100. The tax treatment is the same, and both can be formed with a single owner.

The federal legislation that requires broker-dealers to verify the identity of any person opening an account is A) the Securities Exchange Act of 1934 B) the Insider Trading and Securities Fraud Enforcement Act of 1988 C) the Uniform Securities Act of 1956 D) the USA PATRIOT Act of 2001

D) USA PATRIOT Act of 2001 Explanation The USA PATRIOT Act (the full title is Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) requires firms to obtain identifying information on each new customer, verify the identity of each new customer, maintain records relating to identity verification, and determine if any new customer appears on a list of known or suspected terrorist groups compiled by the Office of Foreign Assets Control (OFAC). This is accomplished through the customer identification program (CIP).

The antifraud provisions of the Uniform Securities Act would apply to all of the following except A) a broker-dealer registered pursuant to the limited registration option available to Canadian broker-dealers and their agents. B) newsletter publishers who do not give advice to subscribers on the subscriber's specific investment situation. C) persons availing themselves of the de minimis exemption. D) an individual employed by a registered broker-dealer whose sole function is selling commodity futures contracts.

D) an individual employed by a registered BD whose sole function is selling commodity futures contracts. The Uniform Securities Act's antifraud provisions deal with securities; commodities are not a security. Even if one is exempt from registration due to meeting the de minimis exemption, or is excluded from the definition of investment adviser under the publisher's exclusion, the antifraud provisions still apply. The same is true for those Canadian securities professionals who do business in the United States by using the limited registration option available to them. **super confusing because even though commodities are not securities, it is a REGISTERED BD, but the individual must not be registered**

For which of the following business entities would suitability be based on the objectives of all the owners on a collective basis? A) Pension plan B) Sole proprietorship C) C corporation D) General partnership

D) general partnership Because all the partners in a general partnership share collective liability, the investment policy to be followed in the business's account is based on the collective suitability of all partners. Although the suitability is based on the owner of a sole proprietorship, there is only one owner, so a question asking about collective suitability doesn't ring true for that.

A variable annuity annuitant bears all of the following risks EXCEPT A) interest rate risk B) market risk C) inflationary risk D) mortality risk

D) mortality risk The insurance company issuing the variable annuity bears mortality risk, or the danger that some annuitants will live to surpass their average life expectancy. The investor in a variable annuity bears inflationary risk, market risk, and interest rate risk.

Which of the following investment strategies is used to determine an appropriate allocation based on the long-term goals and risk tolerance of the client? A) Efficient market allocation B) Top-down fundamental analysis C) Tactical asset allocation D) Strategic asset allocation

D) strategic asset allocation In strategic asset allocation, once the allocation is determined, it remains relatively constant until some change to the investor's objectives occurs. Periodically, the portfolio is rebalanced to reflect any changes in market conditions.

Mr. Beale buys 10M 6.6s of 10 at 67. What will his annual interest rate be?

$660.00 Interpret "10M" as "$10,000 worth of" Beale receives the nominal yield which is 6.6% of $10,000. M is roman numeral for 1,000

When must an investment adviser disclose personal securities transactions to a client? If the adviser makes trades in his own account that are inconsistent with advice given to a client If the adviser makes trades that are designed to take advantage of the impact caused by recommendations to clients Investment advisers must disclose all personal transactions to clients A) II only B) III only C) I only D) I and II

1 and 2 If adviser makes trades in his account inconsistent with his advice if adviser makes trades designed to take advantage of recommendations to client SEC Release 1A-1092 requires certain disclosures under the antifraud provisions of the Investment Advisers Act. They must disclose an affiliation with a securities broker-dealer if the advisory service is independent of the broker-dealer, if the adviser only recommends products offered by the broker-dealer, if the adviser will be compensated by the broker-dealer for the transaction, or if the products recommended by the adviser are available from other broker-dealers. The adviser must also disclose personal securities transactions if they are designed to take advantage of the market impact caused by recommendations to clients or if personal transactions are inconsistent with the advice given to clients. Advisers must disclose the amount of compensation received from transactions through any broker-dealer, from any issuer, and from sales of nonsecurities products. They are not required to disclose all personal transactions.

As defined in the Uniform Securities Act, the term "security" would include debentures Keogh plans a preorganization subscription whole life insurance policies that pay dividends to their policyholders A) I and IV B) II and IV C) I and III D) II and III

1 and 3 Debentures and preorganization subscription It is always easier to remember the things that are not a security—retirement plans, nonvariable insurance policies, collectibles, commodities, condominiums, and currencies.

What are the 3 standards used to define an investment adviser according to SEC release IA 1092?

1) Provides advice, reports, or analyses concerning securities 2) Is in the business of providing securities related advice or analyses 3) receives compensation

If a party is acting as a solicitor for a federal covered investment adviser, which of the following statements are TRUE? If the solicitation is for impersonal services, a solicitor is required to provide a disclosure statement to the client. If the solicitation is for other than impersonal services, then the solicitor must give the client a disclosure document. If the solicitation is for impersonal services, the solicitor must receive a signed statement from the client that the investment adviser's brochure and the disclosure document have been received. If the solicitation is for other than impersonal services, the solicitor must receive a signed statement from the client that the investment adviser's brochure and the disclosure document have been received.

2 and 4 If solicitation is for other than impersonal services, then the solicitor must give the client a disclosure document If solicitation is for other than impersonal services, the solicitor must receive a signed statement from the client that the investment advisers brochure and the disclosure document have been received. **If a solicitation is made for something other than impersonal advisory services, the solicitor must receive a signed statement from the client verifying receipt of both the adviser's brochure and the solicitor's disclosure document at the time of, or before, entering into a contract and ascertain whether the solicitor has complied with the agreement.

A form of business organization that offers flow-through of income and loss while providing the owner(s) with limited liability is a sole proprietorship an LLC a C corporation an S corporation

2 and 4 LLC and S Corp Only an LLC or an S corporation allows for direct participation in the income or losses of the business while offering limited liability. The sole proprietorship has flow-through, but unlimited liability. The C corporation limits liability but has no flow-through.

The Uniform Securities Act grants state securities Administrators all of the following powers EXCEPT the power to conduct investigations involving a broker-dealer registered in the Administrator's state, but with all its offices located in states other than his state the power to issue subpoenas to agents and broker-dealers registered in the Administrator's state, but not residing in his state the power to revoke or suspend a registration without an opportunity for a hearing because of the confidential nature of the offense the power to limit the length of an investigation to 1 year from the alleged offense, rather than place a registrant in continuous jeopardy

3 and 4 the power to revoke or suspend a registration without an opportunity for a hearing because of the confidential nature of the offense The power to limit the length of an investigation to 1 year from the alleged offense, rather than place a registrant in continuous jeopardy State securities Administrators may conduct investigations involving BDs in other states and issue subpoenas to agents and BDs not residing in the Administrator's state as long as they are registered in the Administrator's state. Administrators may not revoke or suspend a registration without an opportunity for a hearing. Administrators have no limits on the amount of time they may devote to an investigation of a registrant. Don't confuse this with a statute of limitations on when the case can be brought.

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

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

With regard to the state registration requirements of agents of registered broker-dealers, all of the following statements are correct except A) registration is required in each state in which the employing broker-dealer has a place of business B) registration is required when they limit their activity to the sale of exempt securities C) registration is not required in a state where the agent has no place of business and only deals with existing clients who are vacationing in that state D) registration is required if they solicit the sale of securities by telephone to fewer than 6 individuals residing in that state

A) registration is required in each state in which the employing broker-dealer has a place of business The fact that the broker-dealer does business in a state has nothing to do with a specific agent. Many broker-dealers are registered in all states; very few agents are. Agents must register in each state where they are selling or offering securities, even if the security or the transaction is exempt. That exemption only applies to the need for the security to be registered, not the agent. Soliciting the sale of securities by telephone is considered making an offer, and there is no de minimis exemption available. Finally, registration is not required when making use of the "snowbird" exemption.

XYZ is an investment adviser registered in States B, C, and D. Part of its service is offering a comprehensive financial plan, for which there is an initial fee of $2,500. During a discussion with a prospect, one of its investment adviser representatives seeks to allay the individual's concerns by informing her that once the firm delivers its brochure and receives the client's payment, there is a 3-day period during which the client may cancel the contact and receive a refund of that fee. In this case, A) the investment adviser representative is in violation because the time period is 5 days B) there is no violation because firms and their representatives can always make their rules more stringent than the regulators' rules C) there is no violation because the 5-day penalty-free withdrawal feature is only found in state law and does not apply to SEC-registered advisers D) the investment adviser representative is in violation because the brochure must be delivered at least 48 hours before signing the contract

A) the investment adviser representative is in violation because the time period is 5 days The agent has committed an unethical business practice because the NASAA Model Rule dealing with advisers' brochures requires a 5-day penalty-free period when the brochure is not delivered at least 48 hours prior to entering into the contract. The firm and its agents cannot impose house rules that take away the client's rights.

Regarding the treatment of estates by the IRS, it would not be correct to state any of the following EXCEPT A) the maximum tax rate on estates is the same as that on gifts B) income received by the estate is reported on Form 1040 C) estates may be valued either at date of death or 9 months later using the alternative valuation option D) a deceased person may reduce the value of the estate by taking advantage of the annual gift tax exclusion

A) the maximum tax rate on estates is the same as that on gifts The maximum tax rate on estates and gifts is 40% (the number is not tested; only that the rates are the same). The alternative valuation date is 6 months after death; 9 months after death is when the tax is due. Dead people can't make gifts and any income received by the estate before it is liquidated is reported on Form 1041.

The XYZ Corporation's A-rated convertible debenture is currently selling for 90. If the bond's conversion price is $40, what is the parity price of the stock? A) $36 per share B) $22.50 per share C) $44 per share D) $40 per share

A) $36 (you selected $40 because you used par value instead of CMV) If the bond's conversion price is $40, it means the bond is convertible into 25 shares ($1,000 par value divided by the $40 conversion price). Parity means equal so, what does each share have to be worth so that 25 of them are equal to $900? Remember, bonds are quoted as a percentage of the $1,000 par value so a price of 90 means $900. Dividing $900 by 25 shares results in a parity price of $36. That does not mean the stock is selling for $36 per share (probably a bit less), but at $36, holding the bond, or converting into the stock, gives the investor equal value. Some students quickly see that the bond is 10% below its par value so the stock, to be equal, must be 10% below the conversion price. Take 10% off $40 and the result is $36. Either way works.

An investment adviser registered with the SEC could use the term investment counsel if its principal business consists of rendering investment advice a substantial portion of its business involves investment supervisory services it maintains full investment discretion A) I and II B) I, II and III C) II and III D) I and III

A) 1 and 2 Its principal business consists of rendering investment advice a substantial portion of its business involves investment supervisory services These are the 2 requirements for use of the term investment counsel. Although it can be a factor, exercising discretion is not a requirement of the definition. Many investment advisers exercise discretionary power over client accounts, but do not meet the two principal requirements for use of the term, investment counsel.

ERISA regulation does not apply to public school district retirement plans publicly traded utility company retirement plans federal government employee retirement plans A) I and III only B) I, II, and III C) I and II only D) I only

A) 1 and 3 only ERISA rules only apply to private sector plans. Government or public sector plans are not subject to the Employees Retirement Income Security Act of 1974.

A broker-dealer with an office in this state would be defined as an investment adviser if it charges: commissions for selling securities commissions for selling securities while offering investment advice incidental to the sale of the securities a fee for selling investment research and additional fees in the form of commissions for the sale of securities fees for investment research sold exclusively to institutions located in this state A) III and IV B) I and II C) I and IV D) II and III

A) 3 and 4 a fee for selling investment research and additional fees in the form of commissions for the sale of securities fees for investment research sold exclusively to institutions located in this state A broker-dealer would be considered an investment adviser if it has a place of business in this state and if it charges a fee for selling investment research or any other form of investment advice, even to institutions. If a person is in the business of selling research for a fee, that person or firm meets the definition of an investment adviser. If a broker-dealer charges commissions for selling securities and offers investment advice incidental to the sale of the securities, the broker-dealer is not an investment adviser because it is not compensated for the research.

Under current tax law (2019), how much can a married couple give to their adult son and his wife without incurring a gift tax obligation? A) $60,000 B) $15,000 C) $30,000 D) Unlimited

A) 60,000 The current gift tax exclusion (2019) is $15,000 per donor to each recipient. A married couple can give $30,000 to a single individual and qualify for the exclusion. In this case, the married couple can give $30,000 to their son and $30,000 to their daughter-in-law without paying any gift tax.

An investor inherits 1,000 shares of the ABC Global Growth Fund when the NAV is $9.50, the bid price is $9.00, and the ask price is $9.15. Two years later, the investor sells all shares when the NAV is $14.25, the bid is $14.50, and the ask is $14.60. What are the tax consequences of this sale? A) Long-term capital gain of $5,500 B) Long-term capital gain of $5,450 C) Long-term capital gain of $5,350 D) Long-term capital gain of $4,750

A) Long term capital gain of $5,500 Upon death, the beneficiary inherits closed-end funds at their bid price (what the estate could have sold them for), or $9.00 per share. The sale two years later takes place at the bid ($14.50) for a profit of $5.50 per share (times 1,000 shares). Remember, in the case of a closed-end fund, the NAV does not figure into any computations; prices are based on supply and demand and have a bid and ask price, the same as any stock. How did you know this was a closed-end company? Only in the case of a closed-end company can the ask price be lower than the NAV (ask = $9.15, NAV = $9.50).

If an agent feels that his secretary is underpaid and decides to split his commissions on an 80%/20% basis, this practice is A) permitted if the secretary is also registered as an agent and the appropriate supervisory person agrees to the arrangement B) a violation in certain states C) permitted if the secretary is also registered as an agent D) a violation under all circumstances

A) Permitted if secretary is also registered as an agent and appropriate supervisory person agrees Trips you up when they have 2 similar answers

Construction of an investment policy statement (IPS) requires identifying the client's objectives and constraints. Which of the following would not be in the list of constraints? A) Risk tolerance B) Liquidity C) Taxes D) Time horizon

A) Risk tolerance When constructing an investment policy statement (IPS) risk tolerance is an objective, not a constraint. Time horizon, taxes, and liquidity are all constraints. An easy way to remember the five constraints is TTLLU (time horizon, taxes, liquidity, laws, unique).

Investors looking to minimize the effects of taxation on their investments would probably receive the least benefit from A) a corporate bond B) a growth stock C) an S&P 500 index fund D) an apartment building

A) a corporate bond Investors receive interest income from corporate bonds. That income is fully taxable at ordinary income rates. Real estate ownership has certain tax benefits, such as depreciation and a deduction for operating expenses. Index funds are known for their high tax efficiency and investors in growth stocks anticipate long-term capital gains which are taxed at a lower rate than ordinary income.

Tamika is an investment adviser representative with Financial Engineers, LLC, a covered investment adviser. The firm uses an investment policy statement to help design financial plans for their clients. One of Tamika's current clients plans to purchase a new boat 7 months from now. When using the IPS, this would be considered A) an investment constraint B) a capital need C) an investment goal D) a financial objective

A) an investment constraint Investment constraints are obstacles or restrictions that must be met in order to meet objectives. In this case, we are dealing with a liquidity constraint—in 7 months, cash will be necessary to make the purchase.

An investor plans to fund the college education for her newborn child by purchasing $5,000 of investment-grade bonds on an annual basis. She is most likely using A) the bullet strategy. B) the barbell strategy. C) the laddering strategy. D) the 529 plan strategy

A) bullet strategy The bullet strategy is used when aiming at a target. In this case, the target is having sufficient funds about 18 years from now. This strategy involves buying bonds at different intervals, but all with approximately the same maturity date. The barbell strategy has all bonds purchased at the same time with two different sets of maturities - half of the bonds mature near term and half mature intermediate term. Laddering requires purchasing bonds on a regular basis, but not with new funds as this investor is doing. As bonds mature, the proceeds are rolled-over into new bonds. She may be doing this in a 529 plan, but the plan is not a strategy, it is a type of account.

Among the reasons to consider investing in a variable annuity would be all of the following EXCEPT A) capital gains treatment on any realized gains upon withdrawal B) avoiding probate upon the death of the investor C) basically, no limit on the amount that can be contributed D) a guaranteed death benefit for death before annuitization

A) capital gains treatment on any realized gains upon withdrawal Not sure why i even considered there would be cap gains on an annuity In return for granting tax deferral on all gains in the account, the IRS taxes everything over the investor's cost basis as ordinary income. There is never a capital gain with a variable annuity. Some insurance companies will place a limit on the amount that may be invested, especially for older clients, but unlike IRS rules on retirement plans, this is strictly a company-by-company decision, not a law. Variable annuities are generally sold with a death benefit provision guaranteeing that the beneficiary will receive the higher of the amount invested or the current value of the account. Because there is a specifically named beneficiary, annuities do not go through the probate process.

The Uniform Securities Act grants exemptions to the securities of a number of issuers. If you were the Administrator, which of the following securities would NOT be eligible for an exemption in your state? A) Debt securities issued by the ABC Savings and Loan Association, organized under the laws of a neighboring state, but not authorized to do business in your state B) Equipment trust certificates issued by a regulated common carrier C) Common stock issued by the XYZ Trust Company, organized under the laws of a neighboring state, but not authorized to do business in this state D) Bonds issued by the Province of Alberta

A) debt securities issued by the BAC savings and loan association, organized under the laws of a neighboring state, but not authorized to do business in your state Any issue from a state or Canadian province is always exempt. Equipment trust certificates issued by any regulated common carrier are always exempt. Banks, savings institutions, and trust company securities are also exempt as long as they are organized under the laws of the United States or any state. However, securities issued by a savings and loan or building and loan are only exempt if the issuer is authorized to do business in this state.

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

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

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) Maintain the current allocation if, while acting in the capacity of trustee, he believes it aligns with the goal of the trust B) Begin diversifying the equity portfolio C) Increase the cash position to 25% by taking some of the profits off the table D) Use the cash to acquire more shares of the stock

A) maintain the current allocation if, while acting in the capacity of trustee, he believes it aligns with the goal of the trust In almost every trust question, the correct answer will be that the trustee (fiduciary) has to follow the terms of the trust and meet the trust's goals and objectives.

The Uniform Securities Act invests the Administrator with many powers over the activities of agents and broker-dealers. Which of the following actions does NOT fall within the Administrator's powers? A) Suspending an agent's registration without an opportunity for a hearing B) Conducting investigations of broker-dealers residing outside the Administrator's state C) Issuing cease and desist orders without a hearing D) Issuing subpoenas to persons residing outside the Administrator's state

A) suspending an agents registration without an opportunity for a hearing. There must be an opportunity for a hearing in the case of suspension or revocation

Market interest rates rise by 50 basis points. If each of these bonds has about the same maturity date, which of the following would decline the least? A) Treasury bond issued at par carrying a 7% coupon B) AA corporate bond carrying a 7% coupon C) Treasury bond issued at par carrying a 6% coupon D) AAA corporate bond carrying a 6% coupon

A) treasury bond issued at par carrying a 7% coupon All other factors being equal, bonds of higher quality experience less price volatility than do bonds of lower quality. Treasury securities have higher quality than other debt securities due to the elimination of default risk. When market interest rates rise, bonds having higher coupons will decline less than bonds having lower coupons.

The Affray Compassionate Finance Company (ACFC) is offering $100 million of 150-day commercial paper for sale in State L. The paper is available in minimum denominations of $100,000 and has been rated AA by a leading rating organization. Who of the following would be required to register as an agent in State L in order to legally sell this security in the state? A) An investment adviser who recommends this security to clients. B) An employee of the Affray Compassionate Finance Company who receives a 1% commission on sales. C) An agent of a broker-dealer registered in the state. D) Because this security is exempt from registration, offers and sales can be made without registration as an agent.

An agent of a BD registered in the state Those individuals who represent broker-dealers registered in the state must register as agents in that state if they wish to sell securities to that state's residents. It makes no difference what kind of security it is or to whom the security is being sold. Yes, this is an exempt security (less than 270 days' maturity; minimum $50,000 denomination; rating in the top 3 grades), but that only means that the security does not have to register. An exclusion from the definition of agent is given to those who represent issuers of certain exempt securities. Commercial paper is one of the 5 cases where this exclusion applies so ACFC's employee would not be defined as an agent. This is true even though compensation is being received. Investment advisers don't register as agents if all they do is give investment advice.

An investor owns a common stock that has been paying a dividend at an annual rate of $2.00. If the investor buys 100 shares of the stock at $50 and sells it 3 months later for $52, the approximate annualized rate of return is A) 4% B) 20% C) 5% D) 12%

B) 20% Annualized rate of return is computed by taking the investor's total return and annualizing it. In this case, the investor had $2 of appreciation and $0.50 (1 quarter) in dividends. Total return of $2.50 divided by the $50 cost is 5%. But, that is for 3 months − 1 quarter. Multiply that by 4 to get the annual rate.

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 on account of financial hardship as determined by Jason's financial planner 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 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 Jason can take a distribution from any of his IRAs without imposition of a tax penalty as long as it is made in payment of higher-education costs (tuition, fees, books, supplies, and equipment) for his granddaughter. QDROs do not apply to IRAs. Separation from service will not affect Jason's ability to take a distribution from his IRA. A distribution due to financial hardship is always subject to the early distribution penalty if the participant is not yet age 59½.

An investor in a high tax bracket who invested in a DPP should have which of the following characteristics? Need for tax benefits Substantial liquid assets Ability to identify both risks and merits of the program Ability to commit money for a long time A) II and III B) I, II, III, and IV C) I and II D) II, III, and IV

B) I, II, III, and IV DPPs are appropriate for investors who can benefit from substantial tax deductions or credits, are not bothered by illiquidity, understand the business risks and benefits involved, and can stay in the program until completion.

A wealthy individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed? A) No tax is due if the grantor should die during the term of the trust. B) The original value plus any appreciation is taxed as part of the grantor's estate. C) The original value plus any appreciation passes to the beneficiaries but is subject to gift tax. D) The original value plus any appreciation passes to the beneficiaries and is taxed as ordinary income.

B) The original value plus any appreciation is taxed as part of the grantor's estate. One of the risks in setting up a GRAT is that if the grantor dies during the term of the trust (usually 3-10 years), the assets put in the GRAT, plus any appreciation, are included in her estate.

An investor purchases 1,000 shares of ABC at $42 per share. One year later, the stock is trading at $50 per share and the investor receives 50 shares of ABC as a stock dividend. How will this dividend be currently taxed? A) As a $2,100 capital gain B) The shares are not subject to taxation C) As $2,500 ordinary income D) As a $2,500 capital gain

B) The shares are not subject to taxation Shares received per a stock dividend are not currently taxable. Instead, shareholders who receive stock dividends must adjust their cost basis in the shares downward. The total number of new shares, multiplied by their new adjusted basis, must equal the shareholder's total interest before the stock dividend was received.

Mary teaches physics at the local high school and makes about $70,000 per year. She could maximize her annual retirement savings by participating in A) a 403(b) plan. B) a 403(b) and a 457 plan. C) an employer-funded 401(k) plan. D) a 403(b) plan and an IRA.

B) a 403(b) and a 457 plan. Employees of public schools can legally maintain both a 403(b) plan and a 457 plan. In 2018, if both plan limits are contributed, that can be $37,000 ($49,000 if Mary is 50 or older and uses the $6,000 catch-up provision available with both plans). A 401(k) plan is not available for public sector employees.

The antifraud provisions of the Uniform Securities Act would apply to all of the following except A) newsletter publishers who do not give advice to subscribers on the subscriber's specific investment situation. B) an individual employed by a registered broker-dealer whose sole function is selling commodity futures contracts. C) persons availing themselves of the de minimis exemption. D) a broker-dealer registered pursuant to the limited registration option available to Canadian broker-dealers and their agents.

B) an individual employed by a registered broker-dealer whose sole function is selling commodity futures contracts. The Uniform Securities Act's antifraud provisions deal with securities; commodities are not a security. Even if one is exempt from registration due to meeting the de minimis exemption, or is excluded from the definition of investment adviser under the publisher's exclusion, the antifraud provisions still apply. The same is true for those Canadian securities professionals who do business in the United States by using the limited registration option available to them.

An investor is considering a 10-year stripped U.S. Treasury and a 10-year U.S. Treasury note, both with a yield to maturity of 4.8%. Compared to the note, the strip has A) more reinvestment risk and less interest rate risk. B) less reinvestment risk and more interest rate risk. C) more interest rate risk and less liquidity risk. D) more liquidity risk and less interest rate risk.

B) less reinvestment risk and more interest rate risk. The strip is a zero-coupon security so it has no cash flows to reinvest and therefore no reinvestment risk. However, it has more interest rate risk (longer duration) than the Treasury note. Remember, the duration of a zero-coupon bond is its maturity date while any debt security paying periodic interest (Treasury notes pay semiannually) will always have a duration shorter than its length to maturity.

Suzie McQueen has a very successful interior design shop she has run as a sole proprietorship. She has just celebrated her 60th birthday and has been giving thought to an eventual sale of the business. She wants your opinion on whether she should incorporate or change to a partnership. You might respond that A) the partnership form of business structure would enable Suzie to maximize her sale price B) the corporate form of business structure would be the easiest for ultimate transfer of ownership C) the partnership form of business structure would be the easiest for ultimate transfer of ownership D) the corporate form of business structure would be the least expensive to form

B) the corporate form of business structure would be the easiest for ultimate transfer of ownership In general, the corporate form of business leads to the easiest transfer of ownership. Because Suzie would probably own 100% of the stock, all she would have to do is sell that stock to a new purchaser and the corporation could continue just as before. If Suzie wanted to reorganize as a partnership, she would have to bring in at least one additional individual, ending her total ownership of the business. Even then, a partnership interest is not as easy to sell as stock.

An investment adviser with no place of business in the state is exempt from registration with the state when making recommendations to all of the following EXCEPT A) St. Amelia's college endowment fund B) when the recommendations are made exclusively to individual residents of the state who are accredited investors regarding new issues of exempt securities not registered in that state C) AAA Manufacturing Co., with respect to the quality of investment bankers available for an underwriting of AAA securities D) Amalgamated Bank

B) when the recommendations are made exclusively to individual residents of the state who are accredited investors regarding new issues of exempt securities not registered in that state An investment adviser with no place of business in the state is not exempt from registration with the state when making recommendations to individual accredited investors who are residents of that state, even when the securities being recommended are exempt from registration. The Uniform Securities Act exempts investment advisers with no place of business in the state who deal with certain institutional customers such as banks, insurance companies, investment management companies, and employee benefit plans with assets in excess of $1 million. College endowments and other nonprofit organizations also carry exempt status, but not wealthy individuals. An adviser advising an issuer on the quality of potential underwriters does not fall within the definition of investment adviser under the Uniform Securities Act and is therefore exempt from registration.

The term "investment counsel" can be used by investment advisers A) who are also attorneys B) with a primary business of rendering investment advice C) who are registered with the SEC under the Investment Advisers Act of 1940 D) who are also registered as broker-dealers

B) with a primary business of rendering investment advice While this choice is only half correct, under the Investment Advisers Act of 1940, the term "investment counsel" may be used by any adviser that meets two standards: the adviser performs investment supervisory services, and the adviser provides advice as the primary business of the firm. No other special qualifications or registrations are needed.

An investment adviser with $20 million under management exercises investment discretion over client portfolios. If the firm's accounting manager were to discover that the firm's net worth was only $8,500, the USA would require the firm to cancel all discretionary powers immediately raise an additional $1,500 send notice to the Administrator before the close of business on the day following discovery send a financial report to the Administrator before the close of business on the day following the sending of notice A) I and IV B) III and IV C) I and II D) II and III

B) 3 and 4 send notice to the Administrator before the close of business on the day following discovery send a financial report to the Administrator before the close of business on the day following the sending of notice State-registered investment advisers maintaining discretion over client accounts must maintain a minimum net worth of $10,000. Any advisory firm whose net worth falls below required minimums is required to send notice to the Administrator no later than the close of business on the day following discovery. This notice must be followed up no later than the next business day with a complete financial report to the Administrator.

Beverly has two stocks with a correlation coefficient of zero. Which of the following is correct? A) These stocks are not well diversified because they move in unison. B) These stocks will move independently of each other. C) These stocks are well diversified because they will move in unison. D) These stocks are well diversified because as one stock appreciates in value, the other decreases in value.

B) These stocks will move independently of each other A correlation coefficient of zero means that the two stocks will move independently. They may move in the same direction, or they may not. The zero correlation coefficient indicates that there is no pattern to the relationship between their price movements.

Although there may be some slight differences in methodology, when S&P or Moody's evaluate a security in order to assign a rating, they would be least likely to consider the issuer's A) cash flow to debt ratio B) asset turnover ratio C) liquidity ratio D) profitability ratio

B) asset turnover ratio The rate at which assets are turned over is not nearly as important to determining a rating as the other three.

Jane and Malka are discussing the possible form of efficient markets. Jane states that, "A weak form price-efficient market is one in which security prices fully reflect past share price and trading volume data." Malka retorts that she is not sure of Jane's thoughts and says, "If markets are weak form efficient, we cannot consistently outperform the market based on technical analysis." A) Malka is correct, but Jane is incorrect. B) Both Jane and Malka are correct. C) Both are incorrect. D) Jane is correct, but Malka is incorrect.

B) both are correct A weak form price-efficient market is one in which security prices fully reflect past share price and trading volume data. Therefore, successive future share prices should move independently of this past data in a random fashion, thereby nullifying any perceived informational advantage from adopting technical analysis to analyze trends.

You are discussing features of qualified pension plans with a client. You state that in one type of plan "the eventual amount of pension benefits will depend upon the fund's investment performance." You must be referring to which of the following? A) Deferred compensation plan B) Defined contribution plan C) IRA D) Defined benefit

B) defined contribution plan The obligation of the employer in a defined contribution plan is to add a specified contribution to the plan. Based on the performance of the investment, the employee will receive a lump sum upon retirement. In a defined benefit plan, the ending value is pre-determined, usually based on length of service and final salary. A deferred compensation plan is not qualified and an IRA is not a pension plan.

Automated Performance Advisers (APA), a registered investment adviser in 3 states, has spent several years and in excess of $1 million developing the software for a computerized program that APA believes will allow the model portfolios it designs for its clients to consistently outperform the market. In the first year of beta testing the program, returns have ranged from 40% to 60% above the relevant benchmarks. Because of this success, and in an effort to recoup some of the development costs, APA is now charging, in addition to their standard 25 basis points per quarter, a performance-based fee of 10% of the increase of value in a client's portfolio. In so doing, APA would be A) subject to disciplinary action by the SEC B) in violation of the Uniform Securities Act C) permitted to charge performance-based fees D) in violation of the Investment Advisers Act of 1940

B) in violation of the USA First of all, this is a state-registered investment adviser, so the Investment Advisers Act of 1940 and the SEC have no jurisdiction. Then, we look at this quote from the USA: "Except as may be permitted by rule or order of the Administrator, it is unlawful for any investment adviser to enter into, extend, or renew any investment advisory contract unless it provides in writing that the investment adviser shall not be compensated on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client." Even though we know that there are conditions under which performance-based compensation is permitted, unless the question specifically refers to that exception, the answer is that it is not permitted.

The Securities Exchange Act of 1934 gives the SEC the power to do all of the following EXCEPT A) refer evidence for prosecution B) set margin requirements C) subpoena witnesses D) administer oaths

B) set margin requirements The Securities Exchange Act of 1934 specifies that the Federal Reserve Board will have control over the issuance of credit when trading securities. The Securities Exchange Act of 1934 gives the SEC the power to make, amend, and rescind rules; issue cease and desist orders; administer oaths; conduct investigations; take evidence; and subpoena witnesses, books, and records. The Commission may seek temporary or permanent restraining orders (injunctions) from the courts, file civil suits, or refer evidence to the attorney general for criminal prosecution. Confusing because 1934 does discuss margin..

A pension consultant who advises corporate retirement plans with assets of $135 million must register with which of the following? A) Both the state and the SEC B) The state C) Either the state or the SEC D) SEC

B) the state The threshold for pension consultants is 200mm in AUM. You selected SEC based on the 110mm AUM registration, that doesnt apply to pension consultants.

A pension plan administrator would probably be able to qualify for the exemption offered under the safe harbor provisions of 404(c) of ERISA if the plan offered which of the following choices? A) PQR U.S. Government Bond Fund; GHI Money Market Fund; VWX Global Bond Fund B) ABC Large-Cap Growth Fund; JKL Small-Cap Technology Fund; MNO International Equities Fund C) ABC Large-Cap Growth Fund; DEF Long-term Investment Grade Bond Fund; GHI Money Market Fund D) DEF Long-term Investment Grade Bond Fund; PQR U.S. Government Bond Fund; STU High Yield Bond Fund

C) ABC Large-Cap Growth Fund; DEF Long-term Investment Grade Bond Fund; GHI Money Market Fund In order to qualify for the safe harbor under 404(c), the portfolio selections must include at least 3 different asset classes, such as equity, debt, and cash equivalent. All equities or all debt won't qualify.

An agent is registered with a broker-dealer whose principal office is located in State X, but who also does business in State Y. However, the agent is only licensed in State Y and confines her business to residents of that state. The Administrator of State X has what kind of authority over this agent? A) Can check the records of the agent in state Y with no prior notification B) Can check the records of the agent in state Y only with proper prior notification C) Cannot check the records of the agent in state Y because it is not State X's jurisdiction D) Can only take action against this agent when she is physically present in State X

C) Cannot check the records of the agent in state Y because it is not State X's jurisdiction Even though the broker-dealer is registered in State X, the agent in question is not; she is only registered in State Y. Therefore, the Administrator has no jurisdiction over the activities of this agent in a state other than his own.

It would be correct to state that the specialist stands ready to buy or sell stock on the floor of an exchange in an effort to keep an orderly market the specialist stands ready to buy or sell stock on the over-the-counter market in an effort to keep an orderly market the market maker stands ready to buy or sell stock on the floor of an exchange in an effort to keep an orderly market the market maker stands ready to buy or sell stock on the over-the-counter market in an effort to keep an orderly market A) II and IV B) II and III C) I and IV D) I and III

C) I and IV the specialist stands ready to buy or sell stock on the floor of an exchange in an effort to keep an orderly market the market maker stands ready to buy or sell stock on the over-the-counter market in an effort to keep an orderly market The specialist performs his activities on the floor of an exchange, while the market maker performs a similar function in the OTC market. Note: The term specialist has been replaced by designated market maker (DMM), but specialist might still appear on the exam.

Which one of the following statements regarding a characteristic or use of a Roth IRA is CORRECT? A) Roth IRA withdrawals are tax-deferred in their entirety regardless of the participant's age at withdrawal. B) Like regular IRAs, Roth IRA contributions may not be made after the participant attains age 70½. C) Roth IRAs are not subject to the minimum distribution rules until the death of the owner-participant of the plan. D) Like regular IRAs, Roth contribution eligibility is restricted by active participation in an employer's retirement plan.

C) Roth IRAs are not subject to the minimum distribution rules until the death of the owner-participant of the plan. Unlike the regular or traditional form of IRA, Roth IRAs are not subject to the minimum distribution rules upon the participant attaining age 70½. Rather, distributions need not be made until the death of the owner/participant. For a Roth IRA withdrawal to be entirely tax free, it must be made after a 5-year holding period and after the participant reaches age 59½.

An agent sells his client 10 U.S. government bonds due to mature in 30 years. According to NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents, which of the following statements may the agent legally make? A) There is no way to lose money on the safest security on earth. B) The U.S. government guarantees that principal and interest payments will keep pace with inflation. C) The bonds are guaranteed as to principal and interest payments by the U.S. government. D) The full faith and credit backing of the U.S. government means virtually no chance of loss.

C) The bonds are guaranteed as to principal and interest payments by the U.S. government. Stating that the bonds are guaranteed as to principal and interest payments by the U.S. government is an accurate statement of fact. A client can lose money on government bonds should interest rates rise after he purchases the bonds. The government does not guarantee that the principal and interest will keep up with inflation.

Under the USA, it is unlawful to sell A) a security of a commercial bank not registered in the state B) a federal covered security not registered in the state C) a nonexempt, nonregistered security issued by a foreign corporation from a country with which the U.S. government maintains diplomatic relations D) a security registered in the state under the USA but not registered in any other state

C) a nonexempt, nonregistered security issued by a foreign corporation from a country with which the U.S. government maintains diplomatic relations Nonexempt, nonregistered securities cannot be lawfully sold in a state unless in an exempt transaction (and nothing in the question indicates that is the case). The fact that they are issued by a foreign corporation is irrelevant; nonexempt securities must be registered. A federal covered security need not be registered in a state. Securities issued by banks, not bank holding companies, are always exempt securities.

Mary is a bowling buddy of Susan, a covered investment adviser. Mary refers Amanda, a wealthy widow, to Susan, and after a very pleasant meeting, Amanda places $15 million under management with Susan. If Susan were to give Mary a cash payment for the referral, A) both Susan and Mary would have to disclose the cash payment to Amanda B) only Susan would have to make disclosure to Amanda C) she would be engaging in an prohibited practice D) she would have to obtain Mary's permission first

C) she would be engaging in an prohibited practice Although there are circumstances under which cash payments may be made to solicitors, none of the required conditions found in the Investment Advisers Act of 1940 appear to be met here. A formal written agreement must be in effect, not just a one-time reward.

An exemption from registration under the Securities Act of 1933 is available to securities that are A) offered to the public only when the total amount is more than $4 million B) sold in more than one state by persons resident in those states C) sold only to persons resident in one state when the issuer is a resident doing business within that state D) listed on national exchanges

C) sold only to persons resident in one state when the issuer is a resident doing business within that state These securities are eligible for the intrastate exemption afforded under Rule 147. They might have to register in that particular state, depending on whether they met the exemption requirements in that state for that type of issue. Only under the NSMIA and the Uniform Securities Act do securities listed on a national stock exchange receive a registration exemption.

When an agent submits an order ticket to purchase securities for a client, all of the following would appear EXCEPT A) the agent's name B) the details of the order C) the current market price of the security D) the broker-dealer's name

C) the current market price of the security Any order ticket submitted by an agent for execution at a broker-dealer will always include the agent's name and that of the BD. All order details must be listed (e.g. the number of shares, limit or market, etc.), but the current market price is never included.

A client who wishes to have $50,000 available to help fund a 3-year-old child's college education in 15 years estimates that if the portfolio can earn 7%, a deposit of $18,122.30 will be required today. This deposit is referred to as A) the internal rate of return B) the future value C) the present value D) the net present value

C) the present value This is a present value computation where the future value, time period, and earnings rate are known.

A mutual fund's computed NAV on April 24 is $100 per share. On April 25, the portfolio realized gains of $2 per share, and enjoyed $1 per share in unrealized appreciation. What would the NAV be on April 26 assuming an unchanged market? A) $102 per share B) $100 per share C) $101 per share D) $103 per share

C) $101 per share A mutual fund's net asset value per share (NAV) is the fund's total assets minus total liabilities (net asset) divided by the number of shares outstanding. The major asset is the fund's portfolio. Portfolio securities are carried at their value as of the close of the markets (4PM ET). As a result, unrealized appreciation (and depreciation) are part of the NAV. Therefore, when that gain (or loss) is realized, paper profit (or loss) is now real and there is no change to total assets. In the subject question, the realization of the $2 per share gain has no effect, but, the new $1 in unrealized appreciation increases the NAV by that amount.

When performing a capital needs analysis for a client, factors to be considered would include the client's projected earnings the projected inflation rate projected market volatility the client's age A) I, II, III, and IV B) I and II C) I, II, and IV D) III and IV

C) 1 2 and 4 Clients projected earnings, projected inflation rate, and clients age A capital needs analysis is used to help determine the proper amount of life insurance that will provide for the family's needs in the event of premature death of the primary breadwinner. The agent would factor in the client's projected earnings until retirement and, in order to do that, would need to know the current age. In addition, to be sure to allow for enough to keep up with the rising cost of living, the projected inflation rate is needed. However, market volatility does not impact the analysis because the amount of the selected death benefit will remain constant, regardless of changes to the market. *I assumed capital needs were based on investments/retirement not life insurance..*