Series 65

Which of the following are TRUE of a REIT? It can qualify for special tax treatment under Subchapter M of the Internal Revenue Code if it distributes at least 90% of its taxable income. It may loan money for commercial construction projects. It generates income by the spread between rental income, the combined mortgage interest, and operating expenses of the property. It is only suitable for an investor who is in a 28% or higher tax bracket, who has a net worth in excess of $200,000, or who is able to benefit from the flow-through of losses. A) I, II, and III B) I and III C) I, II, and IV D) II and III

A. I, II, and III Explanation A real estate investment trust (REIT) is an investment that makes direct investments in real estate, generating its income from renting the property (e.g., apartments, shopping malls) to lessees. Alternatively, it can make mortgage loans and generate income from them. Depending on its distribution of income, it may qualify for the same type of special tax treatment as a regulated investment company. REITS are not flow-through vehicles, as are DPPs. U14LO9

According to the Investment Company Act of 1940, all of the following statements are true EXCEPT A) persons convicted within the past 10 years of a securities industry crime are not allowed to serve as directors without SEC permission B) investment companies can own no more than 3% of the shares of another investment company C) 12b-1 distribution charges must be approved semiannually by a majority vote of the outstanding shares and by the board of directors D) mutual fund shareholders must be sent semiannual statements that identify compensation paid to directors, officers, and other affiliated persons

C) 12b-1 distribution charges must be approved semiannually by a majority vote of the outstanding shares and by the board of directors 12b-1 fees are subject to annual approval by a vote of the board of directors of the company and of the directors who are not interested persons (outside directors) of the company. U14LO4

Which of the following statements is TRUE regarding Section 529 plans? Funds withdrawn for qualified education expenses are always free of federal income tax. Funds withdrawn for qualified education expenses are always free of state income tax. The maximum contribution limits are determined on a federal level. The maximum contribution limits are determined on a state level. A) I and III B) II and IV C) I and IV D) II and III

C. 1 and 4 Section 529 plan withdrawals are exempt from federal income tax if used for the right expenses. In almost all cases, if the plan is one operated by your state of residence, it will be exempt from your state's income tax. But, if you elect to contribute to a plan operated by another state, more than likely, any withdrawals will be subject to your state's income tax. Because the plans are state operated, the maximum contribution limits are set by each state. U24LO6

Which of the following statements regarding letters of intent used in connection with mutual fund purchases are TRUE? The letter can cover a period totaling 16 months. The letter may be backdated 90 days. Some shares purchased are held in escrow until the letter is completed. During the period covered by the letter, the customer may not redeem his shares. A) III and IV B) I and II C) II and III D) I and IV

C. 2 and 3 Letters of intent permit investors to qualify for a reduced sales charge on the purchase of mutual fund shares over time. They are valid for 13 months and may be backdated by up to 90 days to include previous purchases. The investor is not legally obligated to comply with the terms of the letter, so some shares purchased at the reduced sales charge are held in escrow. These shares are liquidated to repay the reduction in sales charge if the contract is not completed. U14LO4

A customer is interested in an exchange-traded fund (ETF). With regard to the trading of ETFs, the customer should be aware that ETFs can be purchased throughout the trading day ETFs use forward pricing, as all mutual funds do real-time quotes are available for ETFs the NAV calculated at the end of the day, plus a sales charge, will equal the trading price A) II and IV B) II and III C) I and III D) I and IV

C) I and III ETFs can be traded throughout the trading day. Changing price quotes are available in real time as investors buy and sell. Although ETFs have an NAV that is calculated on the basis of the portfolio holdings, the trading price is determined by supply and demand in the open market, with customers paying commissions. U14LO8

Which of the following items would be included in a current ratio computation? A) Cash, dividends payable, and shareholders' equity B) Inventory, equipment, and cash C) Accounts receivable, inventory, and long-term debt D) Accounts payable, wages payable, and short-term debt

D. Accounts payable, wages payable, and short-term debt Current ratio is computed by dividing current assets by current liabilities. Current assets include cash, accounts receivable, and inventory. Current liabilities include accounts payable, wages payable, dividends payable, and short-term debt. Equipment is a fixed asset, and shareholders' equity is net worth. U10LO7

A single individual earning $250,000 a year may open a Coverdell ESA not open a Coverdell ESA open a 529 college savings plan not open a 529 college savings plan A) II and III B) I and IV C) II and IV D) I and III

A. 2 and 3 There are income limits that apply to Coverdell ESAs. Single individuals earning more than $110,000 per year are not permitted to open a Coverdell account, and married couples lose the ability to contribute when earnings exceed $220,000. However, there are no income limits restricting who is eligible to open and contribute to a Section 529 college savings plan. U24LO6

Which of the following items would be included in a current ratio computation? A) Cash, dividends payable, and shareholders' equity B) Inventory, equipment, and cash C) Accounts payable, wages payable, and short-term debt D) Accounts receivable, inventory, and long-term debt

C. Accounts payable, wages payable, and short-term debt Current ratio is computed by dividing current assets by current liabilities. Current assets include cash, accounts receivable, and inventory. Current liabilities include accounts payable, wages payable, dividends payable, and short-term debt. Equipment is a fixed asset, and shareholders' equity is net worth. U10LO7

Which 2 are most associated with a U. S. Treasury bond? Credit risk Liquidity risk Reinvestment risk Interest rate risk A) I and IV B) II and III C) III and IV D) I and II

C. III and IV We negate credit risk when it comes to U.S. Treasury securities. Liquidity is also not an issue. However, any interest-bearing bond carries interest rate risk, as well as reinvestment risk. U11LO1

In order to qualify as a REIT, A) at least 75% of the income must be paid out as dividends to investors. B) a mortgage REIT must have at least 75% of the assets in government-insured mortgages. C) at least 75% of the assets must be invested in real-estate related assets, cash, and U.S. government securities. D) at least 90% of the assets must be invested in real-estate related assets.

C. at least 75% of the assets must be invested in real-estate related assets, cash, and U.S. government securities. A REIT must be invested in real estate. By law, at least 75% of a REIT's assets must consist of real estate assets such as real property or loans secured by real property. That 75% can also include cash and U.S. government securities. If it is a mortgage REIT, there is no specific requirement regarding government-insured mortgages. A REIT must distribute at least 90% of its income to investors, not 75%. U14LO9

The SROs have instituted maintenance margin levels for those situations where the equity in a client's margin accounts is reduced to a dangerous level. Currently, those levels are A) 25% for a short account. B) 50% for a long account. C) 30% for a long account. D) 25% for a long account.

D) 25% for a long account. Explanation The current minimum maintenance levels set by the SROs is 25% equity in a long margin account and 30% equity in a short margin account. The initial margin requirement under Reg. T is 50% for both long and short accounts. U22LO2

For purposes of safeguarding customer information, which of the following would be considered a covered account? A) An account in the name of the State of X employee pension fund B) A margin account in the name of the Interglobal Hedge Fund C) An account in the name of the Wells Morgan Bank D) A margin account in the name of Mary Beth Simmons

D) A margin account in the name of Mary Beth Simmons The term covered account does not apply to institutional customers, such as banks, pension funds, and investment companies. U7LO7

Which of the following statements regarding ADRs are TRUE? They are issued by large domestic commercial banks. They are issued by foreign banks. They facilitate U.S. trading in foreign securities. They facilitate a foreign investor who wants to trade U.S. securities. A) II and IV B) I and IV C) II and III D) I and III

D) I and III Explanation ADRs are issued by large domestic commercial banks to facilitate U.S. investors who want to trade in foreign securities. U12LO5

The longest initial maturity for U.S. T-bills is: A) 13 weeks. B) 39 weeks. C) 2 years. D) 52 weeks.

D) 52 weeks. Explanation As money market instruments, the longest initial maturity of Treasury Bills is 52 weeks. Those bills are auctioned once per month. T-bills of shorter maturities are auctioned weekly. The shortest initial maturity is 4 weeks. U13LO1

Current IRS regulations permit an unlimited contribution to which of the following tax-deferred plans? A) Roth IRA B) SEP IRA C) 401(k) D) Annuity

D. Annuity Nonqualified annuities offer tax deferral similar to that of qualified retirement plans. However, unlike qualified plans and IRAs, the IRS places no limitation on the amount that may be contributed. U15LO2

A U.S. dollar-denominated bond issued by a non-American company (or government), sold outside the United States and the issuer's country, but for which the principal and interest are stated and paid in U.S. dollars is best described as A) a Eurobond. B) a Eurodollar bond. C) a Yankee bond. D) a Brady bond.

B. Eurodollar Bond This is the definition of a Eurodollar bond. Yes, it is also a Eurobond, but, because the question specifies U.S. dollars, the more accurate choice is Eurodollar bond. A Yankee bond is U.S. dollar-denominated, but is issued in the United States; Eurodollar bonds are not. Brady bonds are issued only by foreign governments, usually, but not always, U.S. dollar-denominated and are available for purchase in the U.S. U13LO7

Under the Uniform Securities Act, which of the following is NOT a requirement for a preorganization subscription to be an exempt transaction? A) No payment may be made by any subscriber. B) There may be no more than 10 subscribers. C) No commission may be paid to anyone for soliciting potential subscribers. D) The offer of the security may not be advertised.

D) The offer of the security may not be advertised. Explanation There are three requirements for a preorganization subscription to qualify as an exempt transaction. A preorganization subscription may be advertised. U4LO3

Which of the following would best describes a Yankee bond? A) U.S. dollar-denominated bond issued by a U.S. entity inside the United States B) U.S. dollar-denominated bond issued by a U.S. entity outside the United States C) U.S. dollar-denominated bond issued by a non-U.S. entity outside the United States D) U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States

D) U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States Explanation Yankee bonds are issued by non-U.S. entities in marketplaces inside the United States. The bonds are issued in U.S. dollars meaning these foreign issuers will have currency risk if the dollar drops in value against their local currency. U13LO7

Which of the following is NOT affected by the issuance of a bond? A) Shareholders' equity B) Assets C) Working capital D) Total liabilities

A. Shareholders' Equity When bonds are issued, cash is received (thus increasing current assets) and long-term debt increases (increasing total liabilities). Because there is no corresponding increase in current liabilities, working capital increases. There is no effect on shareholders' equity because the increased liability is offset by the asset (cash) received. U9LO1

If a corporation issues mortgage bonds, all of the following would be affected EXCEPT A) working capital B) shareholder's equity C) total liabilities D) total assets

B. shareholder's equity When issued, the corporation receives the net proceeds in cash, increasing current assets (and thus total assets). Simultaneously, the corporation's long-term liabilities increase reflecting the debt (and thus total liabilities). Working capital increases because of the increase in current assets. Shareholder's equity, or net worth, is only affected by the sale of new equity securities or by any profit or loss generated by the corporation. U9LO1

Which of the following statements is TRUE concerning variable life separate account valuation? A) Unit values are computed monthly and cash values are computed weekly. B) Unit values are computed monthly and cash values are computed daily. C) Unit values are computed daily and cash values are computed monthly. D) Unit values are computed weekly and cash values are computed monthly.

C. Unit values are computed daily and cash values are computed monthly. Unit values are computed each day. Policy cash values are a monthly computation. U15LO7

Your client who owns a DPP that generated a $10,000 passive loss for the year could A) deduct $10,000 against capital gains B) deduct $10,000 against ordinary income C) only deduct the passive loss against passive income D) deduct $3,000 against ordinary income and carry over the rest

C. only deduct the passive loss against passive income Passive losses, such as those generated by limited partnership investments (DPPs), are only deductible against passive income. U17LO1

Those investors wishing to examine a document that would probably give them the most information about an issuer's current and planned operations would seek out A) the investor's brochure B) the Form 10-K C) the balance sheet D) the annual report

D Annual Report The annual report to shareholders is going to contain not only a complete financial report of the prior year's operations but will also include statement from key personnel dealing with the company's future plans. The Form 10-K does not include discussion of future business plans - it is a report of "what has happened over the previous fiscal year." U9LO3

Which of the following statements best represents a bond's present value? A) Present value is the sum of all the discounted future interest payments. B) Present value is the sum of all the discounted future payments. C) Present value represents the internal rate of return (IRR) of the bond. D) Present value is the discounted future repayment of principal.

B. Present value is the sum of all the discounted future payments. The correct answer is the standard "textbook" statement. There are two future cash flows from a bond. First is the periodic interest payments and second is the repayment of the principal at maturity. The PV of the bond is the sum of the discounted value of both.

A popular tool used by analysts is discounted cash flow (DCF). Most use this tool to evaluate A) the present value of future cash flows to determine an appropriate current value. B) the present value of future cash flows to determine the value at a specified date in the future. C) the future value of present cash flows to determine an appropriate current value. D) the future value of future cash flows to determine the value at a specified date in the future.

A. the present value of future cash flows to determine an appropriate current value. The principle behind a DCF computation is that an investment made currently is worth an amount equal to the sum of all the future cash flows expected to be received. These future cash flows are discounted to arrive at a fair value. U13LO12

Which items would change if a company declared a cash dividend? Working capital Total assets Total liabilities Shareholders' equity A) I, II, III, and IV B) I and IV C) I, III, and IV D) I only

C. I, III, and IV The key word is "declared." Liabilities increase when a dividend is declared, and total assets decrease when it is paid. A declared dividend (but not yet paid) would increase current liabilities (and would therefore decrease working capital). It would increase total liabilities (this is a pending obligation) and reduce shareholders' equity because retained earnings would be decreased by the dividend. Total assets would not be affected until the dividend is actually paid. U9LO1

Which items change when a company pays a cash dividend? Working capital Total assets Total liabilities Shareholders' equity A) II, III, and IV B) I and IV C) II and III D) I, II, and III

C. Total Assets and Liabilities When a dividend is paid, total assets are decreased as are total liabilities. The liabilities were increased at declaration time and are now decreased to reflect the payout. The two accounts affected would be decrease cash and decrease dividend payable. U9LO1

In portfolio theory, the alpha of a security or a portfolio is A) a measure of the variance in returns of a portfolio divided by its average return B) the risk of the portfolio associated with the macroeconomic factors that affect all risky assets C) the portfolio's average return in excess of the risk-free rate divided by the standard deviation in returns of the portfolio D) the difference in the expected return of the portfolio, given the portfolio's beta, and the actual return the portfolio achieved

D. the difference in the expected return of the portfolio, given the portfolio's beta, and the actual return the portfolio achieved Alpha is the difference in the expected return of the portfolio, given the portfolio's beta and the actual return the portfolio achieved. The higher the alpha, the better the portfolio has done in achieving excess or abnormal returns. The risk of the portfolio associated with the macroeconomic factors that affect all risky assets is systematic risk. The portfolio's average return in excess of the risk-free rate divided by the standard deviation in returns of the portfolio is the Sharpe ratio or measure. The measure of the variance in returns of a portfolio around its average return is the standard deviation. U10LO4

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) $101 per share B) $100 per share C) $103 per share D) $102 per share

A. $101 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. U14LO3

Disregarding any potential redemption or CDSC fees, an investor tendering shares of an open-end investment company for redemption will receive A) the last computed net asset value B) the next computed net asset value plus a portion of the sales load C) the next computed net asset value D) the next computed public offering price

C. Next NAV Explanation When an investor redeems (or purchases) open-end investment company shares, the investor receives the next computed net asset value (NAV) of those shares. This is known as the forward pricing rule. 14.3

Who of the following are NOT exempt from registration as an investment adviser under the Investment Advisers Act of 1940? A) An adviser in State F with 10 State F resident individuals and who specializes in New York Stock Exchange listed issues B) An adviser whose only office is in State G who deals only with State G residents, none of whom is a private fund, and does not deal in securities listed on any national securities exchange C) An adviser to 7 private funds with total assets under management in the U.S. of $125 million D) An adviser whose clientele consists solely of insurance companies

A. An adviser in State F with 10 State F resident individuals and who specializes in New York Stock Exchange listed issues The intrastate exemption has no numerical limitation, only that all of the clients be residents of the state and none of the clients can be private funds. However, no advice may be given on securities traded on a national stock exchange which causes this State F adviser to lose the exemption. Under the federal law, an exemption from registration applies if the adviser's only clients are insurance companies. And, if an adviser's only clients are private funds (regardless of how many) and AUM in the United States is less than $150 million, that adviser is exempt as well. U1LO4

Which of the following statements is most accurate regarding the net present value (NPV) and internal rate of return (IRR) on a bond? A) NPV assumes the cash flows can be reinvested at market interest rates. B) IRR assumes the cash flows are reinvested annually. C) IRR assumes the cash flows are reinvested at market interest rates. D) NPV assumes that cash flows can be reinvested at the bond's IRR.

A. NPV assumes the cash flows can be reinvested at market interest rates. The first step in finding the NPV is to compute the present value (PV). The PV is computed by taking the future cash flows and discounting them by a "discount" rate. That rate is the current market interest rate. So, if NPV is based on PV and PV assumes reinvestment at the discount rate, that assumption must hold true for figuring NPV. In the case of the IRR, that is the yield to maturity of a bond and assumes that the cash flows are reinvested at that IRR. For example, a bond with a YTM of 7% assumes that all reinvestments will be made at that 7% rate. The periodic cash flow on a bond comes from the semiannual interest payments making reinvestments semiannually, not annually. U10LO1

A client of Wall Street Wealth Management (WSWM), a federal covered investment adviser, calls the IAR handling the account and gives instructions to use some of the surplus cash in the account to purchase 500 shares of RMBM, a small-cap stock traded on the Nasdaq Stock Market. Prior to submitting the order, the IAR checks with a supervisor and learns that WSWM has 1,000 shares of RMBM in its proprietary account and is looking to halve the position. If, instead of forwarding the order to the broker-dealer who normally handles trade executions for this client, WSWM filled the order out of its own account, A) it would be permissible as long as consent was obtained and written disclosure of the firm's capacity was disclosed prior to the completion of the transaction B) it would be permissible only if consent was obtained, and written disclosure of the firm's capacity was disclosed prior to execution C) because it was an unsolicited transaction, the only required disclosure would be the firm's capacity on the trade confirmation D) WSWM would be engaging in a prohibited practice

A. it would be permissible as long as consent was obtained and written disclosure of the firm's capacity was disclosed prior to the completion of the transaction 6.1 In almost every case, an IA acting as a principal (out of inventory) or agent in a trade with an advisory client must obtain client consent and provide written disclosure of the IA's capacity in the trade no later the completion of the trade. If the IA is also a broker-dealer and the transaction with the advisory client was not generated through a recommendation (generally an unsolicited order), the only disclosure necessary is the firm's capacity on the confirmation. In this question, we can't assume that WSWM is also a broker-dealer.

Under the USA, which of the following statements regarding the withdrawal of an IAR's registration is TRUE? The withdrawal automatically becomes effective 90 days after filing. If disciplinary action is initiated within 30 days after filing, the automatic effective date may be delayed. The Administrator may institute disciplinary proceedings within one year after the effective date of the withdrawal. A) I and III B) II and III C) I, II, and III D) I and II

B. 2 and 3 A registered person may apply to withdraw the registration. The withdrawal is effective in 30 days, unless the person is under investigation in connection with pending disciplinary action or an investigation is instigated during the 30 days after filing the application to withdraw. If there is an investigation underway, the Administrator will determine when the withdrawal will become effective. The Administrator has one year from the effective date of withdrawal to begin disciplinary actions for violations of the act. U5LO2

Which of the following is NOT affected by the issuance of a bond? A) Working capital B) Shareholders' equity C) Assets D) Total liabilities

B. Shareholders Equity Explanation When bonds are issued, cash is received (thus increasing current assets) and long-term debt increases (increasing total liabilities). Because there is no corresponding increase in current liabilities, working capital increases. There is no effect on shareholders' equity because the increased liability is offset by the asset (cash) received. U9LO1

One way in which incentive stock options (ISOs) differ from nonqualified stock options (NQSOs) is that A) gains on an ISO are always short-term while those on an NQSO are long-term. B) the bargain element of the ISO is an AMT preference item. C) the bargain element of the ISO is reported as wages on the tax returns of the employer and the employee. D) there is a maximum 5-year limit for exercise on the ISO while the time limit on the NQSO is 10 years.

B. the bargain element of the ISO is an AMT preference item. The only true statement here is that the bargain element (the difference between the current market price at the time of exercise and the strike price) of the ISO (but not the NQSO) is one of the preference items for the alternative minimum tax. It is the bargain element of the NQSO which is reported as wages and it is possible, although difficult, to have long-term capital gains on both. Only the ISO has a maximum time limit and it is 10 years, not 5. U12LO3

Security registration becomes effective after... A. 10 days B. 15 days C. 20 days D. 30 days E. 45 days

20 days. Also called the cooling off period

An agent is analyzing the financial statements of a corporation. The company has cash on hand of $2 million, accounts receivable of $500,000, accounts payable of $700,000, land valued at $3 million, wages payable of $300,000, goodwill of $100,000, inventory of $1.5 million, and retained earnings of $5 million. From this information, the agent would determine that the acid-test ratio for this company is A) 3.375:1 B) 4:1 C) 2.5:1 D) 1:1

2:5:1 The acid-test, or quick, ratio is all of the current assets, except for inventory, divided by the current liabilities. Current assets: cash and accounts receivable Current liabilities: accounts payable and wages payable $2.5 million divided by $1 million, or 2.5:1.

Which of the following would best describe a Yankee bond? A) A U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States B) A U.S. dollar-denominated bond issued by a non-U.S. entity outside the United States. C) A U.S. dollar-denominated bond issued by a U.S. entity outside the United States. D) A U.S. dollar-denominated bond issued by a U.S. entity inside the United States.

A) A U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States Yankee bonds are issued by non-U.S. entities in marketplaces inside of the United States. The bonds are issued in U.S. dollars, meaning these foreign issuers will have currency risk if the dollar drops in value against their local currency. U13LO7

An issuer wishing to comply with Regulation D of the Securities Act of 1933 must file a Form D with the SEC... A) no less than 20 days prior to the first expected date of sale B) no later than 15 days after the first sale C) no later than 30 days after the first sale D) no later than the time of the first sale

B) no later than 15 days after the first sale. 4.3

Final approval of the annual operating budget for the United States is given by A) the Cabinet B) the Congress C) the Conference of Governors D) the president

B. Congress The United States Congress is responsible for voting approval of the budget submitted by the president. U8LO1

Which of the following is NOT affected by the issuance of a bond? A) Working capital B) Shareholders' equity C) Assets D) Total liabilities

B. Equity Explanation When bonds are issued, cash is received (thus increasing current assets) and long-term debt increases (increasing total liabilities). Because there is no corresponding increase in current liabilities, working capital increases. There is no effect on shareholders' equity because the increased liability is offset by the asset (cash) received. U9LO1

A client owns an investment-grade bond with a coupon of 5% that is priced to yield 6.7%. If similarly rated bonds are being issued today with coupons of 7%, it would be expected that the client's bond A) will be selling at a premium over par B) has a negative net present value C) has a positive net present value D) has a zero net present value

B. Negative NPV With a discount rate of 7% (the discount rate in a present value computation is the current market interest rate), a debt instrument with a 5% coupon rate will be selling at a discount (interest rates up, prices down). We are told that this bond is offering a yield of 6.7%, which is less than the current market rate. Because a present value computation using a 6.7% rate would reflect a higher value than a 7% rate (the higher the discount rate, the lower the value), that would mean that the bond can be purchased at a price above its present value. Anytime that occurs, the instrument has a negative net present value (the difference between the price and the present value). U10LO1

An employee is offered a nonqualified stock option with an exercise price of $20 per share. If the option is exercised when the current market value of the stock is $30, the employee A) is taxed on $20 per share as if it were salary B) is taxed on $30 per share as if it were salary C) has a capital gain of $10 per share D) is taxed on $10 per share as if it were salary

C. has a capital gain of $10 per share In the case of NSOs, the difference between the exercise (or strike) price and the current market value is considered salary to the employee. U12LO3

When describing the differences between an investment adviser and an investment adviser representative, it would be correct to state that the investment adviser may... 1. exercise discretion in an account, whereas an IAR may not 2. maintain custody of client funds and securities, whereas an IAR may not 3. be required to be bonded, whereas an IAR may not 4. be required to maintain a minimum net worth, whereas an IAR may not A) II, III, and IV B) I and IV C) I and II D) II and III

D) II and III Registered investment advisers, but not their representatives, are permitted to maintain custody of client assets (if not prohibited by the Administrator). There is no minimum net worth standard for IARs, as there is for IAs. Both may be granted written discretionary powers, and if so, only the IA may be required to be bonded (adequate net worth will suffice). 7.2

The minimum size order that would be considered a block trade is A) 100,000 shares B) 1,000 shares C) 500 shares D) 10,000 shares

D. 10,000

An agent unintentionally sells nonexempt securities that have not been registered. Under the Uniform Securities Act, the broker-dealer may write a letter and offer to buy back the security plus interest, minus any income received. The client gives up the right against the firm to bring action in court if he does not respond within how many days of receipt of the letter? A) 60 B) 20 C) 15 D) 30

D. 30 5.3

A new client is looking for a recommendation. The client is 72 years old, has sufficient income from Social Security and a pension plan to cover all of her living expenses. She has just inherited $100,000. She wants to invest this money to have a bit more income so she can spoil her grandchildren. Which of the following would be antipodal to her wishes? A) Jumbo CDs B) Treasury strips C) Treasury bonds D) Public utility stock

The answer is Treasury strips. If she wants additional income, she cannot get that from Treasury strips. They are zero-coupon bonds and pay nothing until maturity. U13LO8