Series 65

XYZ Corporation has a beta of 1, and ABC has a beta of 1.4. XYZ has returned 12% and ABC 18.8%. Based on this information ABC had alpha of

2 % (12 * 1.4 ) = 16.8% 16.8 - 18.8 = alpha of 2%

All of the following actions will increase the deficit in the U.S. balance of payments EXCEPT

purchase by foreigners of U.S. securities

Functioning responsibly as an agent requires disclosure of any potential conflicts of interest that could arise from a securities recommendation. Examples of potential conflicts of interest that must be disclosed to clients would include all of the following EXCEPT

recommending shares of a pharmaceutical company that manufactures a drug that the agent takes for chronic indigestion

The criminal penalty for violations of the Uniform Securities Act is

$5,000 fine, 3 years' imprisonment, or both

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

2.5:1 (The acid-test, or quick, ratio is all of the current assets, except for inventory, divided by the current liabilities. The non-inventory current assets are the cash on hand and the accounts receivable. The current liabilities are the accounts payable and wages payable. This results in a calculation of $2.5 million divided by $1 million, or 2.5:1.)

If a customer is concerned about interest rate risk, which of the following securities is least appropriate?

25-year municipal bonds

An investor places $10,000 into BCD common stock 12 years ago. Today, that stock has a market value of $20,000. Using the Rule of 72, the internal rate of return on BCD is closest to

6%. (72/12)

Over the past 5 years, a stock has had returns of +16%, + 5%, −4%, +12% and +8%. This results in an arithmetic mean of

7.4% Arithmetic is simple average

Under the Securities Act of 1933, the term "person" would NOT refer to which of the following?

A deceased individual (There are 3 specific "nonpersons" on this exam. They are 1) deceased individuals, 2) an individual declared mentally incompetent, and 3) a minor.) (A person can be almost any entity, including a corporation, partnership, unincorporated association, subdivision of a government, trust that issues shares of ownership (such as a unit investment trust), or a natural person (an individual).)

As defined in the Uniform Securities Act, an issuer is any person who issues, or proposes to issue, a security for sale to the public. Based on that definition, which of the following is not an issuer?

A partner in the AAA Oil and Gas Partnership selling his interest in the investment

When a broker-dealer publishes a list of recommendations that includes securities in which the firm has a financial interest, it is known as

A potential conflict of interest

Under the provisions of the Uniform Securities Act, which of the following transactions may be made legally with unregistered, nonexempt securities?

A private placement

Under which of the following circumstances would the Administrator of this state not have jurisdiction?

A radio broadcast advertising a security was made from a neighboring state.

Under the Uniform Securities Act, which of the following statements are TRUE?

A registration statement may be filed by an issuer itself, a broker-dealer, or any other person on whose behalf the offering is to be made. Registration of an agent is not effective when the agent is not associated with a broker-dealer registered under the act.

A type of fraud using social media where the fraudsters pretend to be member of a group, sometimes using respected leaders of the group to spread the word about the scheme is known as

Affinity fraud

Which of the following statements best describes an investment supervisory service as described by the Investment Advisers Act of 1940?

An investment adviser provides continuous advice based on the client's individual needs

What is the balance sheet equation?

Assets = liabilities + shareholders' equity

Which of the following is not included in the definition of broker-dealer as found in the Uniform Securities Act?

Banks

Which of the following is not included in the definition of broker-dealer as found in the Uniform Securities Act?

Banks (Broker-dealer" does not include (1) an agent, (2) an issuer, (3) a bank, savings institution, or trust company)

has $110 million or more in assets under management manages an investment company registered under the Investment Company Act of 1940

Biographical sketches of each of the members of the board of directors, as well as ABCO's principal officers Expected use of the proceeds of the offering Expected range of the public offering price

To assist broker-dealers with compliance, NASAA prepared a fee disclosure template. Based on the template, all of the following broker-dealer charges would be disclosed except

Brokerage comissions

Which of the following acts requires publicly traded corporations to issue annual reports?

Securities exchange act of 1934

Which of the following is (are) exempt from the registration requirements of the Uniform Securities Act?

Securities issued by a nonprofit organization Securities guaranteed or issued by a federal savings and loan T-bills Unit investment trusts registered with the SEC

Which of the following transactions is exempt under provisions incorporated into the Uniform Securities Act?

Transactions between the issuer and the underwriter

While searching for a suitable investment for your client, you narrow the choice to the following four companies. Company A with returns over the past 4 years of: 12%, 4%, 8%, 6% Company B with returns over the past 4 years of: 7%, 8%, 9%, 6% Company C with returns over the past 4 years of: 10%, 12%, −2%, 10% Company D with returns over the past 4 years of: 15%, 20%, −8%, 3% Which of these choices has the highest volatility?

Company D

Section 402 of the Uniform Securities Act contains a listing of those securities that are granted an exemption from the registration and advertising filing requirements of the Act. Excluded from that listing would be

Corporate debentures

A free trade agreement is entered into between Country A and Country B. As time goes on, the value of Country A's currency increases while that of Country B's decreases. The effect of this will likely be that

Country A's imports from Country B will increase As a country's currency increases in value, its exports become more expensive, so they will fall

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?

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

Kapco Advisers, a federal covered investment adviser operating on a calendar-year basis, published a list of recommended securities in January 2015. A copy of this must be maintained until at least

December 31, 2020 (Investment adviser records, including copies of advertisements, must be kept for at least 5 years from the end of the fiscal year in which the record originated)

Which of these industries would be considered defensive in the face of a recession?

Food producer

Which of the following would be a nonissuer transaction?

GEMCO Mutual Fund sells 100,000 shares of XYZ Corporation common stock out of its portfolio. Curt sells 1,000 shares of Giggle common stock to Chuck in an isolated transaction. (In a nonissuer transaction, the proceeds of the sale go to someone other than the issuer.)

Which of the following constitutes a sale of stock?

Gift of assessable stock Purchase of shares through the exercise of a warrant

If an agent thinks that a technology stock is undervalued and actively solicits all customers, which of the following is TRUE of the agent?

He committed the unethical business practice of blanket recommendations.

Which of the following is required for a preorganization subscription to be an exempt transaction?

No commission has been paid.

Under the Investment Advisers Act of 1940, an investment adviser would be prohibited from engaging in which of the following practices, even if disclosed in writing to the customer?

Putting the adviser's own interests before those of the customer

A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to immediately

Reply to the client in writing

A fundamental analyst would be interested in funds available for use in the business. Doing which of the following would have the greatest impact on future cash flow?

Retiring outstanding bonds

Which of the following is NOT true regarding the Securities Exchange Act of 1934?

The act bars the use of arbitrage by broker-dealers

Which of the following best describes net present value?

The difference between the sum of the discounted cash flows that are expected from an investment and its initial cost

The Administrator of a state securities department conducted a hearing regarding misconduct by an investment adviser registered at the state level. The Administrator required the adviser, as well as several clients who had lodged complaints against the adviser, to take a sworn oath that their testimony was true. Does the Administrator have the power to require sworn oaths?

Yes, because the Administrator is empowered to administer oaths as provided in the Uniform Securities Act, as enacted in the Administrator's state of jurisdiction.

Specific or unsystematic risk refers to investment risk that is

diversifiable

Active Technicians (AT) is a state-registered investment adviser. In its brochure supplement, it would include information relating to each of the following individuals EXCEPT

members of AT's board of directors who are active in the firm's business

Hugh Clark, a partner with a minority interest in ABC Investment Partners, a registered investment adviser, withdraws from the partnership to form his own separate partnership, Clark Advisers. ABC Investment Partners

must notify its clients of Clark's departure within a reasonable period

If a nonexempt company has authorized a stock split that will give each shareholder 2 shares for every 1 share owned without charge, this action

need not be registered because it is neither an offer to sell or a sale

A state-registered investment adviser maintains custody of client funds and securities. On Thursday, the chief financial officer of the firm informs the chief compliance officer that their net worth is $31,578. Under the provisions of the Uniform Securities Act, the firm would

send a detailed financial report to the Administrator by the close of business Monday

If the net present value of a series of discounted cash flows is less than zero, one could conclude that

the discounted cash flows are lower than the investment outlay.

When a bank that is a member of the Federal Reserve System borrows from another member bank, the rate that is charged is known as

the federal funds rate

The Smiths are saving money for a down payment on a house. The Smiths have $25,000 in cash, and they estimate that in 5 years they will have approximately $31,000 if they deposit their cash in a savings account that compounds interest yearly. To calculate the $31,000 amount, the Smiths determined

the future value of the $25,000

In the secondary market, U.S.Treasury bond prices are most influenced by

the inflation rate

If a business fails because a new technology makes its products obsolete, this is an example of

unsystematic risk

If a security has an anticipated return of 8.7% and a standard deviation of 14.6%, you would expect the returns to have a 95% probability (assuming a normal distribution) of falling between

−20.5 and +37.9% (A security with a normal distribution has a 95% probability of falling within 2 standard deviations of its anticipated return. In this case, that would be −20.5% and +37.9%, which is computed by calculating return movements of 29.2% (14.6 × 2) in either direction.)

Which of the following statements regarding investment risk is NOT correct?

Systematic risk may be reduced or eliminated by effective portfolio diversification.

Which of the following statements regarding investment risk is not correct?

Systematic risk may be reduced or eliminated by effective portfolio diversification.

Which of the following are securities under the Uniform Securities Act?

A variable annuity A subscription right to purchase common stock Certificate of interest or participation in an oil, gas, or mining partnership

All of the following activities comply with the requirements for agency cross transactions EXCEPT

after proper written disclosure, an adviser recommends the transaction to both the seller and the buyer

An investment of $2,000 made 10 years ago is now worth $8,000. Using the Rule of 72, the approximate compounded annual rate of return is

14.4% (This investment has quadrupled in 10 years. Using the Rule of 72, we know how to compute the rate of return when an investment doubles. This one has doubled every 5 years. Dividing 72 by 5 years gives us an approximate rate of 14.4%.)

A customer determines that he has been sold unregistered, nonexempt securities in a prohibited transaction. In accordance with the USA, he can exercise the right to file a civil suit within

2 years from discovery or 3 years from occurrence, whichever is sooner.

Moonglow Specialties, Inc., is paying a quarterly dividend per share of $0.05. Based on a current share price of $10, the dividend yield is closest to

2% (.05 * 4) = .20 (.20/10)= .02 or 2%

Under the National Securities Markets Improvement Act of 1996, which of the following describe federal covered securities?

A security registered under the Investment Company Act of 1940 A security of a company traded on the Nasdaq Stock Market A security issued by the U.S. government

There are a number of exclusions from the definition of investment adviser. Which of the following would NOT qualify for an exclusion under the Uniform Securities Act?

A teacher at the local high school who receives nominal compensation for giving investment advice to engineers

Which of the following is NOT considered a valid receipt of an offer to buy or sell securities in this state under the Uniform Securities Act?

A television broadcast transmitted from a neighboring state A radio broadcast transmitted from in a neighboring state A newspaper advertisement in a paper published in the state but which has over 2/3 circulation outside the state

An investment adviser who is affiliated with a broker-dealer recommends only products that are provided through that BD. This is

permitted following disclosure of the potential conflict of interest

According to the ethical guidelines set forth in the NASAA Statements of Policy and Model Rules, which of the following statements regarding discretion is CORRECT?

An agent of a broker-dealer must have written prior discretionary authorization prior to effecting discretion in a client's account. An investment adviser representative must receive written discretionary authorization within 10 business days of the first discretionary transaction in the account.

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?

An agent of a broker-dealer registered in the state.

The issuer-specific component of the variability in a stock's total return that is unrelated to overall market variability is known as

unsystematic risk.

One of the best sources of financial information is found in the reports required to be filed with the SEC by publicly-traded companies. The easiest way to access this information is by

using EDGAR

An agent's customer says that ABC Corporation is about to be bought out. The customer wishes to place an order to buy ABC common stock based upon this yet unreleased information, which he claims he learned from an officer in the company. How should the agent respond in this situation?

Bring the information to the attention of the firm's supervisory principal named to handle such matters in the Supervisory Procedures Manual

What is the purpose of the Securities Exchange Act of 1934?

It regulates the persons involved in the secondary market.

NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents lists which of the following as an unethical business practice by a broker-dealer?

Engaging in a pattern of unreasonable and unjustifiable delays in the delivery of securities purchased by any of its customers

When describing exempt transactions under the USA, which of the following are fiduciaries?

Executor of an estate Administrator in intestacy

Your client has $10,000 to invest and expects to earn an after-tax return of 8% to send his daughter to college in 12 years. Which of the following items will help determine whether the investment is likely to satisfy the client's goal?

Expected cost of college

Which of the following practices violates the Uniform Securities Act?

Failing to follow a customer's instructions

Harrison is a Certified Financial Planner (CFP®) with an office in the state and a telephone directory listing under the category "Financial Planners." Harrison has, for fees, written more than 100 comprehensive financial plans for various individual clients. However, only 20% of the plans' content entails advice regarding securities and investments. Which of the following statements best describes Harrison's status as an investment adviser under the USA?

Harrison is required to register as an investment adviser because he regularly offers advice and receives compensation for advice concerning securities and investments, and holds himself out as a financial planner.

Which of the following incorrectly states the relationship between NPV, IRR, and required return?

If NPV > 0, then IRR < required return.

Which of the following statements regarding registration of investment advisers is (are) TRUE under the Investment Advisers Act of 1940?

If any material information filed in the registration becomes inaccurate, an amendment must be filed promptly. If any nonmaterial information filed on Form ADV changes, an amendment must be filed within 90 days of the end of the fiscal year

Under the Securities Exchange Act of 1934, which of the following statements regarding reports required to be filed with the SEC is TRUE?

Institutional investment managers who exercise discretion over accounts valued at $100 million or more of 13(f) securities must file reports quarterly.

Out-of-state investment advisers with no office in this state are not required to be registered if only advising

Insurance companies

When determining whether to make an investment in a real estate limited partnership, Bill is concerned with the discount rate that equates the net investment cash inflows to the net investment cash outflows. Which calculation is Bill using to make this prudent investment decision?

Internal rate of return

Jefferson, Adams, and Washington (JAW) is a pension consulting firm whose only office is on Constitution Avenue in Washington, D.C. JAW has only one advisory client—a U.S. government employees pension fund with assets of $4 billion. What are this firm's registration requirements?

It may choose to register with either the D.C. Administrator or the SEC.

Jefferson, Adams, and Washington (JAW) is a pension consulting firm whose only office is on Constitution Avenue in Washington, D.C. JAW has only one advisory client—a U.S. government employees pension fund with assets of $4 billion. What are this firm's registration requirements?

It may choose to register with either the D.C. Administrator or the SEC. (Under the provisions of the Dodd-Frank Act of 2010, pension consultants providing advisory services to employee benefit plans having at least $200 million of assets may register with the SEC )

The business cycle has expanded, peaked, and contracted. The current economic activity could best be described as a trough. Which of the following would most likely be found in the trough?

Low rate of inflation High rate of unemployment

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed?

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed?

Which of the following describe indications of interest secured during the 20-day cooling-off period?

Non binding on the customer Non binding on the broker dealer

Bryan, an agent registered with a broker-dealer, buys 1,000 shares of XYZ Corp. in his own account. In recommending XYZ Corp. to his customers, Bryan informs them that he believes in the company so much that he put his own money in the stock. This practice is

Not an unethical sales practice

While several methods of registration are described under the Uniform Securities Act, which of the following would be most appropriate for an investment company registered with the SEC under the Investment Company Act of 1940?

Notice filing

A federal covered IA files a petition for bankruptcy. The firm must

Notify the SEC immediately

Which of the following activities are prohibited practices under the principles of the Uniform Securities Act?

Offering shares of an unregistered, nonexempt security to retail customers Offering a Canadian government bond to a resident of a state in which the agent of a broker-dealer is not registered

Serenity Strategic Investments (SSI) is an investment adviser registered in four states. SSI's most previous annual updating amendment showed AUM of $108 million. Six months later, a favorable market resulted in SSI's AUM growing to $120 million. Unfortunately, several large clients left, so at the end of SSI's year, its AUM was down to $94 million. Which of the following statements is CORRECT?

SSI remains state-registered because its AUM is less than $100 million.

Under the Uniform Securities Act, the Administrator may require the filing of advertising and sales literature in which of the following offerings?

Sale of an IPO limited to residents of the state (The state securities Administrator may require the filing of advertising and sales literature of an IPO limited to residents of the state)

Investment risk may broadly be categorized as either unsystematic or systematic risk; both types of risk together constitute total, or absolute, risk. Total risk is measured by

Standard Deviation

The Conference Board releases information about the economy on a periodic basis. Included are a number of different indicators. These indicators can be used to predict how the economy as a whole might change. Which of the following would be considered a leading indicator?

Stock prices as measured by a broad index such as the S&P 500

An issuer is planning to offer securities for sale in State A and several other states. Which of the following statements regarding registration in State A under the Uniform Securities Act is NOT true?

The Administrator may not, as a condition of registration by qualification or coordination, require the security be deposited in escrow and the proceeds be impounded until the issuer receives a specified amount.

Under the USA, which of the following statements regarding the posting of surety bonds is NOT true?

The Administrator requires all broker-dealers to post bonds even if they maintain net capital in excess of minimum amounts.

According to the Uniform Securities Act, which of the following circumstances may NOT result in a prison sentence?

The adviser proves that he had no prior knowledge of the rule or order violated.

Which of the following CORRECTLY defines the Consumer Price Index (CPI)?

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

Which of the following statements regarding investment theory is not correct?

The beta coefficient may be used to help select a portfolio that is consistent with an investor's willingness to assume unsystematic risk. *(beta measures SYSTEMATIC risk)

Which one of the following is NOT among the powers granted to the Administrator under the Uniform Securities Act (USA)?

The power to require individuals associated with federal covered advisers in the capacity of investment adviser representatives to register as such in his state as long as the investment adviser has a place of business in the state

According to the Uniform Securities Act, which of the following would be considered exempt transactions?

The sale of a unlisted corporate bond by an executor of an estate An unsolicited order from an individual client to purchase a nonexempt, unregistered security

Under the Uniform Securities Act, which of the following circumstances would exempt a security from registration?

The security is exempt from registration under the act. The transaction in which the security is sold is exempt under the act

Under the Uniform Securities Act, which of the following circumstances would exempt a security from registration?

The security is exempt from registration under the act. The transaction in which the security is sold is exempt under the act.

Under which of the following circumstances can an agent conduct customer transactions without the activity being recorded on the books and records of his broker-dealer employer?

The transactions are authorized in writing by the broker-dealer before execution of the transactions.

Beverly has two stocks with a correlation coefficient of zero. Which of the following is correct?

These stocks will move independently of each other. (A correlation coefficient of zero means that the two stocks will move independently.)

Which of the following statements about systematic and unsystematic risk is most accurate?

Total risk equals market risk plus company-specific risk.

Publicly-traded corporations are generally required to have an annual independent audit of their financial records. What is the highest opinion offered under GAAP?

Unqualified opinion

A significant increase in the importing of goods into the United States would likely have what effect on the strength of the U.S. dollar?

Weaken

Which items would change if a company declared a cash dividend?

Working capital Total liabilities Shareholders' equity

Each of the following is not a prohibited practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents EXCEPT

a broker-dealer failing to disclose that the firm is affiliated with the issuer of a recommended security

Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include

a charge when a client requests that a stock certificate be issued in his name the interest charged by the firm on money owed by customers in their margin accounts

To register a sole proprietorship as an investment adviser in a state, the application for initial registration (Form ADV) must be filed with the appropriate party. This application must include all of the following except

a copy of the articles of incorporation for the business. (Articles of incorporation only apply to corporations. Sole proprietorships are not incorporated. To register as an investment adviser in a state, Form ADV is filed with the Administrator or with a central registration depository designated by the Administrator. The application must include, among other things, a consent to service of process, appropriate fees, and the brochure or any other information that will be used to solicit clients.)

A broker-dealer registered with State A created a website 2 years ago to promote its services. Recently, they hired a new media person who totally redesigned the site. Under the recordkeeping requirements of the Uniform Securities Act,

a copy of the original website page must be maintained for 3 years from original use

As enumerated in the USA, exempt securities would include those issued by all of these EXCEPT

a corporation based in Toronto, Ontario, whose common stock trades on the Toronto Stock Exchange

A bond analyst is plotting a yield curve and notices that short-term maturities have higher yields than intermediate and long-term maturities. This is an example of

an inverted yield curve

All of the following must be disclosed by an investment adviser EXCEPT

an investment adviser representative in the firm was fined $1,000 by FINRA for making unsuitable recommendations (Must disclose if fine is over $2,500)

XYZ Corporation is registering a new issue of common stock. A final prospectus must be delivered within the statutory time limits to

any person who purchases shares of the issue

An agent who carefully evaluates a client's risk tolerance, financial situation, and investment objectives engages in an unethical practice when he:

automatically recommends securities that are highly regarded by other agents in the office

An agent registered with a broker-dealer in this state would be permitted to do all of the following EXCEPT

borrow money, with written permission of the customer and the broker-dealer, from an immediate family member who is a client

An analyst uses a stock selection method that involves analyzing a specific corporation, followed by evaluating where it fits in its industry and then viewing the overall economy. The term that best describes this method is

bottom-up

Adell, a retiring social worker, has some money to invest. An agent suggests she look into investing in a private placement security that is raising money to build apartment buildings in Puerto Rico. According to the NASAA Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents

building projects are not appropriate for retirees who typically need immediate income private placements are not usually appropriate for retiring individuals because they are not liquid

An analyst comparing revenues with expenses is most likely analyzing

cash flow

A client asks her investment adviser representative what footnotes to the financial statements are for. The best reply would be that footnotes

contain information that doesn't have a place in the main body of the financial statements

The Administrator may require which of the following from a federal covered adviser?

copy of the IA's Form ADV a filing fee

A federally chartered credit union is domiciled in Texas. The credit union is making an offering of securities in Nebraska. To comply with the Uniform Securities Act's exclusion from the definition of agent, any individual offering the security in Nebraska

could not sell without being an agent

A corporation calls in a portion of its long-term debt at 101. This will have the effect of

decreasing working capital decreasing net worth

An individual is employed by a federal covered investment adviser for the sole purpose of giving advice related to monitoring investment portfolios, but only to qualified employee benefit plans. Under the Uniform Securities Act, this individual is

defined as an IAR because the individual is rendering investment advice

The National Securities Markets Improvement Act of 1996 (NSMIA)

defined the term "federal covered adviser"

All of the following activities of an investment adviser are prohibited under the Uniform Securities Act EXCEPT

disclosing potential conflicts of interest

Selmer Jones has just inherited some money and wants to set some of it aside for a vacation in Hawaii one year from today. His bank will pay him 5% interest on any funds he deposits. In order to determine how much of the money must be set aside now and held for the trip, he should use the 5% as a

discount rate.

Under the USA, when one is referring to a security that is guaranteed, the guarantee applies to

dividends to be paid on the specified stock interest and principal payment on the specified bond

In general, one of the first steps in becoming an agent for a broker-dealer is the completion of the Form U4. One piece of information that is not disclosed on the Form U4 is

education background and degrees earned.

Information required on an application for registration as an agent would include

felony convictions, whether securities related or not. citizenship information.

It is a violation of the Uniform Securities Act if an agent

files a fraudulent application

A federal covered investment adviser is one who

has $110 million or more in assets under management manages an investment company registered under the Investment Company Act of 1940

A foreign private adviser is defined in the Dodd-Frank Act as any investment adviser that

has no place of business in the United States. has, in total, fewer than 15 clients and investors in the United States in private funds advised by the adviser. has aggregate AUM attributable to clients in the United States and investors in the United States in private funds advised by the adviser of less than $25 million.

If a person who is not an agent or broker-dealer makes a false statement of material fact in connection with the sale of a security, that person

has violated the antifraud provisions of the Uniform Securities Act (The Uniform Securities Act makes it illegal for any person to commit a fraudulent act in connection with the sale or offer for sale of a security, not just agents and broker-dealers)

The major risk for highly rated corporate bonds is

interest rate changes

The main difference between the current ratio and the quick ratio is that the quick ratio excludes

inventory. ---------------------------------------------------------- Current ratio = (current assets ÷ current liabilities) = [cash + marketable securities + receivables + inventory] ÷ current liabilities. Quick ratio = [cash + marketable securities + receivables] ÷ current liabilities.

A person who has no place of business in this state would not be considered a broker-dealer if he effects transactions in this state exclusively with all of the following except

investment advisers.

Exceptional Results Advisers (ERA) has $15 billion in AUM and does not accept new clients who are unable to place at least $25 million under ERA's management. From time to time, ERA's clients ask for recommendations for friends or family who don't meet ERA's minimum investment level. In most cases, ERA recommends these prospects to Rational Investment Planning (RIP), a state-registered investment adviser, and receives a referral fee for each person who becomes a client of RIP. The practice

is acceptable because the referral fee is being paid to a registered investment adviser.

Fusion Financial is a broker-dealer registered in States A, B and C, with its home office in State B. A complaint is filed against the firm by a client who resides in State A. Under the powers granted under the Uniform Securities Act, the Administrator of State B could do all of the following EXCEPT

issue an injunction against Fusion Financial (only courts can issue an injunction)

When a stock has a beta of less than 1, this indicates that

it will, on average, give a return below that of the market

In general, one would prefer to purchase a bond when its current market price is

less than its present value

The Administrator may

limit a registrant's functions to that of a broker-dealer if, in the initial application for registration as an investment adviser, the registrant is not qualified to act as an adviser take into consideration that the registrant will work under the supervision of a registered investment adviser or broker-dealer in approving a registration

You have a 45-year-old client wishing to save for retirement. The client does not have a great deal of investment sophistication and inquires about the risks you have exposed him to by placing the majority of his portfolio in listed common stocks. You would respond that one risk he should not concern himself with is:

liquidity risk

An issuer wishing to comply with Regulation D of the Securities Act of 1933 must file a Form D with the SEC

no later than 15 days after the first sale

Differences between static and interactive content on social media include

only static content needs preapproval only interactive content can be commented on by others

The Uniform Securities Act authorizes the Administrator to make certain demands of broker-dealers. In general, the Administrator would not require a broker-dealer to

post a surety bond if the broker-dealer does not have investment discretion over client accounts or does not maintain custody of customer funds and/or securities

Investment risk may broadly be categorized as either unsystematic or systematic risk; both types of risk together constitute total, or absolute, risk. Total risk is measured by

standard deviation

All of the following securities are exempt from registration under the USA EXCEPT

stock of a bank holding company traded on the OTC Link

Platinum Investment in Growth Group, Inc. (PIGGI) is registered in and has its principal office in State W. PIGGI has near-term plans to open offices in State A and B. In an effort to test the waters, PIGGI mails several hundred flyers to prospects in those 2 states. Under the Uniform Securities Act,

these flyers could not be mailed until PIGGI was registered in States A and B

An investment adviser (IA) has a number of clients who need high-quality estate planning. These clients are referred to the Rox Law Firm, and in exchange, Mr. Rox sends those of his clients needing investment advice to the IA. The IA pays a referral fee to Mr. Rox of $300 for each referral who becomes a client. Under the NASAA Model Rule on Unethical Business Practices Of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers,

this is permissible, but only if disclosed to clients

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

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

Assume Frank has a portfolio with an actual return of 10.50% for the past year. The portfolio beta equals 1.25, the return on the market equals 9.75%, and the risk-free rate of return equals 3%. Based on this information, what is the alpha for Frank's portfolio and did it out outperform or underperform the market?

−0.9375%, underperform (the formula for alpha: alpha = (actual return − risk-free rate) - (beta × [market return − RF]))

Investment Advisor

"any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities."

A corporation's balance sheet shows total assets of $930,000 of which $400,000 are current assets. It also shows $525,000 of total liabilities of which $215,000 are current liabilities. The company's working capital is

$185,000.

An analyst is viewing financial statements of Diderot Clothing Stores (DCS), a chain of high-fashion women's apparel. DCS had $7 million as its beginning-of-year retained earnings and it made post-tax profits of $3 million. The board of directors decides to pay a dividend of $1 million. Once paid, what would be the ending retained earnings?

$9 million

Patrice has an investment portfolio with the following characteristics: Portfolio actual return: 9% Market actual return: 12% Portfolio standard deviation: 4% Market standard deviation: 7% Portfolio beta: 0.65 Risk-free rate of return: 3% What is her portfolio's alpha? Did her portfolio outperform the market on a risk-adjusted basis?

(9% - 3%) - (.65 times [12% minus 3%]) = 6% - (.65 x 9%) = (6% - 5.85% = 0.15%

Investment Counsel

2 criteria in the Inv Act of 1940 that must be met in order to use this term: 1. The investment advisors principal service must be giving investment advice. This basically includes financial planners and others for whom investment advice is only part of what they do. 2. Provide investment supervisory services: this includes consistent monitoring of account

ABD Corporation's income statement reports net sales of $100 million; cost of goods sold, $60 million; administrative costs, $20 million; and interest on debt, $5 million. Based on this information, ABD's gross margin is

40%

While reviewing nationwide industrial production figures, an analyst notices that inventories have been rising. From that information, one would gather that the economy is most likely in which phase of the business cycle?

Contraction

Which of the following describes unsystematic risk?

It is specific to an investment and can be diversified away.

The most common way in which to distinguish whether social media content is static or interactive is

The ability for others to change it

administrator

The administrator has jurisdiction over the registration of securities professionals and securities he has the power to make rules and issue orders he can deny suspend or revoke registrations

Investment advisor Three prong test

The person is considered an investment advisor if: 1. They give advice to others on securities 2. Does so as part of regular business activities 3. Directly or indirectly receives compensation for performing this activity

The common stock of companies within which industry sector would be most adversely affected by an increase in the general level of interest rates?

The utilities industry (Utilities are generally very heavily funded with debt. If interest rates go up, their new debt will be at higher interest rates, causing lower earnings available for common stocks.)

Bond X has an internal rate of return (IRR) of 7%. Bond Y has an IRR of 9%. Both bonds pay interest semiannually. If the required rate of return is

7%, the net present value (NPV) of Bond Y will exceed the NPV of Bond X.

Which of the following would have to register as an investment adviser under the Uniform Securities Act?

A retired aeronautical engineer who charges a nominal fee for holding seminars on opportunities in aerospace stocks

Which of the following statements describes a person who provides investment advice on a regular basis but does not charge fees, yet would be considered an adviser under Release IA-1092?

A retired chief investment officer of a well-known investment management company, without compensation, writes a column in a general circulation newspaper commenting on the value of investing in equity securities; many readers find his advice useful and become clients of his former investment management company.

Which of the following is NOT considered a valid receipt of an offer to buy or sell securities in this state under the Uniform Securities Act?

A television broadcast transmitted from a neighboring state A radio broadcast transmitted from in a neighboring state A newspaper advertisement in a paper published in the state but which has over 2/3 circulation outside the state

An agent tells a customer that by investing in U.S. Treasury bonds, he is guaranteed to make money. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following statements is TRUE?

This is unethical because it constitutes a guarantee against market risk.

Under the Uniform Securities Act, an agent may NOT make which of the following statements to a customer?

This security is approved by the Administrator.

All the pundits are predicting bad times ahead—not only a recession but a period where prices actually fall (deflation). If they are right, the best place for your client would probably be

U.S. Treasury securities

If the U.S. dollar has fallen relative to foreign currencies, which of the following statements are TRUE?

U.S. exports are likely to rise. Foreign currencies buy more U.S. dollars

A securities analyst reviewing the financial statements of the XYZ Corporation observes that the company's total liabilities are in excess of its total assets. From this information, the analyst could conclude that XYZ has

a negative book value per share.

The Uniform Securities Act requires all of the following to be registered as agents of a broker-dealer EXCEPT

a silent partner who has contributed most of the capital of the broker-dealer but takes no part in the firm's activities

The National Securities Markets Improvement Act of 1996 (NSMIA) affects federal and state laws in that

federal securities laws preempt state laws

An investment adviser representative is assuring clients of steady returns on an investment. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, this activity is

prohibited because the IAR is guaranteeing a profit

Plenitude Premier Solutions (PPS) is registered in State C. If PPS wished to maintain custody of client funds or securities,

prompt notice would have to be given to the State C Administrator on Form ADV.

With regard to the state registration requirements of agents of registered broker-dealers, all of the following statements are correct except

registration is required in each state in which the employing broker-dealer has a place of business

In conducting investigations, the Administrator may

require a person to file a statement in writing and under oath publish information of any violation over the vigorous objections of a violator make investigations both inside the state and in other states to determine whether violations of the USA have occurred in his state

Exemptions from investment advisor act of 1940 (federal)

• intrastate advisors (only within one state) - Investment advisors other than an investment advisor who acts as an investment advisor to any private fund, who is clients, or resident of the state in which the advisor has its principal office in only place of business and who do not give advice dealing with securities listen on any national exchange are exempt. • advisors whose only clients are insurance companies are exempt

Under the Uniform Securities Act, unless renewed, the registration of which of the following securities professionals expires on December 31?

Agents Broker-dealers Investment advisers Investment adviser representatives

The term "investment adviser representative" includes which of the following?

An employee who solicits new business for an adviser A supervisor who oversees employees who manage client portfolios for an adviser

According to the Investment Advisers Act of 1940, which of the following is always a natural person?

An investment advisor representative

person

Anyone who can open an account Everyone except: (A minor, a deceased individual, and an individual declared mentally incompetent by the courts)

Which of the following situations would present a conflict of interest that an adviser must disclose to clients to avoid unlawful and deceitful behavior under the Investment Advisers Act of 1940?

The adviser receives compensation from the issuer of securities that he recommends to his clients

An investment adviser is analyzing 4 bonds of similar quality for a client. Bond A has a coupon of 6%, matures in 12 years, and is currently priced at 50. Bond B has a coupon of 8%, matures in 9 years, and is currently priced at 50. Bond C has a coupon of 4%, matures in 18 years, and is priced at 45. Bond D has a coupon of 12%, matures in 6 years, and is priced at 50. Based on NPV, which of these bonds represents the better value?

Bond C dividing 72 by the interest rate tells you the number of years it will take for a deposit to double. a positive NPV is when you can buy the bond for less than its present value.

Your high-net-worth advisory client has a large cash position in his money market account and is considering using the cash to purchase an investment property. You believe that the real estate investment will not provide the same returns that can be realized by investing in bonds, so you prepare a proposal that estimates the income stream and potential capital growth of a portfolio of convertible bonds currently in the firm's inventory. The recommendation is quite suitable for the client based on his current objectives. If the transaction is completed and you fail to disclose that the bonds were sold in a proprietary transaction and receive client consent, you would have

Committed a prohibited practice

Which of the following statements regarding registration of investment advisers is (are) TRUE under the Investment Advisers Act of 1940?

If any material information filed in the registration becomes inaccurate, an amendment must be filed promptly. If any nonmaterial information filed on Form ADV changes, an amendment must be filed within 90 days of the end of the fiscal year.

Which of the following statements are TRUE?

Federal covered advisers are advisers with federally imposed exemptions from state registration as investment advisers. Federal covered securities include those issued by investment companies registered under the Investment Company Act of 1940

Which of these industries would be considered defensive in the face of a recession?

Food procuder

Jack, who is proficient in both fundamental and technical analysis, would like to become an investment adviser. Although Jack is fairly new to the securities business, he worked in the commodities business for many years. Five years ago, Jack's Commodity Pool Operator's license was suspended by the Commodity Futures Trading Commission for having willfully violated or willfully failing to comply with any provision of the Commodity Exchange Act. Which of the following best describes how Jack's application to open an investment advisory business will be handled under the Investment Advisers Act of 1940?

Jack's application will likely be denied because he violated the Commodity Exchange Act within the 10-year period prior to his application.

Which of the following statements is most accurate regarding the net present value (NPV) and internal rate of return (IRR) on a bond?

NPV assumes the cash flows can be reinvested at market interest rates.

Which of the following is required for a preorganization subscription to be an exempt transaction?

No commission has been paid. (A preorganizational subscription is an exempt transaction if there are no more than 10 subscribers and no commissions are paid, either directly or indirectly. The subscribers make no payments until they purchase the underlying security.)

A broker-dealer would most likely hire an agent to

Sell securities to clients

An agent is registered in Illinois and Ohio. One of her substantial clients has just moved from Ohio to Arizona, and the agent would like to continue to do business with her. Under the Uniform Securities Act, which of the following statements is TRUE?

The agent's broker-dealer must already be registered in Arizona or complete the Arizona registration process within a time period specified by the act. The agent must complete the Arizona registration process within a time period specified by the act.

Those persons meeting the Uniform Securities Act's definition of a broker-dealer in a state must, unless otherwise exempted, register in that state. Which of the following is correct regarding the initial registration and expiration of the registration of a broker-dealer?

The effective date of an initial registration is at noon on the 30th day after receipt of a completed application; expiration, unless renewed, is each December 31st.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following must be included in an investment advisory contract?

The formula used to determine the investment adviser's compensation A statement of the discretionary authority, if any, given to the investment adviser

Which of the following circumstances would require an investment adviser to notify all clients of the firm?

The investment adviser hires another partner for the firm.

Damon Raymond is an agent with ABC Investment Planning, a registered broker-dealer and investment adviser. Under what circumstances would Damon not have to obtain client consent when ABC Investment Planning is acting in a principal capacity?

When the trade that is made is unrelated to the advisory relationship

Which of the following would NOT be included in the definition of a security under the Uniform Securities Act?

Whole life insurance policies issued by the Dividend Mutual Life Insurance Association of America

Under the Uniform Securities Act, when must a consent to service of process be filed with the Administrator?

With the original application for registration only

If an agent chooses to appeal an Administrator's order, when must the agent file for review of the order with the appropriate court?

Within 60 days of the entry of the order

Due to changes in market rates, a corporation is able to purchase some of its outstanding 20-year bonds at a discount. Which of the following is CORRECT?

Working capital is reduced. Net worth is increased.

Under the NASAA Model Custody Rule, an investment adviser would be considered to have custody of client assets if that adviser inadvertently receives

a check from a client for a purchase that is made payable to a third party and does not forward the check within 3 business days stock certificates from a client and does not return them within 3 business days

Angela, a wealthy client of yours, has constructed her portfolio with individual common stocks that closely match the weighting of the S&P 500 index. In so doing, Angela has significantly reduced her

business risk

Alexander Wimpton is registered as an agent with WorthMore Securities, a broker-dealer registered with the SEC and 10 states. Wimpton is also an investment adviser representative (IAR) with their wholly owned subsidiary, WorthMore Investments, a federal covered investment adviser. Many of Wimpton's advisory clients also maintain brokerage accounts at WorthMore Securities. If one of those clients were to call Wimpton and enter an order to purchase shares of a stock the broker-dealer is selling out of inventory,

consent of the client would not be necessary as long as the only capacity in which Wimpton was acting was that of an agent

A client of a broker-dealer calls his agent and submits an order to purchase 1,000 shares of a Peruvian copper mining company. As the order ticket is being prepared, the agent notices that this is a nonexempt unregistered stock. The agent should

continue to process the order because this is an exempt transaction

Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client

if the Administrator has not prohibited this practice if the investment adviser has notified the Administrator that it has custody

An investor who is in search of greater return has a portfolio overconcentrated in speculative OTC Bulletin Board and OTC Link stocks. This investor's risk is best reduced through

diversification

The Uniform Securities Act authorizes the state Administrator to require

either oral or written qualification examinations of investment adviser representatives and officers of investment adviser partnerships or corporations officers of investment advisers to pass a qualification examination an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in the state investment adviser representatives to pass a qualification examination

Due to changes in customer preferences, a manufacturing company has decided to discontinue the operations of one of its subsidiaries. An explanation of this decision would most likely be found in the company's

footnotes to the financial statements

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

have a history of repeatedly delaying the delivery of securities to its customers

Creative Wealth Management (CWM), an investment adviser registered in five states, has a preferred brokerage arrangement with Bullish Bobbie Brown Securities (BBBS), a FINRA member broker-dealer. If one of CWM's clients chooses to use a broker-dealer other than BBBS, CWM must disclose that

in a client-directed brokerage account, the client may pay higher brokerage commissions because the IA may not be able to aggregate orders to reduce transaction costs the client may receive less favorable prices because the IA has arranged a preferred commission rate with a preferred broker-dealer

Witherspoon, Eustis, and Brahmin (WEB), an investment banking firm and SEC-registered investment adviser, is the principal underwriter for MTEX's upcoming stock issue. Lynn Black is an analyst and IAR with WEB, and she learned from an employee in MTEX's programming department that a serious problem was recently discovered in the software program of its major new product line. In fact, the problem is so bad that many customers have canceled their orders with MTEX. Black checked the stock's prospectus and found no mention of this development. The red herring prospectus has already been distributed. According to WEB's required code of ethics, Black's best course of action is to

inform her immediate supervisor at WEB of her discovery

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

Bryan, an agent registered with a broker-dealer, buys 1,000 shares of XYZ Corp. in his own account. In recommending XYZ Corp. to his customers, Bryan informs them that he believes in the company so much that he put his own money in the stock. This practice is

not an unethical sales practice

A state-registered investment adviser maintains custody of client funds and securities. On Thursday, the chief financial officer of the firm informs the chief compliance officer that their net worth is $31,578. Under the provisions of the Uniform Securities Act, the firm would

send a detailed financial report to the Administrator by the close of business Monday (A state-registered investment adviser who maintains custody of client assets must maintain net worth of at least $35,000 or a bond of the same amount (not both). If the net worth should fall below the minimum, by the close of the next business day after discovery (Friday in our example), notice of the deficiency must be sent to the Administrator of the state in which the principal office of the adviser is located. Then, by the close of business the day after that (Monday in our example), a detailed financial report, including the number of clients served by the adviser, must be sent to the Administrator.)

An agent would be engaged in a prohibited practice if he

sold a nonexempt, unregistered security to a CPA who specialized in auditing financial institutions aggressively traded a discretionary account on a daily basis with long-term growth as an objective

The Uniform Securities Act provides that the state Administrator may deny the registration of a broker-dealer for all of the following reasons EXCEPT

that the applicant is not qualified due to a lack of experience

Under the USA, an exemption from registration is available to a security listed on any of the following EXCEPT

the Montreal Stock Exchange

As the correlation between any 2 assets decreases,

the benefits of diversification increase

Under the Uniform Securities Act, a private placement is considered an exempt transaction if

the number of noninstitutional offers is limited to a maximum of 10 in any 12-month period

When claiming an exemption from the requirement to register under the USA, the burden of proof is on

the party claiming the exemption

If the required rate of return is higher than anticipated in a present value calculation, the effect would be that

the present value would be lower

The financial ratio that shows the relationship between the price of a company's stock and the company's net worth (stockholders' equity) is

the price-to-book-value ratio

It has been a great year at Capital Funding, Inc., an SEC-registered broker-dealer that is also registered in 22 states. The company decides to share its good fortune with employees by paying a year-end bonus equal to 31% of annual salary. In order for clerical personnel to receive this bonus,

they must be employees of the broker-dealer

Exclusions to investment advisers act of 1940 and USA:

• any bank and bank holding company, savings institution, or trust company. This exclusion is generally limited to the US Banks and bank holding companies. This exclusion is unavailable to credit unions and investment advisor subsidaries of banks or bank holding companies. • (L.A.T.E. Exclusion) any lawyer, accountant, teacher, or engineer who is advice is solely incidental to the practice of his profession is excluded. This exclusion is not available to any of these who have established a separate advisory business. • any broker dealer who's performance of such services is solely incidental to the conduct of its business as a broker dealer and who receives no special compensation is included. This exclusion also applies to registered representatives of broker-dealers (this is true as long as the person does not have a "wrapped fee" for its services) • publishers may qualify for an exclusion from the definition but they must meet certain criteria. Excluded from the definition of investment advice would be a publisher of any bona fide newspaper news magazine or business or financial publication of general and regular circulation • certain individuals who are employed by investment advisors - (investment advisor representatives) • any person who is a federal covered advisor is excluded • any other person the administrator specifies is excluded • Any person who's advice, analyses, or reports are related only to securities that are direct obligations of, or obligations guaranteed by, the United States.