Series 65 - Missed Practice test

Which of the following situations violates the contractual requirements for investment advisory partnerships under the Uniform Securities Act? A) A partner with a 25% interest in an advisory firm dies and is replaced by a new member. The partnership continues business with its existing clients and informs them of the change in partnership composition within a reasonable period. B) A renewal of an investment advisory contract requires the written repetition that an adviser shall not be compensated on the basis of a share of capital gains, not assign a contract without consent, and notify clients of any change in membership of partnership. C) A partnership, without undergoing any change in membership, assigns its smallest accounts to another firm with written consent of the clients. D) A partner with a 5% interest in an advisory firm leaves the firm and the remaining partners do not inform their clients because the departing partner held a minority interest in the firm.

A partner with a 5% interest in an advisory firm leaves the firm and the remaining partners do not inform their clients because the departing partner held a minority interest in the firm.

Suzy Stanton's wealthy Uncle Ray is a client of yours and is asking for some advice on funding a program to save for Suzy's college education with the lowest possible tax impact. Ray tells you that he set up an UGMA account for Suzy's older brother, Sammy; but, when Sammy turned 18, he took the money, bought a motorcycle, and joined a commune. Ray wants to avoid seeing something like that happen again. What would probably be the best suggestion to help Ray meet his objectives? A) A Section 529 plan B) A living trust C) A Roth IRA for Suzy with Ray's name as co-owner D) An UTMA account

A) A Section 529 plan

A new customer has a $35,000 CD maturing in 2 weeks. With the objective of maximizing his income on capital invested, he wishes to invest the proceeds in a mutual fund. Which of the following types of funds should be recommended? A) An income fund B) A growth fund C) A venture capital fund D) A sector fund

A) An income fund

If a customer is in the 15% federal income tax bracket and his main investment objective is current income, which of the following securities should the agent recommend? A) Investment-grade corporate bond. B) U.S. government bond. C) Zero-coupon bond. D) City of Milwaukee GO bond.

A) Investment-grade corporate bond.

Which type of risk is a mortgage-backed security most likely to experience? A) Reinvestment risk B) Market risk C) Exchange rate risk D) Business

A) Reinvestment risk

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) a copy of the original website page must be maintained for 3 years from original use B) there are no requirements for storage of electronic data C) copies of both the original and the new website page must be maintained for 5 years after original use D) a copy of the new website page must be maintained for a period of 3 years from the first use of the original site

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

A margin account that contains both long and short stock positions is known as A) a mixed margin account B) a long/short margin account C) an opposition margin account D) a hedged margin account

A) a mixed margin account

All of the following statements concerning capital market theory are correct except A) beta is a measure of volatility, or relative unsystematic risk, for stock or portfolio returns. B) the market risk premium is the difference between the expected return for the equities market and the risk-free rate of return. C) the security market line (SML) is the graphical depiction of the capital asset pricing model (CAPM). D) the security market line (SML) depicts the tradeoff between risk and expected return for all assets, whether individual securities, inefficient portfolios, or efficient portfolios.

A) beta is a measure of volatility, or relative unsystematic risk, for stock or portfolio returns.

One of your clients purchases a European-style put option on a stock. The premium is $3 and the exercise price is $35. If the price of the underlying asset is $40 on the exercise date, the client has A) lost $300. B) lost $200. C) made $200. D) made $500.

A) lost $300.

Which of the following bonds would most likely be exposed to the greatest amount of interest rate risk? A)JKL 4s of 2020 B)ABC 5s of 2040 C)GHI 7s of 2042 D)DEF 6s of 2041

ABC 5s of 2040

If Janet established a Coverdell Education Savings Account for her grandson, in each successive year, she may contribute A) $3,000.00 B) $2,000.00 C) $4,000.00 D) $1,000.00

B) $2,000.00

An investor invests a total of $30,000 and creates a portfolio of 3 different stocks placing 1/3 of his investment into each security. From his holding in Company A, he receives a dividend of $600; from Company B, a dividend of $500; and from Company C, no dividend. One year later, A has increased by 20%, B by 10%; and C has remained the same. What is this investor's total return on this portfolio? A) 4.56% B) 13.67% C) 3.67% D) 10%

B) 13.67%

Under the Uniform Securities Act, who must register as an investment adviser? A) A financial planner with no place of business in a state and who advises only trust companies B) A registered broker-dealer who receives compensation for providing investment advice C) A bank that provides investment advice D) An accountant who provides advice solely incidental to the business

B) A registered broker-dealer who receives compensation for providing investment advice

An elderly client explains to you that he is risk averse and wishes to find an investment that will provide him with preservation of capital. Which of the following might you recommend? A) An index fund B) Bank-insured CDs C) Variable annuities D) Long-term U.S. government bonds

B) Bank-insured CDs

Under the rules of the Investment Advisers Act of 1940, which of the following need NOT be included in an investment advisory contract? A) Amount of prepaid fees to be returned to a client if the contract is terminated B) The past performance record of the investment adviser C) A description of the services to be provided D) The advisory fee

B) The past performance record of the investment adviser

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) a broker-dealer obtaining a mortgage for its new building from a bank that is a client of the firm B) a broker-dealer failing to disclose that the firm is affiliated with the issuer of a recommended security C) a broker-dealer placing an order in a customer's account that was received from an authorized third party D) a broker-dealer charging a higher-than-normal commission on a trade involving a thinly traded stock

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

Registration with the SEC as an investment adviser would be required for a person who A) limits the advice offered strictly to securities listed on the New York Stock Exchange (NYSE) B) acts as the investment adviser to an investment company registered under the Investment Company Act of 1940 C) acts as the investment adviser to an investment company registered under the Investment Advisers Act of 1940 D) limits the advice offered strictly to securities issued or guaranteed by the U.S. government

B) acts as the investment adviser to an investment company registered under the Investment Company Act of 1940

For which of the following is there no active secondary market? A) Options B) ETFs C) Forward contracts D) Futures contracts

C) Forward contracts

The capital asset pricing model (CAPM) is used by many to assess the expected return of a security. If the current risk-free rate is 2%, the current return on the market is 10%, and a particular stock's beta is 1.5 with a standard deviation of 3.2, the expected return would be A) 15% B) 18.2% C) 14% D) 12%

C) 14%

Which of the following must be disclosed during a transaction recommendation under the Investment Advisers Act of 1940? A) All facts B) All facts needed to assess the risks of an investment C) All material facts D) All facts in the prospectus

C) All material facts

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? A) Depreciation on assets used in the business B) Retaining earnings C) Retiring outstanding bonds D) Amortizing goodwill

C) Retiring outstanding bonds

In which of the following cases would an individual representing an issuer in a transaction with a retail client be excluded from the Uniform Securities Act's definition of an agent? A) The individual sells shares of a federal credit union. B) The individual sells shares of a security issued by and representing an interest in a federal savings and loan association. C) The individual successfully solicits an order from an insurance company to purchase 10,000 shares of the issuer's stock. D) The individual sells shares of a public utility regulated in respect of its rates and charges by a governmental authority of the United States or any state.

C) The individual successfully solicits an order from an insurance company to purchase 10,000 shares of the issuer's stock.

Which of the following is true regarding ETNs? A) As fixed-income investments, they do not have market risk. B) They are suitable for conservative investors seeking income. C) Their value can be impacted by changes in the issuer's credit rating. D) They are non-callable prior to maturity

C) Their value can be impacted by changes in the issuer's credit rating.

If 150 investors want to form a corporation to limit their financial liability to the amount of money they invest and do not want to be responsible for any debt that the corporation incurs, they would most likely form A) a general partnership B) an S corporation C) a C corporation D) a proprietorship

C) a C corporation

Minnie's Uncle Bob would like to contribute to his one-year-old niece's education expenses. He is able to contribute a maximum of $1,200 per year. There is no other family member in a position to make a contribution. If minimizing the taxes at withdrawal and low cost investing, such as index mutual funds, is the objective, which of the following would you recommend? A) Section 529 plan B) Coverdell ESA C) UTMA D) Dollar cost averaging

Coverdell ESA

Your client with $100,000 to invest is looking for maximum current income. Which of the following would offer the highest current return? A) $200,000 of utility common stock paying a current dividend of 3.5% B) $100,000 AA-rated corporate bonds trading at par with a 6% coupon rate C) $100,000 of zero-coupon bonds with a yield to maturity of 6% D) $100,000 market value of corporate bonds selling at a premium and yielding 6% to maturity

D) $100,000 market value of corporate bonds selling at a premium and yielding 6% to maturity

A company using debt obligations to finance business expansion is indicative of what type of investment risk? A) Reinvestment rate risk B) Market risk C) Purchasing power risk D) Credit or default risk

D) Credit or default risk

Which of the following statements about equity securities is NOT true? A) Preferred stock pays a fixed dividend. B) Common stock is less sensitive to interest rate risk than preferred stock. C) Preferred stock is usually nonvoting. D) Preferred stock is an equity security while common stock is a hybrid.

D) Preferred stock is an equity security while common stock is a hybrid.

Which of the following is NOT considered a derivative? A) Warrant B) Futures contract C) Call option D) Unit investment trust

D) Unit investment trust

​Oscar and Hilda, a married couple, are collecting Social Security. They speak to their financial planner for advice on taxation of those benefits. At what level do their benefits become subject to income tax?​ A) When 50% of their benefits added to all their other income, excluding tax-exempt interest, exceeds $25,000 B) When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $25,000 C) When 50% of their benefits added to all their other income, excluding tax-exempt interest, exceeds $32,000 D) When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $32,000

D) When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $32,000

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 Yankee bond. B) a Eurobond. C) a Brady bond. D) a Eurodollar bond.

D) a Eurodollar bond.

Gross Domestic Product (GDP) is increasing. Real interest rates are relatively high. Consumer sentiment is strong, as are auto and retail sales. Labor productivity is declining. What state of the business cycle is the economy likely experiencing? A) Expansion to peak B) Trough to recovery C) Recovery to expansion D) Peak to contraction

Expansion to peak

Bail Bonds, Inc., might issue warrants in connection with a bond issue for which of the following reasons? I. As an inducement to make the bonds more marketable II. To lower their interest cost on the issue III. To increase the marketability of their common stock IV. To increase the number of common shares outstanding

I and II

A federal covered investment adviser registered with the SEC that has offices in 5 states must do which of the following? I. Pay state filing fees if required by the Administrator II. Notify the Administrator within 1 business day if net worth falls below the required minimum III. Notice file in any of those states where required by the Administrator IV. Become licensed as a broker-dealer

I and III

Which of the following accounts could be opened with a TOD designation? I. Individual II. Joint tenants in common III. Joint tenants with rights of survivorship IV. UTMA

I and III

Which of the following are regulated under the Securities Exchange Act of 1934? I. Broker-dealers II. Investment advisers III. Pension plans IV. Transfer agents

I and IV

Which of the following statements regarding hedging with options is CORRECT? I. A long stock position is hedged with a long put. II. A long stock position is hedged with a short put. III. A short stock position is hedged with a short call. IV. A short stock position is hedged with a long call.

I and IV

A customer needs $10,000 to pay for a new house within the next year. His agent suggests that he invest in a stock that has been performing extremely well the past year and assures the customer that he cannot go wrong. According to the Uniform Securities Act, this is I. an unethical business practice II. an example of guaranteeing a profit III. an example of flamboyant language IV. an unsuitable investment

I, II, III, and IV

Section 403 of the USA Act states that the Administrator may, by rule or order, require the filing of any sales and advertising literature addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser unless the security or transaction is exempted by Section 402 or is a federal covered security. This would include any I. circulars II. form letters III. investment adviser's website IV. prospectus

I, II, III, and IV

One of your clients currently holds a long position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss? A) Sell limit B) Buy limit C) Buy stop D) Sell stop

Sell stop

Which of the following would NOT be considered a defensive security? A) Steel company stock B) Food chain stock C) Tobacco stock D) Utility company stock

Steel company stock

StockBeta A 2.16 B 1.54 C .96 D 1.28 Assume the risk-free rate of return is 2.75% and the market rate of return is 6.75%. An investor has a required rate of return of 9.5%. Which of these stocks would offer the best investment opportunity?

Stock A

Which of the following is generally believed to present a more accurate picture of a portfolio manager's performance? A) Dollar-weighted return B) Real rate of return C) Time-weighted return D) Net present value

Time-weighted return

Many businesses choose to use a date other than December 31 to close out their financial year for accounting purposes. When this is done, it is said that the entity is reporting on A) a fiscal-year basis B) a calendar-year basis C) a nontraditional basis D) an alternative-year basis

a fiscal-year basis

Which of the following are examples of systematic risk? I. Business risk II. Market risk III. Interest rate risk IV. Credit (default) risk

II and III

Which of the following employer-sponsored plans allows coverage to discriminate in favor of key employees? A) 457 plan B) 401(k) plan C) Defined benefit pension plan D) 403(b) plan

A) 457 plan

Investment companies must send financial reports to shareholders A) semiannually B) monthly C) quarterly D) annually

A) semiannually

A portfolio manager who believes equity securities are overvalued in the short term reduces the weight of equities in her portfolio to 35% from its longer term target weight of 40%. This decision is best described as an example of A) strategic asset allocation. B) tactical asset allocation. C) contrarian investing. D) rebalancing.

B) tactical asset allocation.

During a trip to visit grandchildren, one of your clients suffers a massive heart attack and dies, intestate. Directions for handling the account could only come from A) the person with a durable power of attorney B) the person appointed as administrator of the estate C) the spouse D) the person named as executor of the estate

B) the person appointed as administrator of the estate

The Jones family has scheduled an initial visit with a financial planner. Mr. Jones has an annual salary of $70,000, and this is their first attempt at financial planning. Which of the following should be the first step taken by the financial planner? A) Determine a reasonable fee for designing the plan B) Set goals and dates for reaching them C) Establish an emergency fund D) Pay off credit card debt

C) Establish an emergency fund

William died in 2019 with the following assets and liabilities: $200,000 in securities left to his wife, $650,000 home left to his wife (the home cost $150,000), $250,000 life insurance policy with his daughter named as beneficiary, and $75,000 in debts and estate expenses. What is William's net estate? A) $625,000 B) $750,000 C) $0; it is below the $11.4 million exemption equivalent D) $175,000

D) $175,000

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, A) consent of the client would be necessary anytime an advisory client is sold securities out of the broker-dealer's inventory B) the order would have to be refused because of the potential conflict of interest C) the commission charged on the trade would have to be fair and reasonable D) consent of the client would not be necessary as long as the only capacity in which Wimpton was acting was that of an agent

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

You have a 70-year-old client with a $500,000 whole life insurance policy purchased 25 years ago. The policy currently has a cash value of approximately $150,000. With all of the children on their own and successful, the client no longer feels the need for the insurance, and asks you if there is any option that might result in netting more than surrendering the policy for its cash value. You might recommend A) canceling the policy, but leaving the cash value with the insurance company with interest B) keeping the policy because the cash value will continue to grow C) using IRS Section 1035 to transfer the cash value into a deferred annuity D) engaging in a life settlement

D) engaging in a life settlement

Your client maintains a small cash account at the firm. One typical broker-dealer fee that would not be charged to this client is A) a charge if the client asks to have funds wired B) an account maintenance charge C) the fee for transferring certificates D) margin interest on the debit balance

D) margin interest on the debit balance

The Sharpe ratio is a measurement of a portfolio's A) inflation-adjusted return B) holding period return C) after-tax rate of return D) risk-adjusted return

D) risk-adjusted return

Esther Watson has recently been hired by Robinson, Ibbotson, Carlson and Hanson (RICH), an investment adviser registered with the SEC. RICH has offices in 17 states and Esther works in the branch located in State A. If no exemption is available, Esther will have to register as an IAR with A) the Administrators of each of the 17 states. B) the SEC because RICH operates in more than 15 states. C) the FINRA. D) the Administrator of State A.

D) the Administrator of State A.

An individual is deciding between a flexible premium variable life contract and a scheduled premium variable life contract. If she is concerned about maintaining a minimum death benefit for estate liquidity needs, she should choose A) the flexible premium policy because earnings of the contract directly affect the face value of the policy and earnings can never be negative B) the scheduled premium policy because earnings do not affect the contract's face amount C) the flexible premium policy because the contract's face amount cannot be less than a predetermined percentage of cash value D) the scheduled premium policy because the contract is issued with a minimum guaranteed face amount

D) the scheduled premium policy because the contract is issued with a minimum guaranteed face amount

In order to compute the real rate of return on a specific stock, all of the following information is required EXCEPT A) capital gain or loss. B) any dividends paid. C) the change to the CPI. D) the stock's beta.

D) the stock's beta.

The Federal Reserve Board foresees the probability of an overheated economy and the resumption of double-digit inflation. Therefore, the FRB takes actions to slow down the economy, including increasing the discount rate. Which of the following are likely effects of these moves? I. An increase in the prime rate II. An increase in bond yields and an accompanying decrease in bond prices III. A slowdown in corporate growth IV. A decrease in corporate earnings

I, II, III, and IV

Under the Uniform Securities Act, the term person would include I. a minor who has a valid U.S. passport II. a political subdivision III. an unincorporated association IV. an inter vivos trust

II, III, and IV

The National Securities Markets Improvement Act of 1996 (NSMIA) A) created the concept of fraud, as used in the Uniform Securities Act B) created a national market system C) overcame the restrictions of selling securities in interstate commerce D) defined the term "federal covered adviser"

defined the term "federal covered adviser"

Sally is an agent with a broker-dealer. She has used her degree in computer science to develop her own stock-picking software program. Backtesting has shown that the program is likely to produce returns that beat the overall market. As a result, Sally plans to use this program for each of her clients. Sally A) is going to make her clients very happy B) must make the details of how the program works available to all who request it C) is engaging in an unethical business practice D) is violating suitability requirements

is violating suitability requirements

In general, a broker-dealer is required to register with the SEC. An exception to that requirement would apply to a broker-dealer who A)maintains a place of business in a single state, only deals with residents of that states, and does not execute transactions in securities traded on a national exchange. B)is registered with the Administrator of the states in which it does business and only deals with issuers of the securities it trades. C)does not have a place of business in the state and limits its clientele to institutional clients. D)is currently registered with the SEC as an investment adviser.

maintains a place of business in a single state, only deals with residents of that states, and does not execute transactions in securities traded on a national exchange.

In contrast with a typical forwards contract, futures contracts have: A) nonstandard terms. B) standardized terms. C) less liquidity. D) greater counterparty risk.

standardized terms.