Series 65 Missed Questions

A client wants to purchase commercial paper. The licensed agent may indicate to the client that the security need not be registered if 1. the minimum denomination is $50,000 2. the maximum maturity is 270 days 3. it is rated in 1 of the 3 highest rating categories by a recognized rating agency 4. it is in book-entry form

1,2,3 Commercial paper may qualify as an exempt security if a. the minimum denomination is $50,000 b. has a maturity of not more than 270 days c. is rated in one of the three highest rating categories by a nationally recognized rating agency.

Under federal law, which act regulates the activities of broker-dealers and associated persons? A) Securities Exchange Act of 1934 B) Uniform Securities Act C) Trust Indenture Act of 1939 D) Investment Company Act of 1940

A

A securities analyst's stock selection method is to begin by looking for superior companies, regardless of their industry sector or the condition of the overall economy. In so doing, this analyst is using the A) bottom-up approach. B) top-down approach. C) optimal portfolio approach. D) business cycle approach.

A the economy is the top, a specific company is the bottom

Securities issued by which of the following would be exempt from the registration requirements of the Uniform Securities Act? 1. Nonprofit organization 2. Exchange-listed security 3. Federal savings and loan association 4. Federal credit union

All 4

Jim is buying stock through a private placement. Under the Securities Act of 1933, which of the following statements is TRUE? A) Jim must notify the SEC that he is buying private placement securities. B) The stock need not be registered with the SEC. C) Jim will receive a letter stating his ownership. D) The stock must first be fully registered with the SEC.

B Private Placement(RegD) = exempt transaction = no registraiton

What is the term used to describe a common stock issued below its par value? A) Nonassessable B) Assessable C) Below book D) Subpar

B Assessable stock is a stock that is issued below its par or stated value. The issuer and/or creditors have the right to assess the shareholder for the deficiency. All stock issued today is nonassessable.

When a member of the board of directors of a publicly traded company resigns due to a disagreement over an operational matter, A) Form 10-K must be filed with the SEC within 4 business days of the event B) the Administrator must be notified no later than the close of the business day following the event C) Form 8-K must be filed with the SEC within 4 business days of the event D) FINRA must be notified promptly

C 8K= significant change = 4 days after event 10K = nonsignificant change = 60-90 days fiscal year

Which of the following is a component of U.S. fiscal policy? A) Money supply B) Discount rate C) Taxes and budgeting D) Reserve requirements

C Fiscal = congress = taxing

Which of the following statements pertaining to the types of risk is not correct? A) Exchange rate risk is the variability in returns on securities caused by currency fluctuations. B) Reinvestment rate risk is the uncertainty that surrounds the rate of return that can be earned on reinvested coupon income. C) Business risk is the uncertainty of price fluctuations in the stock market. D) Interest rate risk is the risk that the market price of an investment will decline as the result of changes in market interest rates.

C business risk relates to operating income

Which of the following is a lagging economic indicator? A) Manufacturers' new orders for consumer goods B) Building permits (housing starts) C) Average prime rate D) Nonagricultural employment

C Leading: S&P, Housing Permits

If the value of the U.S. dollar increases against other currencies, which of the following are TRUE? U.S. exports are more competitive in foreign countries. U.S. exports are less competitive in foreign countries. Foreign imports into the United States are more competitive in U.S. markets. Foreign imports into the United States are less competitive in U.S. markets. A) I and III B) I and IV C) II and IV D) II and III

D Competitive = cheap less competitive = less cheap (more expensive) more competitive = more cheap (cheaper)

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? A) No effect B) Fluctuation both ways C) Strengthen D) Weaken

D imports -> more US dollars leaving country -> negative trade balance -> value of US dollar drops

PART 2 20 Questions on Exam (15%)

PART 2 20 Questions on Exam (15%)

Part 1 39 Questions on Exam (30%)

Part 1 39 Questions on Exam (30%)

*Review*

U1: LO5 * missed 2 questions U4: LO3 *missed 5 questions

Under the Uniform Securities Act, an offer to sell would NOT include 1. stock acquired through a merger 2. the issuance of warrants or convertible securities 3. the issuance of stock rights to existing shareholders

1 only An offer to sell is any activity in an effort to dispose of a security for value. The issuance of warrants or convertible securities to anyone or stock rights to existing shareholders is considered an offer to sell the underlying security because, unlike stock dividends, mergers, and bona fide loans, they involve the payment of money to acquire the stock, thereby making them an offer to sell.

An investor's portfolio has a beta coefficient of 0.85. If the overall market declined by 10% over the course of a year, the portfolio's value has likely A) decreased by 8.5% B) increased by 8.5% C) decreased by 11.76% D) increased by 10.85%

A A beta coefficient of 0.85 means that the portfolio is considered to be 0.85 times as volatile as the overall market. Therefore, if the market declines by 10%, the portfolio with a beta of 0.85 is likely to decline by only 8.5% (0.10 × 0.85).

For larger accounts, a broker-dealer is least likely to waive its normal fee for A) transferring the account to another broker-dealer B) the annual account maintenance charge C) wiring funds to the client's bank D) safekeeping of funds or securities in the account

A Although there is no official standard, larger accounts tend to have many of the smaller fees waived. However, if the client is moving the account to another firm, it is likely that the transfer fee will be charged.

Currency Transaction Reports must be filed for cash transactions that exceed A) $50,000.00 B) $25,000.00 C) $10,000.00 D) $100,000.00

C The Bank Secrecy Act requires every financial institution to electronically file with the Department of the Treasury a Currency Transaction Report (CTR) on FinCEN Form 112 for each cash transaction that exceeds $10,000. This report would include cash transactions used to pay off loans, electronic transfer of funds, and purchases of certificates of deposit, stocks, bonds, mutual funds, or other investments with cash.

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

C Under the Dodd-Frank Bill, until a pension fund manager has at least $200 million in AUM, registration with the states is required. Once the $200 million level is reached, SEC registration becomes an option.

SSS Corporation's total assets amount to $780,000, of which $260,000 represents current assets. Total liabilities equal $370,000, of which $200,000 is considered long-term or other liabilities. What is SSS Corporation's shareholders' equity? A) $980,000.00 B) $170,000.00 C) $1,150,000.00 D) $410,000.00

D Shareholders equity: Total Assets - Total Liabilities

Which of the following statements regarding registration of investment advisers is (are) TRUE under the Investment Advisers Act of 1940? 1. If any material information filed in the registration becomes inaccurate, an amendment must be filed promptly. 2. If any nonmaterial information filed on Form ADV changes, an amendment must be filed within 90 days of the end of the fiscal year. 3. Material information requires a prompt amendment, but nonmaterial changes do not require amendment.

1 and 2 The SEC requires prompt amendment of any material information changes on Form ADV (e.g., names, location, control, custody, organization) and also requires nonmaterial amendments within 90 days of the end of the adviser's fiscal year.

an agent has been given limited power of attorney to exercise discretion in an account by the account holder, which of the following statements is TRUE? A) A designated supervisory individual must frequently review the account. B) The account holder is not permitted to enter new orders independently. C) The power of attorney must be renewed annually by the account holder. D) Each order must receive the prior approval of the agent's manager before it is entered.

A All discretionary accounts are subject to frequent review by a designated supervisory individual with the firm. Each order need not receive the prior approval of the agent's manager before it is entered; orders are reviewed after execution. There is no requirement that the power of attorney be renewed annually by the account holder, although some firms make it their policy. The account holder is permitted to enter new orders independently.

The main difference between the current ratio and the quick ratio is that the quick ratio excludes A) inventory. B) goodwill. C) assets. D) cost of goods sold.

A Current ratio = (current assets ÷ current liabilities) = [cash + marketable securities + receivables + inventory] ÷ current liabilities. Quick ratio = [cash + marketable securities + receivables] ÷ current liabilities. Thus, quick ratio excludes inventory, which current ratio does include. Both ignore goodwill and cost of goods sold.

An investment adviser is a member of a country club and provides substantial fee reductions to those members who become clients. The adviser justifies this because these club members are known for great referrals. The IA charges regular clients a fee that was larger for the same services because they were not members of the country club. Is this permissible? A) It is not permissible because all clients must be charged at the same rate. B) This is permissible as long as proper disclosure is made in the adviser's brochure. C) It is permissible as long as the offer is not published as an inducement to join the country club. D) It is not permissible because the firm is charging other clients fees that are excessive in nature compared with the fees charged to country club members.

B Item #5 on the Form ADV Part 2A asks about the adviser's fee schedule. The adviser is asked if fees are negotiable. If so, the adviser must describe the nature of the fee structure and what type of variations there might be. As long as the adviser discloses that there are some affinity groups that will qualify for a lower fee, there should be no problem. This is not considered to be a referral fee.

If the yield curve is positive (sloping upward), this means that long-term interest rates are A) lower than short-term rates B) higher than short-term rates C) expected to decline D) the same as short-term rate

B Normal: yield increase as maturities do Inverted: short term yields are higher than long term

If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within A) 30 days B) 15 days C) 45 days D) 60 days

B When an Administrator summarily suspends a registration, the registrant has a right to a hearing if the request is made in writing. The hearing must be granted within 15 days of receipt of the request. Registration of professionals takes place at noon of the 30th day and an appeal for review of an Administrator's order must be filed within 60 days.

An IAR with a state-registered adviser would like to employ the services of an individual as a solicitor to help bring in more business. The solicitor will be compensated by receiving a percentage on all assets placed under management. In order to do this, all of the following must be complied with except A) disclosure of the arrangement must be made to the client B) the terms of the compensation must be spelled out C) the client must sign the contract at the same time as he receives the IA brochure and the solicitor disclosure document D) the solicitor must be registered as an IAR in order to receive compensation based upon advice

C In this example, the IA brochure and solicitor brochure are delivered with the sales presentation. The contract is not signed until the client agrees to engage the services of the IA. Whenever an individual is employed by an investment adviser to solicit for business, that individual must be registered as an IAR. Under federal law, there is a provision where a third party can be contracted with and, when meeting certain requirements, does not need IAR status. However, even in that case, the third party cannot be compensated based on AUM without IAR registration.

To be exempt under Rule 506(b) of Regulation D of the Securities Act of 1933, the sale of securities must be limited with respect to the number of A) shares issued B) agents authorized to sell the security C) nonaccredited investors to whom the security is sold D) broker-dealers who offer the securities

C - Sold to no more than 35 nonaccredited investors - no limit to shares issued - no limit on accredited investors

A bond analyst reports that there is currently an inverted yield curve. That would mean A) bonds with intermediate maturities have the highest yields. B) the further the bond is from its maturity date, the higher the yield. C) the closer the bond is to its maturity date, the lower the yield. D) the closer the bond is to its maturity date, the higher the yield.

D Negative/inverted: indication that interest rates are near a peak and the trend should soon reverse.

As a result of an SEC hearing, an investment adviser's penalty is $5,000 and a 50-day suspension. If the IA wishes to appeal this verdict, a request for review must be filed with A) the U.S. Court of Appeals within 45 days of the order B) the Administrator within 60 days of the order C) the SEC within 45 days of the order D) the U.S. Court of Appeals within 60 days of the order

D appeals must be filed within 60 days of the order. In the case of an SEC hearing, the appeal is filed with the U.S. Court of Appeals for the district in which the original hearing was held.

According to the Uniform Securities Act, which of the following is NOT an exempt transaction? A) The executor of an individual's estate liquidates individual stocks and invests the proceeds in a money market account at a bank. B) A broker-dealer makes an offer of private placement securities to 15 individual investors within a 30-day period. C) A broker-dealer sells an entire new issue to 5 bank clients. D) Bonds with a rating below investment grade are sold to the ABC High Yield Bond Fund.

B The Uniform Securities Act defines a private placement as an offering made to no more than 10 noninstitutional investors in a 12-month period. If a private placement complies with this restriction, it is an exempt transaction.

Under the Uniform Securities Act, which of the following statements are TRUE regarding private placements? 1. They are offered to no more than 10 persons in a state in a 12-month period. 2. They may be offered to an unlimited number of institutional investors. 3. Institutional buyers need not be purchasing for investment. A) I, II, and III B) I and III C) II and III D) I and II

C Private placements are transactions resulting from offers to no more than 10 noninstitutional persons (retail clients) in 12 months for investment purposes only. The offeror must be convinced that buyers are purchasing for investment. This means no immediate resale intentions are allowed on the buyer's part. No commissions may be paid, directly or indirectly, for these transactions. However, sales to institutional purchasers are exempt from the limitations regarding number of sales, resale restrictions, and commissions. They may, therefore, be offered to more than 10 persons. (Remember that the term person is defined very broadly in the act.)

The terms "offer," "offer to sell," "sale," and "sell" include which of the following? A) A stock dividend for which the stockholders give nothing of value B) Any bona fide pledge or loan C) Preemptive rights D) An act incidental to a class vote by stockholders pursuant to the applicable corporate statute on a merger

C The preemptive right frequently given to common stockholders allowing them to purchase shares of a forthcoming issue is considered to be an offer of that upcoming issue. The terms "sale" or "sell" include every contract of sale, contract to sell, or any disposition of a security for value. A gift of a security is not considered a sale. The terms "offer" and "offer to sell" represent any effort to dispose of a security for value. This does not include bona fide loans, stock dividends, or dispositions pursuant to corporate statutes.

When constructing a portfolio, one of the goals is to increase diversification. Which of the following pairs offers the most diversification? A) Large-cap stock/blue-chip stock B) Municipal GO bonds and long-term U.S. Treasury bonds C) Corporate debentures/convertible bonds D) U.S. equity securities and foreign equity securities

D Diversification is generally accomplished by adding securities that don't have a high degree of correlation. Large-cap and blue-chip are essentially the same thing. Most convertible bonds are debentures. Only in the case of domestic and international stocks will we find a low correlation.

An agent is registered in New York and Vermont. While working in his New York office, he places a call to the cell phone of one of his clients, who happens to be on vacation in Ohio. After describing the reasons for a particular stock recommendation, the client asks the agent to call back tomorrow. The agent does so and reaches the client in Indiana. The client decides to purchase 100 shares of the stock. When the client arrives home, he notices that he has already received his stock certificate from the transfer agent located in Illinois. In this case, which Administrators do not have jurisdiction? A) Illinois and Ohio B) Indiana and Illinois C) New York and Indiana D) Ohio and Indiana

A The Administrator has jurisdiction from the state in which the offer originated (NY) and was accepted (IN). Mailing of the certificate is of no consequence. Ohio does not have jurisdiction because the client was merely traveling and the call was directed to the New York number.

Which of the following statements with regards to net present value and internal rate of return is correct? A) If the net present value equals zero, then the internal rate of return is less than the required rate of return. B) If the net present value is greater than zero, then the internal rate of return is greater than the required rate of return. C) If the net present value is less than zero, then the internal rate of return is greater than the required rate of return. D) If the net present value equals zero, then the internal rate of return is greater than the required rate of return.

B If the NPV is positive, the IRR is greater than the required rate of return and the investment should be made. If the NPV is negative, the IRR is less than the required ror, and the investment should not be made

Which TWO of the following statements regarding the economics of fixed-income securities are TRUE? 1. Short-term interest rates are more volatile than long-term rates. 2. Long-term interest rates are more volatile than short-term rates. 3. Short-term bond prices react more than long-term bond prices given a change in interest rates. 4. Long-term bond prices react more than short-term bond prices given a change in interest rates.

1 & 4 There are two separate issues in this question: the volatility of rates and the volatility of bond prices. Short-term rates are more volatile than long-term rates and move more quickly than long-term rates. Often the most volatile interest rate is the federal funds rate, which is an overnight rate of interest. Given a change in rates, long-term bond prices move more than short-term bond prices because of the compounding effect over a much longer period. Short Term Rates = more volitale Short Term Bond Prices = Less volatile

When a sale violates provisions of the Uniform Securities Act, which of the following statements regarding civil liabilities is (are) TRUE? 1. A buyer may not sue for compensation later than 3 years after the sale. 2. A rescission offer must include interest. 3. A rescission offer must be at the current market price.

1 and 2 Rescission must occur by the earlier of 2 years after the discovery of the facts or 3 years after the occurrence. The offer of rescission is based on the price originally paid for the security plus interest at a rate determined by the Administrator (less any income received from that security).

While the Administrator has great power, the USA does place some limitations on the office. Which of the following statements regarding those powers are TRUE? 1. In conducting an investigation, an Administrator can compel the testimony of witnesses. 2. Investigations of serious violations must be open to the public. 3. An Administrator in Illinois may only enforce subpoenas from South Carolina if the violation originally occurred in Illinois. 4. An Administrator may deny the registration of a securities professional who has been convicted of any felony within the past 10 years.

1 and 4 An Administrator can compel the testimony of witnesses when conducting an investigation. Investigation of serious violations need not be held in public. An Administrator in Illinois may enforce subpoenas from South Carolina whether the violation occurred in Illinois or not. Conviction for any felony within the past 10 years is one of a number of reasons that the Administrator may have for denying a license.

Associated Wealth Managers (AWM) is registered with the SEC as a registered investment adviser. As a consequence, if there have been any material changes, AWM must A) send a copy of its brochure, or a summary of the changes, to all clients within 120 days of the end of its fiscal year B) send a copy of its brochure, or a summary of the changes, to all clients within 90 days of the end of its fiscal year C) send a copy of its brochure, or a summary of the changes, to all clients within 60 days of the end of its fiscal year D) send a copy of its brochure, or a summary of the changes, within 7 days of receiving a request from a client

A Whether the firm is a state or federal covered investment adviser, if there have been material changes, a copy of the IA's brochure, or a summary of the changes, must be sent to all clients no later than 120 days after the close of the IA's fiscal year.

A firm is registered as an investment adviser under the Investment Advisers Act of 1940. It has decided to raise its annual management fee from $1,500 to $1,800 and require that it be paid 1 year in advance instead of quarterly. The firm would A) be in violation of the law that prohibits pre-payments more than 6 months in advance B) need SEC permission to make this change C) continue doing business as before because the firm was already charging more than $1,200 per year D) now come under the requirement to include a balance sheet as part of its brochure

D For federal covered investment advisers, a prepayment in excess of $1,200 and for periods of 6 months or more in advance (substantial prepayment) requires the adviser to submit an annual audited balance sheet as part of its ADV Part 2 (and brochure). Previously, even though the firm's fee was in excess of $1,200, because it was collected on a quarterly basis, the firm did not fall under the balance sheet rule. Had this been a state-registered IA, the answer would have been the same, even though the dollar limit is $500 rather than $1,200. That is for the reason given above—the former fee was charged quarterly and the substantial prepayment definition requires both exceeding a stated dollar amount ($500 or $1,200) and it being for 6 months or more in advance.

An analyst comparing revenues with expenses is most likely analyzing A) liquidity B) capitalization C) working capital D) cash flow

D cash flow- money coming in vs money going out working capital- current assets vs current liabilities capitalization- long term debt vs stock issues liquidity- current assets and liabilities