Series 65; Practice

An investment adviser may NOT receive which of the following forms of compensation for directing brokerage commissions? A. The travel cost of flying to London to attend an economics conference B. The cost of conducting research used in the development of investment models C. A fee paid to cover the costs of a seminar on convertible bonds D. The cost of computer software used for evaluating a client's portfolio

A. Travel cannot be covered, attendance can.

A customer owns a warrant with a strike price of $50 and the price of the underlying security has increased from $25 to $40. The current intrinsic value of the warrant is:

0. The intrinsic value of any derivative (warrant, option, or right) is equal to the security's in-the-money amount.

Stock legends on restricted stocks typically require the owner to hold the shares for a minimum of:

6 months.

All of the following are characteristics of an irrevocable trust, EXCEPT: A. Assets are often excluded from the grantor's estate B. During the grantor's lifetime, any income taxes are paid by the grantor C. The grantor may not benefit from the assets in the trust after they have been placed in the trust D. The trust avoids probate

B

An IA receives rebates from a broker-dealer for placing client orders with the broker-dealer. Such rebates may be used by the IA for all the following purposes, EXCEPT: A. Attending an industry seminar out of state B. Paying the salary of a new assistant to help in processing customer orders C. Acquiring research reports from the broker-dealer D. Acquiring software to run Monte Carlo simulations

B

If an advisory client is most concerned with minimizing her tax liability, common stocks may provide a greater benefit than corporate bonds because: A. Stocks tend to offer a lower yield than corporate bonds B. Qualified cash dividends are taxed at a maximum rate that is less than the rate at which the interest on corporate bonds is taxed C. The unrealized capital gains on some bonds is taxed each year as ordinary income D. Capital gains on stocks are taxed at a lower rate than the capital gains on corporate bonds to encourage investments in stocks

B

Which of the following advisory fees is prohibited? A. Charging a fee based on a percentage of an account's balance as the first of each month B. Charging a fee of 5% on the highest value of the account each month C. A $5,000 fee for creating a financial plan D. Charging a client an hourly rate for managing the account

B

Investments used to calculate liquid net worth would exclude all of the following choices, EXCEPT: A. A growth mutual fund B. Real estate C. A limited partnership interest D. Shares of stock in a thinly traded company

A.

According to ERISA 404(c) guidelines, which of the following actions is considered a prohibited practice? A. Failing to properly diversify the plan B. Managing plan assets C. Exercising discretion over plan assets D. Disposing of or liquidating plan assets

A. Fiduciary duty

Under NASAA's Statement of Policy on Unethical Business Practices of Investment Advisers, all of the following activities are considered violations, EXCEPT: A. Exercising discretion for 10 business days based on oral instructions B. Charging a client an excessively high advisory fee C. Following a conservative, risk-free approach in all client accounts D. Indicating that the Administrator approves of a firm s activities

A. Oral discretion is okay for up to 10 days.

Under Rule 147, securities sold within the borders of one state are exempt from A. State registration B. Federal registration C. State and federal registration D. None of the above

B. Federal ONLY

Regarding the taxation of an estate, which of the following statements is TRUE? A. Property that's inherited by a spouse is subject to estate taxes. B. In a revocable trust, assets are included in the estate for federal estate tax purposes. C. If income from an estate is distributed, it's taxable to the beneficiary. D. In an irrevocable trust, assets are included in the estate for federal estate tax purposes.

B. IRRevocable trusts assets are excluded for federal estate tax purposes.

Real estate limited partnerships: A. Are typically exchange-traded B. Pass through both income and losses C. Are subject to double taxation D. Pass through only income

B. Just like other limited partnerships.

All of the following statements are TRUE regarding open-end and closed-end investment companies, EXCEPT: A. Open-end fund shares are redeemable, but closed-end fund shares are not redeemable. B. Both open and closed-end funds have fixed capitalizations. C. Open-end fund shares only trade at their NAV, but closed-end fund shares may trade either above or below their NAV. D. Open-end funds can issue full or partial shares, but closed-end funds can only issue full shares.

B. Open-end investment companies (i.e., mutual funds) are always issuing and redeeming shares in the primary market. This means that their capitalization is always increasing as investors buy new shares, or decreasing as investors redeem old shares

A U.S. manufacturer imports steel from Japan. The company manufactures the steel into parts and exports them for sale into Japan. The yen has recently devalued. All of the following items will decrease, EXCEPT: A. Revenue B. Operating expenses C. Operating profit margin D. Cost of goods sold

B. Operating expenses are expressed in US Dollars.

What's the best way to hedge a long stock position?

Buy a put option.

If an investment adviser makes material changes to its brochure, when does the adviser need to provide a summary of the changes to its clients? A. At the end of the current quarter B. Annually C. At the year-end registration renewal D. At the time of the change

C

Under what form of ownership may a husband and wife ensure that their property is not able to be attached by the creditors of either spouse? A. Tenants in common B. A qualified domestic partnership order C. Tenancy by the entirety D. Joint tenants with right of survivorship

C

An investor purchases a bond that was quoted in terms of its yield-to-call. The best outcome for the investor is: A. Holding the bond until it's called B. Selling the bond after one year C. Holding the bond until it matures D. Selling the bond immediately

C.

As an investment adviser, you would consider municipal bonds to be suitable investments for all of the following clients, EXCEPT a(n): A. Wealthy individual B. Insurance company C. Corporate pension plan D. Bank

C.

If an investment adviser is currently advising a mutual fund, how must it be registered? A. With both the SEC and state Administrators as a dually registered investment adviser B. As a state-registered investment adviser in the state in which its main office is located C. As a federal covered adviser with the SEC D. It's not required to register because it qualifies as an exempt reporting adviser (ERA)

C.

What strategy is the portfolio manager of a mutual fund employing when call options are being sold on stock that's held in the portfolio? A. A bearish strategy that profits from falling prices. B. A bullish strategy that profits from rising prices. C. A neutral strategy that's considered a conservative means of generating income when prices are stable. D. An aggressive strategy that's considered a speculative means of generating income when prices are volatile.

C.

For disclosure purposes on Form ADV, a felony (as compared to a misdemeanor) is defined by all of the following choices, EXCEPT: A. An offense that's punishable by a prison sentence of at least one year B. An offense that's punishable by a fine of at least $1,000 C. An offense that's punishable by a fine of at least $500 D. A general court martial

C. Must be at least $1000

A stop order would NOT be used to: A. Protect a gain when a long stock position appreciates B. Limit a loss if the market price of a short position increases C. Receive a specific price when buying or selling D. Limit a loss if the market price of a long stock position decreases

C. Since it becomes a market order when the stop price is hit or penetrated, there is no guarantee as to execution price.

ABC Corporation has issued cumulative, convertible preferred stock. The provisions of the new issue provide that: I. Dividends must be paid on the preferred stock before any dividends may be paid on the common stock II. Omitted dividends will accumulate and must be paid before any dividends may be paid on the common stock III. ABC Corporation may call the stock at its par value IV. The stock may be converted into common stock at any time by the preferred stockholder A. I and II only B. I and IV only C. I, II, and IV only D. I, II, III, and IV

C. The preferred stock has a cumulative and a convertible feature, but does not have a call provision.

A client buys shares of a closed-end fund: A. At the NAV only B. Above the NAV only C. Below the NAV only D. In the secondary market

D

According to NASAA provisions, an investment adviser that maintains custody of a client's funds must: A. Notify the client of the location of the funds within 90 days of taking custody B. Provide prior verbal notification to the Administrator of its intention to take custody of the client's funds C. Notify the client of the location of the funds within 30 days of taking custody D. Be subject to a surprise audit by an independent accountant

D.

According to the Uniform Securities Act, is an agent of a broker-dealer required to provide its clients with disclosure of a material public fact about an issuer? A. No, since the fact has already been made public and is in the news B. No, since the agent's broker-dealer must check the fact first and preapprove any disclosure C. Yes, firms must provide clients with a written disclosure of all facts for decision-making purposes D. Yes, if the agent's other comments to the customer could be considered misleading without the additional public information

D.

If a corporation were to issue bonds with warrants attached, all the following characteristics would be a benefit to the corporation, EXCEPT: A. The marketability of the bonds would improve B. The issuance of warrants would not dilute shareholder ownership C. The bonds could be issued with a lower interest rate D. The issue would increase the debt to equity ratio of the company

D.

Regarding equity-indexed annuities, which of the following statements is TRUE? A. If the index declines in value, there's no floor as to how much an investor may lose. B. If the index increases in value, there's no limit as to how much an investor may gain. C. If the annuitant withdraws money before the surrender period is over, she's required to pay a surrender fee. D. Since equity-indexed annuities are not securities, they're considered risk-free securities.

D.

What are the elements of a trust? A. An analysis of the beneficiaries needs and a trustee to act as a fiduciary B. A beneficiary's intention to create the trust, specific real estate, a trustee, and approval from the Administrator C. A trustee's intention to create the trust, financial assets, and a settlor D. A settlor's intention to create the trust, a specific subject matter, a trustee, and a beneficiary

D.

How long is an investment adviser (IA) required to keep the files of a client with whom it no longer does business? A. Until the end of the IA's fiscal year when the client's contract expired B. Not less than three years from the end of the fiscal year when in which the IA made the last entry C. Not less than two years from the end of the fiscal year in which the IA made the last entry D. Not less than five years from the end of the fiscal year in which the IA made the last entry

D. 5 Years

Which of the following products is NOT a derivative? A. LEAPS B. CMOs C. Index options D. UITs

D. All others are derivatives.

Which factor will cause variable annuity payments (contributions) to change from one client to another? A. Health B. Age C. Gender D. Profession

D. Annuity's most impacted by profession

According to Reg. T, if a client fails to pay for securities by the fifth business day following the trade date, the client's account will be: A. Closed B. Restricted for 90 days C. Suspended for 90 days D. Frozen for 90 days

D. FROZEN

If a bond has a long-term maturity and long duration, how will its price move if interest rates are falling? A. The bond's price will decrease less than other bonds. B. The bond's price will increase less than other bonds. C. The bond's price will decrease more than other bonds. D. The bond's price will increase more than other bonds.

D. Long maturity is more sensitive.

Imports into the United States have been falling dramatically, while exports have been rising. A major cause of this would be: A. Rising interest rates in the U.S. B. Falling interest rates in the U.S. C. The dollar rising in value relative to the currencies of our trading partners D. The dollar declining relative to our trading partners' currencies

D. Normally, if a country's currency is declining in value relative to the currencies of its trading partners, imports would fall and exports would rise.

An IA would like to change the method it uses to calculate the fees it charges for certain clients. The new fee would be performance-based and would be calculated over a specified period. According to the NASAA Model Rule, which of the following statements is TRUE? A. This would be allowed if the state securities Administrator approved the method of calculating the fee prior to any contracts being signed B. This type of fee arrangement is not permitted and would be a violation C.This type of fee arrangement is permitted only for clients that are business development companies or private funds D. This type of fee arrangement is permitted for qualified clients

D. Performance fees are generally prohibited.

An adviser's conservative client prefers to invest in a small number of securities without worrying about the periodic ups and downs in their value. The client also wants to reduce the cost of trading. The IA may recommend which of the following strategies? A. Dollar cost averaging B. The use of margin C. Portfolio turnover annually D. A buy-and-hold strategy

D. With a buy-and-hold strategy, the securities in the portfolio are held through both ups and downs in the market.

What is the name of the process by which an investor calculates the sum of the present values of projected cash flows to determine the fair market value of an investment?

Discounted cash flows

An individual who primarily invests in securities that have a low dividend payout ratio, a high level of retained earnings, and a high price-to-earnings ratio would be described as a:

Growth

Interest rates had been very high. During the past three years, rates have decreased dramatically. The present yield curve would MOST likely be: I. Ascending II. Positive III. Inverted IV. Negative

I & II

Which bonds would have the greatest sensitivity to changes in interest rates? I. Bonds with a long duration II. Bonds with a short duration III. Bonds with a high coupon IV. Bonds with a low coupon

I & IV

A cash forward contract is different from a futures contract because the cash forward contract is: I. A personal transaction between the buyer and the seller II. Not for a standard amount of the commodity, but rather for a specific amount and quality of the cash commodity III. Not negotiated by open outcry in the trading pits and not subject to the rules of a futures exchange

I II & III

Which of the following is TRUE of a structured note?

It's a bond issued by a financial services company which offers a rate of return that's linked to other securities