Series 65 - Practice Exam (Answers - Not confirmed correct)
Prudent Asset Construction Enterprises (PACE) has offices in states X, Y, and Z. On their last annual updating amendment, they reported AUM of $218 million. In which of the following instances would PACE be receiving a substantial prepayment of fees?
$600, paid six or months in advance
A U.S. Treasury bond's price has moved from 96.18 to 96.22. An investor's account holding 10 of these bonds would show an increase of
$4.00
An index annuity has no cap on gains, but guarantees a minimum return of 3.35% with an 80% participation rate. If the index increases by 15%, what is the rate of return to the investor?
12%
A portfolio manager who follows the value style of investing would most likely focus her attention on
52-week highs and lows
As specified in the Dodd-Frank Act of 2010, which of the following would NOT qualify for the private fund exemption?
An investment adviser who limits its advisory services to private funds with less than $150 million in assets under management in the United States
Which of the following clients of a federal covered investment adviser are NOT exempt from the delivery requirements of the brochure rule?
An open-end investment company with less than $25 million in assets
Which of the following risks would most likely be minimized through portfolio diversification?
Credit risk
The issuance of new common stock will affect which of the following balance sheet items? Total assets Current liabilities Retained earnings Net worth
I and IV
You are trying to explain to an advisory client that the U.S. economy goes through somewhat repeatable phases over a period of time. Which of these terms does NOT describe one of those business cycles?
Inflation
One of your clients is a widow with three grown children. She wants the assets in her account to go to her children upon her death—50% to her daughter and 25% to each of her sons. She does not want the estate to have to deal with probate on these assets. How should her account be set up?
Transfer on death
In the Howey decision, the U.S. Supreme Court held that to be considered a security, an investment contract must represent
an investment of money in a common enterprise, with the expectation of profit from the managerial efforts of others
A client's portfolio consists of holdings in long-term U.S. Treasury bonds and Treasury notes. Of least concern to this investor would be
credit risk
All of the following statements relating to ADRs are true EXCEPT
currency risk is avoided
Most states have replaced the Uniform Gifts to Minors Act (UGMA) with the Uniform Transfers to Minors Act (UTMA). One of the major advantages of UTMA is
greater flexibility in the choice of investments
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
The technical market theory that measures the breadth of the market is
the advance/decline
Under federal law, the statute of limitations for civil liability is
two years after discovery or three years after the action, whichever is sooner
While reviewing the financial statements of the ABC Corporation, you notice that the company has $5 million in cash on hand and $6 million in inventory. If the current assets total $15 million, the total assets are $22 million, and the current liabilities are $6 million, the quick asset ratio is
2.33:1
Early in the year, an investor purchased 100 shares of KAP common stock at a price of $60 per share. Just prior to the end of the year, after receiving three quarterly dividends of $1, the investor liquidated all of the KAP at a price of $59 per share. If the Consumer Price Index (CPI) increased by 3%, the investor's total return over the holding period was
3.33%
An investor has returns of 4%, 5%, and 9% over a three-year period. What is the investor's arithmetic mean?
6%
In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the release, which of the following would be included in the definition? Commercial banks offering comprehensive financial planning for their high net worth clients Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's royalties into investment-grade bonds or large-cap stocks as market conditions dictate Persons being compensated for assisting employee benefit plan administrators in selecting investment managers for the plan's assets Lawyers who prepare trust agreements for clients with large securities holdings, with a goal of minimizing estate taxes
I and II
An investor is concerned that interest rates will be volatile over the next few years. Which of the following would eliminate interest rate risk?
Insured bank CDs
A state-registered investment adviser maintaining custody of customer funds and securities discovers that its net worth is $32,000. Which of the following steps would NOT be required?
Returning the customer funds and securities within three business days of the discovery
Once reaching the age of 70½, required minimum distributions must be taken for retired individuals who were participants in all of the following EXCEPT
Roth IRAs
In which of the following instances would an investment adviser representative be exempt from the anti-fraud rules of the Uniform Securities Act?
The IAR makes a presentation at a seminar where the only topic discussed is fixed annuities.
NASAA's Model Rule on Business Continuity and Succession Planning requires that each investment adviser establishes a plan that provides for each of the following EXCEPT
assurance of continued profitability
A support level is the price range at which a technical analyst would expect the
demand for a stock to increase substantially
An agent for a broker-dealer conducts a seminar where he makes extravagant comments in favor of an investment he recommends to all attendees, regardless of their financial circumstances. This agent could be in violation of the Uniform Securities Act's anti-fraud rule unless the investment being touted was
gold bullion
KAPCO, Inc. has 100,000,000 shares of $1 par common stock outstanding. If the current market price of the KAPCO common stock is $33 per share, KAPCO would be considered a
large-cap stock
An investor contacts you somewhat puzzled over the fact that she saw a newspaper listing for the KAPLOW Fund where the net asset value per share was $10.27 and the asking price was $14.14 per share. She wants to know why the difference between the two is so great. You would respond, saying
the KAPLOW Fund is a closed-end company whose selling price is not based upon NAV, as is the case with an open-end fund
An estate-planning technique often recommended for those with large taxable estates is the use of
the alternative valuation date
Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and its investment manager. Among those requirements is that
the contract should be in writing
If an investment adviser representative receives a letter from a client complaining about unauthorized activity in the account, the first person the IAR should communicate with is
the individual with supervisory responsibility for that investment adviser representative
Arguably, determining a client's risk tolerance is the most critical step before making any recommendations. Methods of doing that would include knowing all of the following EXCEPT
the name of other firms where the client has or has had an account
Individuals who pass the Series 65 exam will be able to tell prospects that
they passed a 130-question examination in order to qualify as an IAR
Which of the following statements regarding agent registration under the Uniform Securities Act is TRUE? A. In the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day after the filing of a complete application. B. The Administrator may initiate a disciplinary action within two years of an agent's withdrawal of registration. C. The Administrator may request the agent furnish a statement of assets and liabilities. D. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed as of the original filing date.
A and B
An investment adviser representative is meeting with a potential advisory client. Among the items of information the IAR needs to obtain in order to develop the proper plan are the prospect's anticipated number of years until retirement location of current bank and brokerage accounts current savings and investments college alma mater
I and III
Which of the following statements regarding REITs are TRUE? Equity REITs offer possible income and capital appreciation. Investors receive interest and principal payments periodically. In order to receive favorable tax benefits, the REIT must pay out at least 90% of its net income in the form of dividends. Interests in REITs offer the benefit of flow through of income or loss.
I and III
When discussing the features of a Roth IRA with a 52-year-old client who has been contributing the maximum for the past three years, it would be correct to state that there is a $1,000 catch-up benefit for contributors who are 50 or older once the account has been in existence at least five years, he may begin taking withdrawals free of any income tax he may increase his potential retirement benefits by also contributing to a traditional IRA if the client has earned income well into his 70s, he may still continue to contribute to the plan
I, III, and IV
An investment adviser representative is required to make disclosure to the client when the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale transactions recommended to a specific client are inconsistent with those for other clients with objectives that are similar to that particular client transactions recommended to the client are inconsistent with those for the IAR's own account
II and IV
Initial and renewal contracts between investment advisers and their clients must be in writing when the contract is under the jurisdiction of the Securities Exchange Act of 1934 the Investment Company Act of 1940 the Investment Advisers Act of 1940 the Uniform Securities Act
II and IV
Ways in which a Section 529 plan differs from a Coverdell ESA include
II and IV
Investors seeking current income would benefit from
selling call options
Under the provisions of Regulation S-P, a person who has an investment advisory contract with a registered investment adviser is known as
a customer
All of the following would decrease the U.S. balance of payments deficit EXCEPT
a decrease in dividend payments by U.S. companies to foreign investors
An investor would be entitled to a breakpoint on quantity purchases made together with all of the following accounts EXCEPT
his brother with whom he regularly shares investment ideas
As defined in the Investment Company Act of 1940, the term investment company would NOT include a
holding company
When comparing futures and forwards, it would be correct to state that
futures are more commonly used by speculators than forwards
Your client notices that the listing for the CDL $100 par common stock in the Wall Street Journal indicates that the current yield of the stock is 4%. If the last trade was at $40 per share, more than likely, CDL is paying quarterly dividends of
$1.00
Using the discounted cash flow method of valuation, you would expect to arrive at the highest valuation for which of the following?
10% coupon maturing in 10 years
What is the tax equivalent yield of a 7% municipal bond to an investor in the 35% federal income tax bracket?
10.77%
On the basis of IRS guidelines, which of the following is most likely eligible to contribute to a Keogh plan?
A public school teacher who gets paid during her summer vacation to give motivational speeches to training directors at major brokerage firms
As defined in the Uniform Securities Act (USA), which of the following would be considered an exempt transaction?
A sale of stock by an administrator of an estate
If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio?
AAA bonds
Popular strategies used by bond investors to mitigate the effects of changes in interest rates would include any of the following EXCEPT
the strategy of lengthening the maturities of their holdings
The Uniform Securities Act provides for civil penalties in the event of illegal activities of broker-dealers and their agents. Under the act, a purchaser would NOT be entitled to claim:
D)the original consideration paid for the security or the current market value, whichever is greater
Which of the following would offer your client check-writing privileges and FDIC insurance coverage?
DDA
When a market maker publishes a quote, what prices will be shown? Bid Market Offer Spread
I and III
Which of these forms of business structure carries the greatest personal liability?
Sole proprietorship
The dividend discount model is
an analytical tool used to project the current value of a common stock using projected dividends
An options strategy that would be most useful for an investor with a long position in a stock who is concerned that a proposed management change will negatively impact the stock's price would be to
buy a put on that stock
An investor concerned about liquidity would be least likely to invest in
stock subject to rule 144
A corporation with a 6%, $25 par cumulative preferred paid $.50 to preferred stockholders last year. This year, the company wants to pay common dividends. How much must it pay each preferred share?
$0.50
John Jones purchased 100 shares of DEF common stock at a price of $25 per share on August 4, 2016. On December 1, 2017, with the stock selling for $29 per share, he gifted the stock to his daughter. She subsequently sold the stock nine months later for $32 per share. Her tax consequence is
$300 long-term capital gain
Which of the following bonds would most likely be exposed to the greatest amount of interest rate risk?
GHI 7s of 2042
Which of the following would probably be the best indicator of where the economy is headed?
Permits for construction of new housing units
A broker-dealer having no place of business in a state is not required to be registered in that state if the broker-dealer
is a federal covered broker-dealer
One of the major goals of most hedge funds is to
use long and short strategies to provide a stable return in both up and down markets.
If the executor of an estate containing a substantial stock portfolio is of the opinion that the economy is about to enter a down cycle, estate taxes could be reduced by
using the alternative valuation date
One would not normally place convertible bonds in the portfolio of an investor
seeking capital gains
Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser would have to disclose that the firm was acting in a principal capacity when
selling shares from it's proprietary account to an advisory account
In which of the following cases does exercise not involve the issuer of the underlying asset?
An option
With regard to nonqualified stock options (NSO) and incentive stock options (ISO), which of the following statements is incorrect?
Board of director approval is required for both NSOs and ISOs.
Irving Wilson works for Wall Street Limited (WSL), a registered investment adviser. He limits his advice exclusively to equity securities listed on the NYSE. Under the Uniform Securities Act, Irving
must register as an IAR
When a fundamental analyst views a corporation's balance sheet, it reveals the issuer's
owners equity
Which of the following items does NOT fall within the Section 28(e) safe harbor?
Software used to simplify the investment adviser's preparation of its tax returns
You have a client who is interested in a preferred stock whose dividends are guaranteed. What is likely the reason for using that term?
Someone other than the issuer has guaranteed the payment of those dividends.
In order to make a quantitative evaluation using the present value computation, which of the following is NOT needed?
Account value at the beginning of the period
If a client prefers owning an investment company whose portfolio consists primarily of companies that have a history of paying regular dividends, rather than companies reinvesting their earnings for the purpose of generating capital appreciation, what type of mutual fund would you recommend?
An income fund
Which of the following are prohibited actions under the Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers?
Claiming that advisory fees are negotiable, but maintaining a fixed fee schedule
Which of the following classes of mutual fund shares would be appropriate for an investor who doesn't mind paying some sales charges on a purchase, but wants to minimize operating expenses over a long-term holding period?
Class A shares
An investor indicates that her objective is long-term growth. Income is of secondary importance, and while she is basically quite conservative, she feels her time horizon is long enough to give her a bit more risk tolerance. Which of the following common stock mutual fund selections would probably be most suitable?
75% large-cap, 25% small-cap
An individual has just received an inheritance of $15,000 and has the goals of preservation of capital and income. The client is in a low tax bracket. Which of the following would be the most suitable choice?
Bank-insured CDs
One of the differences between state and federal law involving an investment adviser maintaining custody of customer funds and/or securities relates to the handling of client checks made payable to third parties such as broker-dealers. Which of the following properly expresses that difference?
Under state law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within three business days of receipt.
When an investment adviser representative terminates employment with a federal covered investment adviser and immediately accepts employment performing the same functions with a different federal covered investment adviser in the state where the individual resides
only the investment adviser representative must notify the Administrator promptly
One of the usual practices of the fiduciary handling a qualified retirement plan is providing a written document that sets forth the objectives and constraints on a managed portfolio. This document is called
the investment policy statement
In the over-the-counter market, the person who performs the dealer function that a DMM is responsible for on an exchange is
the market maker
A significant difference between opening an account for a trust and an account for an estate is
the trust account will generally be active for a much longer period of time
A client with a bearish outlook on a particular stock would be able to benefit from taking which of the following actions?
Entering a sell limit order
A portfolio manager with a growth style would probably diversify by
devoting a portion of the portfolio to securities with a negative correlation
Under which of the following asset allocation programs is it most likely that commission expense will have a significant impact on portfolio performance?
Tactical
Under the provisions of the Uniform Securities Act, which of the following statements about unsolicited orders is TRUE?
An unsolicited order from a noninstitutional client for an unregistered, nonexempt security is considered a transaction exempt from the registration and advertising filing requirements of the act.
Which of the following is required to effectuate annual renewal of the registration of an investment adviser representative affiliated with a federal covered adviser?
State licensing fee
LMN, Inc., is preparing to report its net income for the past year. An increase in which of the following would NOT cause a decrease in the reported net income?
cash dividends
Your client with a traditional IRA splits her annual $6,000 contribution into four quarterly investments of $1,500 into a broad market ETF. In so doing, she is taking advantage of the principle of
dollar cost averaging
When discussing the suitability of investing in direct participation programs, particular attention should be focused on which risks? Legislative Liquidity Market Purchasing power
I and II
In order to comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must offer plan participants at least three different investment alternatives ensure that plan participants are insulated from control over their portfolios allow plan participants to change their investment options no less frequently than quarterly permit immediate vesting of employer contributions.
I and III
As defined in the Uniform Securities Act (USA), the term person would include
I, II, III, and IV
Which of the following activities might result in a positive yield curve in the bond market?
Investors buying long-term bonds and selling short-term bonds
Which of the following forms of joint ownership is most often used for real estate?
Joint tenants with right of survivorship
An IAR is attempting to develop an investment plan for a client. The IAR decides to use two different mutual funds in an effort to provide appropriate diversification. Of the four pairs given below, which one would offer the most diversification?
Portfolio 7 and 8, with a correlation coefficient of -.20
One of the purposes of filing the annual updating amendment to the Form ADV Part 1A is to
Provide updated information on those associated persons who are in charge of giving investment advice
Which of the following statements regarding an agent's registration is CORRECT?
Revocation of the registration of an agent's broker-dealer will result in placing that agent's effective registration in suspense.
Each of the following would be exempt from the definition of an agent under the Uniform Securities Act EXCEPT
Violet, an employee of the Widget Spinners Corporation, who is paid a commission on sales of the company stock to fellow employees
An investment adviser wishes to advertise a proprietary charting system used to time the market. In order to be in compliance with the Investment Advisers Act of 1940
a statement reflecting the limitations and difficulties of using the system must be included in the ad
A life insurance policy with benefits tied to the performance of a separate account that allows the policyholder to skip premium payments is called
a universal life insurance policy
An agent has a client who is relatively new to investing in securities, having been a bank CD purchaser most of her life. One of the client's holdings is a stock that the agent recommended, and its market price has recently fallen by more than 10%. Knowing her fear of loss, the agent comforts her by continuing to report that the stock is moving upward with the market. Under the Uniform Securities Act, this action is
fraudulent, as it is equivalent to giving inaccurate market quotations
Historically, common stock has been shown to protect against
inflation risk
One respect in which advertising by investment advisers differs from that of broker-dealers is that
investment advisers are not permitted to use testimonials, while broker-dealers can
It would be reasonable to expect an increase in exports from the U.S. if the dollar strengthened against the euro yen strengthened against the dollar Swiss franc weakened against the dollar dollar weakened against the British pound
II and IV
A portfolio manager looking to create alpha would most likely use which of the following?
Tactical asset allocation
Under the Uniform Securities Act, all of the following persons with no place of business in the state are exempt from registration as an investment adviser EXCEPT
advisers who have conducted business with no more than six clients, other than institutions, in the state within the past 12 months
A corporation is capitalized with common stock, senior preferred stock, mortgage bonds, and subordinated debentures. Your client, who holds $10,000 of the debentures, is concerned about the future viability of the enterprise. You can inform the client that the debentures have a claim
ahead of the common stock and the preferred, but after the bonds
Fiscal policy, as implemented by Congress and the administration, would entail all of the following EXCEPT
changing the discount rate
What is the term generally given by analysts to the number generated by the addition of a company's annual depreciation expense to its net income?
cash flow
Richard, Tim, Sam, and Fred have a regular golf foursome every weekend. During one of their outings, they decide it is time they did something constructive with their money by opening an account with a brokerage firm. If the account is opened tenants in common, suitability information would be required on
each of the four individuals
In order to come under the SEC's requirement to file a Form 13F, an institutional manager must have discretion over
an equity portfolio of at least $100 million
A corporate bond with a BB rating is currently selling for 95. If the bond has a coupon of 6% and matures in 10 years, its yield to maturity is closest to
5.71%
John Johnson was convicted five years ago of failure to pay child support—a misdemeanor in his home state. Johnson would now like to register as an IAR in a neighboring state where that crime is considered a felony. Under the Uniform Securities Act, the Administrator of the neighboring state
will disregard that conviction when determining Johnson's qualifications for registration
Which of the following statements are accurate when describing preferred stock? Owners of convertible preferred stock have an opportunity to participate in the growth of the company. Unlike any other securities the company may issue, the return on preferred stock is fixed. Issuing preferred stock confers certain tax benefits to the company. In general, preferred stock does not have a maturity date.
I and IV
In order to be in compliance with the rules under the Investment Advisers Act of 1940, which two of the following statements are correct regarding a registered investment adviser's relationship with solicitors? An individual who is subject to statutory disqualification from registration as an investment adviser representative may solicit clients for the adviser as an employee of a third-party solicitor. There must be a written agreement between the investment adviser and the solicitor. While the sales script used may be written by the solicitor, its content is the responsibility of the adviser. Cash referral fees to solicitors may only be paid in the case of impersonal advisory services.
II and III
The term alternative investment would least likely apply to
closed-end funds (CEFs)
What is the current yield on ABC common stock selling for $60 per share with a semiannual dividend of $.75 per share?
2.50%
Your client has a long position in a security that has had considerable appreciation since the date of purchase. The client is concerned that speculation that the company's CEO may retire could have negative implications for the stock. Wishing to protect those unrealized gains, which of the following orders would be appropriate?
Sell limit
Daphna works for Automated Asset Allocators (AAA), an investment adviser having offices in States D, E, and F and registered with the SEC. Daphna spends most of her time in an office in State D, but, once every other week, she goes to the branch in State E. Daphna would be exempt from registration as an IAR in which of the following states?
State F, where she has 227 retail clients
During your initial interview with a potential advisory client, you obtain the following information: He is 58, she is 56, and they both plan to continue working until she reaches 65 and is eligible for Medicare. As you begin to develop a plan for this couple, you would probably project their time horizon as
approximately 30 years
Gerald has been a client of yours for more than a decade. Over that period, the relationship expanded from a business one to one of a social nature, including attending events with your respective spouses. One afternoon, Gerald's wife calls explaining that she just got off the phone with Gerald. Before hanging up, he asked her to contact you with a sell order in his account. Having had extensive social contact, you recognize her voice and know that their marriage is on strong footing. You should
explain that you cannot accept an order from anyone other than the account holder without having written trading authorization
An advisory client is interested in learning more about municipal bonds. It would be correct to state that general obligation bonds are usually, but not always, safer than revenue bonds interest received on municipal bonds is generally free of both federal and state income taxes municipal bonds are usually suitable for investors in higher tax brackets the coupon yield on AAA-rated municipal bonds will generally be slightly higher than that of AAA-rated corporate bonds with a comparable maturity
I and III
Which of the following actions by an agent would be an unethical practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents?
Splitting commissions with a customer service representative who is not registered but works for the same firm
The discounted rate that equates a bond's cash flow to its current price is known as the bond's
current yield
