series 65
Federal covered advisers do not come under the financial or recordkeeping requirements of the state, only the SEC.
A federal covered investment adviser registered with the SEC that has offices in 5 states must -Pay state filing fees if required by the Administrator -Notice file in any of those states where required by the Administrator
Duration
Measures how sensitive a bond will be to a small change in interest rates. The longer the duration of a bond, the more volatile (sensitive to interest rate changes) it will be.
who can issue senior securities?
Only the closed-end company is legally permitted to issue senior securities (preferred stock and bonds).
The Investment Company Act of 1940
Prescribes procedures for the establishment of investment companies
corporate zero bonds
Receives the discount in lieu of periodic interest payments. Zero-coupon bonds have greater, not lower price, volatility.
Subjective considerations are the nonfinancial ones—the ones that can't be expressed in monetary terms.
Risk tolerance is one of the key subjective considerations to be evaluated.
The purpose of the Investment Advisers Act of 1940 is to provide
Standards at the federal level for the regulation of investment advisers
A speculator, believing that a drought in the Midwest will lead to a weak corn crop, would probably
They should- take a long position in corn futures BC: When one is speculating that prices will go up, the best position is a long one. why futures not forwards? BC: Those who purchase forwards contracts anticipate accepting delivery of the asset. this person doesnt want delivery just have a prediction
Global means securities from companies around the globe, including the United States. International funds exclude U.S. domiciled companies.
Think of it this way: If you were taking an international trip, you would not be visiting the U.S., but if you were traveling around the globe, you would be.
buy a call bc hoping price goes up
buy a put bc hoping price goes down
in options: sellers have the obligation
buyers have the option
open end companies (mutuaul funds)
can only issue common stock - they continually offer new shares of common stock
you have checkbook access to a
dda- demand deposit account - most often checking account at bank
when setting an investment plan
establishing a rainy day fund is the first step set goals and dates for setting them comes after
Under the USA only individuals can be agents
example-a division of a bank cant be an agent
warrants
exercisable above current market price no relationship to existing stockholder usually attached to a bond or brand new stock long expiration 10 years or longer
investment companies are
face amount certificates unit investment trust mgmt comapny NOT holding companies
use discounted cash flow to find
fair value of a security
Investment Advisers Act of 1940
federal law so SEC jurisdiction
Section 404(c) of ERISA deals with
fiduciary responsibilities
the administrator is allowed to
forbid investment advisers registered in that state from taking custody of client funds
Investment advisors can pay referral fees to (lawyers,accountants ext) who refer clients to them if
if the fee is nominal and the same fixed amount each time regardless of size of client referred
discount and premiums
if you pay more you get less -buy a bond at premium=receive a rate of return less than coupon if you pay less you get more -buy a bond at discount, the return will be more that rate stated
TIPS
inflation adjusted semi annaully according to cpi federally taxed- but state and locally exempt from tax
The Uniform Securities Act requires that a consent to service of process be filed for the registration of
investment advisors and broker dealers
3 types of companies..
management investment companies can either be open ended or closed ended
An open-end investment company is also referred to as
mutual fund
under no circumstances may an unregistered individual accept and place orders
need to be registered for that
investment advisors if registered in many states
need to meet requirements for the state the principal office is located
investment advisors either register with the state or fed
never both
investment companies board of directors
no more than 60% can be interested persons
exculpatory provision
not allowed under any circumstances
Registration by qualification becomes effective
on the date set by the Administrator
IAR when working for a federal covered IA
only need to be registered in the state where they have a place of business in. No numerical or client type rule exceptions
mutual funds are
open ended
option buyers are long the positions
options sellers are short the positions
A private foundation must
pay out each year an amount equal to 5% of its net investment assets in "qualifying distributions"... so "distribute 5% of its assets each year as qualifying distributions."
debenture
promise to pay back- based on the general credit of the corporation
Adoption
the firm has endorsed or approved of the post, but played no part in its preparation.
Under the Uniform Securities Act, which of the following persons is responsible for proving that a securities issue is exempt from registration?
the issuer
best bet for a business with no operating history
venture capital
Common Stock
vote for board of directors
rights have intrinsic and time value
warrants only have time value
Investment Advisors must disclose
1. personal securities transactions if they are designed to take advantage of the market impact caused by recommendations to clients 2. Personal transactions are inconsistent with the advice given to clients.
investment companies come in 3 types
1.unit investment trusts 2. face-amount certificates 3. management companies. Within the category of management companies, you will find open- and closed-end companies. Open-end investment companies are also referred to as mutual funds.
lenders
bonds, debt securities
rights
given not sold to existing common stock holders exercisable at a price below the current market shorter expiration 45-60 days
ginny mae
gov backed pays interest monthly- everyone else semiannaully
company liquidiation
secured unsecured subordinated debt holders preffered stock common stock
money markets are
short term debt usually issued at a discount and dont pay interest one year or less maturity- most 6 months
equity options= each contract is 100 shares
someone is long 10 shares so do 10 x 100 1000 shares total
Owners
stock, equity securities
Pricing of a closed-end fund is determined by
supply and demand for the shares
A speculator, believing that a drought in the Midwest will lead to a weak corn crop, would probably
take a long position in corn futures
Entanglement
term used to describe material posted to a securities professional's social media site by a third party where the securities professional has taken part in the preparation of the material.
An inverted yield curve means
the closer the bond is to its maturity date, the higher the yield.
Opening a margin account involves significant documentation. Which of those documents discloses the interest rate charged by the broker-dealer, including the method of interest computation and situations under which interest rates may change?
the credit agreement
Under modern portfolio theory (MPT), all portfolios that can be constructed from a given set of stocks is referred to as
the feasible set
the lower the coupon rate
the longer a bonds duration
the longer a bonds maturity
the longer the bonds duration
modern portfolio theory
the optimal portfolio for an investor will always lie on the efficient frontier.
the higher the coupon rate
the shorter the bonds duration
the shorter the duration
the smaller the price movement
Private placements are offers to no more than 10 noninstitutional persons in a 12-month period for investment purposes (not immediate resale), where no commissions are paid, directly or indirectly
they are exempt from registration requirements
most etfs are classified as
unit investment trusts
A letter of intent for a mutual fund purchase may be backdated to include previous investments in the same fund during the past
up to 90 calendar days
hedge funds
usaully structured as limited partnership to avoid registration w SEC
lagging leading economic indicator?
average prime rqte
The basis of an asset received from a decedent's estate is referred to as a stepped-up basis. This
basis is generally the fair market value of the asset on the day the decedent died
If a bond has a long duration, it will
be more sensitive to small changes in interest rates than a bond with a shorter duration
Matched orders= occur when one or more broker-dealers engage in buying and selling between themselves for the purpose of creating the misleading appearance of increased activity in a security. Wash trades=is an attempt to manipulate a security's price by creating an apparent interest in the security that really does not exist.
both are broker dealers doing market manipulation
Which of the following are regulated under the Securities Exchange Act of 1934?
broker dealers transfer agents
what is regulated under the Securities Exchange Act of 1934?
broker dealers and transfer agents
buying a call is
bullish
A discussion of algorithmic trading is probably referring to
high frequency trading
A retired woman whose sole income comes from a portfolio of investments with a fixed rate of return is most affected by
high inflation
The capital asset pricing model (CAPM) is an investment theory that serves as a model for
pricing securities based on their systematic risk
A defined benefit pension plan is one that
promises to pay employees a certain specified benefit at retirement.
the longer the duration
the greater the price movement
The responsibility for administering the Investment Advisers Act of 1940 lies with
SEC
A portfolio manager who is engaging in rebalancing on a semiannual basis is most likely using which portfolio management style?
Strategic asset allocation At least annually, and sometimes more frequently, a portfolio manager who follows strategic asset allocation will examine the relative proportion of the selected asset classes and, based on market performance, rebalance the portfolio to bring it back to its ideal. Active (also called tactical) asset allocation attempts to time the market and doesn't pay the same amount of attention to proportionate holdings as does strategic asset allocation
a sales load
"front end" sales charge or sales load is the funds sale charge, expressed as a percentage of the public offering price
Defalcator Investment Advisers (DIA), registered in States A, K, and R, would be required to provide a balance sheet as part of its brochure if it charged fees of
$1,000 for the next year's advisory service. State-registered investment advisers, who charge substantial prepayment of advisory fees, must include a balance sheet with their brochure. The definition of a substantial prepayment is: more than $500, 6 or more months in advance
preffered stock
- usually doesn't have same voting rights - normally pays a fixed quarterly dividend and has priority claims over common stock -similar to a debt security (bond) rate of return is fixed SO price fluctuates with interest rates -primary objective is income
there are no record keeping requirements for agents or IARs
-BD must keep records for 3 years -Investment advisors must keep partnership records 3 years after partnership is over
Zero Coupon Bonds
-are always sold at a discount -so they dont have reinvestment risk- bc dont get interest payments to worry about -more volatile
discretionary accounts
-must be reviewed frequently by the designated supervisory person -An investment adviser representative may decide, without discretionary authority, the time at which to execute a trade
Unit investment trusts
-unmanaged -organized by trust indenture -dont have board of directors -dont employ investment advisors -dont actively manage
investment advisors
1. The SEC requires prompt amendment of any material information changes on Form ADV (e.g., names, location, control, custody, organization) 2. nonmaterial amendments within 90 days of the end of the adviser's fiscal year.
Even though Administrators have limited jurisdiction over federal covered advisers, they can require
1. filing of a copy of the information filed by that IA with the SEC (the Form ADV) 2. filing fee.
surety bonds
1. for Broker Dealers an amount not in excess of that set by the SEC 2. For Investment Advisors $35,000
According to federal law, an insurance company under the provisions of the Investment Company Act of 1940 must allow a variable life policyholder the option to convert the policy into a whole life contract for a period of
24 months
A customer who sold a bond at a loss must wait how long before he can buy back a substantially identical bond and not have the sale classified as a wash sale?
31 days
As a rule, loans from a 401(k) plan must be repaid within how many years?
5
college education.. which plan offers the greatest amount of control
529 Plan
A customer who is changing jobs has how many days to roll over a lump-sum distribution from a qualified pension plan into an IRA?
60 days
REITS
90% of taxable income must be distributed 75% of income must come from real estate investments
Which of the following rates of return is used by investment professionals as the risk-free rate?
91-day Treasury bill rate
Which of the following statements represents an advantage of a municipal general obligation bond over a revenue bond?
A GO bond generally involves less risk to the investor. GO bonds are generally less risky than revenue bonds because they are backed by taxes rather than revenues.
Plenitude Premier Solutions (PPS) is registered in State C. If PPS wished to maintain custody of client funds or securities,
prompt notice would have to be given to the State C Administrator on Form ADV.
Looking at the balance sheet, a corporation builds its capital structure will all of the following long-term debt capital stock retained earnings but not cash
A corporation's capital structure consists of its long-term debt plus shareholders' equity
An IA hires a third-party solicitor to recruit new clients. Which of the following records is the IA required to keep?
A statement, signed by the client, that both the IA's and solicitor's brochures were received
investment-grade general obligation municipal bond
General obligation bonds are backed by the full faith and credit of the government issuing the debt and are repaid through taxes collected by the government body so The taxing authority of the issuing government or municipality backs the issue's repayment.
use high water strategy in volatile markets
An advantage of the high-water crediting method is that the interest is calculated using the highest value of the index during the term. Therefore, in a volatile market, where prices are going up and down, it picks up the highest price.
One difference from futures and options is that with futures- both parties, long and short, are obligated to execute the contract.
An investor goes short 5 soybean futures contracts on the Chicago Mercantile Exchange (CME). When the contract expires, BOTH parties buyer and seller are obligated to perform where as with options only the seller is obligated to perform
Rule of 72
An investor places $10,000 into BCD common stock 12 years ago. Today, that stock has a market value of $20,000. Using the Rule of 72, the internal rate of return on BCD is closest to too much info given just start with 72 and divide by year (12) so answer is 6
Disciplinary proceedings under the Uniform Securities Act require the Administrator to provide which of the following?
An opportunity for a hearing Written findings of facts and conclusions of law Appropriate prior notice
Under what conditions may an unregistered employee of a broker-dealer receive bonuses or incentives?
When such bonuses or incentives are not tied to transactions, commission activity, or referrals generated by the unregistered person
An investor who is long XYZ stock would consider going long an XYZ call to
protect against an increase in the market price of XYZ stock
Which of the following equations correctly shows the relationship between the items on a company's balance sheet?
Assets = liabilities + stockholders' equity.
Which type of risk is a mortgage-backed security most likely to experience?
re-investment risk
An analytical tool used to project the current value of a common stock using projected future dividends is
the dividend discount model
A QDRO is a judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant. The QDRO must contain certain specific information as stated in whose regulations?
IRS
Which of the following is not included in the definition of broker-dealer as found in the Uniform Securities Act?
Banks included terms are Credit unions Investment advisers Attorneys
An investor has been following the price movements of ABC common stock and believes that the stock is positioned for a significant upward move in the very near term. If the investor's goal is capital gains, which of the following would be the most appropriate position for this investor to take?
Buy ABC call options
Under the Securities Act of 1933, when registering securities with the SEC, who must sign the registration statement?
CEO, CFO, majority of the board
There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:
CMAs commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.
There are waivers from the Series 65 exam requirement for certain professional designations. Among those qualifying for the waiver are individuals who have which of the following designations?
ChFC® or CFP®—CERTIFIED FINANCIAL PLANNER™ (granted by the CFP Board of Standards); CIC—Chartered Investment Counselor (granted by the Investment Adviser Association); ChFC®—Chartered Financial Consultant® (granted by the American College of Financial Services); PFS—Personal Financial Specialist (granted by the American Institute of Certified Public Accountants); and CFA®—Chartered Financial Analyst® (granted by the Chartered Financial Analyst Institute).
Under Section 28(e) of the Securities Exchange Act of 1934, which of the following is allowable soft-dollar compensation from a broker-dealer to an investment adviser under the safe harbor provisions?
Custodial services provided by the broker-dealer research and analytical software also allowed
The federal law dealing with privacy matters for financial institutions is
Regulation s-p
least appropriate for a client primarily concerned with liquidity?
Direct participation program bc There is little secondary market liquidity for direct participation programs (DPPs)
Warrants Forwards Options Are all derivatives
ETF is not a derivative ETF is a investment company
If you overheard an analyst referring to an investment's indicative value, the discussion would most likely be about
ETN
Which of the following investments is not registered under the Investment Company Act of 1940?
ETNs
Which of the following statements regarding the Investment Advisers Act of 1940 and the adviser's brochure is CORRECT?
Each client must receive the brochure no later than the entry into the advisory contract.
A portfolio of listed common stocks will have little to no liquidity risk because listed shares are easily traded
Even though common stock tends to offer protection against inflation, there is no assurance that the portfolio will keep pace with the rising cost of living.
For which of the following is there no active secondary market?
Forwards
Which of the following is TRUE of GNMA securities?
Interest is subject to federal income tax They are backed by residential mortgages
a bonds yield to maturity represents its
Internal rate of return
Which of the following is an example of dollar cost averaging?
Investing $100 into the XYZ Fund each month on the 20th of the month
One of the components of a cash flow statement is cash flow from investing activities. Included would be
Investing activities include transactions and events involving the purchase and sale of securities, land, buildings, equipment, and other assets not generally held for resale as a product of the business.
An inverted yield curve results in part by
Investors buying long-term bonds and selling short-term bonds
If a customer who has granted a durable power of attorney to her son dies, which of the following statements regarding the power of attorney is TRUE?
It is canceled on the death of either principal.
What is the purpose of the Securities Exchange Act of 1934?
It regulates the persons involved in the secondary market.
Short-term interest rates are more volatile than long-term rates
Long-term bond prices react more than short-term bond prices given a change in interest rates.
Mr. Hawkins sets up a revocable trust for the benefit of his adult daughter, Madeleine. His wife may draw from it only if she needs to. Income on the trust will be taxed to
Mr hawkins as the donor
A broker-dealer makes a market in XYZ stock and places large orders for it on the open market either at or slightly above its current price with the aim of stabilizing the price. This unethical practice is best described as
Pegging defined as= involves entering buy orders for the purpose of supporting a stock price (i.e., to keep it from falling).
most commonly used to evaluate the marketplace's perceived value of a particular stock?
Price to earnings ratio
Under the USA, a guaranteed security is protected by someone other than the issuer against loss of all of these EXCEPT
Principle on equity is nit guaranteed
Which of the following is (are) advantages of irrevocable insurance trusts?
Provide estate liquidity. Insurance proceeds are removed from the estate of the insured for tax purposes. As with all life insurance, the proceeds are available almost immediately upon death providing estate liquidity. When done properly, the proceeds of the policy are not included in the deceased's estate, thereby saving estate taxes
Regarding the use of the term "direct participation programs", when referring to tax-sheltered investments, which of the following is not a DPP?
Real estate investment trust
Which of the following is regulated by the Securities Exchange Act of 1934?
Regulation of exchanges
A client approaches an agent about investing in a risky security and insists on doing so, even when told by the agent that the security is not suitable for that client. What should the agent do?
The agent should explain the risks of investing and, if the client still insists, place the order and mark it unsolicited.
A wealthy individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed?
The original value plus any appreciation is taxed as part of the grantor's estate.
Which of the following best describes the death benefit provision of a variable annuity?
The principal amount at death is the greater of the total of premium payments or the current market value.
a customer and his spouse own shares in the ABC Fund as joint tenants with rights of survivorship. If the customer dies, what happens to the shares in the account?
The spouse would own all the shares.
One of your clients wishes to reallocate the assets in his 401(k) plan. Specifically, he plans to assist his parents in the purchase of a retirement home. He claims that it makes sense to have about 10% of his plan assets in real estate.
This is not permitted because a prohibited party will benefit.
The difference between a fixed annuity and a variable annuity is that the variable annuity
Variable annuities differ from fixed annuities because the payments vary and are designed to offer the annuitant protection against inflation.
Which of the following securities can legally be purchased on margin?
WARRANTS exercisable into shares of a stock traded on the Nasdaq Stock Market
Due to changes in market rates, a corporation is able to purchase some of its outstanding 20-year bonds at a discount. Which of the following is CORRECT? Working capital is increased. Working capital is reduced.
Working capital is reduced. Net worth is increased.
options, rights and warrants
are derivatives
forward contracts
are not listed on any exchanges- detailed contract between two people
LEAPS
are options with a long expiration date- so derrivates
An investment company that invests in common stock, preferred stock, and bonds would most likely be classified as
a balanced fund bc Balanced funds spread the risk of their investments among different types of securities, such as common stock, preferred stock, and bonds.
It is often said that the backbone of the over-the-counter market is the market maker. A good description of a market maker would be
a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded on a LISTED exchange
Which of the following orders would be used to protect a short sale profit?
a buy stop
A corporation may benefit by attaching warrants to a new issue of debt securities from
a decrease in the company's interest costs
Starflier Mutual Fund, regulated under the Investment Company Act of 1940, wishes to change its investment policy. It may do so with approval of
a majority of the outstanding shares
An order to sell securities where immediate execution is more important than price is called
a market order
cant reach a break even point w
a sister only works with a spouse or dependent child
Wrap fee accounts would tend to be most suitable for investors who follow
a tactical approach to investing Because one of the key benefits to the wrap fee program is the elimination of transaction fees (commissions), it is most suitable for those who are active traders, such as those who take a tactical approach to investing.
One of your clients owns shares of the NERP Corporation's senior preferred stock. He is concerned about NERP's financial solvency and wonders where he would fall in the event of NERP declaring bankruptcy. The proper response is, the client's claim is
after the creditors, but ahead of the common stockholders. BC order is: In a corporate bankruptcy, the first claim is that of secured creditors. They are followed by the unsecured creditors. After all creditors have been satisfied, any remaining funds are used to pay off the preferred stock up to its par value, and finally, if there is anything left, it goes to the common stockholders
Tbills
always issued and traded at a discount highly weekly- short time frames weeks instead of years
amika is an investment adviser representative with Financial Engineers, LLC, a covered investment adviser. The firm uses an investment policy statement to help design financial plans for their clients. One of Tamika's current clients plans to purchase a new boat 7 months from now. When using the IPS, this would be considered
an investment contraint bc Investment constraints are obstacles or restrictions that must be met in order to meet objectives. In this case, we are dealing with a liquidity constraint—in 7 months, cash will be necessary to make the purchase.
Although all new accounts must be approved by a designated supervisor before any trading activity may take place, there is one type of account that must be approved by a specially qualified supervisor. That would be
an options account- Because trading options (puts and calls) generally involves a higher degree of risk than stocks, bonds, or mutual funds, a designated supervisory person with knowledge about options must approve the account opening.
Short-term interest rates are more volatile than long-term rates.
and Long-term bond prices react more than short-term bond prices given a change in interest rates.
Investment Company Act of 1940
any change in fundamental investment policy must be approved by stockholders
Nonprofit organization Exchange-listed security Federal savings and loan association Federal credit union
are all exempt from registration by Uniform Securities Act.
jumbo negotiable CDs are they are usually issued in denominations of $100,000 to $1 million they usually have maturities of 1 year or less they are readily marketable
but they are not secured obligations of the issuing bank Negotiable CDs are general obligations of the issuing bank; they are not secured by any specific asset
The breaking of a resistance level
buy as the price of the asset gathers momentum to the upside, indicates a buying opportunity
In general, a broker-dealer will disclose any changes to its fee schedule
by notifying clients of the change in advance
A grantor retained annuity trust (GRAT)would not be used to reduce income taxes
can reduce estate taxes. gift taxes.
When discussing employment and production, which of the following industries are typically more affected by a recession?
capital goods consumer durable goods
When an analyst adds back the current year's depreciation to the net income, she is computing the company's
cash flow from operations
Which of the following investment companies registered under the Investment Company Act of 1940 can include senior securities in its capital structure?
closed end
interest rates decline during a
contraction
rising inventories happen in a
contraction
The formula for computing the combined equity in a mixed margin account is
current market value of the long positions, plus the credit balance in the short account, minus the current market value of the short positions, minus the debit balance in the long account
The contraction phase of the business cycle is least likely accompanied by
decreasing unemployment
commodities are metals so gold silver platinum
diamonds are not metal diamonds are not commodities
An account where a securities professional may invest the client's money, without consulting the client about the amount or type of security for the trades that are placed for the account, is known as
discretionary account
Preferred stockholders
do not have the right to subscribe to rights offerings
When opening an account at a broker-dealer, if the most recent copy of the firm's fee schedule is not available, NASAA recommends that the client
does not place any assets in the account until it is provided
Information required on an application for registration as an agent would include
felony convictions, whether securities related or not citizenship information
Debts that will come due more than 1 year after the date on the balance sheet are known as
fixed (or long-term) liabilities = Debts that will come due more than 1 year after the date of the balance sheet
Samantha Wells, a British citizen temporarily working in the United States, wants to form a business venture with other investors. She is looking for favorable tax treatment of earnings and losses. She also wants to limit the number of investors, but is willing to share control of the enterprise with others to attract them. What business form do you advise to her?
general partnership bc Limited partnerships would not work because the other investors have limited say in how the enterprise is run. C corporations do not provide favorable tax treatment of gains or losses. While an S corporation appears to be the right answer, only U.S. citizens or resident aliens can own one.
It is generally agreed that one of the primary benefits offered by UTMA over UGMA is
greater flexibility in the type of property that may be transferred
An investor who is long a put option for 100 shares of ABC common stock
has the right to sell 100 shares at the stated exercise price
It is not uncommon to find financial planners who use their home as the base of their operations. When a financial planner who works from home is also registered as an agent of a broker-dealer, she must
have cybersecurity policies and procedures in place to protect customer data can use a personal computer if cybersecurity set up
When an investor's original value is subtracted from the ending value, and then has the income received over that time period added to it, which is then divided by the original cost, the result is
holding period return
The weak form of the efficient market hypothesis
implies that technical analysis is not worthwhile.
An employee wishing to obtain long-term capital gain treatment would prefer the employer to offer
incentive stock options
The Conference Board releases information about the economy on a monthly basis. Included are a number of different indicators. Economic indicators can be leading, lagging, or coincidental, which indicates the timing of their changes relative to how the economy as a whole changes. Which of the following is a coincident economic indicator?
industrial production
A measurement of investment return that takes the time value of money into consideration is
internal rate of return
A consent to service of process must be filed for registration of
investment adviser representatives broker-dealers investment advisers agents
charging unreasonable commissions
is a prohibited practice- but not considered to be fraud
A client of a broker-dealer who sold 200 shares of XYZ stock short,
is obligated to return the 200 shares borrowed. He who sells what isn't his'n, must buy it back or go to pris'n." It refers to short-sellers and their obligation to return the borrowed stock or have legal problems.
annuities are not
life insurance policies
Nite Capital Group is a registered broker-dealer whose primary business model is providing quotations for OTC stocks in which they position trade. Nite would be known as
market maker
Harry Thomas has turned 19 and decided that he is going to join the Marines and postpone going to college. If Harry decides to stay in the military, the unused funds contributed to his Coverdell ESA
may be transferred into another Coverdell ESA for Harry's 25 year-old cousin, Julia
A variable annuity annuitant bears all of the following risks EXCEPT
mortality risk
true It is the general partners rather than the limited partners who bear the liability for partnership debt. Limited partners are not liable for funds in excess of the amounts they have invested or otherwise committed for. Management of the enterprise is solely within the jurisdiction of the general partner(s).
not true Limited partners have the option of actively managing the business operations. Limited partners are passive investors in a partnership whose liability is limited to the amount of funds they have invested and committed to, but have not yet contributed. They do not manage the funds in the partnership; the general partner has that responsibility.
An issuer of federal covered securities, whose registration is effective under the Securities Act of 1933, would use which of the following procedures to permit sale of its securities in a specific state?
notice filing Notice filing is the procedure by which federal covered securities, most commonly registered investment company securities, receive clearance for their securities to be sold in a specific state. No formal registration is required, but payment of fees and filing of certain documents may be.
An investor would write a call option to
obtain income
A mortgage-backed security (MBS), such as a Ginnie Mae, makes a combination principal and interest payment to an investor. This payment will be
partly taxed as ordinary income and partly a tax-free return of principal
What generally happens to outstanding fixed-income securities when the rate of inflation slows?
prices go up
During the past 2 quarters, the GDP declined by 3%, unemployment rose by 0.7%, and the Consumer Price Index fell off by 1.3%; this economic condition is called
recession Two consecutive quarters of economic decline is termed a recession.
A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to immediately
reply to the client in writing
An analyst comparing revenues with expenses is most likely analyzing
reviewing cash flows
Construction of an investment policy statement (IPS) requires identifying the client's objectives and constraints. Which of the following would not be in the list of constraints?
risk tolerance bc When constructing an investment policy statement (IPS) risk tolerance is an objective, not a constraint. Time horizon, taxes, and liquidity are all constraints. An easy way to remember the five constraints is TTLLU (time horizon, taxes, liquidity, laws, unique).
George owns XYZ stock. Based on recent analyst projections and George's own research, he believes XYZ's price will remain flat over the next few months. Accordingly, which strategy would George most likely employ?
sell a call option When the price is expected to stay flat, selling an option is a way to profit with little risk of the option being exercised. Why sell the call instead of the put? Because George owns the XYZ stock, this is a covered call and entails no downside risk. Selling the put would expose George to potentially significant loss if the price of XYZ should suffer a large decline.
The statistical measurement that indicates how much an investment's returns have fluctuated compared with its average return over a period of time is known as
standard deviation
A banner on a broker-dealer's website is considered
static
If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio?
tangible assets because they keep pace with inflation
typically least expensive form of insurance.
term policy
A bond's yield to maturity is
the annualized return of a bond if it is held to maturity
When shares of a closed-end investment company are purchased by an investor, the price paid is based upon:
the current asking price
What is the total amount that may be invested in a Coverdell Education Savings Account in 1 year?
the current maximum per child An indexed maximum contribution may be invested in each child's Coverdell Education Savings Account every year. For instance, if a couple has 3 children, they may invest the current maximum into each of three accounts.
Annual interest payment divided by current dollar price of a bond is
the current yield
A support level is the price range at which a technical analyst would expect
the demand for a stock to increase substantially. Most stock prices remain relatively stable and fluctuate up and down from their true value. The lower limit to these fluctuations is called a support level, the price range where a stock appears cheap and attracts buyers. The upper limit is called a resistance level. Generally, a support level will develop after a stock has experienced a steady decline from a higher price level. Technicians believe that at some price during the decline, those investors who have been waiting for a reversal to get into the stock will now buy. When the price reaches this support price, demand surges, and price and volume begin to increase again. Other terms that may be used in this context are overbought and oversold. Overbought generally refers to the resistance level. Interest in buying the stock has begun to dry up and the price of the stock plateaus. Oversold is when the opposite occurs: there are few sellers to be found and the price of the stock bottoms. In either case, the next move is a reversal: down when the stock is overbought and up when oversold.
A support level is the price range at which a technical analyst would expect
the demand for a stock to increase substantially. Most stock prices remain relatively stable and fluctuate up and down from their true value. The lower limit to these fluctuations is called a support level, the price range where a stock appears cheap and attracts buyers. The upper limit is called a resistance level. Generally, a support level will develop after a stock has experienced a steady decline from a higher price level. Technicians believe that at some price during the decline, those investors who have been waiting for a reversal to get into the stock will now buy. When the price reaches this support price, demand surges, and price and volume begin to increase again. Other terms that may be used in this context are overbought and oversold. Overbought generally refers to the resistance level. Interest in buying the stock has begun to dry up and the price of the stock plateaus. Oversold is when the opposite occurs: there are few sellers to be found and the price of the stock bottoms. In either case, the next move is a reversal: down when the stock is overbought and up when oversold.
Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include
the interest charged by the firm on money owed by customers in their margin accounts a charge when a client requests that a stock certificate be issued in his name
If a corporate bond is a convertible bond, this means that
the owner of the bond may exchange it for a set number of shares of stock
Among the special characteristics of a universal life insurance policy is
the policy may be overfunded
A client who wishes to have $50,000 available to help fund a 3-year-old child's college education in 15 years estimates that if the portfolio can earn 7%, a deposit of $18,122.30 will be required today. This deposit is referred to as
the present value
RMDs may be deferred only from the plan sponsored by the current employer.
the rule is that you can only defer RMDs in the plan of the employer where you are currently employed. For example, assume you retire from Company A and get a job with Company B, and both companies have a 401(k) plan. You can only defer RMDs from the Company B plan, because that is your current employer; you will have to take RMDs from the Company A plan. The same would be true if it were 2 different school systems with 403(b) plans.
One of the differences between broker-dealers and investment advisers is the disclosures that must be made when the IA is acting as a principal or agent in a transaction with an advisory client. In the case of a firm registered in both capacities, those disclosures would not be required when
there was a transaction with a client of both entities, but the trade was not based upon advisory services rendered
Platinum Investment in Growth Group, Inc. (PIGGI) is registered in and has its principal office in State W. PIGGI has near-term plans to open offices in State A and B. In an effort to test the waters, PIGGI mails several hundred flyers to prospects in those 2 states. Under the Uniform Securities Act,
these flyers could not be mailed until PIGGI was registered in States A and B
an advisor has custody of a clients securities or funds if
they have authority to withdraw funds from a client's account for the benefit of the adviser for the payment of the quarterly advisory fees
If a support level is broken
this provides a sell signal Once the stock has lost its support, expectations are that it will continue to fall.
Which of the following is generally believed to present a more accurate picture of a portfolio manager's performance?
time weighted return
It would be correct to state that an inverse ETF
uses derivates
The Federal Reserve Board has just taken action leading to an increase in interest rates. Which of the following industries is most likely to be affected adversely by this action?
utilities Utility stocks tend to be interest rate sensitive for two reasons. First, they are typically bought for income portfolios, and, as such, changes to interest rates impact their price. Second, because utilities are typically the most highly leveraged of all industries, an increase in interest rates could substantially increase their debt service costs and thus reduce earnings.
Which of the following is designed primarily as a retirement vehicle to help protect contract owners from a decline in purchasing power?
variable annuities the tradeoff with lack of guarantees is the potential to keep pace with inflation.
Which of the following situations would most likely cause an individual's application for a disability income insurance policy to be denied?
working in a hazardous occupation
