Series 66 Exam
Weak form
historical price trends are, therefore, of no value in predicting future price changes. Although fundamental analysis and insider information may produce above-market returns under the weak form, technical analysis is of no value.
A client owning shares of a closed-end investment company entering an order to liquidate the position would receive a price based on
supply and demand
One of your clients has recently turned 70½ and has questions about RMDs. The client has a traditional IRA, a rollover IRA, and 401(k) plans from 2 previous employers. When computing the RMDs, 1. the RMD from each IRA is computed and may be made from one or both of them 2. the RMD from each IRA is computed and must be paid from that IRA 3. both 401(k)s are combined to compute the required distribution, which may be made from one or both of them 4. the RMD from each 401(k) is computed and must be paid from that 401(k)
1 and 4
Professor William Sharpe stipulated that certain assumptions must be present for the capital asset pricing model (CAPM) to be useful. Which of the following is notone of these assumptions? A) Investment expenses, such as taxes and transaction costs, are relevant in investment decision making. B) At all times, capital markets are in equilibrium. C) All investors have the same expectations for a given investment. D) Investors can always borrow and lend money at the risk-free rate of return.
A
A person who is vested with legal rights and powers to be exercised for the benefit of another is known as
A fiduciary
A U.S. citizen purchases a bond issued by the government of Sweden. The interest payments received are taxed at which of the following levels? Federal State Local
All 3
If the Administrator were to examine the actions of a particular agent to determine if the agent engaged in churning a client's account, focus would be placed upon A) the number of complaints received relating to that agent B) the client's objectives, financial resources, and the character of the account C) the amount of profits generated in the client's account D) the length of time the account had been opened
B
Which of the following statements regarding a qualified profit-sharing plan is TRUE? A) Contributions are required annually. B) It can permit regular direct cash payouts to participants before retirement. C) It must be established under a trust agreement. D) It must define a specific contribution amount.
C
If you were using the discounted cash flow method to determine the appropriate value of a security, you would want to purchase that security when
CMV is less than PV Resulting in a positive NAV
Special compensation
Compensation to the broker dealer or salesperson in excess of what they would be paid for providing a brokerage or dealer service alone
State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act? A) Broker-dealers receiving special compensation B) Economists whose advice is strictly incidental to their professional activity C) Bank subsidiary offering investment advice D) Investment adviser representatives
D
Exclusions to the Uniform Securities Act
Bank and bank holding company, savings institution or trust company -Credit unions unavailable to exclusions
Ladder strategy
Bonds are bought at the same time but with different maturities, when the short term bonds mature they are reinvested
The bulk of "dark liquidity" represents trades A) engaged in by institutional traders and trading desks on the exchange markets. B) involving noninstitutional investors. C) engaged in by institutional traders and trading desks away from the exchange markets. D) where the identity of the participants is disclosed.
C
Fundamental analysts give significant credence to financial ratios. Which of the following tends to give an indication of the profitability of the enterprise? A) Debt ratio B) Current ratio C) Price-to-earnings ratio D) Sales-to-earnings ratio
D
Which of the following bonds would appreciate the most if interest rates fell? A) 15-year maturity, selling at a premium B) 30-year maturity, selling at a premium C) 15-year maturity, selling at a discount D) 30-year maturity, selling at a discount
D
Under the Uniform Securities Act, which of the following would NOT be considered an exempt transaction? A) The sale of ABCD common stock, listed on the Nasdaq Stock Market, to a trust company B) An executor liquidates the estate's portfolio C) The purchase of an unregistered nonexempt security by an individual client at that client's request D) An agent sells U.S. Treasury notes to an individual client
D Even though the bonds are an exempt security, the sale to an individual client is not an exempt transaction. Sales to institutions, sales by fiduciaries, or unsolicited transactions are all exempt.
Bank Holding Company
Invests in anad manages other corporations. A bank holding company is a holding company who's primary asset is a commercial bank. Most large US Banks are owned by holding companies
If a businessowner's goal is to establish an entity that features ease in raising capital, which of these entities is the most appropriate?
LLC, C corp is also a good way to raise a lot of capital. S corp is restricted to 100 investors
Calculate expected return using the SML
Multiply the difference between the markets return and RF rate by the stock's beta and add that number to the RF rate.
If a customer's chief concern is to shelter as much of his portfolio earnings from tax as possible, which of the following securities would be most suitable?
Municipal GO bonds
Strategic Investment Managers Company (SIMCO) is an investment adviser registered with the SEC. They have over 1,000 clients, about 53% of whom have granted SIMCO discretionary authority. From time to time, SIMCO feels the same security is appropriate for a number of their accounts and turns in a bunched order. When the order is filled at different prices, the shares are allocated
Proportionately regardless of account size
Which of the following investment strategies is used to determine an appropriate allocation based on the long-term goals and risk tolerance of the client?
Strategic asset allocation
Barbell strategy
The investor purchases bonds maturing in one or two years and an equal amount maturing in 10 (or more) years with no bonds in between.
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.
Because a trust account is managed for the beneficial interest of the beneficiary, the investment adviser representative handling the account can have a check drawn on the account payable to the trustee for trustee expenses (T/F)
True
You can use UTMA money for summer camp (T/F)
True, it cannot be used for basics like food or housing
A weak form price-efficient market is one in which security prices fully reflect past share price and trading volume data. Therefore, successive future share prices should move independently of this past data in a random fashion, thereby nullifying any perceived informational advantage from adopting technical analysis to analyze trends.
Weak form price efficient market
Semi Strong theory
current stock prices not only reflect all historical price data but also reflect data from analyzing financial statements, industry, or current economic outlook. Fundamental and technical analysis wont work
Growth managers are looking for...
earnings momentum
What kind of bonds have the greatest exposure to interest rate risk?
longest duration is generally going to have the greatest exposure to interest rate risk. the bond with the lowest coupon will have the longest duration.
Starflier Mutual Fund, regulated under the Investment Company Act of 1940, wishes to change its investment policy. It may do so with approval of
majority of outstanding shares
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.
Some registered investment advisers are federal covered, while others register on a state by state basis. In the case of a state-registered investment adviser having its only office in Oregon with no offices in any other state, the authority of the office of the Administrator would include:
requiring IAR to pass an exam
Which of the following statements (is)are TRUE? 1. An Administrator can suspend a pending registration on a summary basis. 2. An Administrator may not issue a stop order without prior notice and opportunity for a hearing. 3. An Administrator may cancel a registration for the same reasons he revoked or suspended a registration.
1 & 2
Under the Uniform Securities Act, prepaid advisory fees 1. must be detailed in the advisory contract 2. may not exceed 2% of the customer's deposited assets 3. in excess of $500 for 6 months or more of service require the adviser's balance sheet to be included in the brochure 4. may never be accepted
1 & 3
Which of the following are discretionary orders? 1. A customer sends a check for $25,000 to an agent and instructs the agent to purchase bank and insurance company stocks when the price appears favorable. 2. A customer instructs an agent to buy 1,000 shares of ABC Corporation at a time and price determined by the agent. 3. A customer instructs an agent to purchase as many shares of XYZ as the agent considers appropriate. 4. A customer instructs an agent to sell 300 shares of LMN, Inc., when the agent deems the time and price appropriate.
1 and 3
An investment advisor must meet the 3 prong test, what are they
1) gives advice to others on securities 2) does so as a part of a regular business activity 3) receives compensation for this activity
A 35-year-old client purchases a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is
9%
Mountain High Securities is a broker-dealer registered in Wyoming and Colorado with its principal office located in Colorado. With reference to the Uniform Securities Act, it would be correct to state that: A) meeting the recordkeeping requirements of Colorado is sufficient even if those of Wyoming are more stringent B) the books and records could not be kept in digital form C) the Administrator of Colorado would have to approve of the broker-dealer method of recordkeeping D) it is required that any broker-dealer meet the recordkeeping requirements of each state in which they are registered
A
The alternative asset investments class is least associated with which of the following characteristics? A) Efficient pricing B) Diversification C) Nonnormal returns D) Illiquidity
A
To calculate the amount to be received on redemption of open-end investment company shares, which of the following would be used? A) The NAV, minus the redemption fee B) The offering price, minus the redemption fee C) The offering price, plus the redemption fee D) The NAV, plus the redemption fee
A
Which of the following is a characteristic of index investing?
A portfolio that mirrors the performance of a specific market
Wrap Free Program
A specified fee not based directly upon transactions in a clients account. A single "wrapped" fee Ex: investment advisory & brokerage execution. NOT financial planning and recommendations
Disclosure to customers of an investment adviser's control relationships is required in agency transactions principal transactions exempt transactions
All
Andrew voluntarily leaves his position as an agent with Gibraltar Securities. Which of the following best describes the reporting requirements relative to this termination?
Andrew and the firm must notify the administrator On termination of an agent from a firm with which he is registered, both the agent and the firm must notify the Administrator of such termination promptly.
L.A.T.E exclusion
Any lawyer, accountant, teacher or engineer who's advice is solely incidental to the practice of his profession is excluded
Investment Advisor
Any person who for compensation advises others
Person
Anyone except 1) a minor 2) deceased person 3) mentally incompetent person
What is included on a family balance sheet
Assets and liabilities. Not expenses already paid
Under the Insider Trading and Securities Fraud Enforcement Act of 1988, a person who buys securities with material, privileged, nonpublic information may be subject to a civil penalty of: A) an amount equal to the amount of violation B) up to 3 times the amount of gain or prevention of loss C) the amount paid or saved on the securities trade D) $20,000.00
B
Which of the following stocks would probably be most appealing to a value investor? A) A stock with a relatively low dividend yield B) A stock with a relatively low P/E ratio C) A stock with a relatively high price-to-book-value ratio D) A stock that has relatively high volatility
B
Broker Dealer
Engaged in the business of executing securities transactions
Strong Form Market Efficiency
Security prices fully reflect all information from both public and private sources Random walk is only thing that works
3 things involved in CAPM to predict a stocks return
The expected return on the market the risk-free rate available in the market the beta coefficient of the stock
Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns?
Weak
As defined in the Investment Company Act of 1940, the term "investment company" would NOT include
a holding company
One of your clients dies. You could legally take instructions regarding the individual's estate from
administrator in intestacy
A viatical sale would generally involve
an individual with terminal illness
Non Securities Investments
commodities collectibles (coins or stamps) precious metals such as gold real estate
An investor goes short 5 soybean futures contracts on the Chicago Mercantile Exchange (CME). When the contract expires, A) only the exchange is obligated to perform B) both the buyer and the seller are obligated to perform C) only the seller is obligated to perform D) only the buyer is obligated to perform
B Among the ways in which futures differ from options is that both parties, long and short, are obligated to execute the contract. At expiration date, if not exercised before, the buyer must purchase at the contract price and the seller must deliver at the contract price.
An investment adviser is approached by an investment company that has 25 investors. The company would like to employ the adviser to manage its account. The IA is willing to do so, but proposes a compensation agreement that provides for a 20% share of the profits if performance exceeds a certain benchmark. In order for this to be acceptable, A) all the shareholders in the investment company must be qualified investors B) the individual in charge of the investment company must be a qualified investor C) the investment company must have net worth in excess of $2.1 million or at least $1 million in assets under management with the IA D) a majority of the shareholders in the investment company must be qualified investors
C
An investor signed a letter of intent to purchase $50,000 worth of Sky-High Mutual Fund. At the end of 13 months, he had only invested $48,000 in the fund. Which of the following is TRUE? A) There are no additional requirements; he will receive the breakpoint. B) He must sign a new letter for the $2,000 to receive the breakpoint. C) The fund will liquidate shares to meet the additional sales charge. D) He has 90 days to invest the additional $2,000 for the breakpoint.
C
Which of the following statements is NOT true? A) Federal covered securities include those registered under the Investment Company Act of 1940. B) Transaction exemptions must be established before each transaction. C) Exempt securities must reestablish their exemptions at least annually. D) Federal covered securities include securities listed on national exchanges.
C
A client of an investment adviser is thrilled with her portfolio's results and posts a note on her bridge club's cork board suggesting that some of the other members would probably benefit from the adviser's skills. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers is this allowed?
Yes, but once the IAR finds out about it they must ask them to take it down.
Mr. and Mrs. Williams are a retired couple receiving most of their income from a diversified portfolio of high-quality bonds and preferred stock. One of the reasons that life insurance might be a useful addition to their overall planning is that
it provides liquidity to cover death expenses
Bullet strategy
purchase bonds at different times but with the same maturity to accomplish a goal (childs college)
An investor plans to fund the college education for her newborn child by purchasing $5,000 of investment-grade bonds on an annual basis. She is most likely using
the bullet strategy the target is having sufficient funds about 18 years from now. This strategy involves buying bonds at different intervals, but all with approximately the same maturity date.
Ebony sets up a revocable trust, naming her daughter, Sylvia, as the sole beneficiary. Ebony has appointed the Pacific Atlantic Trust Institution (PATI) as the trustee. Any income to the trust will be taxable to
the grantor
A federal covered investment adviser employs the services of a third-party solicitor. The Investment Advisers Act of 1940 would require the solicitor to deliver: a copy of the IA's brochure a copy of the solicitor's brochure a copy of the solicitor's script a copy of the IA's Form ADV Part 1
1 and 2
Investment Counsel (2 criteria)
1. An IAs principal business must be giving investment advice (excludes financial planners) 2. Provide investment supervisory services. Ex: discretionary authority over accounts or ongoing responsibility to select or make recommendations
The contribution limit has to be aggregated when participating in both
401k and 403b
The registration of an investment adviser would automatically register which of the following as investment adviser representatives? Directors Officers Partners
All 3
Bill will put money into stocks only if he expects that stock returns, over time, will outpace bond returns by some amount that compensates him for the added volatility of owning stocks. This reflects
Risk premium
The Securities Exchange Act of 1934 requires written authority for a discretionary account, unless the securities professional's discretionary authority is limited to determining 1. the price of the stock 2. the amount of the stock 3. the time of the order
1 and 3
Assume Frank has a portfolio with an actual return of 10.50% for the past year. The portfolio beta equals 1.25, the return on the market equals 9.75%, and the risk-free rate of return equals 3%. Based on this information, what is the alpha for Frank's portfolio and did it out outperform or underperform the market?
−0.9375%, underperform The formula for alpha: alpha = (actual return − risk-free rate) - (beta × [market return − RF])]. If we plug in the numbers, we get (10.5% - 3%) - (1.25 × [9.75% − 3%]) = 7.5% - (1.25 x 6.75) = 7.5% - 8.4375 = -.9375
Which of the following activities would violate the Uniform Securities Act? 1. An investment advisory partnership admits a renowned securities analyst to the partnership without informing its clients of this highly desirable addition. 2. An investment adviser incorporated in California fails to inform its clients of the departure of the chief financial officer, who did not have an equity position in the firm. 3. An investment advisory firm incorporated in Illinois charges clients a share of the capital gains on the basis of a guaranteed performance level above a designated benchmark. 4. An investment advisory firm assigns those accounts that fall to a low level to other firms willing to accept them with the consent of the account holder.
1 and 3
An Administrator may summarily suspend a registration pending final determination of proceedings under the USA. However, the Administrator may NOT enter a final order without: 1. appropriate prior notice to the registrant 2. an opportunity for a hearing 3. findings of fact and conclusions of law 4. prior written acknowledgment of the registrant
1, 2, 3
Before taking any disciplinary action with respect to a registration under the Uniform Securities Act, the Administrator must always do which of the following? 1. Obtain the approval of the appropriate state court 2. Find that the action is in the public interest 3. Cite a cause listed in the act
2 and 3
If a federal covered investment adviser intends to pay a third party solicitor to solicit clients for investment advisory services, which of the following must be TRUE? 1. The solicitor must be a registered investment adviser representative with the state. 2. The registered investment adviser must be properly registered as an investment adviser under the Investment Advisers Act of 1940. 3. There must be a separate written agreement between the solicitor and the registered investment adviser. 4. The agreement between the solicitor and the registered investment adviser is contained as part of the investment adviser's brochure.
2 and 3
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements about material conflicts of interest is (are) TRUE? 1. Any conflicts of interest must be disclosed either orally or in writing before rendering advice. 2. Material conflicts of interest must be disclosed in writing before rendering advice. 3. Material conflicts relating to the adviser, adviser representative, or adviser employees must be disclosed.
2 and 3
In cases of fraudulent sales practices or advice with respect to securities, state securities Administrators may 1. not take enforcement action against federal covered investment advisers 2. take enforcement action against federal covered investment advisers 3. not take enforcement action against state-registered investment advisers 4. take enforcement action against state-registered investment advisers
2 and 4
The SROs have instituted maintenance margin levels for those situations where the equity in a client's margin accounts is reduced to a dangerous level. Currently, those levels are:
25% equity in a long margin account and 30% equity in a short margin account.
Under the Securities Act of 1933, the definition of prospectus includes 1. an offer of a security made orally 2. a tombstone advertisement for a security 3. an offer of a security made in a personal letter
3
Moonglow Specialties, Inc., is currently trading at $20 per share. Recently, the company reported net income of $1 million. The company is capitalized with 200,000 common shares and $5 million of 20-year debentures with a coupon of 4%. Given the data, Moonglow's price-to-earnings (P/E) ratio is?
4 times P/E ratio = market price per share ÷ earnings per share. Earnings per share = net income ÷ shares = $1 million ÷ 200,000 shares = $5. P/E = 20 ÷ 5 = 4.
A bond investor's portfolio consists of the following 3 bonds: 1. ABC First Mortgage bond, current market value of $4 million with a duration of 5 years. 2. DEF Debenture, current market value of $5 million with a duration of 8 years. 3. U.S. Treasury bond, current market value of $1 million with a duration of 10 years. What is the average duration of the portfolio?
7 Years In this question, ABC is 40% of the portfolio so we take 40% of its 5-year duration (2). Then, we do the same with the other two bonds. DEF is 50% of 8 (4) and the Treasury bond is 10% of 10 (1). When we add the 3 numbers together, it results in an average duration of 7 years.
KapCo Balance Fund has a NAV of $9.50 and POP of $10. Over the past 12 months, it distributed dividends totaling $.75 and capital gains totaling $1.00. What is NavCo's current yield?
7.5% $.75/$10= 7.5% NAV and Capital gains are not included
An investment adviser representative of a federal covered investment adviser registers with
The administrator
The long-term expected value of your ETNs is:
0
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 & 2
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 & 2
Under the Investment Advisers Act of 1940, an adviser who has custody of a client's funds must 1. notify a client when the client's funds are moved to another location 2. segregate client's funds and keep them identified by client 3. not move the client's funds without prior notification and specific written authority from the client
1 & 3
Under the Uniform Securities Act, requirements for registration as an investment adviser in a state include which of the following? 1. The Administrator may require an announcement of the application for registration in one or more newspapers in the state. 2. Minimum financial requirements for federal covered advisers with a place of business in the state who have custody of customer funds and/or securities, or have discretionary authority over customer accounts. 3. For those needing a surety bond, it must provide that any customer who can prove a violation is entitled to collect against the bond.
1 & 3
Jean owns a $1 million life insurance policy on her mother, Clara. Jean is named as sole beneficiary, and so far she has paid $150,000 in premiums. If Clara dies, which of the following will occur? 1. The proceeds will be exempt from income tax. 2. $850,000 of the proceeds will be subject to income tax. 3. The proceeds will be included in Clara's estate for estate tax purposes. 4. The proceeds will not be included in Clara's estate.
1 & 4
Which of the following statements about plan fiduciaries under ERISA are TRUE? 1. Plan fiduciaries sometimes have conflicting obligations to plan participants and other parties in interest. 2. Plan fiduciaries must ordinarily diversify plan investments. 3. Plan fiduciaries are personally liable for fines if they violate their fiduciary duties.
2 & 3
According to the Uniform Prudent Investors Act , it is NOT a breach of fiduciary duty if investment advisers do not inquire into a client's A) Social Security or tax ID number B) specific financial needs C) investment objectives D) financial situation
A
An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients A) when informed by the investment adviser that the representative's registration is effective B) within 48 hours C) when informed by the Administrator that the representative's registration is effective D) immediately
A
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? A) Notice filing B) Qualification C) Registration D) Coordination
A
If an investor buys a utility stock with a stable 5% dividend, and after a year the investor's total return in the stock is 10%, the most likely reason for this is A) the stock appreciated by 5% B) the investor reinvested the quarterly dividends C) the company doubled its dividend payment D) the stock price declined
A
Nurturing growth of the enterprise would be the objective of which of the following types of investments? A) Private fund B) Growth fund C) Investment adviser D) 529 plan
A
What is the appropriate procedure to follow when a customer fails to sign the form provided by the investment adviser stating that he has received a copy of the investment adviser's brochure? A) Proceed with the account, but make a supervisory person aware of this. B) Proceed with the account; the signature is not required. C) Only unsolicited orders may be accepted until the signed receipt is received. D) Don't do anything with the account until the customer's signature acknowledging receipt of the brochure is received.
A
The capital asset pricing model (CAPM) is based on several limiting assumptions. Which of the following statements is correct regarding the CAPM? A) The CAPM assumes that the optimal portfolio should be the one with the highest Sharpe ratio of all possible portfolios. B) The CAPM does not assume that the expected excess returns for the market are known. C) The CAPM does not assume that investors have access to the same information. D) The CAPM assumes that investors' expectations regarding risk and return are not identical but normally distributed.
A) The CAPM assumes that the optimal portfolio should be the one with the highest Sharpe ratio of all possible portfolios.
Specified in an exchange-traded futures contract would be the quantity of the underlying asset the quality of the underlying asset the time of delivery of the underlying asset the location of delivery of the underlying asset
All Typically, there are 5 standardized parts to an exchange-traded futures contract: Quantity of the commodity (e.g., 5,000 bushels of corn or 100 oz. of gold) Quality of the commodity (specific grade or range of grades may be acceptable for delivery, including price adjustments for different deliverable grades) Delivery price (similar to exercise or strike price with options) Time for delivery (e.g., December wheat to be delivered) Location (approved for delivery)
A REIT and a direct participation program are similar because they both A) pass through losses to investors B) are operated by a centralized management C) can be described as a limited partnership D) are traded actively in the secondary market
B
A pooled investment fund buys all the shares of a publicly-traded company. The fund takes the company private, reorganizes the company, and replaces its management team. Three years later, the fund exits the investment through an initial public offering of the company's shares. This pooled investment fund is bestdescribed as A) a venture capital fund. B) a private equity fund. C) a leveraged ETF. D) a hedge fund.
B
An investor purchases a single premium deferred index annuity with a 6% bonus feature. The premium was $100,000. The annuity has an 80% participation rate with a 10% cap. If the underlying index increased by 15%, the account's value at the end of the year would be closest to A) $118,720. B) $116,000. C) $110,000. D) $116,600.
B
If a client wanted an investment that would eliminate interest risk as to principal, you would recommend A) a 91-day Treasury bill B) a bank-insured certificate of deposit C) TIPS D) preferred stock
B
One of the situations that investment adviser representatives may encounter is the death of a client. When that happens, orders may be accepted from: ) an individual with a durable power of attorney. B) the trustee in intestacy. C) the deceased client's spouse. D) the deceased client's children.
B
The Jones family has scheduled an initial visit with a financial planner. Mr. Jones has an annual salary of $70,000, and this is their first attempt at financial planning. Which of the following should be the first step taken by the financial planner? A) Determine a reasonable fee for designing the plan B) Establish an emergency fund C) Pay off credit card debt D) Set goals and dates for reaching them
B
The general rules dealing with a broker-dealer extending credit for a customer to purchase securities are found in Regulation T of the Federal Reserve Board. However, Regulation T does NOT address A) initial margin requirements B) maintenance margin C) mixed margin accounts D) loan value of securities
B
There are many different legal ways to structure a new business entity. One of these is the general partnership. Among the benefits of using this structure would be: A) substantial capital can be raised with little effort and low cost B) ease of formation C) limited liability D) the 50% dividends received exclusion
B
Under the Uniform Securities Act, a client who purchased securities from a broker-dealer may request the trade be rescinded if A) the trade can be reversed prior to settlement date B) the security was sold in violation of the USA C) the broker-dealer charged a commission and is also registered as an investment adviser D) the security is nonexempt and subject to the USA
B
Which of the following involves an offer or sale? A) An exchange of securities due to a reorganization B) A gift of an assessable security C) A stock dividend D) A pledge of stock
B
If Maria turned 70 on July 16, 2016, when must the first required minimum distribution (RMD) be made from her IRA? A) April 1, 2017 B) April 1, 2018 C) December 31, 2016 D) December 31, 2017
B The year AFTER they turn 70.5
NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that it is unethical for an investment adviser to A. lend money to an investment adviser representative registered with the firm B. lend money to a bank that is a client of the advisory firm C. earn a fee that is based on a sliding scale depending on the amount of assets under management D. borrow money from a mortgage broker who is an advisory client of the firm
B & D
A popular tool used by analysts is discounted cash flow (DCF). Most use this tool to evaluate A) the future value of present cash flows to determine an appropriate current value. B) the present value of future cash flows to determine the value at a specified date in the future. C) the present value of future cash flows to determine an appropriate current value. D) the future value of future cash flows to determine the value at a specified date in the future.
C
A portfolio manager who is engaging in rebalancing on a semiannual basis is most likely using which portfolio management style? A) Active asset allocation B) Tactical asset allocation C) Strategic asset allocation D) Buy and hold
C
A private equity fund would most likely be structured as A) an ETF. B) an open-ended investment company. C) a limited partnership. D) a unit investment trust.
C
A unique requirement for those investment advisers who maintain custody of customer assets is the filing of A) the Form ADV-H B) the Form ADV Appendix 1 C) the Form ADV-E D) the Form ADV Part 1
C
The National Securities Markets Improvement Act of 1996 (NSMIA) A) overcame the restrictions of selling securities in interstate commerce B) created a national market system C) defined the term "federal covered adviser" D) created the concept of fraud, as used in the Uniform Securities Act
C
USAAdvisers is registered in 10 Midwest states. Regarding financial requirements, USAAdvisers must meet those of A) the state with the most stringent financial requirements B) each state in which it has a place of business C) the state in which its principal office is located D) the SEC
C
Which of the following is NOT a type of diversification that is achieved by investing in international equities? A) Currency B) Geographic C) Style D) Asset class
C
an investor is reading a report that industrial demand for copper is expected to double in the next five years. This might lead the investor to: A. buy corn futures B. sell copper futures C. invest in several copper mining companies D. modify the investor's portfolio to take a larger cash position
C
A pooled investment with a share price generally different from its net asset value (NAV) per share is most likely
Closed end fund
A pattern of currency deposits designed to avoid currency reporting requirements is termed A) spinning. B) layering. C) laddering. D) structuring.
D
An investment adviser making investment decisions within parameters agreed upon with the client is managing the portfolio on A) a nondiscretionary basis. B) a best-efforts basis. C) an advisory basis. D) a discretionary basis.
D
FinCEN Form 112, the Currency Transaction Report, is filed with A) the National Security Agency B) the Federal Bureau of Investigation (FBI) C) the SEC D) the Department of the Treasury
D
Followers of the efficient market hypothesis believe that A) Following the business cycle is the best way to maximize returns B) concentration rather than diversification will produce superior returns C) By the following the pundits on TV, you'll wind up rich D) An efficient market is one that produces random results
D
If a person who is not an agent or broker-dealer makes a false statement of material fact in connection with the sale of a security, that person A) is not covered by the Uniform Securities Act B) will probably be arrested by the Administrator C) has not violated the Uniform Securities Act if the sale was made to an institutional account D) has violated the antifraud provisions of the Uniform Securities Act
D
Kellie is a senior equity analyst for a large brokerage firm. She primarily uses fundamental analysis techniques to assist her in picking stocks for her firm's clients. Today, she is reviewing the XYZ Corporation. The company is a manufacturer of computer keyboards and is currently going through an expansion phase. Which of the following techniques would Kellie be least likely to use to determine whether to buy, sell, or hold this company's stock? A) She may consider trends towards tablets and smart phones. B) She may calculate the intrinsic value of the stock using one or more of the stock valuation models. C) She may examine the overall state of the economy, the computer industry, and then XYZ Corporation. D) She may review the company's stock 200-day moving average.
D
When constructing a portfolio, one of the goals is to increase diversification. Which of the following pairs offers the most diversification? A) Municipal GO bonds and long-term U.S. Treasury bonds B) Corporate debentures/convertible bonds C) Large-cap stock/blue-chip stock D) U.S. equity securities and foreign equity securities
D
Which of the following is most commonly used to evaluate the marketplace's perceived value of a particular stock? A) Dividend payout ratio B) Margin of profit C) Earnings per share D) Price-to-earnings ratio
D
Based on the following information, which stock is most likely to appeal to a growth investor? A) Dividend payout ratio of 65% B) P/E ratio of 8:1 C) Book value of $22 per share, current market value of $17 per share D) Dividend yield of 0.3%
D Growth investors usually seek stocks with high-growth expectations, reflected by a higher-than-normal P/E ratio, typically 20:1 or higher, and a low dividend yield, usually caused by a low dividend payout ratio. It would be unlikely to find a growth stock selling for close to its book value and certainly not below it.
If an index annuity has a participation rate of 80%, it means A) the investor's account will never be less than 80% of the initial investment. B) the investor's account will be charged with 80% of the amount lost by the index. C) the investor's account will participate in 80% of the gains and losses of the index. D) the investor's account will be credited with 80% of the growth of the index.
D Index annuity only shares in gains, not losses
Which of the following is a method for determining the internal rate of return to an investor based on cash flow in and out of the portfolio?
Dollar weighted return
Which of the following types of business organizations do not protect owners' personal assets from losses incurred by the business? General partnership Sole proprietorship S corporation C corporation
General partnership & sole proprietorship
Market Capitalization calculation
Outstanding shares x price
A client of yours comes to the office and shows you some sales literature from a mutual fund that has him very excited. According to the material, the fund's average annual return over the past 10 years has been in excess of 15% and it has achieved the highest rating from the major fund rating services. Before recommending this fund to your clients, the first thing you would probably check for in the fund's prospectus is
Portfolio managers tenure
What happens to outstanding fixed-income securities when interest rates decline?
Prices increase
The portfolio manager of a bond fund believes that interest rates are going to increase in the near future. As such, it would be wise for that manager to
Shorten the average duration Those bonds with the longest duration have the most sensitivity to that risk, while short-term maturities are only slightly affected.
In the banking industry, the term POD refers to an account similar to the TOD designation used by broker-dealers. An old, but sometimes still used term to describe this kind of account, is
Totten trust
What works and doesnt work in semi strong form market efficiency
Works: Insider info Doesnt work: fundamental and technical analysis
What works and doesnt work in strong form market efficiency
Works: Random walk Doesnt work: fundamental and technical analysis, insider info
What works and doesnt work in weak for market efficiency
Works: fundamental analysis and insider info Doesn't work: Technical analysis
which form of business structure would be the easiest for ultimate transfer of ownership
corporate
When an ETN is trading at a premium above the indicative value, issuing more notes to the market can bring the price (up/down.) Similarly, if an ETN is trading at a discount, redemption of notes by the issuer reduces the number of notes available in the market, which tends to (raise/lower) the price.
down, raise
Growth investors want (high/low) P/E ratios and value investors want (high/low) P/E ratios
high, low
How to calculate NAV
net assets (assets minus liabilities) divided by the number of outstanding shares.
Administrator
office or agency that has the complete responsibility for administering the securities laws of the state
When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed?
ordinary income based on exclusion ratio
Futures are most commonly used by _________ while forwards are used by __________. That explains why such a small percentage of futures contracts every end with delivery.
speculators, producers
