Simulated Exam March 29th - 61%
Over 50 years of age, you are permitted a $______ catch-up contribution for IRAs
$1,000
the total contributions you can make each year to all of your traditional IRAs and Roth IRAs is ______
$6,500 or $7,500 if over 50yrs
illiquid investments include:
- annuities (when initially purchased or under 59 yrs old) - real estate - securities purchased in a private placement - DPPs - hedge funds
liquid investments include
- securities listed on an exchange - mutual funds - ETFs - most real estate investment trusts (REITs)
Social security key pts
1) to qualify for full benefits, an individual must have at least 40 quarters of employement 2) waiting until 70 yrs old to claim benefits gives the person 8% annual simple interest increase. Its worth waiting if you dont need the funds. 3) benefits for an ex-spouse: - if you're divorced and were married to the person for at least 10 years you're eligible for some of your ex's SS. - in addition to 10yr requiremnt, you must be unmarried at the time you become eligible to place a claim on your ex's SS. - any benefits paid to a divorced spouse DO NOT reduce any payments due the ex's current spouse if he remarried. That can mean two women receiving identical benefits while the man receives his as well.
The SEC may suspend all trading on a specific exchange for up to______ days with prior notification of the president of the United States and may summarily suspend securities trading in a registered security listed on a stock exchange for up to _____ days.
90 days & 10 days
The first choice for preservation of capital should always be ?
Bank-insured CDs (bc no interest rate risk, always redeem them at face value bc value is fixed, and are insured by FDIC). They are not traded on the market place (but jumbo CDs are). Second choice would be money market fund
Which business entity files a tax return on the 15th day of the 4th month after the end of the calendar (or fiscal) year?
C corporation is the only one filing on the 15th day of the 4th month (April 15 for a calendar-year filer).
Current yield formula
CY = annual interest payment / current market price of the bond
Describe commercial paper
Commercial paper instruments are debt securities; they represent loans to the issuing corporation by the holder. They are commonly issued to raise working capital and, as debt obligation, are senior in preference to preferred stock in claims against an issuer.
Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, what factors are considered when determining excessive trading has occurred?
Consideration must be given to the amounts and frequency of trading in view of the financial resources, investment objectives, and character of the client's account.
conversion price formula
Conversion ratio = par value of convertible bond / conversion price
The Securities Exchange Act of 1934 empowered the __________________ to set margin requirements and regulate the use of credit to purchase securities (including nonexempt securities).
Federal Reserve Board (FRB). The FRB determines what issues may be purchased on margin and what percentage of the purchase price must be deposited by the purchaser.
Gross margin formula
Gross margin = [Net sales - COGS] / net sales
One of the most significant risks taken by bond investors is interest rate risk. What steps could be used to mitigate the effects of this risk?
Holding bonds to maturity; laddering the portfolio; buying bonds with short-term maturities
What accounts are TOD provision available for?
Individual accounts and joint accounts opened as JTWROS and TBE
Which business entities files a tax return on the 15th day of the 3rd month, typically March15
Multiple member LLCs on Form 1065, S corporations on Form 1120s, Partnership returns on Form 1065
Unlike Traditional IRA, Roth IRAs are _____ subject to the minimum distribution rules opon the participant attaining age 73. Distributions need ____ be made until the death of the owner/participant
Not and not. For a Roth IRA withdrawal to be entirely tax free, it must be made after a five-year holding period and after the participant reaches age 59½.
Business Continuity plans and succession planning are put in place for
Risks that could interrupt operations and client service include equipment and/or system failures and destruction of records. (Natural disasters, terrorist attacks and equipment failure)
Describe a special situation fund
Special situation mutual funds are risky and would not usually be considered suitable for a potential retiree. First of all, the nature of those funds is such that they generally do not produce regular income
The management style similar to "Buy and hold" is?
Strategic management style, sometimes referred to as passive, is less apt to have a high degree of portfolio turnover than active or tactical management.
T/F: Banks tend to have high liquidity needs because they must be ready to meet withdrawals at any time by depositors.
TRUE
In both a constant dollar plan and a constant ratio plan, the goal is to maintain a balance between equity and debt securities in the portfolio. How is this done?
This is done by selling equities as their price rises (the proportion has now changed) and buying equities when the prices fall to get back to the constant dollar or ratio.
T/F: A specialist (technically called the designated market maker or DMM) that buys or sells for its own account is not engaged in market manipulation. The function of a specialist is to act as a broker for orders that other members left with them, and to act as a dealer in buying and selling for their own account.
True
T/F: It is systematic risk where diversification has little effectiveness.
True
_________ risk may be effectively managed through portfolio diversification.
Unsystematic (diversifiable)
____________________ is designed primarily as a retirement vehicle to help protect contract owners from a decline in purchasing power
Variable Annuities
If you were describing an investment that trades on an exchange with a price set by supply and demand, rather than its underlying value, it would be ?
a closed-end fund. Although closed-end funds compute their NAV, market forces determine price.
When an individual represents the issuer of certain exempt securities in the sale of those securities to the public, that individual is not included in the USA's definition of ________
agent.
If an IAR gives a presentation out of its registered state, they do not have to register if the participants are...
are existing customers
Items that would disqualify a registration include
being currently under suspension, revocation, or injunction by any court, regulatory authority or SRO, domestic or foreign; currently employing a person statutorily disqualified; having been convicted in the past 10 years of a felony or a securities or financially related crime; or falsifying an application for registration.
Sovereign debt refers to ______ and other debt instruments issued by a specific country.
bonds
the security market line (SML) is the graphical depiction of the
capital asset pricing model (CAPM)
The primary function of the Federal Reserve System (the Fed) is to
carry out monetary policy. The Federal Reserve controls the money supply, enabling it to significantly affect interest rates.
Footnotes in financial statements serve what purpose?
contain information that doesn't have a place in the main body of the financial statements
Tax deferral
contributions to a qualified retirement plan or tax-sheltered annuity are not taxed until withdrawn! Deferring taxing until money is withdrawn!
Under Rule 144, who is subject to volume limitations?
control persons!
parity price formula?
conversion ratio x the common stock trading price
When current interest rates are at 6%, you would expect a bond with a nominal yield of 4% to be selling at a
discount
Income statements reflect the family's income and expenses, not assets and liabilities. Example of income and expenses are?
dividends and mortgage interest
Forwards are never traded on an __________.
exchange
The SEC does not have the authority to suspend trading in which securities?
exempt securities
In the case of NSOs, the difference between the ________ price and the current market value is considered salary to the employee
exercise (or strike)
Most municipal bonds pay interest that is free from ________ taxation
federal taxation. Usually subject to state income tax unless issued in the taxpayer's state of residence.
Inspecting an account for churning focuses primarily on comparing account activity to the account's
financial resources and objectives.
Core inflation is measured using a price index that excludes .....
food and energy prices. The reason is the volatility of those two.
municipal bonds or municpal bond funds are suitable for investors that are ?
in a higher tax bracket (bc tax-free income)
The Fed will follow a loose, or easy, monetary policy when it wants to ?
increase the money supply.
The bond with the longest duration will have the greatest sensitivity to change in ________?
interest rates
Technical analysis is codespeak for charts and formulas. Whenever an IA uses or promotes charts and/or investment formulas, the terms _______ & ________ must be on any promotional material.
limitations and difficulties
A general partner of a limited partnership does not have ?
limited liability
A portfolio of listed common stocks will have little to no _________ risk because listed shares are easily traded.
liquidity
All of the following are? - Three market makers intentionally start buying and selling the same security simultaneously in their own accounts - A principal in a broker-dealer leaks a rumor that ABC is going to acquire LMN—after a few days, the broker-dealer sells short LMN for its own account - A wash trade
market manipulation
Potential sources of tax-free earnings are:
most municipal bonds, 529s, Roth IRAs, Coverdell ESAs
Net worth doesnt include
primary residence
Both dollar cost averaging and dividend reinvestment programs (DRIPs) involve buying securities at
regular intervals
Beta is a measure of ___________________ for stock or portfolio returns. A stock or portfolio with a beta of 1.0 would have the same systematic risk as the overall market.
relative systematic risk
If an individual has more than 5 retail clients in a state different from their place of business, over a 12mnth period, registration is ?
required
the security market line (SML) depicts the tradeoff between
risk and expected return for all assets, whether individual securities, inefficient portfolios, or efficient portfolios.
commodity futures are for which type of investors
speculators not conversative investorts
A portfolio of listed common stocks will have which risks:
systematic risk; business risk; inflation risk (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).
Inertial inflation means
that there is not expected to be a change in the inflation rate until some kind of economic event shakes things up and causes the rate to move up or down.
the market risk premium is the difference between
the expected return for the equities market and the risk-free rate of return
One popular estate-planning technique is to have life insurance owned by (and premiums paid by) someone other than the insured. In that case, proceeds are generally excluded from ____________ of the deceased.
the gross estate
T/F: If one can hold the bonds until maturity, there is no interest rate risk because, regardless of the prevailing market, you receive par value.
true
Under the Uniform Securities Act, if there is a rule (in the state) barring custody....
under no circumstances may the adviser have custody of customer funds or securities.
red flags of investment fraud would include
unsolicited offers that seem too good to be true; promises of guaranteed high, risk-free investment returns; pressure to invest immediately
In order for an individual to receive Social Security benefits based on the earnings of the ex-spouse, the couple must have been married for at least
10 years
The maximum amount of bitcoin that will ever be in circulation is _________
21 million
Form ___________ is used to report significant events that could affect the price of the company's stock.
Form 8-K. Such events include: acquisition of a major asset; a change in the external CPA firm engaged to perform the annual audit; a change in top management.
IRAs are not allowed to hold which investments?
No life insurance is allowed (though annuities, both fixed and variable, are allowed), and collectibles, such as art and stamps, are prohibited. NOTE: There are certain coins minted by the U.S. Treasury that are eligible for inclusion in an IRA.
Treasury ___________ bear no stated interest rate. They are sold at a discount through weekly auctions and are actively traded in the money market.
Treasury bills
T/F: An investment adviser representative is always an individual person. Employees who solicit business on behalf of investment advisers and those persons who supervise other employees are investment adviser representatives.
True
T/F this definition for Broker-dealer: a broker-dealer sends an email to its more conservative clients stating this would be an excellent time to invest in public utility stocks, and includes a list of those paying the highest dividends.
True bc specificity, such as a list of securities, invariably results in a communication being deemed a recommendation.
T/F: It is not uncommon to find index annuities offering a bonus added to the premium.
True. This may explain the increase in the amt that the investor receives on the statement
Affiliated persons are
any investment company directors, officers, employees, or owners of 5% or more of the voting shares of stock, and/or any persons controlling or controlled by such persons.
speculative investments
are aggressive! lots of risk! Examples: high yield (junk) bonds, highly volatile stocks, options on stocks or stock indexes, commodity futures
An ________________ is either an officer or a broker-dealer employee who represents the broker-dealer in soliciting the purchase or sale of securities.
associated person. Associated person also includes any individual authorized to accept customers' orders for the broker-dealer.
In the event of a civil judgment, the purchaser is able to claim a return on??
attorney fees, court costs, interest at the state's legal rate less any income received on the security, and a return on the original investment NOT the current market value
Downside risk is reduced by ?
by purchasing a put with a strike price at or close to the stock's purchase price. Should the stock decline below the strike price, the investor can exercise the put at the strike price. {Selling put options will increase the downside risk. Buying calls is a bullish strategy that increases downside risk. Shorting stock will lock in the current price but will limit upside potential.}
David is registered as an agent in States H and M with Stanley Securities, a broker-dealer registered in every state. He would now like to register in State W. In order to do so, he must?
filing an application for registration with State W, filing a consent to service of process with State W, paying the appropriate fee to State W
foreign bond funds invest in ?
foreign sovereign and/or corporate debt issues
Implying that registration of a security means approval of the security is _______!
fraudulent under the USA.
exchange traded derivatives are
futures, options, warrants
IARs representing federal covered investment advisers register only in those states where they, the IARs, ...?
have a place of business
If the yield curve is positive (sloping upward), this means that long-term interest rates are
higher than short-term rates
money market funds are ?
no-load (investors pay no sales or liquidation fees), open-end investment companies (mutual funds) that serve as temporary holding accts. They are liquid
Investment advisers can only enter into advisory contracts for those who are __________, as defined in the Uniform Securities Act.
persons. There are three nonpersons: minors, deceased persons, and those declared mentally incompetent
Those who use the DCF to value a security would recommend purchasing when the current market price is below the PV. this is when the NPV is _____?
positive
Beta (systematic risk) is used to measure risk for the ______________?
security market line (SML).
Tenants in the entirety can only be opened by
spouses
Ineligible investments in an IRA are
stamps, any form of life insurance, kruggerlands, and collectibles
What is the risk measure associated with the capital market line (CML)?
standard deviation (or total risk)
Thinly traded stocks are
stocks that are not actively traded on an exchange or that are not held by a large number of investors. Because thinly traded stocks are usually less marketable and less liquid than actively traded stocks, the spread between their bid and ask prices tends to be considerably higher. They also tend to have more volatile price swings.
An adviser may be compensated based on the total value of a client's account averaged over a specific period. But under the USA, an adviser cannot be compensated on the ?
the basis of a share of the capital gains or capital appreciation in a client's account
The future value of an invested dollar is dependent on....
the rate of return it earns and the time period over which it is invested
The securities professional's ability to determine the______ or _________ at which a specific customer order will be executed does not constitute discretionary power and, therefore, does not require written authorization.
time or price
When a company pays a cash dividend, which items change?
total assets, total liabilities. From an accounting standpoint, once a corporation declares a cash dividend, it becomes a current liability on the company's balance sheet. When that dividend is paid, cash—a current asset—is decreased by the amount of the dividend. Payment of the dividend removes it from the balance sheet as a current liability. There is no change to the company's working capital bc both are reduced by the same amt.
Any insurance product that includes the word ____________ is a security. Otherwise, it is not.
variable
The beta coefficient measures an individual stock's relative _________ to the market
volatility
