66 Final #1 - Part 1
In January, a customer buys 1 ABC Jun 80 Call @ $7 when the market price of ABC is 81. The customer's maximum potential loss is: A. $700 B. $7,300 C. $8,000 D. unlimited
A. $700
In 2017, a husband gives a $100,000 gift to his spouse. How much of the gift is subject to gift tax? A. 0 B. $14,000 C. $86,000 D. $100,000
A. 0
The semi-strong form of efficient market theory states that: I stock prices instantaneously reflect all publicly available information II stock prices instantaneously reflect all non-public information III insiders have an inherent advantage when making investment decisions IV insiders have no advantage when making investment decisions A. I and III B. I and IV C. II and III D. II and IV
A. I and III
Which statements are TRUE about speculative stocks that are included in a portfolio allocation model? Speculative stocks have: I higher expected returns than other securities included in the portfolio II lower expected returns than other securities included in the portfolio III higher standard deviations (risk) than other securities included in the portfolio IV lower standard deviations (risk) than other securities included in the portfolio A. I and III B. I and IV C. II and III D. II and IV
A. I and III
The S&P 500 is a(n): A. Index B. Mutual fund C. Exchange traded fund D. Asset class
A. Index
What happens to the rate of return calculation on a non-callable bond if the rate of interest stays the same and the time intervals shorten? A. The rate of return increases B. The rate of return declines C. The rate of return is unchanged D. The effect on the rate of return cannot be determined
A. The rate of return increases
The simplest way of investing in a mutual fund is: A. buy and hold B. indexing C. rebalancing D. dollar cost averaging
A. buy and hold
The advantage of a limited partnership business structure as opposed to a corporate business structure is: A. flow-through of gain and loss B. centralized management Incorrect Answer C. lower risk of audit D. limited liability
A. flow-through of gain and loss
An investment adviser representative is preparing a comprehensive investment plan for a customer. After completing the plan, the representative finds out that, unless precautions are taken, implementation of the plan could have severe tax consequences for the client. The first step that the investment adviser representative should take is to: A. refer the client to a tax consultant for plan review B. refer the client to a new investment adviser C. create a new investment plan for the client D. present the plan as created to the client
A. refer the client to a tax consultant for plan review
Private Fund Advisers must register with the SEC if their assets under management are at least: A. $100 million B. $150 million C. $200 million D. $250 million
B. $150 million
An Investment Adviser obtains a list of the 30 members of the local rotary club and sends each a letter that includes a coupon that gives a 20% discount to club members if they purchase the adviser's services. Which statement is TRUE under the provisions of the Investment Advisers Act of 1940? A. This is a fraudulent and prohibited practice B. A adviser must keep a record of the letter and a memorandum describing the mailing list C. The adviser is only required to keep a record of any rotary club members that use the coupon D. The adviser is not required to keep copies of prospecting letters
B. A adviser must keep a record of the letter and a memorandum describing the mailing list
All of the following are components of the Capital Asset Pricing Model EXCEPT: A. Risk-Free Rate of Return B. Alpha C. Beta D. Expected Market Rate of Return
B. Alpha
Investment "A" is purchased in May and sold at a gain in the July following. Investment "B" is purchased in June and sold at a gain in the October following. In order to compare the return of investment "A" to investment "B," which measure should be used? A. Dollar weighted return B. Annualized return C. Holding period return D. Total return
B. Annualized return
Which statements are TRUE about Regulation D? I The maximum permitted offering under Rule 504 is $5,000,000 II The minimum permitted offering under Rule 504 is $5,000,000 III The maximum permitted offering under Rule 506 is $5,000,000 IV The minimum permitted offering under Rule 506 is $5,000,000 A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
Which of the following securities transactions would result in a long term capital gain? I Purchase 100 shares of ABC stock at $50 on January 2, 2017; Sell 100 shares of ABC stock at $60 on July 2, 2017 II Purchase 100 shares of ABC stock at $50 on January 2, 2017; Sell 100 shares of XYZ stock at $60 on July 2, 2017 III Purchase 100 shares of ABC stock at $50 on January 2, 2017; Sell 100 shares of ABC stock at $60 on January 3, 2018 IV Purchase 100 shares of ABC stock at $50 on January 2, 2017; Sell 100 shares of XYZ stock at $60 on January 2, 2018 A. I only B. III only C. I and II only D. III and IV only
B. III only
A customer places an order on the NYSE to buy bonds. The order reads "Buy 5M ABC 9s M '42 @ 90 GTC". Which statement is true about this order? A. The order will be canceled at the end of the day if an execution is not possible B. The order must be executed at a price of 90 or better C. If executed, the customer will pay $4500 for the bonds D. The customer is establishing a short position with this order
B. The order must be executed at a price of 90 or better
A Registered Investment Adviser has discretionary control over 50 accounts that range in value from $200,000 to $1,500,000. She receives a free due diligence trip from a real estate limited partnership sponsor to inspect a property in Florida. She is enthusiastic about the investment potential and purchases a $50,000 real estate limited partnership unit in the property for each of her accounts. The RIA disclosed the fact that she received the free trip to each of her customers before making the purchases. Which statement is TRUE? A. This is unethical because taking the free due diligence trip and then buying the partnership units for her clients is a conflict of interest B. This is unethical because the adviser did not determine the suitability of the investment for each account C. This is unethical because the adviser violated her fiduciary responsibility to her clients D. This is an ethical business practice
B. This is unethical because the adviser did not determine the suitability of the investment for each account
All of the following actions are violations of the Uniform Securities Act EXCEPT: A. deliberately failing to follow a customer's instructions B. actively soliciting orders for unregistered exempt securities C. making an untrue statement of material fact Incorrect Answer D. omitting a material fact because there was not enough time to cover all items in a presentation
B. actively soliciting orders for unregistered exempt securities
To protect against identity theft and theft of funds, client instructions received electronically must be: A. encrypted B. authenticated C. monitored D. refused
B. authenticated
The quantitative method of evaluating investments that uses periodic cash inflows and outflows is: A. inflation-adjusted return B. net present value C. total return D. expected return
B. net present value
An investment adviser enters into a contract with a customer that states that: "The customer shall hold the investment adviser, its officers, and its employees, harmless if the adviser, its officers or employees act in bad faith, are grossly negligent, or violate any State or Federal statute." This contract provision is: A. binding if the customer signs the contract B. void under both Federal and State law C. acceptable under State law; but void under Federal law D. void under State law; but acceptable under Federal law
B. void under both Federal and State law
Bond A has a 5% coupon and 5 years to maturity. Bond B has a 5% coupon and 10 years to maturity. If market interest rates rise by 1%: A. the value of both bonds is unaffected B. Bond A's value will decline more than Bond B's value C. Bond B's value will decline more than Bond A's value D. the value of both Bond A and Bond B will fall by equal amounts
C. Bond B's value will decline more than Bond A's value
Which tax-advantaged product is NOT a security? A. Variable life insurance B. Variable annuity C. Fixed annuity D. Individual retirement plan
C. Fixed annuity
A business form that gives a "flow-through" tax benefit and unlimited liability to owners is a(n): A. C Corporation B. S Corporation C. General Partnership D. Limited Partnership
C. General Partnership
State "blue sky" laws provide for: I Registration of broker-dealers II Registration of agents III Registration of investment advisers IV Registration of issuers A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
C. I, II, III
Which of the following orders MUST be retained as a record by broker-dealers? I Executed orders II Unexecuted orders III Canceled orders IV Subscription orders A. I and II only B. III and IV only C. I, II, III only D. I, II, III, IV
C. I, II, III only
Under the Uniform Securities Act, for an agent to share in the gains and losses of a customer account, which statements are TRUE? I The customer must agree to the arrangement in writing II The broker-dealer must agree to the arrangement in writing III The Administrator must agree to the arrangement in writing IV Sharing is permitted only in direct proportion to capital contributed to the account A. I and IV only B. II and III only C. I, II, and IV D. I, II, III, IV
C. I, II, and IV
A buy and hold bond portfolio: I is an active strategy II is a passive strategy III should only hold high quality bonds IV should only hold callable bonds A. I and III B. I and IV C. II and III D. II and IV
C. II and III
When an agent of an investment adviser prepares a client balance sheet, which of the following are considered to be personal possessions? I Checking account II Furniture III Jewelry IV Investments A. I and III B. I and IV C. II and III D. II and IV
C. II and III
If the U.S. dollar goes up in value, what type of investment would be least affected? A. International stocks B. Large cap stocks C. Small and mid-cap stocks D. Stock index funds
C. Small and mid-cap stocks
An Investment Adviser Representative manages the accounts of high net worth individuals, with account sizes ranging from $500,000 to $10,000,000, on a discretionary basis. The representative has been contacted by a limited partnership promoter that is offering real estate partnerships that require a minimum $50,000 investment. The promoter offers the representative an all expenses paid trip for 2 to Las Vegas, where the partnership sponsor will be holding a seminar that covers all of the details of the investment. The representative wishes to perform due diligence on the offering and believes that taking the trip is important. The representative contacts each of his best clients and discloses the fact that he is taking the trip paid by the sponsor and buys a partnership unit for each of them. Which statement is TRUE? A. The representative's actions and disclosures to his customers appear to be appropriate B. The representative has failed to give full disclosure of the conflict of interest to his customers C. The representative has not adequately determined the suitability of the investment for each of his customers D. The representative has accepted a bribe from the partnership sponsor and is subject to criminal penalties
C. The representative has not adequately determined the suitability of the investment for each of his customers
A father is writing his will (the testator) and is naming as beneficiaries his 3 adult sons. Each one will get an equal share "per stirpes" of the father's estate upon the father's death. Each of the sons has children (the grandchildren of the testator) who are not yet adults. If one of the sons predeceases the testator, then the: A. deceased son's share goes into the son's estate B. deceased son's share passes to his brothers C. deceased son's share passes to his children D. deceased son's share reverts back to the father's estate
C. deceased son's share passes to his children
An investment adviser purchases a research report from a bank's research department. This report may be distributed to the RIA's clients: A. under no circumstances B. verbally only; printed copies may not be distributed C. if the adviser discloses to his clients that the report was prepared by a third party D. if the adviser pays the bank for each person to whom the research report is distributed
C. if the adviser discloses to his clients that the report was prepared by a third party
An Investment Adviser Representative enters into a contract with a new client for advisory services and provides the client with a glossy copy of Form ADV Part 2 (the "Brochure") and the Brochure Supplement. When he gets back to the office, he realizes that he forgot to have the client sign that the Brochure was received. The IAR: A. is not required to do anything because the customer received the Brochure and Brochure Supplement B. must have the customer sign within 48 hours that the Brochure was received C. must have the customer sign the contract and give the customer 5 business days to terminate the contract without penalty D. must rescind the contract immediately
C. must have the customer sign the contract and give the customer 5 business days to terminate the contract without penalty
A 62-year old client makes her first withdrawal from a non-tax qualified annuity. This will result in: A. capital gains taxed at capital gains rates B. ordinary income taxed at ordinary income tax rates that is subject to a penalty C. ordinary income taxed at ordinary income tax rates that is not subject to a penalty D. capital gains taxed at ordinary income tax rates
C. ordinary income taxed at ordinary income tax rates that is not subject to a penalty
An investment adviser representative has recently passed her Series 7 and Series 66 exams. Which of the following statements can she make to potential clients regarding these registrations? A. "The State Administrator approves of my doing business in each of the States in which I am registered." B. "Because I only recommend investment grade securities, the SEC endorses my activities in each of the States in which I am registered." C. "The SEC or State Administrator views all of the recommendations that I make to be suitable, as long as an investment profile has been completed for each new customer." D. "I am now registered with FINRA and the State"
D. "I am now registered with FINRA and the State"
Under the Securities Exchange Act of 1934, an investment manager that has discretion over $100,000,000 or more of customer assets must file Form: A. 10K B. 10Q C. 13D D. 13F
D. 13F
All of the following may be required to be filed with the Administrator EXCEPT: A. Advertising B. Sales Literature C. Circulars D. Customer Complaints
D. Customer Complaints
Under SEC Release IA-1092, which of the following would be required to register with the SEC as investment advisers? I A Certified Financial Planner who only provides general financial planning for a fee; but who does not take commissions on recommended transactions II An attorney who manages the business affairs of athletes for a fee III An accountant who manages the business affairs of entertainers for a fee IV An economist who gives advice to pension plans for a fee on the outlook for the securities markets A. II and III only B. I and IV only C. II, III, IV D. I, II, III, IV
D. I, II, III, IV
Which of the following statements are TRUE about unsolicited customer transactions effected through a broker-dealer? I The Administrator may require that the customer acknowledge the transaction with a written statement II The transaction is exempt under State law III The transaction is defined as a "non-issuer" transaction IV Commissions may be paid to the broker effecting the transaction A. I and II only B. III and IV only C. I, II and IV D. I, II, III, IV
D. I, II, III, IV
Which statements are TRUE regarding advisory contracts under the Investment Company Act of 1940? I Advisory contracts must be in writing II Advisory contracts must be approved by a majority vote of the outstanding shares III Advisory contracts can be terminated by a majority vote of the Board of Directors IV Advisory contracts can be terminated by a majority vote of the outstanding shares A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
D. I, II, III, IV
A 200% Leveraged Dow Jones Industrial Average Index ETF would be expected to move: I up 50% in price when the DJIA moves up 100% II up 100% in price when the DJIA moves up 50% III down 50% in price when the DJIA moves down 100% IV down 100% in price when the DJIA moves down 50% A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
The strong form of efficient market theory states that: I stock prices instantaneously reflect all publicly available information II stock prices instantaneously reflect all public and non-public information III insiders have an inherent advantage when making investment decisions IV insiders have no advantage when making investment decisions A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
Which State-registered investment advisers MUST report that they take custody on Form ADV? I An adviser that is affiliated with a parent bank or trust company II An adviser that directly deducts management fees each quarter from client accounts III An adviser that has discretionary authority over client accounts under a limited power of attorney IV An adviser that acts as a trustee for a client where the grantor of the trust is the client A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
Which of the following statements are TRUE regarding actions taken by an index fund manager? Index fund managers: I try to match the return of the benchmark index II try to beat the return of the benchmark index III must weigh the securities in the portfolio exactly in the manner that is comparable to the overall index IV can alter the weighting of stocks to those that the manager thinks may outperform the overall index A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
Which is NOT a derivative? A. LEAP B. Futures Contract C. SWAP D. Investment contract
D. Investment contract
An agent of a broker-dealer is opening a new client account. The agent has completed the new account application and the suitability determination. The customer has an investment objective of safety of principal and income. The agent makes an initial recommendation of a conservative blue chip stock with a track record of paying a consistent cash dividend. The customer accepts the recommendation. When must the commission charged on the transaction be disclosed to the customer? A. At the time that the order is placed B. At the time when the order is filled C. At the time when the account is opening D. On the confirmation of the transaction
D. On the confirmation of the transaction
Which statement is TRUE? A. Both password-protected and non-password protected websites are defined as advertising B. Both password-protected and non-password protected websites are defined as sales literature C. Password-protected websites are defined as advertising and non-password protected websites are defined as sales literature D. Password-protected websites are defined as sales literature and non-password protected websites are defined as advertising
D. Password-protected websites are defined as sales literature and non-password protected websites are defined as advertising
Regarding surety bond coverage required by the Administrator as a condition of registration, which statement is FALSE? A. Cash is acceptable as a deposit in lieu of a bond B. Securities are acceptable as a deposit in lieu of a bond C. The Administrator is given discretion over which securities are acceptable as a bond D. The Administrator may disallow the posting of cash and require a policy issued by a licensed insurance company
D. The Administrator may disallow the posting of cash and require a policy issued by a licensed insurance company
A customer wishes to open a margin account at a broker-dealer. The customer provides all of the necessary information to open the account, but refuses to sign the margin agreement when the agent gives it to the customer. Which statement is the correct course of action to be taken? A. The firm should approve the opening of the account since the customer provided all of the necessary information B. The agent should have the customer sign a waiver, obviating the need for the customer to sign a margin agreement C. The agent should sign the customer's name to the margin agreement, since all of the necessary information has been provided by the customer D. The account cannot be opened because the customer did not sign the margin agreement
D. The account cannot be opened because the customer did not sign the margin agreement
A Registered Investment Adviser is approached by the heirs of an estate to manage their newly received assets. The account would be substantial, but the adviser is concerned that the heirs might be overly litigious. The adviser wishes to limit his liability as a fiduciary to minimize this risk. Which statement is TRUE? A. The investment adviser can get a signed letter from the beneficiaries, relieving the adviser of his fiduciary obligation B. The investment adviser can subcontract out the management of the money to a subadviser, who will assume the fiduciary responsibility C. The investment adviser can petition a court of law to void the adviser's fiduciary standard D. The investment adviser cannot limit his fiduciary responsibility and liability
D. The investment adviser cannot limit his fiduciary responsibility and liability
Under IA-1092, a person is "in the business" of rendering investment advice if that person: A. advertises that it gives advice B. is compensated for giving advice about securities C. regularly gives advice about securities D. all of the above
D. all of the above
An investor buys stock on January 1st for $100 and sells it 1 1/2 years later on July 1st for $90. The investor has a: A. short term capital gain B. short term capital loss C. long term capital gain D. long term capital loss
D. long term capital loss
Exchange traded funds can NOT be: A. bought on margin B. sold short C. traded anytime during exchange hours D. redeemed with the sponsor
D. redeemed with the sponsor
An adviser to a mutual fund foresees an economic slowdown and believes that sit-down chain restaurants are going to underperform. The adviser sells those stocks out of the fund's portfolio and holds the proceeds as cash, pending reinvestment. This is an example: A. strategic asset allocation B. rebalancing C. diversification D. tactical asset allocation
D. tactical asset allocation
A customer sells 1 ABC Feb 50 Call @ $7 when the market price of ABC is 52. The customer's maximum potential loss is: A. $700 B. $4,300 C. $5,700 D. unlimited
D. unlimited
The closest approximation of the internal rate of return on a bond is the bond's: A. coupon rate B. current yield C. duration D. yield to maturity
D. yield to maturity
