AD Banker Cumulative Exam
If a stock has a Beta of .5 and the market is down by 10% the expected return of the stock is: A -5% B 0% C 5% D -10%
A -5% The beta of the overall market is measured by 1.00. If the security also has a beta of 1.00, the security is expected to move in tandem with the benchmark (S&P 500). So, if the S&P 500 has an increase of 10%, it is also expected the individual security will move up by 10%. Likewise, if the S&P 500 moves down by 10% the security is expected to move down by 10%. If a security has a beta of 1.20, and the S&P 500 moves up by 10%, the individual security is expected to move up by 12% (2% higher than the market's 10% move). If the beta of a security is less than 1.00 it would not move as much as the overall market and it would be considered to have lower risk than the market. If a security has a beta of .50, and the S&P 500 moves down by 10%, the security would be expected to move down by only 5%.
A technical analyst believes Atlantic Airlines is in a trading range, with support at $20 per share and resistance at $25 per share.He believes the stock will break the resistance level. He enters: A A buy stop order at $26 B A market order to buy C A fill or kill order at $25 D A limit order to buy at $25
A A buy stop order at $26 A technical analyst who believes the stock will eventually break resistance wants to make certain the timing of the investment is correct. A technical analyst wants to wait until the stock breaks its resistance level before purchasing. A buy stop order makes certain the shares are not purchased until the resistance level is broken.
Which of the following is least likely considered to be an unethical business practice under the Uniform Securities Act? A An RR divides some of the assets in a discretionary account between five different funds in a single fund family, but fails to mention this to his customer B An RR divides the funds in a discretionary account between funds in five different load fund families to maximize diversification C An individual who is both an IAR and an agent charges both fees and commissions to his customer but discloses only the commission, since the fee is negligible D An IAR who receives a written request for a copy of his firm's IA brochure sends one that is several years old. The IAR knows that there have been no material changes to the document since the
A An RR divides some of the assets in a discretionary account between five different funds in a single fund family, but fails to mention this to his customer Dividing customer assets between several funds in the same fund family is an acceptable practice and, since these trades were in a discretionary account, it's possible that the rep may not have contacted the customer to discuss this specific action. Dividing the assets between different load fund families, however, is likely to incur higher than necessary sales charges and is likely to be viewed as an unethical, possible fraudulent business practice known as a breakpoint sale.
Under which of the following circumstances can an individual roll over an existing IRA/pension plan to a new IRA without paying a penalty? I The individual wants to invest his SEP in different assets II The individual wants to invest his IRA in different assets III The individual quit his job and receives a lump payment of his pension plan funds IV The individual, who is still an employee at age 60, wants to invest his company pension plan in different assets A I, II, III, and IV B I and IV C II and III D I, II, and III
A I, II, III, and IV Under any of these circumstances, the individual could withdraw funds and roll them over into an IRA within 60 days without a tax penalty.
Which of the following statements are true regarding a Coverdell Education Savings Account? I Investors can contribute up to $5,500 per year II Investors can contribute up to $2,000 per year III In general, contributions may be made up to the beneficiary's 18th birthday IV Contributions may be made up to any beneficiary's 30th birthday A II and III B I and III C I and IV D II and IV
A II and III Investors can contribute up to $2,000 per year into a Coverdell in order to help fund a child's education. Contributions may be made up to the beneficiary's 18th birthday, unless the child is special needs, and are always made on an after-tax (nondeductible) basis.
Open-end management company shares increase in value as a result of an increase in: A Market value of portfolio securities B Number of shares C Trading volume of securities D Cost of living
A Market value of portfolio securities Market movement for the underlying securities in the portfolio affects the value (NAV) of fund shares in either a positive or negative way. Trading volume and number of outstanding shares has no effect on NAV. 'Cost of living' is a distractor.
Steve works for the Haggard County School Board. Part of Steve's job is soliciting sales of HCSB bonds to mutual funds and hedge funds. According to the USA, Steve is: A Not an agent B An agent C A broker-dealer D An issuer
A Not an agent Steve is an individual representing the issuer of a security in attempting to effect securities transactions. Since the securities Steve is selling are exempt securities (bonds issued by a school board would be considered municipal securities) he is not considered to be an agent under the USA.
Which of the following statements concerning money market mutual funds is the most accurate? A These funds are often used by investors seeking capital preservation B All money market funds must have a stable NAV of $1.00 C No prospectus is required when soliciting the sale of these funds D These funds are typically sold with a 1% sales charge
A These funds are often used by investors seeking capital preservation Due to the conservative nature of their portfolios, money market funds are suitable for investors that have capital preservation as their primary investment objective, also described as a defensive investment posture. While most funds do maintain a $1.00 NAV, this is not guaranteed. The prospectus delivery rule applies to the sale of money market mutual funds as it would for any other type of mutual fund sale. Most money market funds are offered on a no-load basis.
According to the Uniform Securities Act, fraud may have occurred: A Whether a sale occurred or not B Only if an offer occurred C Only if a sale occurred D Only if a sale of $10,000 or more occurred
A Whether a sale occurred or not Fraud may occur regardless of whether a sale occurred or not.
Under the Investment Advisers Act of 1940, the following information must be included in a disclosure statement brochure that is provided to clients, EXCEPT: A Amount and method used for computing compensation B Copy of registration certificate C Balance sheet D Business credentials of persons associated with the investment adviser
B Copy of registration certificate A copy of the registration certificate is not a requirement.
What do professional money managers look for in a value stock? I. Depressed stock prices due to business problems or industry issues II. Stocks trading at a discount to its intrinsic value III. Turnaround opportunities A I and II B I, II and III C II and III D I and III
B I, II and III Value stocks typically have depressed stock prices due to business problems or issues in the industry. Value managers seek out these types of stocks and research them for turnaround opportunities. The idea is to find discounts and beaten down stocks in the market, analyze the reasons for the depressed price, gather information on prospects in the future, research financials and decide if it has possibilities for a turnaround. Buying value stocks is a "buy and hold" long-term strategy and therefore can take advantage of the long-term capital gains rate.
What method used to evaluate investments uses the net cash inflows and net cash outflows? A Expected return B Net present value C Total return D Inflation-adjusted return
B Net present value The net present value for an investment is the total of all its net cash inflows and outflows, discounted to the present using an appropriate discount rate, such as a required rate of return.
A customer with an income objective in a high income tax bracket should consider which one of the following? A Low dividend paying common stock B Tax-free muni bond fund C AAA rated corporate bond fund D Low dividend paying preferred stock
B Tax-free muni bond fund Customers in higher brackets may consider investments in municipal (tax-free) bonds or various tax-deferred (pay tax later) investments as opposed to currently income taxable investments. Using the tax-free equivalent yield calculation will help in this determination.
NASAA Model Rule 203(a)-1A requires each state-registered investment adviser to establish, implement, and maintain written procedures relating to a business continuity and succession plan (BCP). This plan: A Ensures that the firm's legal council will take over day-to-day operations of the firm in the event of death or disability of key personnel B Will take into account the adviser's business structure, size of the firm, types of services provided, and the number of the firm's locations C Must adhere to the specifications outlined in the NASAA model rule as it will provide a uniform set of responses to business interruption, allowing for rapid implementation and ensuring compliance with federal and state regulations D Requires the firm to publish an announcement in a bona fide newspaper of general circulation in the event of a loss of key personnel
B Will take into account the adviser's business structure, size of the firm, types of services provided, and the number of the firm's locations NASAA recognizes that there are a wide range of business models that an investment advisor firm may employ, and each may offer different services. Therefore, NASAA does not require all firms to adhere to its specifications; every BCP is unique to the firm. All advisers have a fiduciary obligation to act in the best interest of their clients, and that includes adopting a business continuity plan in case of emergency. The plan must provide for responsible persons to act on behalf of the firm in case of death, incapacity, or unavailability of key personnel but it is not required to designate the firm's legal counsel as that person. NASAA does not require a firm to publish a notice in a newspaper for any type of business interruption.
The ABC mutual fund has an offering price of $12.50 and a sales charge of 7%. What is the NAV for the fund? A $13.34 B $11.50 C $11.63 D $13.38
C $11.63 In order to calculate the NAV for a mutual fund use the following equation: POP x (100% - Sales Charge). Therefore, the NAV for the ABC fund is $11.63 (12.50 x .93 = $11.63).
An investor owns 100 shares of stock of a company that has 1,000 shares that are issued and outstanding. How much of the company does he own? A 1% B 100% C 10% D 50%
C 10% The investor owns 10% of the company 100/1,000.
Which is the correct definition of a dealer? A An entity who matches a buyer and seller B An entity who trades for accounts of clients C An entity who trades for its own account D An entity acting on an agency basis
C An entity who trades for its own account A dealer is an entity trading for its own account, acting in a principal capacity, which involves risk. The other three choices describe a broker, and a broker does not take risk. A broker earns a commission for matching buyers and sellers.
Which valuation method for common stocks is used for companies that pay dividends? A Inflation discount model B Interest discount model C Dividend discount model D Discounted cash flow model
C Dividend discount model The Dividend Discount Model (DDM) and the Discounted Cash Flow Model (DCF) try to consider the potential for market prices to change due to changes in earnings and/or dividends. The DDM discounts future dividends to be paid to their net present value. This formula is attempting to find theoretical prices for common stock in the future but, assumes a constant dividend growth rate. The DCF is used for those companies that don't pay dividends or those that pay them sporadically. It also uses a discount rate but, it is discounting future cash flows instead of dividends to value the business.
When evaluating your client's investment limitations, you must: I Evaluate their need for liquidity II Evaluate their ability to maintain over a long period of time III Evaluate the benefits of diversification and dollar cost averaging IV Evaluate your client's ability to handle emotionally and financially the fluctuations in his investment value A II, IV B I, II C I, II, and IV D I, II, and III
C I, II, and IV Diversification and dollar cost averaging are important concepts for reps to know, but they have nothing to do with determining the limitations of clients in taking advantage of them.
Requirements for distributing Form ADV, Part II are met in which of the following cases? I Form is given to a client upon signing a contract II Form is given to a client at least two days prior to entering into a contract III The information is incorporated into the adviser brochure sent to clients IV Form ADV, Part II is the application form used to register as an investment adviser, it is Part I that must be distributed to clients upon request A I, II and III B I and IV C II and III D IV only
C II and III Options II and III fulfill the requirements. Option I is true only if the contract includes a 5-day cancellation clause, which is not specified. Option IV is not accurate.
How often must investment companies send financial reports to shareholders? A Annually B Quarterly C Semiannually D Monthly
C Semiannually Financial reports must be sent on a semiannual basis to shareholders, annually to the SEC.
Who benefits from a consent to service of process? A The investment adviser B The agent C The investor D The broker-dealer
C The investor This legal agreement benefits the investor because it allows the investor to file a non-criminal complaint with the administrator with the same effect as if it had been served on the registrant, i.e., the broker-dealer, investment adviser, or agent. The consent to service of process is included with the initial registration application and stays in force without needing to be renewed.
Which statement is true regarding the writer of a put option? A The writer is bearish on the market B The writer pays a premium to the buyer C The writer is obligated to buy from the buyer D The writer is the buyer
C The writer is obligated to buy from the buyer The put writer receives a premium for agreeing to let the put buyer sell (put) the stock to the seller at a future date. The seller (writer) of the put is bullish on the stock and is obligated to fulfill the contract if the buyer exercises it.
A customer has made several large cash deposits into their account at the firm. Their registered representative suspects money laundering. Which of the following statements is correct? A A CTR must be filed within 5 calendar days for all deposits exceeding $10,000 B A CTR must be filed within 48 hours of all deposits exceeding $10,000 C A CTR must be filed within 48 hours of all deposits exceeding $5,000 D A CTR must be filed within 15 calendar days for all deposits exceeding $10,000
D A CTR must be filed within 15 calendar days for all deposits exceeding $10,000 FinCEN requires that firms file a CTR within 15 calendar days of receiving deposits of more than $10,000 of currency. In addition, as a registered representative you should also look for any activities in an account that seem suspicious and involve $10,000 or less. Suspicious transactions of $10,000 or less require that the firm file a Suspicious Activity Report (SAR).
A customer has an account with a broker-dealer that becomes insolvent. The customer has securities valued at $500,000 and cash of $250,000 on deposit with the firm. The customer would: A Become a secured creditor of the broker-dealer for any portion not covered by SIPC B Be fully insured by the SIPC C Have no claim against the broker-dealer for any amount not insured by the SIPC D Become a general creditor of the broker- dealer for any portion not covered by SIPCer for any portion not covered by SIPC
D Become a general creditor of the broker- dealer for any portion not covered by SIPCer for any portion not covered by SIPC SIPC insures each customer for a total of $500,000, of which no more than $250,000 may be for cash. The customer then becomes a general creditor of the broker-dealer for any amount not reimbursed by SIPC ($250,000 worth of securities, in this case).
What is the name for the amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing), and debts have been paid? A Pre-tax income B Adjusted gross income C Disposable income D Discretionary income
D Discretionary income Discretionary income is the amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing), and debts have been paid. This includes money spent on luxury items, vacations and non-essential goods and services.
A recently married couple with no investment experience wishes to invest the $3,327 in cash they received in wedding gifts. Considering the couple has no additional liquid assets, what investment option is the best recommendation? A Invest 50% in a growth fund and 50% in a high-grade corporate bond fund B Invest all the funds in a U. S. government bond fund for maximum safety C Invest the entire amount in an index fund to provide broad market exposure at a reasonable cost D Keep the funds liquid (in the bank) to meet emergencies that may arise in the future
D Keep the funds liquid (in the bank) to meet emergencies that may arise in the future There are many theories on how much cash individuals should have on reserve before they choose to expose their assets to risk. In most cases 3-6 months of gross income is recommended. The young couple clearly needs to avoid capital risk with the wedding gifts they received. When they amass greater assets, they can begin looking to longer-term investing.
The main feature that distinguishes a mutual fund from other corporations is that it: A Invests in a variety of assets B Requires a small initial investment C Has only one class of stock D Makes continuous offerings of shares
D Makes continuous offerings of shares The unique feature of a mutual fund is that it is an open-ended investment company that makes continuous offerings of shares. The other choices could be features of any corporation.
Which of the following is not a characteristic of a securities exchange? A Specified trading hours B Listing requirements C Central location D Negotiated pricing
D Negotiated pricing A securities exchange takes place in a physical location during specified trading hours. Securities which are listed on the exchange must meet specific minimum requirements regarding capitalization, etc. With many buyers and sellers in one location, an exchange is an auction, not a negotiated market. In contrast, the OTC market is decentralized (telephones and internet) and is a negotiated market.
Which of the following is not true about wrap programs? A The account is managed based on the client's individual financial characteristics B In wrap fee programs, a fee for investment advisory services and execution of transactions is charged against the net assets in the account C A discretionary investment advisory service program may not be a wrap fee program D No special disclosure is required for wrap fee programs
D No special disclosure is required for wrap fee programs Investment advisers must deliver a wrap fee disclosure statement or brochure to existing and potential clients.
An aggressive growth portfolio is most likely to be benchmarked against which of the following indexes? A The Standard &Poor's 500 Index B The Wilshire 5000 Total Market Index C The Value Line Composite Index D The Russell 2000 Index
D The Russell 2000 Index The Russell 2000 is the commonly used index used to track the market of small-sized, or "small-cap", market. "Cap" is short for capitalization, and represents the total value of a company's outstanding shares. For example, if a company has 1,000,000 outstanding shares and is currently trading at $10 per share, it would have a market cap of $10,000,000; in theory, this is the amount it would take to buy the whole company. An aggressive growth portfolio will be more heavily weighted in small cap stocks; therefore the Russell 2000 Index would be the most appropriate benchmark against which its return can be measured. The Value Line Composite Index and the Wilshire 5000 Index measure the performance of the U.S. equities market overall. The Standard & Poor's 500 Index tracks the performance of 500 of the largest U.S. corporations, and is a measure of the large-cap stock market.
Traditional IRA contributions and earnings are subject to income tax when? A For contributions only B Upon distribution only C If distributed before age 59 1/2 and if contributions exceed the annual limits D Upon distribution and if contributions exceed the annual limits
D Upon distribution and if contributions exceed the annual limits Income taxes are due on withdrawals from traditional IRAs and also on any excess contributions. All taxable withdrawals are taxed at ordinary income rates.
Diversification protects an investor from what type of risk? A Nonsystematic B Market C Systematic D Interest rate
Oops! The correct answer was A. Diversification, or splitting investment funds among several categories of investments to reduce the overall risk of the portfolio, eliminates the risk that an individual stock or bond will perform badly as compared to the market (called the nonsystematic risk). Diversification does nothing to eliminate the risk that all stocks or bonds will perform poorly (market and systematic risks). Interest-rate risk is the risk that rising rates cause bond prices to fall. This cannot be fully eliminated by diversifying a bond portfolio. Diversification is more effective at eliminating selection risk than interest-rate risk.
