BL Test Questions
33. Surrendering a whole life policy is appropriate for all of the following except: A.Cash B.Purchasing a paid up term life policy C.Purchasing a reduced coverage whole life policy D.Purchasing a non-qualified annuity
A. All of these would be a tax free 1035 exchange except taking cash.
111. Which of the following are characteristics of exchange-traded funds (ETFs)? I They are redeemable securities. II They are priced by supply and demand. III They are designed to track an index. IV They try to diversify within a particular industry. A.II and III. B.II and IV. C.I and IV. D.I and III.
A. ETF's are traded on an exchange therefore cannot be sold back to the Investment Co and track a specific index.
14. Which of these describes a market maker? A.a broker/dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market B.a broker/dealer who stands ready to buy or sell at least the standard unit of a specific stock traded on a listed exchange C.an investment banker who participates in a firm underwriting D.a subscriber to the NASDAQ system
A. Market makers exist in the OTC market. Specialists exist on exchanges.
107. Which of the following Investment Company share classes contain Contingent Deferred Sales Charges? A.Class A B.Class B C.Class C D.Class D
B. Class B shares are back-end funds in which the sales charge is charged if you sell and declines overtime.
34. If a client takes out a loan from his whole life policy and does not pay it back, the insurance company can do which of the following: A.Reduce the cash value at the next anniversary. B.Reduce the death benefit when the client dies. C.Increase the premium amortized over the life of the policy. D.Surrender the policy
B. Loans taken from an insurance policy reduce the death benefit unless paid back.
79. An agent of a B/D sells unregistered common stock to an Insurance Company that has no office in the state. According to the Uniform Securities Act, this would be: A.Prohibited because the security is unregistered B.Allowed because it is considered an exempt transaction C.Allowed because it is an exempt security D.Prohibited because the Insurance Company has no office in the state
B. Sales of unregistered securities to a financial institution is an exempt transaction. Whether the institution has an office in the state is inconsequential.
49. Which of these efficient market hypotheses dictates that future performance cannot be based upon historical data? A.weak B.Moderate C.Strong D.Semi-strong
C. A stock's price currently reflects all known information about the stock which means all historical data is already priced into the stock. This is the strongest form of Efficient Market Hypothesis.
119. Which of the following statements regarding ADRs are TRUE? I They are issued by large domestic commercial banks. II They are issued by foreign banks. III They facilitate U.S. trading in foreign securities. IV They facilitate a foreign investor who wants to trade U.S. securities. A.II and IV. B.II and III. C.I and III. D.I and IV.
C. ADR's allow U.S. investors to invest indirectly in international companies. They are created and issued by domestic banks.
55.Both an IA and an IAR register in August. They do not renew their registration until March 30th. Which of the following is true? A.The IA's registration did not lapse but the IAR's did on Dec 31st. B.The IAR's registration did not lapse but the IA's did on Dec 31st. C.Both registrations expired Dec 31st. D.Neither registration expired.
C. All registrations expire (unless properly renewed) expire each December 31st.
58. Under the Uniform Securities Act, when an IAR acting in the capacity of trustee of a family trust executes a transaction on behalf of the trust, it is A.An exempt transaction B.An exempt security C.A non-exempt transaction D.A violation of the trustee's fiduciary responsibility
C. Among the list of exempt transactions are those made by fiduciaries, including trustees in bankruptcy, but not other trustees. Therefore, this is a nonexempt transaction. The fact that this is an IAR who is the trustee has no bearing on the question.
120. Which of the following would an IAR use as his basis for recommending an investment into a Limited Partnership? A.Tax Benefits B.Ease of liquidity C.The ability to shield assets D.The likelihood of the business venture being successful
D Remember. The most important consideration in investing in a Ltd. Partnership is economic viability. Any tax benefits that come with the investment are secondary. It can never be the other way around.
126. Under the Uniform Gift to Minors Act, a custodian may re-register assets to the minor A.at age 18 as stated in the Federal act B.at age 21 as stated in the Federal act C.at a designated age of the custodian's choosing up to age 25 D.at age of majority of the given state
D. Re-registering the account in the minor's name may occur at legal age which is determined by each state.
19. An agent whose registration took effect November 11, 2008 would find that the first renewal would take place: A.December 31,2008 B.November 11,2009 C.December 31,2009 D.January 1,2010
A. All registrations expire (unless properly renewed) each December 31st. This is true for agents, IAR's, IA's and B/D's.
105. Because of liquidity issues involving portfolio holdings, most "country" funds are A.closed-end B.open-end C.UITs D.holding companies
A. Closed end funds increase the liquidity of purchasing international investments.
117. All of the following statements regarding 529 plans are true EXCEPT: A.Contributions are made with pretax dollars at the federal level. B.Anyone can make a contribution on behalf of a beneficiary. C.Earnings accumulate tax free if the money is used for qualified educational purposes. D.A beneficiary of a 529 plan may also be the beneficiary of a Coverdell Education Savings Account.
A. Contributions to a 529 plan are made with after-tax monies.
121. Which of the following would be considered in the fundamental analysis of a security? I support and resistance levels. II trading volumes. III Liquidity ratios. IV Historical earnings trends. A.III and IV. B.I and IV. C.II and III. D.I and II.
A. Fundamental equals financials.
12. An investor who is short 100sh of XYZ and would like to protect against risk would: A.Buy a call B.Buy a put C.Sell a call D.Sell a put
A. In hedge strategies, the option always follows the risk direction of the stock. To protect the stock you must buy the option.
64.A Savings and Loan association, organized in State A and authorized to do business in State B, has an offering of common stock being made in State B. In order for an individual selling the offering to be excluded from the definition of agent in State B, the individual A.would have to be employed by the Savings and Loan B.would have to be employed by a broker/dealer registered in the other state C.would have to be employed by a broker/dealer registered in this state D.could not sell without being an agent
A. Included in the USA 's list of exempt securities are those issued by any building and loan or similar association organized under the laws of any state and authorized to do business in this state. Therefore, an individual who is employed by the issuer of exempt securities to sell those securities, is excluded from the definition of "agent".
73. A client enters an order as follows: Sell stop 100 shares of LTC at 45 limit 45.50. Following the entry of that order, trades occur in the following sequence: 47; 46; 45.12; 44.97; 45.28; 45.97; 46.05. More than likely, the client received A. 45.97 B. 46.05 C. 45.28 D. 44.97
A. The stop order is triggered at 44.97 and limit is satisfied above 45.50.
60. Which of the following best depict/show time weighted return? A.The volatility of security holdings B.Uneven cashflows C.Dividends and interest only D.Return overtime
A. Time-weighted return measures a portfolio manager's return excluding investors inflow and outflow of cash
127. An agent recommends a tax-free, fixed income security to a customer based on their tax rate. The customer believes another taxable investment would give them a better return. The agent could compute the equivalent taxable yield by A. Dividing the tax-free yield by the compliment of the investors tax bracket B. Dividing the taxable yield by the compliment of the investors tax bracket C. Multiplying the tax-free yield by the compliment of the investors tax bracket D. Multiplying the taxable yield by the compliment of the investors tax bracket
A. To find the equivalent taxable yield you must divide the tax-free yield by the compliment of the investor's tax bracket (100% -Tax bracket)
77. In the course of a bankruptcy, the asset that backed a secured debt is liquidated but it doesn't pay off all of the debt holders for that particular secured debt. What happens to these debt holders: A.They get grouped in with another group of secured debt holders secured by another asset. B.They get grouped in with the general creditors C.They get grouped in with the non-secured debt holders D.They have priority to be paid off when the next asset is liquidated
B. After the assets have been liquidated, any remaining secured creditors then become general creditors.
21. An IAR works for a federally covered IA. The IA's main office is in State A. The IAR travels to see clients in State B. Under the U.S.A., which of the following is (are) true? I IAR need not be registered in State B II IAR need not be registered in State A since the IA is federally covered III IAR needs to be registered in State B IV IAR needs to be registered in State A A.I and II B.I and IV C.II and III D.III and IV
B. An IAR of a federally covered IA need be registered only in the state of the IA's home office (or any other office the IAR may work from -which does not apply in this question).
39. A 68 year old woman is seeking preservation of capital with a secondary objective of income. Which of the following would be most appropriate?A.Savings account B.Money Market C.Certificate ofDeposit D.MunicipalBond
B. Money market funds are generally safe and would also provide her with more income thana savings account.
59. Sharon Smith is an agent for a broker/dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act, A.Because Sharon has no place of business in State X and the client is an institution, Sharon may accept the order without registering in State X B.Sharon must be registered in State X in order to accept the order C.Because Sharon has no place of business in State X and the order is unsolicited, Sharon may accept the order without registering in State X D.Because the B/D is registered in all 50 states, Sharon must also be registered in all of them.
B. Regardless of whether the security is exempt or the transaction is exempt, one must be licensed in any state in which the client is placing an order (unless the agent is representing a broker/dealer who is exempt from registering in that state). One does not have to be registered as an agent in every state the B/D is, only in those where she expects clients to reside. Remember, there is no de minimis exemption for B/Ds and agents as there is for IAs and IARs.
65.An IAR of a federal covered investment adviser splits his time between an office in State A and State D. The IAR has retail clients as follows: I. 16 clients in StateA II. 12 clients in StateB III. 6 clients in StateC IV. 4 clients in StateD The agent would have to register as an IAR in A.States B and C B.States A and D C.States A and C D.States A, B and C
B. When employed by a federal covered adviser, the only time that state registration is required is when there is a place of business in the state. Had this been an IAR with a state covered adviser, registration in all of the states would have been required.
13. With life insurance, a "Capital Needs Analysis" may be helpful for all of the following, except A.Planning for an income stream B.Capital for tax purposes C.Future life insurance needs D.Completion of investment objective
C. Capital Needs Analysis is used to determine the use and amount of insurance needed to meet future needs. You don't purchase insurance to buy insurance in the future.
11. An investor is long 100sh of XYZ. She fears a near-term correction but overall she remains bullish. Which of the following may allow her to profit from this situation? A.Buy a call B.Buy a put C.Sell a call D.Sell a put
C. In hedge strategies, the option always follows the risk direction of the stock, to generate a profit (income), you would then sell the option
35. Which investment is most tax efficient? A.Corporate bond fund B.Growth fund C.Index Fund D.Government Bond Fund
C. Index funds are passively managed therefore there is very little trading within the portfolio and therefore very little taxable gains.
25. A customer has inquired about a covered call. Which option would you recommend? A.Buy a call B.Buy a put C.Sell a call D.Sell a put
C. Selling call options are a popular strategy in which to generate income when owning stock and are known as a covered call.
103. With regard to margin accounts, which of the following are accurate statements? I. Initial margin is the amount required under Regulation T when a security is purchased on margin II. Maintenance margin is the amount required under SRO rules when the equity in a margin account falls below a pre-determined level. III. A combined margin account is one in which there are both long and short positions IV. Margin accounts use leverage A. I and IV B. I, II and III C.I, II, III and IV D.II and III
C. The minimum deposit is determined by the FRB's Regulation T. The minimum maintenance is determined by FINRA.
66. Following the advice of their portfolio managers, a hedge fund executes most of its securities transactions through a registered full-service broker/dealer. In order to compensate for the commissions charged, the B/D allows employees of the hedge fund to use furniture and facility at a discounted rate. Under the soft-dollar provisions of Section28(e) A. As long as the discounted rate reflected the volume of business done by the hedge fund, this would be permitted B.This would be considered allowable soft dollar compensation C.This would not be considered allowable soft dollar compensation D.This would not be considered allowable soft dollar compensation unless the employees were those who directed the transactions to the B/D
C. The use of furniture or office facilities is not included in the list of safe harbor items, regardless of what role the employees of the fund play.
88. An agent, sharing in commissions with another agent, may do so only if I disclose the arrangement and receive consent from his clients II both agents are registered in the same states III both agents are registered through the same or affiliated B/D IV disclose the arrangement and receive consent from the SEC A.I and III B.I and IV C.II and III D.II and IV
C. There no disclosure requirements for agents sharing commissions. As long as agents are registered in the same states and are with the same or affiliated B/D, there are no further requirements.
98. Three years ago, a customer bought 200 shares of ABC for $50.50 per share. Upon her death, she left the shares to her husband when ABC was trading at $68.25. If her husband sells the shares for $69.25, what is his cost basis for tax purposes? A. $19.25 B. $50.50 C. $68.25 D. $69.25
C. Upon inheriting stock, there is a step-up in cost basis to the market value at date of death.
69. Included in the USA's definition of exempt transaction would be any transaction by any of the following EXCEPT one by A.A sheriff B.A guardian C.A trustee in bankruptcy D.A trustee of an irrevocable trust
D. Although the term trustee is found in the list of persons engaged in exempt transaction, the USA limits it to trustees in bankruptcy.
26. When does an SEC registered corporation NOT have to file an 8k: A.Acquire a major asset. B.Change in top management. C.Change in external CPA/auditing firm D.Relocation of wholly owned subsidiary
D. An 8k is filed by public traded companies to disclose reportable information. This is usually material, non-public information that may materially affect shareholders. Moving, across the street for example, is not deemed material.
76.An investment adviser representative prepares a detailed portfolio restructuring for a new client. The client is not impressed with there commendation and, at least to the IAR, it appears that the rejection is more due to a lack of understanding than a valid dislike. What should be the first step taken by the IAR? A.Prepare a new set of recommendations that will hopefully be received more favorably by the client. B.Go ahead with the recommendation anyway because the client's lack of understandingshouldnotstandinthewayofpotentiallysuperiorresults. C.Suggest that if the client will not follow the IAR's recommendations, it would be best to find another firm to deal with. D.Attempt to educate the client as to what this portfolio is trying to accomplish for the client while at the same time recognizing that the final decision is clearly in the hands of the client
D. Even when the IAR is convinced that the optimal recommendations have been made, the final decision is always that of the client. However, there is nothing in the laws, or policies dealing with ethical conduct, that prohibit the IAR from attempting to "sell" the client, especially through an educational approach.
80. Which of the following payout options from a nonqualified annuity would assure the annuitant the largest monthly payment? A.Unit refund B.Straight life with period certain C.Joint with last survivor D.Straight life
D. Straight life has the least amount of riders and, therefore, has the largest monthly payout.
52. The internal rate of return calculation dictates that the interest earned in a portfoliois reinvested at the: A.IRR B.Inflation rate C.US Treasury rate D.Required Return
D. The internal rate of return is the required return to determine the time value of money.
99. A portfolio manager who has a value management style would seek stocks that: I.Have high earnings growth II.Have high PE ratios. III.Are undervalued. IV.Have a high dividend payout ratio A.I and IV B.I and III C.II and III D.III and IV
D. Value stocks are characterized by high dividends and stable earnings with low PE ratios.
20. An IA is meeting with a new prospect. Which of the following performance data could be presented? A.The 10 best performing portfolios B.The 10 worst performing portfolios C.An average of the portfolios most similar to the prospect's objective D.All of your accounts you have managed
D. When disclosing past recommendations, you must provide all past recommendations.
