Exam 1
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 outperform or underperform the market?
-.9375% (10.5-3) - (1.25 * (9.75-3))
Andrew voluntarily leaves his position as an agent with Gibraltar Securities. Which of the following best describes the reporting requirements relative to this termination? A) Only the firm must notify the Administrator, and it must do so within 30 days of Andrew's resignation. B) Both Andrew and the firm must notify the Administrator of Andrew's resignation promptly. C) Only Andrew must notify the Administrator, and it must do so within 30 days of his resignation. D) Notification to the Administrator is not required, presuming that Andrew was not terminated for cause.
B
With regard to a state-registered investment adviser using Form ADV, Part 2 as its brochure, it would be correct to state that A) if requested by a client, it must be sent within 5 days of the request. B) it is filed through the IARD system. C) it must be delivered not later than 48 hours after entering into an advisory agreement with a new client. D) it must be delivered to all new clients.
B
An investment adviser is eligible to register with the SEC if it A) has more than 100 investment adviser representatives. B) has rendered advice to more than 5 retail clients during the most recent 12-month period. C) anticipates acquiring at least $100 million in assets under management within the next 120 days. D) would be required to register in at least 10 different states.
C
Which of the following is unlikely to be issued at a discount? A) Zero-coupon bond B) Treasury bill C) Jumbo CD D) Commercial paper
C
Under the Uniform Securities Act, a sale includes all of the following except A) a contract to sell. B) a disposition of a security for value. C) a contract of sale. D) a pledge of securities for the purpose of obtaining a margin loan.
D
When a broker-dealer registers with the state Administrator, which of the following persons are automatically registered as agents of the broker-dealer in the state? A) Those persons employed at the broker-dealer prior to its registration in the state B) Agents registered in another state who are employed by the broker-dealer C) Persons employed by the broker-dealer who are residents of the state but employed in a state other than that of the Administrator D) Any agent who is a partner, officer, or director, or a person occupying a similar status or performing similar functions
D
If a federal covered adviser's fiscal year ends on November 30, 2022, it must file its annual updating amendment to its Form ADV no later than
Feb 28, 2023 (90 days)
A securities analyst reviewing the financial statements of the XYZ Corporation observes that the company's total liabilities are in excess of its total assets. From this information, the analyst could conclude that XYZ has
a negative book value per share
An investor would enter a buy stop order to hedge against a loss in
a short stock position
Disclosure to customers of an investment adviser's control relationships is required in which of these? Agency transactions Principal transactions Exempt transactions
all 3
Which of the following are governed by the prudent investor rule? Trustee Executor Custodian Agent who has been granted discretionary authority
all 4
Which of the following entities would issue a Schedule K-1?
limited partnership, LLCs, S corps
when is SEC reg mandatory?
over 110 mill AUM
The NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers generally prohibits an IA from disclosing any confidential account information without specific consent of the client. However, disclosure would be permitted to A) the client's friends on his Facebook account B) the client's spouse when this is a joint account C) the client's attorney representing him in a lawsuit D) the client's accountant who is representing him before the IRS
B
Which of the following are examples of the prohibited business practice known as front running of blocks? A) An IAR purchases 10,000 shares of DEF 6% preferred stock for 4 of her income-oriented clients. It takes several separate trades to fill the entire order, and the prices range from $24.25 to $24.33. The IAR allocates the shares, giving price preference to clients taking the largest positions. B) A securities professional purchases call options in a stock immediately ahead of entering an order from an institutional client to purchase a block of the stock. C) An investment adviser publishes a strong buy recommendation for ABC common stock several days after purchasing a large block for the firm's own account. D) A securities professional purchases call options in a stock immediately after entering an order from an institutional client to purchase a block of the stock.
B
he Uniform Securities Act lists a number of securities that are exempt from both the registration and the advertising filing requirements of the act. Included in that list would be all of the following except A) securities issued by the Podunk and Western Railroad, a regulated common carrier. B) universal life insurance policies issued by insurance companies authorized to do business in the state. C) securities issued by the XYZ Industrial Loan Association organized and supervised under the laws of this state. D) common stock issued by the Bailey Brothers Building and Loan, organized under the laws of New York State and authorized to do business in this state.
B -- not securities
An investment adviser is analyzing 4 bonds of similar quality for a client. Bond A has a coupon of 6%, matures in 12 years, and is currently priced at 50. Bond B has a coupon of 8%, matures in 9 years, and is currently priced at 50. Bond C has a coupon of 4%, matures in 18 years, and is priced at 45. Bond D has a coupon of 12%, matures in 6 years, and is priced at 50. Based on NPV, which of these bonds represents the better value?
Bond C -- rule of 72
A grandparent wishes to contribute funds to an account for the benefit of the college education of a grandchild. In which of the following does the donor have the greatest amount of control over the assets in the account? A) A Coverdell ESA B) An UGMA account C) A Section 529 plan D) An UTMA account
C
An investor purchased a 20-year bond with a duration of 11 years for $1,323.18. Which of these statements is correct? A) The current yield is higher than both the coupon rate and the YTM. B) The coupon rate is lower than the YTM, and the current yield should be higher than the coupon rate. C) The yield to maturity (YTM) is less than both the current yield and the coupon rate. D) The coupon rate is higher than the YTM, and the YTM is higher than the current yield.
C
Some registered investment advisers (IAs) 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 A) requiring the IA to renew its consent to service of process when paying the annual fee. B) requiring each IAR to provide a statement of financial condition. C) requiring IARs to pass a qualification exam. D) the Idaho Administrator requiring registration of IARs who make telephone calls to residents of Idaho.
C
As an investment adviser, you feel that RAN common stock is an appropriate addition to the portfolio for several of your clients. You enter an order to purchase 1,000 shares and receive two 500-share confirmations, but they are not at the same price. Which of the following is the proper procedure for you to follow?
allocate using the average of the 2 prices
Under adverse market conditions, it is not unusual for mutual fund investors who had been investing on a regular basis to cease or reduce their level of financial commitment. This can have the effect of
net redemptions
A new client indicates a desire to avoid investing in mid-cap stocks because of large losses suffered several years ago. What type of consideration would this be?
nonfinancial
Bryan, an agent registered with a broker-dealer, buys 1,000 shares of XYZ Corp. in his own account. In recommending XYZ Corp. to his customers, Bryan informs them that he believes in the company so much that he put his own money in the stock. This practice is
not an unethical sales practice
James is an investment adviser representative with Rock, Feller, and Standard (RFS), a covered adviser with its principal office in State O. James works out of an office in State P and has 4 retail clients there. In addition, James has 25 retail clients in State D, 6 retail clients in State M, and 1 retail client in State O. He would be required to register as an investment adviser representative in
state P alone
Which of the following investment strategies reflects determining an appropriate portfolio allocation based on the short-term market movements and risk tolerance of the client?
tactical asset allocation
An exemption from state registration is granted under the specific authority of the Uniform Securities Act to securities issued by which of the following entities? State of Georgia City of London, Ontario City of London, England Kapco Income Fund, an open-end investment company registered with the SEC
1 and 2
Many parents prefer to use a Section 529 plan over a Coverdell ESA to finance their child's education plans because contribution limits are higher funds may be withdrawn tax-free if used for qualified education expenses there are no earnings limits 529 contributions are tax deductible on the federal level
1 and 3
Which of the following situations would require registration as an investment adviser? A broker-dealer provided investment research services to a customer and charged a fee for the services. An agent of a broker-dealer recommends the purchase of ABC securities to a customer, who then purchases 100 shares, and the agent earns a commission. A broker-dealer has its agents prepare complete financial plans for customers for a nominal fee. The plans recommend specific securities transactions, and when the customers place orders, the agents earn commissions on those securities transactions. A broker-dealer charges its customers for collecting dividends and maintaining their accounts in addition to commission charges for transactions executed.
1 and 3 not investment advisor if incidental to business
Registration of an investment adviser automatically confers registration on whom? Officers, partners, and directors of the firm who are functioning as IARs Any employee who is functioning as an IAR Clerical employees handling back-office operations An employee who will be soliciting clients for the adviser
1 only
A couple, ages 63 and 66, are long-time clients of your firm and are in good health. They plan to retire from gainful employment in 4 years and wish to discuss decumulation strategies. One of the important factors to consider is the time horizon for this couple. Which of the following would be the best estimate to use?
25 years
Under the civil liabilities section of the Uniform Securities Act, how long does a client have to sue an investment adviser after the advice is given?
3 years
In discussing a direct participation program with your customer, rank the following items in order of importance from most to least. Tax write-offs Liquidity and marketability Potential for economic gain
3, 1, 2
One of your customers would like to be able to reduce current taxable income. Contributions to which of the following would be an appropriate recommendation? A) A donor advised fund B) A Roth IRA C) A Section 529 plan for grandchildren D) A deferred annuity
A
The NASAA Model Rule on Business Continuity and Succession Planning requires registered investment advisers to have a business continuity and succession plan (BCP). Which of the following is not an issue unique to advisers structured as a sole proprietorship? A) Risks that could interrupt operations and client service include equipment and/or system failures and destruction of records. B) With the death of the sole proprietor, the sole proprietorship itself may legally terminate as an entity, as would any powers of attorney, advisory contracts, and other client agreements. C) Because the client's legal relationship is with the sole proprietor, the death of that individual would likely require probate of the estate during which time the business will not be functional. D) The sole proprietor is likely to be the only regulatory contact and may be the only person who would be able to access electronic client files or
A
Under the Uniform Securities Act, which of the following investment advisers with no place of business in the state must register with the state as an investment adviser? A) An adviser rendering advice to no more than 10 individual clients within a 12-month period B) An adviser rendering advice solely to broker-dealers C) An adviser managing more than $110 million in assets D) An adviser rendering advice to employee benefit plans with at least $1 million in assets
A
Which of the following features of exchange-traded funds (ETFs) are also features of mutual funds? A) They compute their NAV daily. B) They are listed on stock exchanges. C) They may be purchased on margin. D) They may sell short.
A
One respect in which an LLC differs from an S corporation is that A) there is no statutory limit on the number of investors in an LLC B) not only income, but losses, if generated, pass through to investors in an LLC C) there is more favorable tax treatment afforded to members of an LLC D) an LLC can be formed with as little as a single investor
A (S corp only 100)
