Exam Corrections

A speculator, believing that a drought in the Midwest will lead to a weak corn crop, would probably A) take a long position in corn futures B) take a short position in corn futures C) take a long position in orange juice futures D) take a long position in corn forwards

A

An agent explains dollar cost averaging to a mutual fund prospect, and implies that by investing the same number of dollars each month and reinvesting the distributions, the value in a mutual fund will increase. In this situation, the agent has: A) made a misleading statement to the customer. B) accurately explained the result of dollar cost averaging. C) made a misleading statement to the customer only if the fund has not increased in value within the previous 10 years. D) accurately explained the result of dividend and capital gain reinvestment.

A

For larger accounts, a broker-dealer is least likely to waive its normal fee for A) transferring the account to another broker-dealer B) wiring funds to the client's bank C) safekeeping of funds or securities in the account D) the annual account maintenance charge

A

In an account opened by two individuals as joint tenants with rights of survivorship, all of the following are true EXCEPT: A) stock certificates may be delivered in the name of either party. B) orders may be entered by either party. C) mail may be directed to the joint owner agreed upon by both parties to the account. D) in the event of death, the other party assumes full ownership of the account. Explanation

A

In general, the most common form of organization chosen by hedge funds is: A) a limited partnership B) an LLC C) a business development company D) an S corporation

A

Jimmy Merchant is an agent with FLATT securities, a registered broker-dealer. When Jimmy submits an order ticket to purchase securities for a client, all of the following would appear EXCEPT A) the current market price of the security B) Jimmy's name C) the broker-dealer's name D) the account number

A

Many investors use trusts to avoid probate. However, not all trusts are designed to do so. Those that would avoid probate include I. irrevocable trusts II. revocable trusts III. living trusts IV. testamentary trusts A) I, II, and III B) II and III C) I and IV D) I and II

A

Which of the following statements regarding an agent's registration is CORRECT? A) Revocation of the registration of that agent's broker-dealer will result in that agent's effective registration being put "on hold." B) If the broker-dealer with which that agent is registered should have its registration revoked, the agent's license will be held by the Administrator and the agent will be required to register with an active broker-dealer within 30 days. C) Agents may be licensed in a state even if their broker-dealer is not. D) If the broker-dealer with which that agent is registered should have its registration revoked, the agent may continue to do business only with existing clients and may not acquire any new ones until registered with an active broker-dealer.

A

If a security has an anticipated return of 8.7% and a standard deviation of 14.6%, you would expect the returns to have a 95% probability (assuming a normal distribution) of falling between: A) -20.5 and +37.9%. B) 0 and 37.9%. C) 8.7 and 23.3%. D) -5.9 and +23.3%.

A b/c a security with a normal distribution has a 95% probability of falling within 2 standard deviations of its anticipated return

A policy owner could surrender a whole life insurance policy and choose from all the following EXCEPT A) taking the cash value B) transferring the policy to another person C) purchasing a reduced coverage whole life policy D) purchasing an extended term life policy Explanation

B

All the following securities are bought at a discount EXCEPT A) Treasury bills B) CDs C) zero coupon bonds D) commercial paper

B

If a corporation issues mortgage bonds, all of the following would be affected EXCEPT: A) total assets. B) shareholder's equity. C) working capital. D) total liabilities.

B

If an investment adviser representative commits a criminal violation of the Uniform Securities Act, he is subject to legal action for: A) there is no statute of limitations under the act. B) 5 years after the alleged violation. C) 3 years after the alleged violation. D) 10 years after the alleged violation.

B

If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action? A) 10% penalty plus payment of ordinary income tax on all funds withdrawn. B) Ordinary income tax on earnings exceeding basis. C) Capital gains tax on earnings exceeding basis. D) 10% penalty plus payment of ordinary income tax on all funds withdrawn exceeding basis.

B

One major difference between the customer identification program (CIP) and the new account opening rules of the regulatory bodies is that A) the CIP requires a statement of the customer's goals while the regulators only require current financial information B) the CIP requires date of birth while the regulators only require proof of legal age C) the CIP only applies to individuals while the rules of the regulators apply to retail and institutional accounts D) the CIP requires a residence address for individuals while the regulatory bodies will accept a PO Box

B

One of the rights of those owning common stock is the opportunity to vote on issues brought up at the corporation's annual meeting. To be eligible to cast a vote, A) the stock must be paid for in full prior to the annual meeting B) ownership must be established by the record date C) the stockholder must be a natural person D) the company must be current on its dividends to preferred stockholders Explanation

B

One problem facing agent and client alike is determining how much life insurance is necessary to meet future needs. One tool that is useful for making that determination is a: A) mortality table. B) life insurance capital needs analysis. C) statement of beneficiary needs. D) premium purchase analysis.

B

Under the Investment Advisers Act of 1940, an investment adviser that operates in only one state has no private funds as clients, and restricts advice only to securities not listed on a national stock exchange: A) is exempt from both state and federal registration. B) is exempt from registration with the SEC under the act. C) must file as an associate under the act. D) must register under the act.

B

Under the Uniform Securities Act, a sale includes all of the following EXCEPT a: A) contract of sale. B) pledge of securities for the purpose of obtaining a margin loan. C) disposition of a security for value. D) contract to sell.

B

When operating a Keogh plan, a self-employed individual must make contributions for: A) all employees scheduled to work for 1,000 hours per year or more. B) full-time employees who are at least 21 years old and have worked for the company for one or more years. C) part-time employees who have worked for the company for three or more years. D) all employees.

B

Which of the following 2 are TRUE of a leveraged exchange-traded fund (ETF)? The leveraged ETF may be purchased on margin. Securities within the leveraged fund portfolio may be purchased on margin. The leveraged ETF may never be purchased on margin. Securities within the leveraged fund portfolio may never be purchased on margin. A) III and IV B) I and II C) I and IV D) II and III

B

Which of the following is NOT true concerning a Coverdell Education Savings Account (ESA)? A) A beneficiary's unused balance may be rolled over to an ESA account for another child. B) In order for the withdrawal to be considered qualified, it may only be used for post-secondary education expenses. C) The beneficiary may be the contributor's child or grandchild or child of a friend of the contributor. D) The maximum contribution is $2,000 per beneficiary. Explanation

B

Which of the following securities are federal covered and exempt from state registration? I. Bonds of an issuer whose common stock is listed on the NYSE II. Bonds of an issuer whose common stock is listed on the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]) III. Stock traded on Nasdaq IV. Registered investment company securities A) I, II, and IV B) I, II, III, and IV C) I and II D) III and IV

B

An agent is analyzing the financial statements of a corporation. The company has cash on hand of $2 million, accounts receivable of $500,000, accounts payable of $700,000, land valued at $3 million, wages payable of $300,000, goodwill of $100,000, inventory of $1.5 million, and retained earnings of $5 million. From this information, the agent would determine that the acid-test ratio for this company is A) 4:1 B) 1:1 C) 2.5:1 D) 3.375:1

C

An analyst using the dividend growth model would take into account all of the following factors EXCEPT: A) the investor's required rate of return. B) the current dividend. C) the current earnings per share. D) the growth of the dividend. Explanation

C

Many savvy investors use options as portfolio insurance. An example of this would be which of the following positions? A) Short in the put, short in the stock. B) Long in the put, short in the stock. C) Long in the put, long in the stock. D) Short in the put, long in the stock.

C

Registration statements for securities: A) expire on December 31 of each year and must be renewed if further sales are to be continued. B) are effective for at least two years from their effective dates, or longer if the securities are still under distribution by the underwriters. C) may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed. D) need not be filed with the Administrator if the securities are only sold in one state.

C

Which of the following investments would NOT be considered an exchange-traded derivative? A) Futures B) Warrants C) Forwards D) Options

C

Which of the following persons may legally open an account to trade on margin? A) A custodian of an UTMA account. B) An open-end investment company. C) A corporation. D) A minor child with approval of a court-appointed guardian.

C

Which of the following statements regarding investment companies is NOT true? A) When an open-end investment company, or mutual fund, registers its offering with the SEC, it does not specify the exact number of shares it intends to issue. B) The Investment Company Act of 1940 classifies investment companies into three types: face-amount certificate companies, unit investment trusts, and management investment companies. C) An investment company can offer investors two ways of participating in the fund under management through the purchase of closed-end shares or, if the investor prefers, open-end redeemable shares. D) When investors sell or redeem their open-end fund shares, they receive the net asset value (NAV) as of the close of the day the order was issued.

C

The antifraud provisions of the Investment Advisers Act of 1940: A) do not apply to activity related to prospective or actual advisory clients. B) prohibit any deceitful practice or course of business with respect to the purchase and sale of securities. C) do not apply to conduct directly related to actual transactions involving the purchase or sale of securities. D) apply to all conduct related to the purchase and sale of securities.

C b/c The anti-fraud provisions of the Investment Advisers Act of 1940 apply to all conduct that concerns the integrity of the client relationship from an advisory standpoint.

Frank and Joe Hardy have formed Hardy Investigative Services, (HIS), with each owning 50% of the stock in the company. HIS is organized as an S corporation. Unless receiving an extension, the Form 1120S is due A) January 15 B) April 15 C) March 15 D) 90 days after the end of their fiscal year

C bc all LLCs, partnerships, and S corps have the same filing date

All of the following statements regarding incentive stock options (ISOs) are correct EXCEPT: A) if the holding period is satisfied, the gain upon the sale of ISO shares will be a long-term capital gain. B) the exercise of ISOs does not create taxable income. C) upon the exercise of an ISO, income for AMT purposes is created. D) the favorable tax treatment associated with ISOs is lost if the shares acquired through the ISO exercise are sold before one year from the date of grant or two years from the date of exercise.

D

An investment adviser representative is preparing a financial plan for a new client. As part of the data collection process, the IAR needs to collect the relevant information to analyze the client's cash flow. Included in the cash flow statement would be all of the following EXCEPT A) interest on savings B) income taxes C) salary D) assets

D

An investor purchases 100 shares of RIF common stock. In the year following the purchase, the RIF shares appreciated by 12% and paid a 2% dividend. If inflation, as measured by the CPI, was at a 4% rate, the investor's total return on the RIF shares is closest to: A) 12%. B) 10%. C) 8%. D) 14%.

D

One of the actions available to the Administrator is the issuance of a cease and desist order. When the Administrator issues a cease and desist order: A) the subject of the order may appeal to the proper court. B) the subject of the order may no longer function as a registered person until the final order is issued. C) the right of rescission is automatically invoked. D) the subject of the order must promptly put a halt to the specified activity.

D

One of your clients is in the process of forming a new business venture with a friend and is considering whether to operate as a partnership or a C corporation. Among the advantages of operating as a partnership are: I. ease of dissolution. II. ease of raising additional capital. III. flow-through of income or loss. IV. limited liability. A) III and IV. B) II and IV. C) I and II. D) I and III.

D

Review of an SEC-registered investment adviser's policies and procedures designed to prevent violation of the federal securities laws must take place no less frequently than A) monthly B) quarterly C) semiannually D) annually

D

If a federal covered adviser's fiscal year ends on October 31, 2014, it must file its annual updating amendment to its Form ADV no later than: A) 28-Feb-15 B) 30-Mar-15 C) 31-Dec-14 D) 29-Jan-15

D, bc the annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal year end

To comply with the regulations regarding customer identification programs, the minimum identifying information that must be obtained from each customer before opening an account includes: I. name II. verbal assurance that the customer is of legal age III. a street address, unless the primary mailing address is a PO Box located in the state of residence IV. a taxpayer identification number

I and IV

If the value of the U.S. dollar increases with respect to other currencies, it would make I. U.S. exports, like heavy equipment, more competitive in foreign markets. II. U.S. exports, like heavy equipment, less competitive in foreign markets. III. foreign imports into the United States, such as cars, less competitive in U.S. markets. IV. foreign imports into the United States, such as cars, more competitive in U.S. markets.

II and IV

One of your clients is viewing a stock held in her portfolio and wishes to know how to calculate the holding period return for that security. In order to do that, she must know the: I. date the stock was purchased and the date it was sold. II. dividends received during the holding period. III. purchase price. IV. current market price.

II, III, and IV

Subjective considerations are ones that are...

not financial ones