Exam Simulation #3
A client purchased a security for $60 and sold it one year later for $59. If he received 4 quarterly dividends of $.50 each during the period, his total percentage return would be: A) 1.67%. B) 2%. C) 0%. D) 3.30%
A) 1.67%.
Which of the following indicates a bond selling at a discount? A) 7% coupon yielding 7.5% B) 5% coupon yielding 5% C) 10% coupon yielding 9% D) 7% coupon yielding 6.5%
A) 7% coupon yielding 7.5%
Which of the following must register as a broker-dealer under the USA? A) A broker-dealer with a place of business in the state that effects transactions exclusively with broker-dealers registered in other states. B) A broker-dealer with no place of business in the state that deals exclusively with broker-dealers with offices in that state. C) A broker-dealer with no place of business in the state that effects transactions exclusively with issuers of securities in that state. D) A broker-dealer with no place of business in the state that has directed offers to clients who have more than 30 days' temporary residency in the state.
A) A broker-dealer with a place of business in the state that effects transactions exclusively with broker-dealers registered in other states.
Which of the following orders would be used to protect a short sale profit? A) A buy stop. B) A sell short. C) A buy limit. D) A sell stop.
A) A buy stop.
Which of the following would have to register as an investment adviser under the Uniform Securities Act? A) A retired aeronautical engineer who charges a nominal fee for holding seminars on opportunities in aerospace stocks. B) An economics professor who occasionally gives a lecture to business groups about the stock market. C) A trust company. D) An accountant who advises clients about investments as an incidental part of services.
A) A retired aeronautical engineer who charges a nominal fee for holding seminars on opportunities in aerospace stocks.
An option that may be exercised prior to its expiration date is said to be: A) American style. B) Flexible style. C) Premature style. D) European style.
A) American style.
Which of the following accurately describes a cease and desist order as authorized by the USA? A) An order by the Administrator to refrain from a practice of business believed by that Administrator to be unfair. B) An order from one brokerage firm to another brokerage firm to refrain from unfair business practices. C) An order issued by a federal agency to a brokerage firm to stop an advertising campaign. D) An order issued by a court of competent jurisdiction in the state requiring a business to stop an unfair practice.
A) An order by the Administrator to refrain from a practice of business believed by that Administrator to be unfair.
In comparing the change in the GDP from one year to another, to arrive at an accurate figure, each year's GDP should be converted to which of the following? A) Constant dollars. B) International dollars. C) Dollars in terms of gold bullion. D) Dollars valued by exchange with foreign currencies.
A) Constant dollars.
The prospectus for a fund states that the minimum initial investment is $500,000. This is most likely what type of fund? A) Hedge. B) Specialized. C) Small-cap growth. D) Balanced.
A) Hedge.
Which of the following statements are TRUE of a discretionary account? I. It must be approved by a principal of the firm. II. It must be reviewed frequently. III. A discretionary order may be placed once the customer has placed a power of attorney in the mail. IV. It must be approved by the SEC. A) I and II. B) I and III. C) III and IV. D) II and IV.
A) I and II.
Which of these features are common to both variable annuities and scheduled premium variable life insurance? I. Income earned in the separate account is tax deferred. II. Separate account performance below the AIR causes a reduction in cash value. III. Fixed contributions are required. IV. Contract owners have voting rights. A) I and IV. B) III and IV. C) I and II.
A) I and IV.
Which of the following statements is (are) TRUE regarding investment advisory contracts under the Uniform Securities Act? I. The adviser cannot be compensated on the basis of a share of the capital gains or capital appreciation in a client's account. II. The advisory contract may not be assigned without the consent of the client. III. If the adviser is a partnership, the adviser must notify clients with whom the adviser has contracts of any changes in the partnership within a reasonable time. IV. An adviser may be compensated based on the total value of a client's account averaged over a specific period. A) I, II, III and IV. B) II, III and IV. C) I only. D) II only.
A) I, II, III and IV.
Rank the following securities from the same issuer from most suitable to least suitable for a client whose primary objective is income. I. Cumulative preferred stock II. Convertible preferred stock III. Common stock IV. Warrant A) I, II, III, IV B) III, I, IV, II C) I, III, II, IV D) II, III, IV, I
A) I, II, III, IV
Which of the following is most commonly used to evaluate the marketplace's perceived value of a particular stock? A) Price-to-earnings ratio. B) Earnings per share. C) Margin of profit. D) Dividend payout ratio.
A) Price-to-earnings ratio.
What risk factor is the most important to an investor in long-term debt? A) Purchasing power. B) Marketability. C) Coupon rates. D) Yield to maturity.
A) Purchasing power.
Margin regulations are determined by the Board of Governors of the Federal Reserve System. The authority for them to do so is found in the: A) Securities Exchange Act of 1934. B) Securities Act of 1933. C) Federal Reserve Act of 1913. D) Maloney Act of 1938.
A) Securities Exchange Act of 1934.
Peter Smith, a prominent securities lawyer living in Connecticut, conducts his securities law practice full time in New York state. He must register as an investment adviser in New York state if: A) Smith's clients, none of whom are residents of New York, receive investment advice as an integral part of Smith's legal services. B) he advises his wife, who also has an office in New York, that her investment in 15 technology stocks is too high. C) the clients of Smith's law firm are all residents of Connecticut but conduct their business with Smith in New York. D) the clients of Smith's law firm are New York residents and seek advice on the construction of trust documents that may be helpful in reducing taxes on the securities in their estates.
A) Smith's clients, none of whom are residents of New York, receive investment advice as an integral part of Smith's legal services.
Which of the following is a component of U.S. fiscal policy? A) Taxes and budgeting. B) Discount rate. C) Reserve requirements. D) Money supply.
A) Taxes and budgeting.
In the technical analysis of the value of securities, which of the following items is NOT important? A) The amount of a company's past earnings. B) The breadth of market volume. C) Resistance and support levels. D) A prevailing market trend in response to shifts in supply and demand.
A) The amount of a company's past earnings.
An order to sell securities where immediate execution is more important than price is called A) a market order B) an unsolicited order C) a limit order D) a discretionary order
A) a market order
Under the terms of the USA, an agent who sells shares of a Nasdaq Stock Market security to an insurance company has engaged in: A) a sale exempt from the registration and advertising provisions of the USA. B) an unlawful transaction. C) an unsuitable transaction. D) an issuer transaction.
A) a sale exempt from the registration and advertising provisions of the USA.
An analyst is reviewing a report on Company X. The report shows a P:E ratio of 10, compared to an industry average of 27. Based on the most current quarterly payment, X has a dividend yield of 3.65%. The analyst notices there is a footnote indicating the company has put $1.2 billion away for what it refers to as a rainy day fund. Most likely, Company X would be considered A) a value stock B) a small-cap stock C) a growth stock D) a utility stock
A) a value stock
According to NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment advisory contract must describe all of the following EXCEPT: A) any record of securities industry violations by the investment adviser. B) whether or not the contract grants discretionary authority. C) that assignment of the contract cannot occur without client consent. D) the amount of prepaid fee to be returned if the contract is terminated.
A) any record of securities industry violations by the investment adviser.
The fee charged by some mutual fund companies if shares are redeemed within a specified time after being purchased is known as a: A) contingent deferred sales charge. B) 12b-1 fee. C) breakpoint fee. D) forward pricing fee.
A) contingent deferred sales charge.
A company's dividend on its common stock is: A) determined by its board of directors. B) specified in the company charter. C) mandatory if the company is profitable. D) voted on by shareholders.
A) determined by its board of directors.
When operating a Keogh plan, a self-employed individual must make contributions for: A) full-time employees who are at least 21 years old and have worked for the company for one or more years. B) all employees. C) all employees scheduled to work for 1,000 hours per year or more. D) part-time employees who have worked for the company for three or more years.
A) full-time employees who are at least 21 years old and have worked for the company for one or more years.
A newlywed couple with a combined income of $46,000 recently opened 2 IRA accounts with you. You receive a call from them asking for advice on the best investment for a sizable and unexpected inheritance they have just received. The most suitable recommendation for the couple is: A) invest $5,500 into a stock index fund in both IRA accounts and place the remaining funds in a money market account until their new financial situation can be evaluated. B) pay off all outstanding debts and invest the rest in municipal bonds. C) immediately purchase two lump-sum variable annuities to secure their retirement future. D) invest the funds in an aggressive stock fund.
A) invest $5,500 into a stock index fund in both IRA accounts and place the remaining funds in a money market account until their new financial situation can be evaluated.
The general rules dealing with a broker-dealer extending credit for a customer to purchase securities are found in Regulation T of the Federal Reserve Board. However, Regulation T does NOT address A) maintenance margin B) mixed margin accounts C) loan value of securities D) initial margin requirements
A) maintenance margin
An investor has just received an inheritance of $100,000 and has decided to use the money to buy a new home. Because it will take time to decide where to buy, it is expected that the purchase will not be made for another 6-9 months. If this investor placed the money into a broad market index ETF, the primary risk taken would be A) market risk B) unsystematic risk C) interest rate risk D) business risk
A) market risk
Which of the following is used in technical analysis in an attempt to modify fluctuations of stock prices over the long term into a smoothed trend? A) moving averages. B) trend lines. C) support and resistance. D) consolidation.
A) moving averages.
To be exempt under Rule 506(b) of Regulation D of the Securities Act of 1933, the sale of securities must be limited with respect to the number of A) nonaccredited investors to whom the security is sold B) shares issued C) agents authorized to sell the security D) broker-dealers who offer the securities
A) nonaccredited investors to whom the security is sold
One of the primary reasons for one of your clients to consider investing in commodities is A) positive correlation of commodities with unexpected inflation B) the reduced volatility of commodities investments compared to equities C) current income with the possibility of capital appreciation D) positive correlation of commodities with stock market performance
A) positive correlation of commodities with unexpected inflation
An investor who is long XYZ stock would consider going long an XYZ call to: A) protect against an increase in the market price of XYZ stock. B) protect against a decrease in the market price of XYZ stock. C) obtain income from the premium. D) hedge the long position.
A) protect against an increase in the market price of XYZ stock.
Traders in stock index options are exposed to: A) systematic risk. B) redemption risk. C) call risk. D) credit risk.
A) systematic risk.
A growth mutual fund may be compared against all of the following benchmarks EXCEPT: A) the S&P 500. B) the Value Line Index. C) the Dow Jones Industrial Average. D) the Barclays Capital Aggregate Bond Index.
A) the S&P 500.
One reason why employers like using deferred compensation plans is that A) they can be structured so that the employee's benefits are forfeited upon termination with cause B) they provide larger tax deductions than any other plan C) IRS approval is easily obtained D) with all employees receiving the same benefit, plan administration is simplified
A) they can be structured so that the employee's benefits are forfeited upon termination with cause
One feature employed by portfolio managers using a passive style is rebalancing. The purpose of this technique is: A) to bring the portfolio mix back to the original asset allocation percentages. B) making sure the client's account is profitable. C) to follow a constant dollar plan. D) to ensure that the client's account is being properly reviewed.
A) to bring the portfolio mix back to the original asset allocation percentages.
William died in 2015 with the following assets and liabilities: $200,000 in securities left to his wife, $650,000 home left to his wife (the home cost $150,000), $250,000 life insurance policy with his daughter as beneficiary, $75,000 in debts and estate expenses. What is William's taxable estate? A) $750,000 B) $175,000 C) $625,000 D) $0; it is below the $5.43 million exemption equivalent
B) $175,000
A customer purchases stock for $40 per share and holds it for one year, selling it for $50 per share exactly 12 months after the date of purchase. Four quarterly qualifying dividends of $.50 were paid during the year. If the customer's tax bracket is 30%, what is the after-tax rate of return? A) 18.40%. B) 21.75%. C) 17.5%. D) 21%.
B) 21.75%.
Many fixed income investors are looking to avoid loss of principal. Which of the following would likely have the lowest degree of exposure to credit risk? A) Baa rated municipal revenue bond. B) Aa rated corporate debenture. C) Ba rated corporate mortgage bond. D) A rated general obligation muncipal bond.
B) Aa rated corporate debenture.
According to North American Securities Administrators Association's (NASAA) Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following practices is NOT unethical? A) An agent sold shares at a price less than authorized by a client. B) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without expressed written discretionary authority. C) To protect the client in a declining market, an agent sold all shares in the client's account when the client had only authorized the sale of 30% of the shares. D) Within the first ten days of a client's initial transaction, an agent accepted oral discretion and purchased securities on behalf of the client.
B) An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without expressed written discretionary authority.
Based on the following information, which stock is most attractive to a value investor? A) Dividend yield of 1.3%. B) Book value of $22 per share, current market value of $17 per share. C) P/E ratio of 32:1. D) Net worth per share of $13, current market price of $23 per share.
B) Book value of $22 per share, current market value of $17 per share.
A lump-sum distribution from a 401(k) before retirement may be I. eligible to be rolled over into a traditional IRA. II. subject to ordinary income tax and penalty. III. eligible to be transferred to a Roth IRA. IV. tax free if the recipient is disabled. A) II and IV. B) I, II and III. C) I and III. D) II and III.
B) I, II and III.
The Uniform Securities Act provides for both civil and criminal prosecution. In which of these cases might an agent face civil liability? I. A sale was made of an unregistered nonexempt security. II. During a sales presentation, the agent misstated a material fact which resulted in the prospect deciding to make the purchase. III. The agent was included in the judgment along with the broker-dealer for a civil infraction. A) I and II. B) I, II and III. C) II and III.
B) I, II and III.
Which of the following activities are prohibited under the Uniform Securities Act? I. Engaging in a practice not expressly forbidden by the act but defined as unethical by the Administrator in a rule. II. Deliberately omitting a material fact when soliciting a client. III. Selling recommended securities to a client from the investment adviser's own account without disclosing this and receiving consent of the client prior to completion of the transaction. A) I and II. B) I, II and III. C) I and III. D) II and III.
B) I, II and III.
It would not be considered an unethical business practice under NASAA's policies for an investment adviser to charge fees: I. as well as commissions. II. based on an hourly rate. III. based on a percentage of the change in value of funds from quarter to quarter. IV. based on a percentage of the aggregate value of funds under management. A) III and IV. B) I, II and IV. C) II and III. D) I and IV.
B) I, II and IV.
Under the Uniform Securities Act, if sent to 2 or more persons, a file must be maintained containing a copy of which of the following? I. Bulletins. II. Newspaper articles. III. Notices. IV. Websites. A) II, III and IV. B) I, II, III and IV. C) I and IV. D) I and II.
B) I, II, III and IV.
Different types of accounts have different times for receipt of customer information. Which of the following correctly state the required time for the specified account? I. Discretionary account authorization must be received by a broker-dealer before exercising discretion. II. Margin account agreements must be received promptly after the first trade in the account. III. Discretionary account authorization must be received by an investment adviser within 10 business days after the initial discretionary trade. IV. The options account agreement must be received within 15 days after the customer's account has been approved. A) II and IV B) I, II, III, and IV C) II and III D) I, III, and IV
B) I, II, III, and IV
Ways in which a Section 529 Plan differs from a Coverdell ESA include: I. tax-free distributions when the funds are used for qualifying educational expenses. II. higher contribution limits. III. no earnings limitations. IV. contributions may be made by someone other than a parent or legal guardian. A) II and IV. B) II and III. C) I and IV. D) I and II.
B) II and III.
An investor holding which of the following equity securities would NOT expect to have preemptive rights? A) Common stock. B) Preferred stock. C) Common stock acquired in a private placement. D) Control stock.
B) Preferred stock.
The Investment Company Act of 1940 does which of the following? A) Regulates the secondary market. B) Prescribes procedures for the establishment of investment companies. C) Sets rules for the registration of investment advisers. D) Governs the issuance of new issues.
B) Prescribes procedures for the establishment of investment companies.
Which of the following statements regarding Roth IRAs is TRUE? A) Like traditional IRAs, Roth IRA contributions may not be made after the participant reaches age 70-½. B) Roth IRAs are not subject to the minimum distribution rules until the death of the owner/participant of the plan. C) Roth IRA withdrawals are tax free in their entirety regardless of the participant's age at withdrawal. D) Like traditional IRAs, Roth contribution eligibility is restricted by active participation in an employer's retirement plan.
B) Roth IRAs are not subject to the minimum distribution rules until the death of the owner/participant of the plan.
Which of the following actions would you most likely expect from a contrarian investor? A) Buy when most other investors are buying. B) Sell when most other investors are buying. C) Buy stocks trading near or below to their book values. D) Sell when most other investors are selling.
B) Sell when most other investors are buying.
Which of the following is NOT affected by the issuance of a bond? A) Total liabilities. B) Shareholders' equity. C) Working capital. D) Assets.
B) Shareholders' equity.
Which of the following is considered to be the best indicator of a stock's volatility? A) Beta. B) Standard deviation. C) Alpha. D) Correlation.
B) Standard deviation.
Which of the following statements is TRUE if a corporate bond is callable? A) The issuing corporation may change the coupon rate at any time by giving the owner of the bond written notice. B) The issuing corporation has the option to redeem the bond before it matures. C) The owner of the bond may exchange it for shares of stock. D) The owner of the bond may demand that the issuing corporation redeem the bond before it matures.
B) The issuing corporation has the option to redeem the bond before it matures.
Which of the following constitutes either an offer or a sale? A) Mrs. Smith pledges her portfolio to secure a loan for her son who plans to use the proceeds of the loan to buy a major interest in a publicly traded company. B) Thomas is offered warrants by his registered agent as the best way to take a position in the XYZ Corporation. C) Marge, a wealthy client, receives saleable stock in lieu of a cash dividend as a result of her large holdings in ABC. D) Peggy receives a gift of nonassessable securities.
B) Thomas is offered warrants by his registered agent as the best way to take a position in the XYZ Corporation.
Under the USA, the term "sale" means: A) an offer to sell. B) a contract to dispose of a security for value. C) a solicitation of an offer to sell. D) an attempt to dispose of a security for value.
B) a contract to dispose of a security for value.
An agent of a broker-dealer works from an office in her home. She uses her personal laptop computer to store detailed personal and trade information on her clients. Because she does not use Wi-Fi at home and locks the computer up when the day's work is done, she does not have any cybersecurity policies or procedures in place to protect the client data. Unfortunately, there is a cyberattack on her computer and all client data is compromised. Under NASAA's Model Rules, she A) did the best that she could under the circumstances B) acted unethically because she did not have any cybersecurity policies or procedures in place C) is criminally liable and could be fined and even sentenced to a prison term D) acted unethically because she did not have any written policies and procedures to protect client data
B) acted unethically because she did not have any cybersecurity policies or procedures in place
A retired person seeking to maximize income with reasonable safety and liquidity should most likely consider investing in: A) an intermediate-term government bond fund. B) an intermediate-term, high-grade corporate bond fund. C) a long-term government bond fund. D) a large-cap growth fund.
B) an intermediate-term, high-grade corporate bond fund.
Fraud would include the willful omission of: A) any fact. B) any material fact. C) a material fact, but only one that might be pertinent to making an investment decision. D) the public offering price in a preliminary prospectus.
B) any material fact.
The three parts of a family balance sheet are A) income, liabilities, and goodwill B) assets, liabilities, and net worth C) income, liabilities, and net worth D) assets, expenditures, and balance
B) assets, liabilities, and net worth
The main purpose of dividend reinvestment in a mutual fund accumulation plan is to: A) avoid taxes. B) compound the growth of a mutual fund investment. C) avoid commissions or sales charges. D) protect against capital loss.
B) compound the growth of a mutual fund investment.
An employer wishing to offer a retirement plan with a goal of retaining key employees would probably start with a A) SEP-IRA B) deferred compensation plan C) payroll deduction plan D) defined benefit plan
B) deferred compensation plan
If an investor wished to compute the mean return of her portfolio, she is going to: A) find the median. B) find the arithmetic mean. C) compute using straight-line averaging. D) compute the standard deviation.
B) find the arithmetic mean.
The type of financial statement that shows a record of a company's operating activities and earnings over a stated period of time is a(n): A) retained earnings statement. B) income statement. C) balance sheet. D) cash flow statement
B) income statement.
As interest rates fall, prices of straight preferred stock will: A) become volatile. B) rise. C) fall. D) remain unaffected.
B) rise.
When current interest rates are at 6%, you would expect a bond with a nominal yield of 4% to be: A) selling at par. B) selling at a discount. C) in danger of default. D) selling at a premium.
B) selling at a discount.
One of your clients dies. You could legally take instructions regarding the individual's estate from A) a CPA who prepared the deceased's tax return B) the administrator in intestacy C) the spouse of the deceased D) a person with durable power of attorney
B) the administrator in intestacy
All of the following statements regarding investment advisory contracts under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers are true EXCEPT: A) the contract must not permit assignment without the client's consent. B) the contract's term may not exceed 1 year. C) the contract must be renewed in writing. D) the contract must detail any prepaid fees to be refunded to the client upon termination.
B) the contract's term may not exceed 1 year.
That all market participants have equal access to information is a fundamental premise of: A) asset allocation. B) the efficient market hypothesis. C) portfolio correlation. D) Monte Carlo simulation.
B) the efficient market hypothesis.
Your customer is interested in a leveraged fund and makes the following statements about leveraged funds to you. All of the statements regarding leveraged funds are true EXCEPT A) some leveraged funds are exchange-traded products B) the funds attempt to return a multiple of the return of a benchmark index they are tracking, perhaps 2 or 3 times C) these funds sometimes use derivatives products to achieve their stated goals D) there are no unusual risks associated with these funds other than those one would incur with any index tracking fund
B) the funds attempt to return a multiple of the return of a benchmark index they are tracking, perhaps 2 or 3 times
Under the Investment Advisers Act of 1940, persons who provide a variety of services, including investment advisory services, are considered to have received compensation for their advice when they receive: I. any economic benefit. II. a fee paid directly for the investment advice portion of their services. III. a commission on the sale of real estate when it is part of a total financial plan for a client that includes securities advice. A) I and II. B) I and III. C) I, II and III. D) II and III.
C) I, II and III.
The value of which of the following would be least likely to be impacted by changes in interest rates? A) A U.S. Treasury bond issued 25 years ago with a 30-year maturity B) A convertible preferred stock C) A bank CD maturing in 5 years D) A laddered bond portfolio
C) A bank CD maturing in 5 years
To reduce a client's exposure to systematic risk in his equity portfolio, you would look at which of the following factors? A) Earnings history. B) Investment return compared to the inflation rate. C) Beta. D) Credit rating.
C) Beta.
Which of the following is NOT a source of cash reported on the statement of cash flows? A) Cash flows from investing. B) Cash flows from operations. C) Cash flows from accounting changes. D) Cash flows from financing.
C) Cash flows from accounting changes.
If a company successfully gets its 7% debenture holders to exchange their 7% debentures for 7% preferred stock, what is the effect on EPS? A) Increase. B) No effect. C) Decrease. D) Not enough information.
C) Decrease.
Which of the following is NOT a characteristic of a corporation? A) Owners have no personal liability for corporate debts. B) Ownership interests are evidenced by shares of stock. C) Existence terminates when an owner dies. D) It is considered an entity apart from its owners.
C) Existence terminates when an owner dies.
Which of the following investments would NOT be considered an exchange-traded derivative? A) Futures B) Warrants C) Forwards D) Options
C) Forwards
Samantha Wells, a British citizen temporarily working in the United States, wants to form a business venture with other investors. She is looking for favorable tax treatment of earnings and losses. She also wants to limit the number of investors, but is willing to share control of the enterprise with others to attract them. What business form do you advise to her? A) Limited Partnership. B) S Corporation. C) General Partnership. D) C Corporation.
C) General Partnership.
Formula methods of investing that involve selling equities in rising markets and buying them in falling markets would include I. constant dollar plan II. constant ratio plan III. dollar cost averaging IV. DRIPs A) I and IV B) III and IV C) I and II D) II and III
C) I and II
Which of the following would be a common use of a stop order? I. To protect the profit on a long position. II. To prevent loss in a short position. III. To buy at a specific price guaranteed by a specialist. IV. To lock in a price with the specialist. A) II and IV. B) I and III. C) I and II. D) II and III.
C) I and II.
Under the Uniform Securities Act, the Administrator may deny or revoke the exemption from registration for which of the following? I. A security issued by a nonprofit organization. II. Investment contracts of employee benefit plans. III. An exempt transaction not involving a federal covered security. A) II and III. B) I and III. C) I, II and III. D) I only.
C) I, II and III.
Which of the following are exempt from state registration? I. A common stock traded on the OTC Bulletin Board whose bonds are listed on the NYSE II. An isolated nonissuer transaction III. A transaction by an administrator of an estate IV. A transaction with no commissions directed by the offeror to no more than 50 persons in the state who buy the security for investment purposes only A) III and IV B) I and II C) II and III D) I and IV
C) II and III
One of your clients has called you to discuss an interesting investment opportunity discovered on one of the LinkedIn groups she participates in. Which of the following factors might increase the likelihood that this is a scam? I. A registration statement with the SEC is available on the website of the proposed investment II. The purchase money must be wired to an offshore account III. One of the members of the group is a principal in the company being offered IV. Bonus shares are offered for recruiting friends into the deal A) II and IV B) I, II, III, and IV C) II, III, and IV D) I and III
C) II, III, and IV
Which of the following is a risk common to all fixed income securities? A) Opportunity cost B) Market risk C) Interest rate risk D) Liquidity risk
C) Interest rate risk
Which one of the following option positions would generally command the greatest time value? A) calls B) puts C) LEAPS D) straddles
C) LEAPS
Which of the following is guaranteed by a variable life policy? A) Cash value. B) Minimum separate account performance. C) Minimum death benefit. D) Policy loans after the policy has been in effect for at least 24 months.
C) Minimum death benefit.
Which of the following statements regarding Roth IRAs is NOT true? A) Distributions prior to age 59½ may be subject to penalty. B) There is no age limit on making contributions to Roth IRAs. C) Roth IRAs have higher contribution limits than traditional IRAs. D) Roth IRAs do not have required distributions.
C) Roth IRAs have higher contribution limits than traditional IRAs.
Malcolm Munger CLU®, is an insurance agent catering to highly successful business executives. During a routine servicing call, one of those clients asks Malcolm if he knows anyone who is sharp enough to handle his $50 million investment portfolio. Malcolm refers the client to Superb Asset Managers Company (SAMCO), an investment adviser doing business in this state. The CEO of SAMCO meets with Malcolm's client and an advisory contract is signed. To show their appreciation, Malcolm receives a $500 finder's fee from Superb Asset Management Company (SAMCO). Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers: A) no disclosure is necessary unless it will result in the IA's fee being higher than it would have been without the finder's fee. B) SAMCO must make sure that Malcolm discloses the fee to his client. C) SAMCO must disclose the existence and circumstances of the finder's fee to the client. D) the finders fee would be disallowed if the IA did not have an insurance license.
C) SAMCO must disclose the existence and circumstances of the finder's fee to the client.
Your client in the 25% federal income tax bracket lives in a state where his earnings place him in the 6% bracket for state income tax purposes. If he were to purchase a 4% bond issued by a political subdivision of his state, his total tax equivalent yield would be: A) Slightly less than 5.33%. B) Approximately 12.90%. C) Slightly more than 5.33%. D) 4%.
C) Slightly more than 5.33%.
If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio? A) Preferred stock. B) AAA bonds. C) Tangible assets. D) Fixed annuities issued by an insurance company with Best's highest rating.
C) Tangible assets.
Some prominent stock market pundits are predicting that the economy will slide into a recession in the near future. Furthermore, they are expecting moderate deflation during the same period. If this were to happen, your clients would probably enjoy the greatest overall return from investing in: A) Real estate. B) Common stock. C) U.S. treasury bonds. D) Commodities.
C) U.S. treasury bonds.
If the Smiths want to open a joint account at AAA Securities Corporation and have their securities transferred to their three daughters upon the death of the last surviving account holder, their agent should recommend that the Smiths open: A) a tenants in common account. B) individual accounts in the name of each daughter. C) a joint tenancy account with right of survivorship and execute a transfer on death (TOD) registration form. D) a joint tenancy account with right of survivorship.
C) a joint tenancy account with right of survivorship and execute a transfer on death (TOD) registration form.
In an efficient market: A) information is disseminated slowly. B) investors have a good chance of beating the market. C) any information that could affect a stock's value is quickly reflected in its price. D) it is fairly easy to predict major market swings.
C) any information that could affect a stock's value is quickly reflected in its price.
A deceased individual with two surviving children and a wife, had established a trust for his family. The trust document appointed both children as co-trustees. The surviving spouse is to receive current income, and his two children will receive equal shares of the remaining principal upon their mother's death. As the adviser to the account, you A) follow the instructions of the trustees B) focus on generating income for the spouse C) attempt to generate reasonable income while keeping the principal intact for the children D) focus on increasing principal for the children
C) attempt to generate reasonable income while keeping the principal intact for the children
An investment company that invests in common stock, preferred stock, and bonds would most likely be classified as a(n): A) sector fund. B) growth fund. C) balanced fund. D) income fund.
C) balanced fund.
Despite superior stock price increases in the computer industry in a given year, the stock of ABC Computers loses 47%. Following the third losing quarter, if the chief financial officer is fired, this is an example of: A) default (credit) risk. B) regulatory risk. C) business risk. D) market risk.
C) business risk.
If a broker-dealer provides investment advice or discretionary portfolio management services to its clients and the firm also recommends or sells products that it or affiliated companies issue, A) the firm would be engaged in a dishonest or unethical business practice B) disclosure of the capacity in which the firms acts in the transaction must be made on the trade confirmation C) disclosure of the potential conflict of interest must be made D) the firm would be straddling a commingled arbitrage
C) disclosure of the potential conflict of interest must be made
An analytical tool used to predict the future price of a common stock using projected dividends is the: A) future value computation. B) dividend payout ratio. C) dividend discount model. D) price/earnings ratio.
C) dividend discount model.
An S corporation is characterized by: A) more than 100 shareholders. B) unlimited personal liability. C) flow-through tax treatment. D) limited lifetime.
C) flow-through tax treatment.
An investor concerned about preservation of capital would be most apt to purchase: A) common stock. B) call options. C) investment grade corporate bonds. D) warrants.
C) investment grade corporate bonds.
Net income: A) is paid out in cash to stockholders in addition to any declared dividends. B) reflects the operating profits of a firm only. C) represents the amount of money remaining after all expenses including taxes. D) must be paid out in dividends.
C) represents the amount of money remaining after all expenses including taxes.
Included among the powers of the Administrator is the ability to: A) deny the registration of a securities professional if doing so is in the public interest. B) arrest an agent who violates the USA. C) request the court to appoint a receiver to freeze the bank accounts of a broker-dealer who is the subject of an injunction. D) sentence an investment adviser representative who has been convicted of fraud to a prison sentence, not to exceed three years.
C) request the court to appoint a receiver to freeze the bank accounts of a broker-dealer who is the subject of an injunction.
Under the Investment Advisers Act of 1940, an investment adviser that becomes registered may: A) tell a client its qualifications have been approved by the SEC. B) place the initials RIA after its name on their business card. C) state on its stationery that it is registered with the SEC. D) state in a brochure that its registration is approved by the SEC.
C) state on its stationery that it is registered with the SEC.
After a string of losing recommendations, an agent's client is threatening to close the account and move it to a competing broker-dealer. In an effort to save the account, the agent promises a return of no less than 10% over the next 12 months and offers to make up any deficit personally. In so doing, A) the agent must be certain to deposit sufficient funds in escrow to guarantee the promise B) the agent has acted wisely in an effort to keep the account for the firm C) the agent has violated the prohibition against performance guarantees D) it is possible that the agent could receive a prison term of as long as 3 years
C) the agent has violated the prohibition against performance guarantees
When a will calls for property to be distributed per stirpes, it means that A) the property is divided into as many equal shares as there are surviving children and grandchildren of the designated ancestor B) the property is divided into as many equal shares as there are surviving children of the designated ancestor, with nothing going to surviving descendants of deceased children C) the property is divided into as many equal shares as there are surviving children of the designated ancestor and deceased children who left surviving descendants D) all living descendants of the ancestor receive equal shares in the property remaining after all estate expenses are paid
C) the property is divided into as many equal shares as there are surviving children of the designated ancestor and deceased children who left surviving descendants
The First Fidelity Building 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 a broker-dealer registered in this state B) would have to be employed by First Fidelity C) would have to be employed by a broker-dealer registered in the other state D) could not sell without being an agent
C) would have to be employed by a broker-dealer registered in the other state
It would be correct to state that when an investor has a shorter time horizon: A) the risk level is raised. B) the exposure to inflation risk is increased. C) the greater the duration. D) the need for liquidity is more important.
D) the need for liquidity is more important.
A corporation's balance sheet reveals cash of $100,000, accounts receivable of $20,000, and equipment of $300,000, resulting in total assets of $420,000. The document also shows accounts payable of $100,000, long-term liabilities of $200,000, and equity of $120,000. From this information you would determine the working capital to be: A) $200,000.00 B) $320,000.00 C) $120,000.00 D) $20,000.00
D) $20,000.00
A company currently has earnings of $4 and pays a $0.50 quarterly dividend. If the market price is $40, what is the current yield? A) 1.25%. B) 15%. C) 10%. D) 5%.
D) 5%.
An investment adviser representative has a client who prefers the safety of securities guaranteed by the U.S. Government, yet is concerned about volatility due to uncertainties in the future direction of interest rates. Which of the following recommendations would best address these concerns? A) Treasury STRIPS, maturing in 2036. B) 5% Treasury bond, maturing in 2037. C) 6% Treasury bond maturing in 2035. D) 8% Treasury bond maturing in 2036.
D) 8% Treasury bond maturing in 2036.
Which of the following is TRUE regarding the antifraud provisions of the Investment Advisers Act of 1940? A) They apply only to advisers who are registered under the act. B) They prohibit the receipt of both fees and commissions on transactions that result from advisory recommendations. C) They prohibit fraud only in connection with securities transactions. D) A failure to adequately disclose material information to a client would violate these provisions.
D) A failure to adequately disclose material information to a client would violate these provisions.
Which of the following investment advisers would be permitted to use the term "investment counsel"? A) A financial planner offering a wide range of services to his clients, including tax planning, estate planning, insurance planning, and investment advice. B) An investment adviser who has been admitted to the bar in the state in which the firm's principal office is located. C) A professional providing a market timing service with an annual subscription fee of $995; this service attempts to maximize profits by suggesting entry and exit points for over 100 listed stocks. D) A firm whose exclusive business is placing clients' assets into model portfolios.
D) A firm whose exclusive business is placing clients' assets into model portfolios.
Which of the following equations correctly shows the relationship between the items on a company's balance sheet? A) Assets = stockholders' equity − liabilities. B) Assets + liabilities = net worth. C) Assets = liabilities − net worth. D) Assets = liabilities + stockholders' equity.
D) Assets = liabilities + stockholders' equity.
Under the Uniform Securities Act, which of the following activities is an example of churning? A) Bond swap. B) Frequent purchases one day and sales of the same stock the next day to make changes in a client's portfolio in order to align with a customer's investment objectives. C) A client engaging in day trading. D) Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter.
D) Following a practice of purchasing Class A shares of a mutual fund for a client, holding them for no more than one month, and liquidating and using the proceeds to purchase Class A shares of another mutual fund offered by a different underwriter.
A 50-year-old client with modest means wants to construct an investment program. He has no investment experience, his major consideration is saving for retirement, and he has limited risk tolerance. Which of the following would you recommend? A) High-grade bond fund. B) Call options on the S&P 500 Index. C) Aggressive growth mutual funds. D) Growth and income mutual funds.
D) Growth and income mutual funds.
Which of the following would be most suitable for a young couple investing the assets of their IRAs? A) Oil and gas exploration programs. B) Penny stocks. C) Call options on large-cap stocks. D) Growth mutual funds.
D) Growth mutual funds.
Which of the following statements regarding unsystematic risk are TRUE? I. It is the risk that an individual stock will not perform well. II. It is the same as market risk. III. Diversification reduces it. IV. Diversification does not reduce it. A) II and IV. B) I and IV. C) II and III. D) I and III.
D) I and III.
The Administrator may impose disciplinary action against a registrant when the registrant has: I. violated the provisions of federal securities law. II. engaged in unethical practices, even if no law was broken. III. failed to properly supervise an employee who committed prohibited practices as defined by the act. IV. failed to lend money to a very good client. A) I and III. B) II, III and IV. C) II and IV. D) I, II and III.
D) I, II and III.
Assets that might be found on a family balance sheet include: I. car loan. II. gold watch. III. Keogh plan. IV. salary. A) III and IV. B) I and II. C) I and IV. D) II and III.
D) II and III.
Which of the following business entities has an income tax filing due date (disregarding possible extensions) of March 15th? I. Sole proprietorship II. Single member LLC III. Multiple member LLC electing to be treated as a corporation IV. S corporation A) II, III and IV B) I and II C) I and IV D) III and IV
D) III and IV
Under the Uniform Securities Act, which of the following persons do NOT have to register as an investment adviser? I. Broker-dealer who gives advice for which he charges a specific fee. II. Agent of a broker-dealer who gives fee-based investment advice independent of his duties for the broker-dealer. III. Broker-dealer who gives investment advice that is incidental to the course of its business and for which no special compensation is received. IV. Attorney who writes a legal opinion for a municipal bond indenture A) II and IV. B) I and III. C) I and II. D) III and IV.
D) III and IV.
Under the Securities Exchange Act of 1934, which of the following statements regarding reports required to be filed with the SEC is TRUE? A) Persons who become the beneficial owner of more than 5% of a security registered under the Securities Exchange act of 1934 must file a report within 2 days. B) Institutional investment managers who exercise discretion over accounts valued at $100 million or more need not file reports if all their clients are insurance companies. C) Persons who become the beneficial owner of more than 2% of a security registered under the Securities Exchange Act of 1934 must file a report within 5 days. D) Institutional investment managers who exercise discretion over accounts valued at $100 million or more of 13(f) securities must file reports quarterly.
D) Institutional investment managers who exercise discretion over accounts valued at $100 million or more of 13(f) securities must file reports quarterly.
Under Section 303 of the Uniform Securities Act, in order for an issue to register using coordination, it must simultaneously register under the provisions of the: A) Investment Company Act of 1940. B) Uniform Securities Act. C) Securities Exchange Act of 1934. D) Securities Act of 1933.
D) Securities Act of 1933.
Barzell Manufacturing Works (BMW) produces structural steel. To raise additional capital to modernize its plant, BMW decides to go public by issuing shares. Doing so would make BMW A) a manufacturer B) a commodities dealer C) a broker-dealer D) an issuer
D) an issuer
Annual interest payment divided by current dollar price of a bond is the A) tax equivalent yield B) nominal yield C) yield to maturity D) current yield
D) current yield
Someone who wishes to invest in precious metals would consider any of the following EXCEPT A) gold B) silver C) platinum D) lead
D) lead
Many sophisticated investors have added alternative investments to their portfolios. Benefits in doing so would include: A) lower expenses than traditional stock and bond investments. B) returns that generally exceed those of traditional stock and bond investments. C) greater regulation than traditional investments such as stocks and bonds. D) portfolio diversification.
D) portfolio diversification.
The concept of creating a model portfolio, through asset allocation principles, that both increases return and reduces risk is known as: A) risk reduction fundamentals. B) rebalancing. C) corrective adaptation. D) portfolio optimization.
D) portfolio optimization.