Final 9 and 10 S66

B

100-year old company has a very large cash holding and pays a substantial quarterly dividend to shareholders. This would be called a: Agrowth company Bvalue company Cmicro-cap company . DSocially responsible company

C- The Investment Advisers Act of 1940 requires that advisers have a written Code of Ethics that covers illegal practices on the part of its employees. The employees must sign that they received a copy of the Code. So, clearly, a verbal warning is not enough - the advisory firm must document the policy in writing.

A Federal Covered Adviser registered with the SEC holds a meeting with its employees and verbally warns them about the prohibited practice of trading ahead of large customer orders that are likely to have a market impact. The firm has not yet included this prohibition in its policies and procedures manual, but intends to do so in the near future. Which statement is TRUE? AThere is no violation of the Investment Advisers Act of 1940 "insider trading" rules because the employees participated in the meeting BThere is no violation of the Investment Advisers Act of 1940 because the firm intends to include "trading ahead" restrictions in the next version of its policies and procedures manual CThe Investment Advisers Act of 1940 has been violated because the firm did not have written policies and procedures covering "front running" by its employees DThere is no violation of the Investment Advisers Act of 1940 because "front running" is not covered by the Act

C

A broker-dealer tells a customer that it is willing to buy a stock at $20 and is willing to sell that same stock at $21. This is an example of: Athe spread Bthe inside market Ca bid-ask quote Da representative quote

B

A customer that buys a non-exempt new issue must be delivered a prospectus at, or prior to, the time of: Abeing solicited to purchase the new issue Bentering into the contract to purchase the new issue Ccompletion of the purchase of the new issue Dsettlement of the purchase of the new issue

All of them

A federal covered adviser whose principal business is rendering advice to customers about securities wishes to prepare an advertisement. Which of the following are allowed? I Showing past performance II Using illustrative performance charts III Using the term "investment counsel "IV Using a paid testimonial which disclosed that a payment was made to the maker.

high; low

A high P/E ratio means that the market is giving the stock a ______ valuation A low P/E ratio means that the market is giving the stock a_______valuation

150 million

Advisers to hedge funds are so-called "private fund" advisers. They must register with the SEC once their assets under management reach

D- Corporate investors may exclude 50% of dividends received (both common and preferred) from taxation. Interest income received is 100% taxable (unless it is tax free municipal interest income).

All of the following income received by a corporate investor is partially excluded from income tax EXCEPT: Acommon dividends received Bpreferred dividends received Cconvertible preferred dividends received Dconvertible bond interest received

C- The registration application for an agent includes the agent's work history (past 10 years) and residence history (last 5 years). A listing of any convictions during the past 10 years for securities or money related misdemeanors, or any felony, is also required, since these will cause the State to deny registration. Legal actions taken against the employee are not part of the registration application - only convictions within the past 10 years are included.

All of the following information is required for an investment adviser representative to register in a State EXCEPT: Awork history Bresidential history Clegal actions taken against the employee Dmisdemeanor convictions involving securities occurring within the past 10 years

D- o qualify for a private placement exemption within a State, offers can be made to no more than 10 persons in a 12 month period. All purchases must be made for long term investment; and no commissions may be paid to anyone other than for transactions with financial and institutional investors. It is not true that all payments made by subscribers must be deposited to an escrow account until the offering is completed. The issuer or broker-dealer handling the offer is allowed to accept monies from buyers of the issue; and may deposit the monies to their own accounts.

All of the following statements are true regarding the private placement exemption under Uniform State Law EXCEPT: Aoffers can be made to no more than 10 persons in a 12 month period to qualify for the exemption Ball purchases must be made for long term investment . CNo commissions may be paid to anyone other than for transactions with financial and institutional investors Dall payments made by subscribers must be deposited to an escrow account until the offering is completed

II,III,IV- An "offer" or "offer to sell" is defined as any attempt to offer to dispose of a security; or a solicitation of an offer to buy a security or an interest in a security; for value. Do not confuse an "offer" (the attempt to sell) with a "sale" (which is a "done deal"). A "sale" is defined as a contract to sell or dispose of a security, or an interest in a security, for value

An "offer" or "offer to sell" would include which of the following? I A sale of a security II An offer of a security III An offer of an interest in a security IV The solicitation of an offer to buy a security

II AND III- A buy and hold bond portfolio is completely passively managed. Bonds are purchased and simply held to maturity. There is no periodic rebalancing. To do this correctly, only non-callable bonds of the highest credit quality should be purchased. Otherwise, bonds can be called, forcing the investor to make new bond purchases over the investment time horizon. Since the investments will be held for a long time without change, deteriorating credit quality is an issue and only the highest quality issues should be purchased.

An IAR has constructed a buy and hold bond portfolio. The major factors to consider are: I selecting bonds that will give superior performance II making sure all of the bonds have a high credit rating III choosing bonds that are not callable IV choosing bonds from differing issuers

70- Full retirement age in the social security system is generally 67 - meaning that a full retirement benefit can start being collected. However, individuals can defer collecting benefits until age 70, and then the payment amount will be roughly 20% more than if payments started at age 67. There is no benefit to deferring taking benefits after age 70, because the monthly benefit amount will no longer increase

An individual who wants to get the largest monthly payments from social security should not start taking payments until age:

I AND IV- The SEC and State Administrators permit so called "soft dollar" arrangements. An adviser may direct its portfolio trades to a brokerage firm that charges a higher commission (as opposed to the lowest-cost broker) in return for the adviser getting something of value from the broker-dealer, such as research reports, asset allocation software, stock screening software, etc. The "idea" is that the value of the broker-dealer "give-back" is much higher than the "extra commission" amount paid to the broker-dealer by the adviser and will enhance the adviser's investment returns, which will benefit the adviser's clients. The problem here is that the "give back" does not benefit the adviser's clients - rather, it benefits the adviser personally at the expense of his or her clients (since the lease is really being paid by the higher commission charges that are being imposed on all of the adviser's trades for his or her clients).

An investment adviser agrees to direct its portfolio trades to a specific broker-dealer at full commission rates in return for the broker-dealer providing the adviser with a leased new car paid by the broker-dealer. This is: I a soft dollar arrangement II a quid pro quo arrangement III permitted under the Uniform Securities Act IV prohibited under the Uniform Securities Act

3 business days

An investment adviser receives a check from a customer made out to the adviser that the customer sent to the adviser inadvertently. This adviser will NOT have taken custody as long as it returns the check to the customer within:

I AND II

An investment adviser that claims that it is a "fee only" adviser could be compensated based on: I a percentage of assets under management II a flat annual or hourly fee for all work performed III 12b-1 fees paid by mutual funds IV commissions paid by broker-dealers

A

An investment strategy where a higher price is paid for a stock based upon expected returns is: Agrowth investing Bvalue investing Cconservative investing Dpassive investing

C-

Broker-dealer registration is required under: AThe Securities Act of 1933 BSection 10 of the Securities Exchange Act of 1934 CSection 15 of the Securities Exchange Act of 1934 Dthe Investment Advisers Act of 1940

YES

Do private fund advisors need to submit s ADV part 1 and 2 with the SEC?

B- Municipal bond interest income is exempt from Federal income taxes, while the interest income from other bonds (Treasuries, Agencies and Corporates) is subject to Federal income tax. Because of this exemption, municipal bonds trade at lower "tax-free" yields than other bonds that offer taxable yields. If Congress lowers Federal tax rates, then municipal yields must rise, since the value of the Federal tax exemption is diminished. This will cause municipal bond prices to fall.

If Congress decides to lower income tax rates, municipal bond yields will: AFall Brise Cbe unaffected Dbecome volatile

A- A market maker maintains a bid-ask quote in a security, with the profit to the firm being the spread between the bid and ask quotes. A market maker is a dealer in securities. A specialist (now called the DMM - Designated Market Maker) on an exchange has a dual function - the specialist can act either as a dealer or as a broker, matching customer orders for a commission. A broker-dealer has a similar dual function. A floor broker acts as agent only, executing trades for customers as a broker on an exchange floor.

If a firm maintains both a bid and ask quote in the secondary market, it is acting as a: Amarket maker Bbroker-dealer Cspecialist Dfloor broker

A

In what way are Class B mutual fund shares unique? AThey convert to Class A shares after being held for a stated period of time BThey charge neither an up-front sales load nor a redemption fee CThey charge a level annual load regardless of how long the shares are held DThey are subject to lowered sales charges (breakpoints) for larger dollar purchases

B-

Investment advisers are prohibited from doing all of the following EXCEPT: Aassigning a customer's contract without permission Bcharging a retainer fee Ccharging commissions on trades effected for the client Dchanging partnership management without notifying clients

I,III,IV- Agents are not involved in the filing of registration statements for securities; therefore, they are not responsible for the contents of the registration statement. However, issuers, directors of issuers, and underwriters are all involved in preparing a securities registration statement and have liability for material omissions under the Act.

Misstatements of material fact in a securities registration are violations of the Act for which of the following persons? I Broker-dealer underwriting the securities II Agents of the broker-dealer underwriting the securities III Issuer of the securities IV Directors of the issuer of the securities

Tax Equivalent yield

Municipal Yield %/ 1 - Tax Bracket %

D- The surety bond can be in the form of cash, securities, or an insurance policy. The typical surety bond amount is $10,000. This is an asset that the Administrator can seize and use to pay customers if a registrant violates State law. The Administrator cannot disallow the posting of cash as a security bond - there is no better collateral, after all!

Regarding surety bond coverage required by the Administrator as a condition of registration, which statement is FALSE? ACash is acceptable as a deposit in lieu of a bond BSecurities are acceptable as a deposit in lieu of a bond CThe Administrator is given discretion over which securities are acceptable as a bond DThe Administrator may disallow the posting of cash and require a policy issued by a licensed insurance company

Tax Free Yield

Taxable Yield x (100% - Tax Bracket %)

Order

The Administrator may deny or revoke a securities registration by:

B- To protect against identity theft and theft of funds, customer instructions received electronically must be authenticated, to make sure that the instruction actually came from that client.

To protect against identity theft and theft of funds, client instructions received electronically must be: Aencrypted Bauthenticated Cmonitored Drefused

B

Under IA-1092, all of the following are considered to be investment advisersEXCEPT: Apension consultants Bestate planners Cadvisers to athletes Dadvisers to entertainers

D- NASAA rules require that within 120 days of fiscal year end, the adviser must send each customer a revised Brochure (Form ADV Part 2A) and Brochure Supplement (Form ADV Part 2B) if there are material changes. Instead of sending the entire Brochure, the adviser can simply send the "Summary of Material Changes" section to the Brochure, along with an offer of the revised Brochure. Also note that this annual procedure is not required if there are no material changes to the Brochure.

Under NASAA rules, within 120 days of fiscal year end, each customer must be sent a(n): Abrochure Bupdated brochure Cbrochure and brochure supplement . Dan updated brochure and brochure supplemen

A

Under the Investment Advisers Act of 1940, if a registered investment adviser, for the first time, decides to require prepayment of $1,200 or more of advisory fees, 6 months or more in advance of rendering services, the adviser must: Afile an audited balance sheet promptly with the Securities and Exchange Commission Bfile a new brochure with the Securities and Exchange Commission promptly Cfile a new initial ADVapplication with the Securities and Exchange Commission Dnotify customers no later than with the next trade confirmation

All of them

Under the Uniform Securities Act, a consent to service of process is filed for each initial: I Agent registration II Broker-dealer registration III Investment adviser registration IV Securities registration

C- To be defined as an investment adviser, one must give advice about securities for a fee. A fixed annuity contract is not defined as a security - rather, it is an insurance product. Thus, a person who gives advice about insurance products is not defined as an investment adviser. In contrast, stocks, municipal bonds, and variable annuities are all defined as securities. Anyone who gives advice about these for compensation is defined as an investment adviser. (Also note, however, that if a person gives advice only about U.S. Government obligations, they are a Federal covered adviser that is excluded from registration at both the Federal and State level.)

Under the Uniform Securities Act, a person is excluded from the definition of an investment adviser if he or she gives advice solely about: Astocks Bmunicipal bonds Cfixed annuity contracts Dvariable annuity contracts

I AND II- A person who gives investment advice relating solely to U.S. Government securities (including Agency securities), is excluded from Federal registration under the Investment Advisers Act of 1940. Any person excluded from registration with the SEC under the Investment Advisers Act of 1940 is a "federal covered adviser" and cannot be required to register in the State.

Under the Uniform Securities Act, which persons are EXCLUDED from the definition of an investment adviser? A person who gives advice about: I U.S. Government bonds II Agency bondsIII Municipal bonds IV Corporate bonds

All of them

Under the provisions of the Prudent Investor Act, a Registered Investment Adviser should consider which of the following when investing and managing trust assets? I General economic conditions II Possible effects of inflation or deflation III Investment tax consequences IV Expected total return

Value Investing

What type of investing using fundamental analysis ?

Extra financial investment consideration

When an investment decision is being made where earning money is not the primary consideration, this is

B- A primary residence, at market value (which reflects asset appreciation or depreciation), is included on the client's balance sheet as an asset. The income statement of the client reflects income (wages, commissions, bonuses, dividends, interest on investments) and expenses (living expenses, taxes, interest paid on loans on a mortgage, insurance expenses, etc.). Note that a dividend received from a mutual fund investment is still income, even if it has been reinvested.

Which item is NOT included in a client's income statement? AInterest received from corporate bond investments BDepreciation of the customer's primary residence CDividends from mutual funds that are reinvested in additional share purchases DYear-end bonus received from employer

Fundamental Analysis

evaluating a company's balance sheet, income statement, management, marketing strategies, and research and development as a means of predicting the future, long-term price movement of its stock

49 A buy stop limit order is triggered in a rising market. It is most often used to stop a loss on an existing short stock position. Once the market trades up to 50 or higher, the order is triggered and becomes a limit order to buy at $50, meaning buy at $50 or lower. The very first reported trade of $51 elects the order because the market moved from $48 to $51 and went right through the stop price of $50. The order now becomes a limit order to buy at $50, meaning that the customer does not want to pay more than $50 to buy. The next trade of $52 is too high; the following trade of $53 is too high; and the next trade of $49 is the first one that meets the customer's limit (buy at $50 or lower). This is the first trade where the order could be filled.

hen the market price of ABCD stock is at $48, a customer places a buy stop limit order at $50. The next trades in the stock occur in sequence at: 51...52....53....49....48 The first trade where execution could occur is:

Required rate of return

is the minimum return that an investment must offer in order for someone to decide to buy it

Technical analysis

research that seeks to predict the future price movement of a stock or the overall market by using price movement and volume indicators, and by using charts of a stock's past price and volume movements, to predict its future price movements.

Class A shares

shares charge a 1-time up-front sales charge reduced by breakpoints for larger dollar purchases. They also usually have no annual 12b-1 fees.

Class B Shares

shares have no up front sales charge and no redemption fee. Instead, they charge a level annual 12b-1 fee, typically around .75%.

Investment Counsel

the adviser's principal business is rendering investment supervisory services.

Value investing

the selection of equity investments based on finding undervalued issues using fundamental analysis

Growth investing

the selection of equity investments based solely on earnings or stock price growth over time, ignoring technical or fundamental factors.

Growth investing

what type of investing ignores technical and fundamental factors ?

C- 457 plans are "add on" plans to government sponsored defined benefit plans and 403(b) plans. 403(b) plans are similar to 401(k)s - they are salary reduction plans that allow employees to contribute up to $19,500 in 2021. 401(k)s are for the corporate sector, while 403(b)s are for the not-for-profit government sector. As an added benefit for higher level employees, not-for profit employers can establish a 457 plan. This is not a qualified plan because it is discriminatory. An additional $19,500 can be contributed in 2021 as a salary reduction by these higher level employees. A key difference between 457 plans and either a 403(b) or 401(k) is that funds can be taken out of a 457 at any time without incurring a 10% penalty tax (though regular income tax will be due). This is permitted because very often the participants in 457 plans are police officers and firemen who might have to retire earlier than age 59 ½ due to disability - so they can get the funds in the 457 account to help pay for needs caused by forced early retirement without paying the 10% penalty tax.

which statement is TRUE about a 457 Plan? AIt is a qualified retirement plan available to "rank and file" government employees BIt is a non-qualified retirement plan available to "rank and file" corporate employees CThere is no 10% penalty for withdrawing funds prior to age 59 ½ DEmployers must make mandatory matching contributions of 20% of employee salary