FOR THE EXAM QUESTIONS
An investor bought a parcel of raw land for $50,000 several years ago. A developer has offered to exchange another property, currently valued at $100,000, with this investor. Under Section 1031 of the Internal Revenue Code, the investor's tax consequences would be
$00-Section 1031 permits a tax-free exchange of one property for another. This has the effect of deferring any gain until final disposition of the property. This is a parallel to Section 1035 for annuity products.
Gail's minimum required distribution this year from her IRA is $5,000. If she takes $8,000, the penalty will be
$00. There is no penalty if a participant withdraws more than the required minimum distribution.
An Open End/Mutual Fund under the 12B-1 Asset Base can not exceed
.75% of net assets , if the fee exceeds .25% the term no-load can not be used.
An accredited investor would be an individual person with a net worth of
1 million not including the equity on their home, or if income is more than 200K, or joint income of 300K , or 3000k expected in the next year.
Fines and Penalties from SEC
10,000 in fines and 5 years in jail
UNDER R-P if an investment adviser sends a customer an initial privacy notice that contains an opt out option the firm may not disclose personal nonpublic information about the customer for how many days from the mailing?
30 days
Fines and Penalties from State
5,000 in fines and three years in jail
An IAR representing a state registered investment adviser would not qualify for the de minimis exemption in a state if over a 12 month period she had
6 or fewer retail clients because the maximum is 5 with 6 clients she is over the limit
Which of the following would best describe a prudent investor?
A trustee who invests with reasonable care, skill, and caution.
Which of the following securities are exempt from the registration requirements of the Uniform Securities Act?
An investment contract issued in connection with an employee pension plan Securities issued by St. Paul's Catholic Church in Tempe, Arizona, Securities issued by a public utility, Securities issued by the Canadian government
Exempt Securities under Uniform Security Act
Banks, Savings institutions, trust companies, Insurance companies (not variable life or variable annuities, regulated public utility companies and common carriers, charitable, religious and non profit organizations. Canadian Gov, and foreign national Gov.
Most testable points about ratios follows
Book value is the company's theoretical liquidation value expressed on a per share basis. Growth companies have higher PE ratios than cyclical or defensive companies. Earnings per share relates only to common stock, it assumes preferred dividends were paid.
Buy Stop Oders
Buy stop orders, commonly referred to as "stop loss" orders are designed to halt a loss or protect a gain.
The formula for Working Capital is?
Current assets minus current liabilities equals working capital
Which is the a price - weighted average?
Dow Jones Industrial Average
a unit investment trust
If an investment company invests in a fixed portfolio of municipal or corporate bonds, it is classified as
When advisory clients wish to structure their portfolios to support companies that engage in social or environmental policies that they agree with, it is known as
Impact investing can be defined as the intentional allocation of capital to generate a positive social or environmental impact.
It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients?
Life stage, including whether the customer is employed, retired, or nearing retirement) Retirement savings
Monte Carlo Simulation
Measures probabilities of meeting specific objectives and goals under various conditions and circumstances.
Which of the following statements best represents a bond's present value?
Present value is the sum of all the discounted future payments.
what does laddering a bond portfolio mean?
Reinvesting a bond every year
What is the risk measure associated with the capital market line (CML)?
Standard deviation
pricing securities based on their systematic risk
The capital asset pricing model (CAPM) is an investment theory that serves as a model for
Which of the following statements regarding the alternative minimum tax is TRUE?
The excess of the alternative tax over the regular tax is added to the regular tax.
An advantage of UTMA versus UGMA
The money does not have to automatically transfer to the child once the age of majority is reached it can be delayed depending on the state until as long as 25
Allowable investments in an IRA would include
There are certain coins minted by the U.S. Treasury that are eligible for inclusion in an IRA. Like U.S. government-issued silver eagles. No life insurance is allowed (though annuities, both fixed and variable, are allowed), and collectibles, such as art and stamps, are prohibited.
ease of formation
There are many different legal ways to structure a new business entity. One of these is the general partnership. Among the benefits of using this structure would be
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following?
There is no requirement that advisory contracts be renewed on an annual basis. Contracts can be written for any length agreed upon. Advisory contracts must describe the amount of any prepaid fee that will be returned to the client if the contract is terminated and must prohibit assignment without the client's consent.
Issued in amounts of $100,000 to $1 million or more, Trade in the secondary market
Which of the following are characteristics of negotiable jumbo CDs?
Forwards
Which of the following investments would NOT be considered an exchange-traded derivative?
The broadest index that reflects the broadest coverage of the US stock markets?
Wilshire 5000
An investment company does not include
a Holding Company
what is the advantage of laddering a bond portfolio?
a higher average return
A control person is
a person who owns and controls more than 25% of the outstanding shares.
As a general rule interest rates
and bond prices move counter to each other
The budget is presented by the President and
approved by Congress
both CD's and DDA -demand deposit accounts
bear purchasing power risk, yields are super low and should not be a major portion of a long -term investment
Watch out for this question. Not included in the fee disclosure documents are?
commissions, markups and markdowns and advisory fees
Potential litigation for paten infringement would appear on the corporation's
footnotes
Although you might see the term Chinese Wall the preferred term is
information barrier
A Market Maker
is a firm that stands ready to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price. The term is most often used in the context of the over-the-counter (OTC) markets. NOT TO BE CONFUSED WITH A DMM-designated market maker on the floor of the exchange
Business risk is highest for investors whose portfolios contain stock in only one
issuer or in lower rated bonds
factors that increase working capital include increases in cash from
issuing securities (long term debt or equity), profits from the business operations and the of noncurrent assets such as equipment no longer in use.
Some of the disadvantages of a DPP are
lack of liquidity, Legislative risk, Congress can pass tax laws that can affect the investment, Risk of Audit, the IRS looks into investors who participate in a DPP, the excess is recaptured and subject to tax.
most common forms of market manipulation are
matched orders and wash trades
The range of investments permitted under UTMA is
much larger giving the custodian greater flexibility in building the portfolio
An affiliated person is
person who is directly or indirectly owning, controlling, or holding with power to vote 5% or more of the outstanding shares of the investment company.
Mortgage bonds are considered
secure debt
ETF's price is determined by
supply and demand
When it comes to performance based compensation
the adviser must use net performance that is consider both gains and losses, FURTHERMORE, the administrator has the power to authorize this type of fee even when the client doesn't meet the finance requirements.
Ana is a bond analyst who notices a wider credit spread between Treasury bonds and AAA corporate debt. From this, she would be most likely to infer
the economy is weakening.
Under the USA with respect to certificates of interest participation of oil, gas, or mining titles or leases or in payments out of production
there is not considered to be be any issuer.
A mutual fund and a hedge fund are similar in that
they are a pooled investment with their investors.
Insured Bank CD's have no interest rate risk
they don't fluctuate in value as interest rates change
Municipal Bonds or Municipal bond funds are only suitable for
those in higher tax brackets
If capital preservation is the goal with no risk than
you get an insured bank CD
registration as investment adviser representatives is required
An investment adviser hires 2 individuals to solicit new customers for the firm's wealth management service. Under the USA,
The renewal date for the state registration of an investment advisers is
December 31 no matter if the investor just registered in November so your first year is always the shortest one.
the term specialist has been returned with the term
Designated Market Maker DDM he/she tries to maintain an orderly market.
Which model computes a higher current stock price?
Dividend growth model
Which of the following must be disclosed during a transaction recommendation under the Investment Advisers Act of 1940?
It is a violation of the act for any person willfully or knowingly to make untrue statements of a material fact or omit to state a material fact in connection with a securities recommendation by an adviser. A material misstatement is one that may have an effect on an issuer's future financial prospects or the market value of its securities or may influence the decision of a customer
An investor can choose between 4 portfolios with the following expected returns and standard deviations.
MPT preaches that investors will always seek the highest return commensurate with the lowest risk. The highest return is 8%. There are 2 portfolios with that rate, but 1 of them has a lower risk (20% versus 21%).
Jumbo CD's
Most jumbo CDs are issued with maturities of 1 year or less. Being negotiable, there is no prepayment penalty. These CDs generally pay interest on a semiannual basis, not monthly.
which of the following securities are exempt under the Uniform Security Act
National Governments only. Bonds issued by Germany, yes, bonds issued by Paris France no-it is a city. NO CITIES THEY HAVE TO BE GOVERNMENTS
Which of the following statements correctly expresses requirements under the Investment Company Act of 1940?
One of the provisions of the Investment Company Act of 1940 is that the maximum permitted termination notice is 60 days in writing. In order to renew the advisory contract, it is either a majority of the funds directors or by a vote of a majority of the outstanding voting securities of the fund. No registered investment company may acquire more than 3% of the shares of another investment company
Value managers expect to see a low
P/E ratio or low price to book ratio and dividends offering a reasonable yield.
Growth managers expect to see high
P/E ratios or high price to book ratio with little or no dividends
Bank holding company stock
The Uniform Securities Act specifically exempts certain issues from the registration and advertising filing requirements of the act. Which of the following securities does NOT carry that exemption?
6-month commercial paper Tax-free municipal bond Canadian government bond
The Uniform Securities Act specifically exempts certain issues from the registration and advertising filing requirements of the acts of these companies
The three components of the Sharpe ratio are:
The actual return minus, the risk free rate (the 91 day Tbill rate) divided by the standard deviation, BETA IS NOT A PART OF THIS RATIO.
Arbitrage
The practice of buying and selling equivalent goods to take advantage of a price difference only for hedge fund manangers.
Three things to remember about REITS
They are liquid b/c they trade on exchange and OTC, they are not investment companies/mutual funds, they must distribute at least 90% of its taxable income. At least 75% of a REITS income must come from real estate.
a check from a client made out to a third party and does not forward the check within 3 business days, stock certificates from a client and does not return them within 3 business days
Under the NASAA Model Custody Rule, an investment adviser would be considered to have custody of client assets if that adviser inadvertently receives
As enumerated in the Uniform Security Act, exempt securities would include those issued by all of these EXCEPT
a corporation based in Toronto, Ontario, whose common stock trades on the Toronto Stock Exchange. Although securities issued by the Canadian government or any political subdivision are exempt, those issued by Canadian corporations would only be exempt if trading on U.S. exchanges as federal covered securities.
Examples of exempt transactions are
a nonissuer transaction with a bank in a Nasdaq traded security, An unsolicited request from an existing client to purchase a non exempt security, the sale of unlisted securities by a trustee in bankruptcy
Several reasons of investing in real estate are
ability to increase returns through leverage, possible tax advantages, potential appreciation, returns are generally negatively correlated with those of the stock market.
Investment Companies must periodically file
annual reports to the SEC and financial information must be sent to shareholders semiannually.
Benefits of investing in a DPP include
flow through of operating losses, and limited liability.
Management style is a phrase that is often used to describe the methodology employed by a particular portfolio manager. If the manager under discussion used earnings momentum to select stocks, it could be said that the style being used was
growth
The price of a close end company
is based on supply and demand and therefore can sell at or above or below the fund's NAV
a DDA- demand deposit account
is more liquid than a CD
A fiduciary of an ERISA plan is preparing an investment policy statement. Included would probably be
methods of performance measurement, determination for meeting future cash flow needs
A gift over 15,000
must file a Form 709 and a gift tax is due which is the responsibility of the donor
Municipal Bonds are considered second only to U.S. Government securities in terms of
safety
A conservative investor would be most suitable, the one who likes to sleep at night
the company with the lowest standard deviation
Inflation inertia is
the concept that the rate of inflation does not immediately react to unexpected changes in economic conditions, rather it lags behind and sometimes for several quarters before there is an effect.
Futures, Warrants, Options
the following investments are considered an exchange-traded derivative?
Two brothers with a TIC account -tenants in common one brother is an accredited investor under rule 501 while the other is far from it, in this case suitability is based on
the lowest common denominator the non accredited brother
Which one had some investments that significally outperformed the average of the other investments?
the one with the highest mean
In calculating the best thing for a customer to do, using capital market theory which of the following is true
the optimal portfolio is the point where the efficient set(portfolio) and the investor's risk tolerance meet.
Key to entanglement is that your firm had a part in the authorship whereas adoption is
the use of content or a link that is solely the creation of someone else-your firm is just using it.
An Administrator would consider to be a substantial prepayment of fees
$800 covering the entire contract year
An IA Firm has a responsibility to ensure that all information collected from a client be kept confidential, when an advisory account is held in joint name with a spouse
consent may be granted by any of the joint owners.
Which of the following is the most useful in determining the price volatility of a bond to a significant change in interest rates?
convexity
Frequency of calculations associated with variable life insurance policies
death benefits are calculated annually, cash value is calculated monthly, separate account unit values are calculated daily
factors that decrease working capital include increasing current liabilities such as
declaring cash dividends, paying off long term debt whether at maturity or if called earlier and net operating losses
Systematic risk can be minimized through portfolio
diversification
In suitability when you see growth is a desire stay away from
dividends
ETF's
do not pay long term capital gains they pay quarterly dividends, makes it more tax efficient than a mutual fund
A IA firm could be required by law to disclose account information would be
during a divorce proceeding in court or an IRS investigation when you receive a subpoena from a court to testify
