Going through all exam questions these "Commonly Tested"
The minimum size order that would be considered a block trade is
10,000 shares, The term block trade refers to a transaction involving a minimum of 10,000 shares.
Opening a margin account involves significant documentation. Which of those documents discloses the interest rate charged by the broker-dealer, including the method of interest computation and situations under which interest rates may change?
A CREDIT AGREEMENT- this agreement also includes the method of interest computation and situations under which interest rates may change. Think they are not giving you a loan they are providing leverage/credit for you to trade.
A Eurodollar bond is
A U.S. dollar-denominated bond issued by a non-American company (or government), sold outside the United States and the issuer's country, but for which the principal and interest are stated and paid in U.S. dollars
A Yankee bond is
A US dollar denominated bond issued in the United States
A broker-dealer having no place of business in a state is not required to be registered in that state if the broker-dealer
A broker-dealer must be registered in every state where it sells or offers to sell securities, unless an exemption is available. If a broker-dealer has no office in a particular state and no business is done in that state other than with institutional clients, registration there is not required.
If a customer's portfolio is heavily invested in common stock mutual funds, what is the customer's greatest risk?
A customer's greatest risk is always loss of princple.
Under the Securities Exchange Act of 1934, a market maker is
A market maker is a dealer that holds itself out as being willing to buy or sell a security at a quoted price on a regular and continuous basis.
If you were an investor holding a AA rated subordinated debenture and the company went into liquidation, which of the following would have a claim on the company's assets ahead of you?
A. Secured debt, bankruptcy filing fees, legal costs
Something new on the exam, probably a pre-test question but... An investment adviser is not deemed to be maintaining custody of customer assets when
A. receiving a check for advisory fees made out to the advisor * correct answer
The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket?
Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order
Agents who share commission must
Agents must be registered as an agent for the same broker-dealer or for an affiliated broker-dealer. Additionally, in order to receive a commission, an agent must be registered in the state where the transaction is made.
A a supervised employee of an SEC IA is
All individuals working for an investment adviser who provide investment advice or management are considered supervised persons. Whether analyzing securities or customer profiles.
Many investment advisers follow a program of asset allocation. Which of the following categories of assets is most likely classified as an alternative asset?
Alternative assets include 4 major categories: real assets, hedge funds, private equity, and structured products.
Under the USA, the definition of "issuer" includes
An issuer is any person who issues or proposes to issue any security for sale to the public. Stock exchange specialists, company directors, and market makers do not issue securities and therefore are not issuers.
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
Any order ticket submitted by an agent for execution at a broker-dealer will always include the account number, the agent's name, and that of the BD. All order details must be listed (e.g., the number of shares, limit or market, etc.), but the current market price is never included. Once the order is executed, the execution price is entered.
What is the term used to describe a common stock issued below its par value?
Assessable stock is a stock that is issued below its par or stated value. All stock issued today is nonassessable.
If a person is performing the functions of a BD
Being an investment adviser does not exclude a person from the need to register as a broker-dealer
Under the Investment Advisers Act of 1940, cash payment to a broker-dealer from an investment adviser in return for client referrals is
Cash payments by investment advisers for referrals from broker-dealers are permitted whether or not the BD is affiliated with the IA. In all cases, such compensation must be disclosed to affected clients.
Under the NASAA Model Custody Rule, an investment adviser would be considered to have custody of client assets if that adviser inadvertently receives
Checks made payable to a third party must be forwarded to that party within 3 business days of receipt or the IA will be considered to be maintaining custody. In the case of certificates or checks made out to the IA for a securities purchase, return must be made within 3 business days of receipt in order to avoid custody issues; they are never forwarded.
Which of the following is NOT classed as a security under the Uniform Securities Act?
Commodity futures on items such as gold, silver, wheat, heating oil, and pork bellies are not securities
An investor wishes to save for her retirement. She arranges to have $250 per month withdrawn from her account to be invested into a commodity fund. This type of saving plan is called
DOLLAR COST AVERAGING
A trading venue where institutional traders are assured of anonymity is known as
Dark Pool
Which of the following is an improper activity under the Uniform Securities Act?
Dealers who act as principals in transactions charge markups, not commissions. The adviser can charge customers different fees for similar services without violating the Uniform Securities Act.
If a married couple establishes a JTWROS account with a balance of $25 million and the wife dies, what is the husband's estate tax liability?
Establishing a joint tenants with right of survivorship account allows for the transfer of assets to the survivor upon death. The surviving spouse is not taxed on assets transferred in this manner because under current tax law, there is an unlimited marital deduction.
Defalcator Investment Advisers (DIA), registered in States A, K, and R, would be required to provide a balance sheet as part of its brochure if it charged fees of
First figure out SEC or State IA. This is a State IA, even though he is registered in three states. The question did not say state or SEC IA. If state IA chargeS substantial prepayment of advisory fees OF MORE THAN $500- 6 "OR" MORE MONTHS IN ADVANCE. HE must include a balance sheet with their brochure.
The return that will be earned over the life of a fixed annuity
Fixed annuities are what the term implies—the return is fixed for the life of the contract. In some cases, a fixed annuity may actually pay more (but never less) than the guaranteed amount. This would be true if the insurance company earned what is called "excess interest."
Future Value
How much is 25k invested today at a given rate going to be worth in 10 years.
Material conflicts of interests must be disclosed
In writting, before rendering advice.
One of the components of a cash flow statement is cash flow from investing activities. Included would be
Investing activities include transactions and events involving the purchase and sale of securities, land, buildings, equipment, and other assets not generally held for resale as a product of the business.
Under the Investment Company Act of 1940, the reporting requirements investment companies must comply with include
Investment companies must file reports with the SEC at least annually (more frequently if required) and send at least semiannual reports to shareholders. They are not required to notify shareholders of changes in the portfolio as they occur.
A decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant.
Is a QDRO which is regulated by the IRS
An agent or B/D may determine which securities to purchase or sell for a client when
No broker-dealer or any of its employees shall exercise any discretionary power in any customer's account or accept orders for an account from a person other than the customer without first obtaining written authorization from the customer.
Unethical Trading
Pegging involves entering buy orders for the purpose of supporting a stock price (i.e., to keep it from falling). This is a form of market manipulation and is illegal. Front running involves a representative or firm entering orders ahead of client orders. Straddles are an option position that combines a put and a call on the same stock; there is nothing improper with that strategy. Matched orders involve buying and selling a stock from one hand to the other to create the false appearance of trading volume and is another form of market manipulation.
Jim is buying stock through a private placement. Under the Securities Act of 1933, which of the following statements is TRUE?
Private placements are exempt transactions under Regulation D of the Securities Act of 1933 and are therefore exempt from registration.
securities transactions exempt under the USA
Private placements are exempt under the USA if they are offered to no more than 10 general public (retail) investors in a 12-month period. Institutional investors are not included in the numerical limitations. Transactions involving issuers and underwriters, pension trusts, and other financial institutions are also exempt. The sale of preorganization certificates is exempt if there is no commission for solicitation or payment by subscribers and no more than 10 subscribers; there is no limit to the number of offers that may be made.
Under NASSA it is unethical to execute any transaction in a margin account without securing from the customer a proper margin written agreement when?
Promptly "after" the initial transaction in the account.
In a margin account the original call for funds is the
Reg T or Margin Call
Which of the following is least likely to be considered an investment constraint when preparing an investment policy statement?
Risk tolerance
What is the investor's cost basis in an inherited stock?
The IRS allows a step-up in basis for inherited stock. The customer's cost basis is the fair market value of the stock on the date that the decedent died.
Under the USA, each of the following is specifically excluded from the definition of a broker-dealer EXCEPT an
The USA specifically excludes agent/issuers and banks, international or domestic, from the definition of a broker-dealer. Investment advisers also may have to register as broker-dealers if their method of operation requires it.
Computing the Sharpe ratio for a specific stock requires using all of the following EXCEPT
The beta for the subject security. BETA measures the overall market. For s specific stock we use. The formula for the Sharpe ratio is as follows: (actual rate of return minus the risk-free rate of return) divided by the standard deviation of the security.
Under the Investment Company Act of 1940, which of the following statements about advisory contracts between an investment company and an outside adviser
The contract may not be unilaterally assigned to another adviser. The initial contract may be for 2 years, but it is subject to annual reapproval by a majority vote of the outstanding shares or the board of directors, as well as a majority of the directors who are considered to be noninterested parties.
To calculate the amount to be received on redemption of open-end investment company shares, which of the following would be used?
The mutual fund will redeem shares at the NAV. The NAV, minus the redemption fee. Redemption fees or deferred sales loads, if any, are subtracted from the proceeds sent to the investor.
Financing activities in a cash flow statement include
The proceeds from issuing securities, using funds to retire bonds and/or pay dividends.
Which of the following illustrates an example of positive margin?
The rate of return on the investment exceeds the interest cost on the borrowed money.
Under the Securities Act of 1933, all of the following must sign a registration statement for a new issue of nonexempt securities EXCEPT
The registration statement, which is an issuer document, must be signed by members of the board, as well as by the CEO and the CFO. It is also signed by the lawyers and accountants representing the issuer who express their opinions on the legal and accounting aspects of the proposed new issue. The only signature not needed is the managing underwritter of the issuer.
Under the Investment Advisers Act of 1940, as amended by the Marketing Rule for Investment Advisers, advertising done by investment advisers prohibits
The rule still prohibits untrue statements of material fact and reference only to specific past recommendations. The use of testimonials is allowed.
Which of the following is indicative of the primary difference between variable life insurance and straight whole life insurance?
Variable life insurance allows the policyowner to decide how the cash value is invested through a number of subaccounts.
Which of the following securities can legally be purchased on margin?
Warrants, but not rights, may be purchased on margin if the underlying stock is traded on the NYSE or the Nasdaq. No insurance product is marginable and the same is true for options. , LEAPS ARE MARGINABLE
If a customer who has granted a durable power of attorney to her son dies, which of the following statements regarding the power of attorney is TRUE?
When the customer or her son dies, the power of attorney also expires. However, a durable power of attorney will survive a declaration of mental incompetence and is useful in those cases where a parent suffers from dementia.
Can LEAPS be purchased on margin?
Yes. LEAPS are option contracts that are marginable.
A prospectus is
a communication made in writing or by radio or television that offers a security for sale. An oral offer would therefore not be a prospectus. Tombstone advertisements are specifically excluded from the definition of prospectus. An email meets the definition of a written communication.
The Securities Exchange Act of 1934 defines a market maker is
a dealer who, with respect to a security, holds himself out as being willing to buy and sell that security for his own account on a regular or continuous basis
The USA places a number of recordkeeping requirements on investment advisers. Records required to be kept by all state-registered investment advisers include all of the following EXCEPT
a record by security showing each client's interest and location thereof, The key to this question is the requirement for all advisers. A security record is only required for those advisers who have custody of client assets.
At the state level Broker Dealers are not
agents, issuers, (3) a banks, savings institution, or trust companies
Preemptive rights
allow common stockholders to subscribe to additional issues of shares before they are offered to the public, to maintain their percentage ownership.
A retired person seeking to maximize income with reasonable safety and liquidity should most likely consider investing in
an intermediate-term, high-grade corporate bond fund
Brady bonds
are issued only by foreign governments, usually, but not always, U.S. dollar-denominated and are available for purchase in the U.S.
SEC IA solicitors
are not employees of the adviser and, therefore, under the Investment Advisers Act of 1940, the adviser is only required to make a bona fide effort to determine that the solicitor complies with the solicitor agreement..
There is nothing wrong with an investment adviser devoting time, even a majority of the time, to nonadvisory pursuits,
as long as it is disclosed.
The USA places a number of recordkeeping requirements on investment advisers. Records required to be kept by all state-registered investment advisers include all of the following EXCEPT
bank records, emails, a list of discretionary accounts MUST BE KEPT BY ALL STATE IA'S. a record by security showing each client's interest and location is only required for those advisers who have custody of client assets.
Traditional Assets in an allocation program include
cash, bonds, and stocks,
There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:
commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.
A security without credit risk is
common stock, because credit risk is found in debt instruments
A solicitor hired by a USA IA
considers solicitors to be supervised persons, whether employed by the adviser or not, and requires IAR registration.
An investment constraint that is unique to private foundations is the requirement to
distribute 5% of its assets each year as qualifying distributions.
A warrant
gives the holder the right to purchase shares of stock in the company at a fixed price-think of Daniel Planes. It is issued above CMP
Growth is the same as appreciation stocks or bonds aim at
growing capital not providing income
A State B/D is excluded from the definition if he
has no place of business in the state and only transacts business with the issuers of the securities involved in the transactions, other broker-dealers, or banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, pension or profit-sharing trusts, or other financial institutions or institutional buyers. Notice that IA's are not included in this list. So if he conducts business with an IA he is not excluded.
A State B/D is considered such if
he transacts business with an IA.
Operating Activities
includes cash receipts and cash payments for transactions relating to revenue and expense activities
If a corporation has a dividend payout ratio of 70%, the undistributed earnings will
increase retained earnings, Retained earnings represent income that has not been paid out to shareholders.
The present value of a dollar
indicates how much must be invested today at a given interest rate, to equal a specific cash value in the future. I think of PV. as Pepperdine. If I want to send Oli to Pepp, and Pepp is 250K how much do I need today to get me to that specific goal.
The commonly tested investment constraints are:
liquidity needs, time horizon, taxes, legal and regulatory factors, and unique needs and preferences.
The term used to describe a broker-dealer contacting a margin account client with a demand for additional funds is
maintenance margin
In an Agency Cross Transaction the IA
may not recommend the transaction to both parties of the trade
cash flow is
money coming in against money going out
There are several types of mutual funds available for investment
most mutual funds fall into one of four main categories which include stock funds, money market funds, bond funds, and target-date funds.
One of the ways in which a simple trust differs from a complex trust is that simple trusts
must distribute their distributable net income each year.
Stock prices in the over-the-counter market are determined by
negotiation
Broker dealers must always indicate on the trade confirmation sent
no later than completion of the trade-settlement date
A risk disclosure document must be provided by the B/D to the client
no later than the time of opening the account
When a federal covered IA files a petition for bankruptcy. The firm must
notify the SEC immediately.
A State IA is exempted from registration if it
only transacts business with the issuers of the securities involved in the transactions, other broker-dealers, other Investment Advisors, banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, pension or profit-sharing trusts, or other financial institutions or institutional buyers.
An IAR who works for a SEC IA must register
only where the IAR has a place of business. He can have an unlimted number of clients in any other state. He does not have to register where his IA has a place of business.
Under the USA when an IAR works for a USA IA
registration is required where he has an office and has more than 5 institutional clients.
When the Administrator gives out a final order
the agent has the right to have the order reviewed by an appropriate court in the state, and the agent has 60 days to file for a judicial review.
Disregarding any potential redemption or CDSC fees, an investor tendering shares of an open-end investment company for redemption will receive
the next computed net asset value, This is known as the forward pricing rule.
Remember this. When an IAR works for a Covered IA, he only registers
the only time that state registration is required is when the individual functioning as an IAR has a place of business in the state regardless of the number of clients or the type of clients. The key is an IAR for a covered IA. When that is the case, the IAR is only required to register in states where she (the IAR) maintains a place of business.
Under the Uniform Securities Act, a change to a minority interest in the membership of a partnership requires
the partnership to notify all investors of the change within a reasonable period.
Under the Uniform Securities Act, an offer and sale does NOT exist if it is
the result of a class vote by stockholders regarding a merger or consolidation, a bona fide pledge or loan, an act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares, a gift of nonassessable securities
All of the following actions must be completed prior to customers entering their first option trade EXCEPT
the way I learned this one was that a receipt is given after the order not before. receipt of a completed options agreement. Customers do not have to complete (sign) the options agreement prior to entering an order; under current rules, the agreement must be signed and returned by the customer within 15 days of account approval.
An IA may determine which securities to purchase or sell for a client when
there is oral consent for a period of 10 days from the initial discretionary trade.
On June 5, 2019, the Securities and Exchange Commission adopted a package of rulemakings and interpretations. Specifically, these actions include new Regulation Best Interest and the new Form CRS Relationship Summary. For investment advisers,
this form is also known as Form ADV Part 3.
An investor wishes to use funds in his IRA to purchase a condominium for personal use. Under current regulations,
this is a prohibited practice. unless it is for business purposes only.
With respect to the specific commodity that is the subject of the contract, all of the following are standardized parts to an exchange-traded futures contract
time of delivery, quantity, quality, and delivery price. The one thing that is not apart of the standarized futures contract is the market price b/c it is always changing.
When a participant in a 401(k) plan dies before retirement, the proceeds are distributed
to the designated beneficiary without going through probate.
