missed q's series 66 part 2
Eight years ago, a person invested $4,000. During the eighth year, the investment had increased to $8,800, but finished the year at $8,000. What is the compounded return on investment achieved for the eight-year period?
9% The Rule of 72 can be used to find the annual return on the investment over the eight-year period. To approximate the compounded growth rate, 72 is divided by the number of years it takes for the funds to double. In this example, it took eight years for the money to double (from $4,000 to $8,000); therefore, 72 divided by 8 years equals a growth rate of 9%. (67356)
Which TWO of the following retirement plans typically have a zero cost basis? A 401(k) A Roth IRA A Coverdell IRA A traditional IRA
A 401(k) A traditional IRA The phrase "zero cost basis" refers to a retirement plan that has been funded on a pre-tax basis, with tax-deferred earnings growth. Of the choices given, a zero cost basis typically exists for 401(k) plans and traditional IRAs (assuming the IRA is funded by a person whose employer does not sponsor a retirement plan). Both Roth IRAs and Coverdell Education Savings Accounts are funded after-tax; therefore, the investor immediately establishes a cost basis. (67398)
A 30-year-old single mother has income of $25,000 and has put money into an equity fund for her 12-year-old son's college education. She wants to balance out the risk with a small bond investment and is hoping to avoid accessing any of this money until her son turns 18. Which of the following securities is the MOST appropriate for the mother? A. A government bond fund B. A 15-year zero-coupon bond C. A 15-year municipal bond D. A high-yield corporate bond fund
A. A government bond fund Since U.S. government securities have no credit risk, this choice will balance out the risk of the equity fund. Additionally, the fund will offer the benefit of a diversified portfolio of government securities. Choices (b) and (c) are NOT appropriate since they are direct bond investments.
According to SEC Release 1092, which of the following persons is considered an investment adviser? A. A brokerage firm that offers retirement planning advice to clients B. A pension consultant who advises several large publicly traded companies C. The publisher ofBulls, Bears, and Pigs, a financial magazine D. A teacher who offers advice to students who remained after class
B. A pension consultant who advises several large publicly traded companies Under the Investment Advisers Act of 1940, an entity must meet a three-part test to be considered an investment adviser. The three parts of the test are Advice, Business, and Compensation. SEC Release IA-1092 expanded the definition to specifically include financial planners, pension consultants, and sports and entertainment representatives as investment advisers.
When calculating the current ratio of a corporation, all of the following are included, EXCEPT: A. Accounts payable B. Net income C. Accounts receivable D. Inventory
B. Net income The formula for calculating the current ratio is current assets of a firm divided by its current liabilities. Both accounts receivable and inventory are current assets and are therefore included. Accounts payable is a current liability on a company's balance sheet and is also included. However, net income is not actually included on a firm's balance sheet; instead, it appears on the income statement. As a result, net income is not needed when calculating the current ratio. (70130)
If a state registered investment adviser intends to enter into a contract with a registered investment company to manage its portfolio valued at $75 million, what is required of the adviser? A. The adviser must immediately update its registration with the Administrator. B. The adviser must withdraw its state registration and register at the federal level with the SEC. C. The adviser must register in the state in which the investment company is located. D. The adviser must file an updated brochure with the Administrator.
B. The adviser must withdraw its state registration and register at the federal level with the SEC. In this question, the state registered adviser will become a federal covered adviser because it will be begin managing the portfolio of a registered investment company. Regardless of the amount of assets under management, an adviser to a registered investment company is considered a federal covered adviser.
An investor owns a large portfolio of stock and wants to hedge against a market downturn. Which of the following orders are the most appropriate? A. Market orders to sell B. Sell limit orders C. Sell stop orders D. Buy limit orders
C. Sell stop orders Stop orders are often entered to protect existing positons. Sell stop orders allow an investor to sell their existing stock position if the stock's price falls to a certain price. Although sell limit orders also allow an investor to sell, these orders are only executed if the market rises. For that reason, an investor will be realizing a gain, rather than protecting against a loss.
What's the name of the agreement in which an adviser discloses it's obligation to keep customer information confidential? A. The arbitration agreement B. Conflicts of interest agreement C. The non-disclosure agreement (NDA) D. The statement of policy agreement
C. The non-disclosure agreement (NDA) An investment adviser will disclose its legal obligations regarding a client's information on a non-disclosure (i.e., confidentiality) agreement. If signed, an arbitration agreement forces a client to use arbitration to settle civil lawsuits against the investment adviser. Conflicts of interest are typically disclosed on the adviser's brochure, rather than on a separate agreement. (17222)
When should a federal covered adviser (FCA) file an amendment to its registration? A. Within 30 days of the amendment B. Within 90 days of the end of calendar year C. Within 90 days of the end of its fiscal year D. By the end of the calendar year
C. Within 90 days of the end of its fiscal year
Under the Uniform Securities Act, which of the following firms is excluded/exempt from the definition of investment adviser? A. An advisory firm that is headquartered in the State A and has $115 million under management B. A newly established adviser in State A that manages a mutual fund's $11 million portfolio C. An in-state bank that conducts business exclusively with institutions D. All of the above
D. All of the above
An investor is seeking an investment that will pay her family after she dies. The investor's income is sufficient to satisfy her living expenses and she is willing to accept a moderate degree of risk. Which of the following is the MOST suitable? A. Fixed annuity B. Variable annuity C. Whole life insurance D. Variable life insurance
D. Variable life insurance Since the investor can tolerate some risk, a variable life insurance policy is likely the most suitable recommendation. Annuities are typically a retirement savings vehicle and not the best way to pass money on to family members after death. (75776)
According to the National Securities Markets Improvement Act (NSMIA), which TWO of the following federal covered securities are subject to notice filing? Investment company securities Securities sold under Rule 506 of Regulation D Exchange listed securities Securities sold to qualified purchasers
Investment company securities Securities sold under Rule 506 of Regulation D Notice filing is required of issuers of investment company securities as well as issuers that distribute their securities pursuant to a Rule 506 private placement. Notice filing refers to a state's demand that certain issuers of federal covered securities satisfy state requirements such as signing a consent to service of process, paying a filing fee, and possibly filing with an Administrator any copies of material that has been filed with the SEC as a part of the issuer's federal registration.
Which TWO of the following factors are used in a discounted cash flow (DCF) analysis? Present value of future cash flows Expected rate of return earned on reinvested cash flows Future value of current cash flows Expected risk-free rate of return over the life of the investment
Present value of future cash flows Expected rate of return earned on reinvested cash flows Discounted cash flow analysis uses the present value formula and applies it to an investment with multiple future cash flows (e.g., the interest and principal payments of a bond). In order to find the present value of a single cash flow, an investor needs the future cash flows, an expected rate of return (i.e., discount rate), and the number of years until the future cash flow will be received. The risk free-rate of return is used in the Capital Asset Pricing Model (CAPM) formula and is generally not required when performing a discounted cash flow analysis. (70128)
Which TWO of the following statements are most likely considered violations of the USA's antifraud rules? "Our representative's investment acumen has been verified by the state Administrator." "To stay current, each of our representatives attends at least five tax planning or investment seminars per year." "Each of our investment experts is Series 66-certified." "Our representatives are CFP accredited."
"Our representative's investment acumen has been verified by the state Administrator." "Each of our investment experts is Series 66-certified." As it relates to communication with clients, the USA's antifraud rules prohibit the use of inflated language or excessive claims. The issue with Choice (I) is that the Administrator does not verify the abilities of representatives. The issue with Choice (III) is the use of the term "experts" as it relates to IARs. Statements of fact are permitted, which is what Choices (II) and (IV) provide. (67314)
Based on the past performance of XYZ Company, an investment adviser has determined that in a bull market there is 25% probability that XYZ stock will return 15%. In a flat market, there is 50% probability that the stock will return 4%. In a bear market, there is 25% probability that the stock will lose 20%. What is the expected return for XYZ stock?
+0.75%
A portfolio contains fixed-income instruments and common stock. The portfolio's beginning value was $240,000; however, the portfolio was valued at $280,000 at the end of the second year. If interest and dividends totaled $20,000, what's the annualized yield on the portfolio?
12.50% The formula for calculating total return is: (Ending Value - Beginning Value) + IncomeBeginning Value/ Beginning value In this question, the gain is $40,000 ($280,000 - $240,000) and the income is $20,000, for a total of $60,000. The $60,000 is then divided by the starting value of $240,000, which equals a total return of 25%. However, the 25% return was based on performance over two years. Since the question is asking for the annualized return, the 25% return must be divided by the two years, which equals an annualized return of 12.5%.
The Modern Portfolio Theory uses which of the following to measure volatility? A. Standard deviation B. Beta C. Alpha D. Sharpe Ratio
A. Standard deviation Beta shows the sensitivity of a fund's, security's, or portfolio's performance in relation to the market as a whole. Alpha is considered a risk-adjusted return and represents the difference between an asset's expected return and its actual return. The Sharpe Ratio is a risk-adjusted return measurement that indicates the amount of return earned per unit of risk. The basic idea is to determine how much additional return is being received for the willingness to hold a risky asset.
An investor has an account with an investment adviser and has provided discretionary authority to his IAR. The client's objectives are income and preservation of capital. Although his account has shown a positive return, he is concerned about numerous in-and-out trades that occurred on the same day. Which of the following statements best describes this situation? A. The IAR's actions are unethical. B. The IAR's actions are illegal. C. No violation has occurred, since the IAR has discretion and the account's return has been positive.
A. The IAR's actions are unethical. Illegal activities are specifically prohibited by a regulations, laws, or statutes. Since the IAR has written power of attorney, he is allowed to place trades in the customer's account and is not violating any securities laws. However, since the high frequency trading is clearly unsuitable, the IAR's actions are unethical.
An investor placed money in his Roth IRA and invested in mutual fund shares. He has consistently reinvested any distributions and purchased extra shares. Since the fund charges an 8.5% sales charge, the fund allowed for reinvestment at the NAV. When the investor withdraws money at retirement, how will the distributions be taxed? A. The distributions are considered tax-free. B. Capital gains will be taxed at ordinary rates, but interest and dividends will be exempt from taxation provided reinvestment occurred in the year of distribution. C. Interest and short-term capital gains are taxed at ordinary rates, while the qualified dividends and long-term capital gains will be taxed at a maximum rate of 20%. D. The principal will be treated as tax-free, while the growth is taxable as ordinary income.
A. The distributions are considered tax-free. Since Roth IRAs are always funded with after-tax dollars, investors may withdraw their contributions at any time without paying taxes. However, any accumulated earnings in the account may only be withdrawn tax-free if the distribution is made five years after the first taxable year in which a contribution was made and the investor is age 59 1/2 or older. In this question, it is assumed that the client meets both of these requirements; therefore, the distributions are tax-free. (89451)
A 19-year-old high school graduate who lives in State A has decided to attend college in State B. Her parents have been funding her college education through a Section 529 savings plan. Which of the following statements is TRUE concerning the tax considerations on her withdrawals for her education expenses? A. They may be withdrawn without federal tax liabilities B. They are federally taxable since she is attending an out-of-state school C. Her parents must pay federal tax on the withdrawals D. The withdrawals will be exempt from state income taxes
A. They may be withdrawn without federal tax liabilities Under federal law, 529 plan contributions are made with after-tax dollars and any earnings grow tax-deferred. However, any withdrawals that are used for educational purposes (e.g., room, board, books) are considered qualified and tax-free at the federal level. These provisions are available regardless of whether the beneficiary attends an in-state or out-of-state school.
Two friends are forming a business. They want the benefits of incorporation, but want to protect their personal assets and also avoid being taxed twice on any profits that the business generates. Which TWO structures will meet their needs? An S Corporation A C Corporation A limited partnership A limited liability company
An S Corporation A limited liability company To meet their needs, the friends should consider forming the business as either an S Corporation or a limited liability company (LLC). Both S Corporations and LLCs avoid corporate taxation by electing to pass their corporate income, losses, deductions, and credits through to their owners. Therefore, shareholders of S Corporations and LLCs report the flow-through of income and losses on their own personal tax returns and are assessed tax at their individual income tax rates (thereby avoiding double taxation). (67350)
According to the Uniform Securities Act, which of the following persons is an agent? A. A state official who sells his state's investment-grade G.O. bonds to qualified pension plan buyers B. A CEO who sells shares of his company's IPO to family, friends, and other retail investors C. A CFO who structures a private placement offering directly with institutional investors D. All of the above
B. A CEO who sells shares of his company's IPO to family, friends, and other retail investors This question is about identifying when a person who represents the issuer of securities is considered an agent. Since the CEO is representing his company by selling its stock to the public, he is considered an agent of the issuer. One exclusion from the definition of an issuer agent exists when the individual effects transactions in securities that are exempt, such as U.S. government of municipal securities. Another exclusion from the definition is when the person is involved in exempt transactions, including private placements, sales to qualified purchasers, and transactions between the issuer and its underwriter. If an individual represents a broker-dealer in effecting securities transactions, he is always considered an agent and required to be registered. (67363)
A company whose stock is listed on the NYSE intends to issue additional shares in State X. The Administrator of State X: A. May require the issuer to perform notice filing. B. May not require the registration of the offering in State X. C. May require the issuer to pay a fee. D. May ignore any allegations against the underwriter for possible fraud in connection with the offering.
B. May not require the registration of the offering in State X. Securities that are listed on a national exchange (e.g., NYSE, Nasdaq, or AMEX) are referred to as federal covered securities and, therefore, are not required to be registered at the state level. Additionally, if the federal covered security is listed on an exchange, the state may not require the issuer to pay a fee, submit a notice filing, or provide a consent to service of process. However, the state Administrator may investigate any broker-dealer (including the underwriter) that participates in the offering for fraud or deceit and file an enforcement action if it is warranted.
The liabilities section of a personal balance sheet could include which of the following? A. Market value of real estate holdings B. Remaining mortgage balance C. Qualified investments in a 401(k) plan D. Cash held in a FDIC-insured account
B. Remaining mortgage balance The liabilities section of a personal balance sheet represents money that is owed. Credit card balances, student loans, and mortgage obligations are all included as a person's liabilities. Choices (a), (c), and (d) are all items that a person owns or possesses. The difference between a person's assets and her liabilities is her net worth. (67304)
An agent has opened a new account for a client and entered a market order to buy 200 shares of stock. Prior to the end of the day, the agent turned in the new account form and a copy of the order ticket for approval by his supervisor. According to the Uniform Securities Act, which of the following statements is TRUE? A. If the agent is registered with FINRA, he is not required to comply with the Uniform Securities Act. B. The agent needed approval for the new account before executing the first trade. C. The agent needed approval for the first order ticket before executing the first trade. D. This is acceptable, provided the execution of the order was deemed suitable by the supervisor.
B. The agent needed approval for the new account before executing the first trade. Agents are required to obtain supervisor approval for a new account before trading can commence in the account. Once the account has been opened, agents are not required to receive approval before each order is executed. However, a supervisor must typically review transactions daily (i.e., after the trades are executed).
A registered investment adviser is located in State X and is going out of business. Which of the follow is TRUE regarding the registration of the adviser and its IARs? A. The registrations of both the IA and its IARs will remain effective until December 31. B. The registrations of both the IA and its IARs will become ineffective 30 days after the IA files withdrawal forms with the Administrator. C. The registration of the IA will be withdrawn 30 days after filing a withdrawal form, but the registrations of its IARs will remain effective until December 31. D. The registration of the IA will be withdrawn 30 days after filing, but there's a two-year grace period before the registrations of its IAR are withdrawn.
B. The registrations of both the IA and its IARs will become ineffective 30 days after the IA files withdrawal forms with the Administrator. When an IA files forms to withdraw its registration, it must also file to withdraw the registrations of all of its IARs. According to the Uniform Securities Act, the withdrawal is effective 30 days after the filing. Remember, an investment adviser representative's registration in State X is only in effect while employed by an investment adviser that's registered in State X.
According to the Uniform Securities Act, all of the following are excluded from the investment adviser definition, EXCEPT: A. A bank B. An attorney C. An insurance company D. A broker-dealer
C. An insurance company
An equity-indexed annuity is suitable for which of the following clients? A. A person who desires a high rate of return with little risk B. A person who needs a guaranteed return for life with no risk C. An person who needs a minimum guaranteed return with the potential for a greater return than CDs offer D. A client who needs tax-free income with limited risk
C. An person who needs a minimum guaranteed return with the potential for a greater return than CDs offer Equity-indexed annuities are NOT considered securities. Instead, they are hybrid products that combine elements of both fixed and variable annuities. The return of an EIA is linked to the performance of an underlying stock index. The insurance company that issues an equity-indexed annuity guarantees a minimum rate of return (as in a fixed annuity), but the annuity's ultimate return (which is capped) will vary depending on the performance of the index to which it is linked. To receive the EIA's guarantees, an investor must be willing to accept the limited potential gain. (67334)
An investor has owned stock for several years and has an unrealized capital gain. If he is willing to sacrifice some yield in order to protect the unrealized gain, which option strategy is the BEST? A. Buying calls on the stock B. Writing calls against the stock C. Buying puts on the stock D. Writing puts against the stock
C. Buying puts on the stock Using options, the best way to hedge or protect an unrealized gain is to buy puts.
A client of an agent has instructed her to buy 1,000 shares of a Nasdaq stock as close to the opening price as possible. However, at 9:00 a.m., negative news about the company is released. If the agent placed a call to inform the client of the news, but has not yet reached him, what should she do? A. Wait for the client to return the call B. Attempt to reach a family member C. Execute the trade D. Obtain permission from her supervisor and compliance department prior to the execution of the trade
C. Execute the trade Despite the news release, the agent is obligated to execute the trade based on the client's directions. Agents of broker-dealers are required to follow all lawful client requests when servicing their accounts. If a client indicates a desire to purchase, sell, transfer, or close an account, the agent has an obligation to properly execute the client's instructions in a timely manner. This rule applies even if the broker-dealer or agent has discretion over the account. (75777)
A married couple wants to pay off their mortgage when they retire in 15 years, which will require $60,000. After receiving an inheritance of $30,000, they meet with their investment adviser representative for help in determining the lowest annual rate of return that they need to earn on the inheritance in order to use it to pay off the mortgage in 15 years. The IAR tells them the rate is 4.75%, which is referred to as the: A. Present value B. Future value C. Internal rate of return D. Expected return
C. Internal rate of return This question relates to the formula for present value. In this question, the couple knows the present value of their investment (the $30,000 inheritance) and also knows the future value that they need ($60,000 to pay off their mortgage). The part that is missing is the rate of return that is required to make the $30,000 grow to $60,000 in 15 years. This return is referred to as the internal rate of return. (67378)
The primary advantage of establishing a trust is: A. Tax-free income distributions by the grantor B. Tax-free income for the beneficiaries C. Separate tax status of the trust, which is distinct from the party that establishes the trust D. The grantor will realize tax benefits when establishing himself as beneficiary to the trust
C. Separate tax status of the trust, which is distinct from the party that establishes the trust A trust is created when one person (a trustee) is put in charge of managing property for the benefit of another person (a beneficiary). The trustee has legal control of the trust property (corpus), but must manage it in the interests of the beneficiary. For tax purposes, the trust is a separate taxable entity; therefore, taxes are the responsibility of the trust (or potentially the beneficiary), not the trustee or the person who created the trust.
Which of the following situations does not constitute the assignment of an investment advisory contract requiring client approval? A. The investment adviser is a partnership with seven partners, three of whom retire, while another dies. B. The investment adviser changes from a sole proprietorship to a LLC. C. The investment adviser is a partnership with three partners, one of whom dies D. An investment adviser acquires 60% of the assets of another investment adviser.
C. The investment adviser is a partnership with three partners, one of whom dies An investment adviser must obtain its clients' consent in order to have their contracts assigned to another adviser. If an adviser is a corporation, the acquisition of a controlling block of the adviser's shares by another entity is considered a change of control which requires client consent. Also, if an adviser is organized as a partnership, the death or resignation of a majority of the partners is considered a change of control which requires client consent. For choice (c), the death of one of the three partners (not a majority) does not constitute assignment. (67329)
An issuer has filed a registration statement in a state to offer securities. Which of the following choices is NOT a valid reason for the Administrator to deny its registration? A. It is in the public interest to deny the registration. B. The issuer's method of doing business is illegal in the state. C. The issuer has not filed a registration statement with the SEC. D. The issuer has not paid a registration fee.
C. The issuer has not filed a registration statement with the SEC. There are a number of justifiable reasons for an Administrator to deny an issuer's registration statement, including 1) filing a registration statement that is incomplete, false, or misleading in any material respect, 2) the issuer, any partner, officer, director, control person, or underwriter has willfully violated a provision of the Uniform Securities Act or any rule or order imposed by an Administrator, 3) any officer of the issuer or underwriter has been convicted of a crime involving securities, 4) the issuer's enterprise or method of business includes activities that are illegal, 5) if it believes that the denial is in the public's best interest, and 6) if the issuer has failed to pay the proper registration filing fee. There is no provision for registration denial due to the issuer not filing a registration statement with the SEC. (67327)
Which of the following insurance policies allows the owner to skip her premium payments? A. Whole life insurance B. Variable life insurance C. Universal life insurance D. Term life insurance
C. Universal life insurance Universal life policies, including universal variable life policies, offer flexible premiums. Provided there is sufficient cash value, the owner can stop making premium payments. However, if cash value is insufficient, the policy will lapse. All of the other choices require the owner to pay premiums over a predetermined time period. (67395)
An investor who is in a high federal tax bracket and also subject to state and local taxes will benefit the MOST by purchasing: A. A state general obligation bond B. A transportation revenue municipal bond C. A zero-coupon Treasury STRIPS D. A Commonwealth of Puerto Rico Water and Sewer bond
D. A Commonwealth of Puerto Rico Water and Sewer bond The interest on bonds that are issued by territories and possessions of the United States is triple-tax-exempt (i.e., it is not subject to federal, state, and local income taxes). For that reason, these bonds are attractive investments for investors in high tax brackets. General obligation bonds and revenue bonds are the two types of municipal bonds and their interest is exempt from federal tax, but may still be subject to state and local tax. Interest on Treasury STRIPS is exempt from state and local tax, but still subject to federal income tax.
Which of the following is a risk-adjusted rate of return? A. Beta B. Duration C. Convexity D. Alpha
D. Alpha Alpha is risk-adjusted rate of return that measures the amount that a stock, bond, or portfolio returned above the expected rate of return, which is predicted by the CAPM formula. Duration and convexity are measures of interest-rate risk and do not specifically measure the performance of investments (i.e., they are not rates of return). Beta is also a measure of risk, specifically the degree to which an investment or portfolio moves in relation to the market as a whole. Beta is used to find the expected rate of return in the CAPM formula, but alone is not a measure of return. (67382)
All of the following methods of ownership will avoid probate, EXCEPT: A. Community property B. Joint Tenants with Right of Survivorship C. Pay on Death D. Estate
D. Estate Probate involves the administering of a deceased person's will or the estate of a deceased person without a will. Due to court costs and the involvement of lawyers who collect fees from the estate, many people try to minimize the costs associated with the probate process. Holding assets as community property, joint tenants with right of survivorship, and pay on death will avoid probate since a beneficiary has been named in the event of death. (62908)
After conducting extensive research on XYZ Company, an agent believes that the company's prospects are very positive. The agent thinks the stock could easily double in the short-term and plans on sending out an e-mail to all of his customers recommending purchase of XYZ stock. How should the agent proceed? A. He should send out the e-mail once he obtains his approval from another agent. B. He should send out the e-mail with a risk disclaimer. C. He should file the group e-mail and await approval from his compliance department, since the communication is considered sales literature. D. He should reconsider his plan, since XYZ stock may not be appropriate for all of his clients.
D. He should reconsider his plan, since XYZ stock may not be appropriate for all of his clients. Agents should always have reasonable grounds for recommending a particular security and must ensure that the recommendation is suitable for each client to whom the recommendation is made. When determining suitability, agents depend on the information obtained from clients, such as financial status, needs, objectives, and willingness to assume risk. The same recommendation being made to all of the agent's clients is likely an unsuitable practice. (67341)
According to NASAA's Statement of Policy Regarding Dishonest and Unethical Business Practices, which of the following statements regarding customer accounts is TRUE? A. A broker-dealer must receive a written order ticket from the account owner before executing every trade. B. Conversion of customer's cash is acceptable; however, broker-dealers must segregate securities positions. C. An agent of a broker-dealer is not permitted to lend money to his parents. D. Margin agreements must be signed promptly following the first transaction.
D. Margin agreements must be signed promptly following the first transaction. Margin agreements must be signed by a client, but the signature may be received after the first transaction. Customers are able to place orders with their broker-dealers over the phone, they are not required to be written. Conversion, which is defined as the unauthorized use of client assets for personal use (e.g., theft), is always prohibited. An agent is allowed to borrow from or lend money to immediate family members. (67342)
An investor has a portfolio comprised of large-cap, mid-cap, and international equities. To which of the following risk is the investor LEAST exposed? A. Market B. Regulatory C. Currency D. Money-rate
D. Money-rate In this question, the equity portfolio may be subject to business risk, regulatory risk, and currency risk. Business risk is simply the risk that a business may not be profitable or may be unable to meet its goals. Regulatory risk is based on the fact that changing laws could have a negative impact on the business. In this question, currency risk is being assumed since the portfolio consists of international equities, which may involve the need to exchange foreign currencies into U.S. dollars. However, since the portfolio consists of equities, money-rate (interest-rate) risk less likely to be a concern. Money-rate risk is more likely to be associated with bond portfolios. (67383)
An investment adviser has $57.5 million under management. Among the firm's clients is a small, in-house family of funds whose shares are currently offered exclusively to the adviser's clients. What is the firm's status for registration requirements? A. The firm is an exempt adviser due to its in-house mutual fund advisory business and must file Form ADV-E (ADV Exempt) to maintain such status. B. The firm may register with either the SEC or each state in which it does business, until its assets under management exceed $110 million. C. The firm must register as both a state and federal adviser. D. The firm must register as an investment adviser with the SEC.
D. The firm must register as an investment adviser with the SEC. Although the investment adviser only has assets under management (AUM) of $57.5 million, it is deemed to be a federal covered adviser because one of its clients is a registered investment company (mutual fund). If an IA advises an investment company, the adviser's amount of assets under management may be disregarded and it is automatically a federal covered adviser. Another qualification for federal covered status is if an IA has assets under management of $110 million or more.
Two agents (Agent X and Agent Y) work for the same brokerage firm that is located in State A. Agent X recently contacted a referral who currently works in State A, but maintains a primary residence in State B for tax purposes. Agent X is not registered in State B, but Agent Y is registered there. Since the account may be a multimillion dollar, actively traded account, Agent X wants to have the account serviced by Agent Y, with whom she will split the commissions. How should this be handled? A. This is permissible since splitting commissions is allowed between agents who are employed by the same or affiliated firm. B. This is permissible since the sale would go under Agent Y's registration. C. Commission splitting is not permissible under any circumstances. D. This is not permissible since Agent X is not registered in State B.
D. This is not permissible since Agent X is not registered in State B. For an agent to be permitted to split or divide commissions with another person, the other person must be a registered agent in the same state and be employed by the same broker-dealer or one that is under common control. A firm under common control includes an affiliate, subsidiary, or parent company. In this question, since both of the agents are not registered in State B, splitting commissions on transactions involving this client is not permitted.
Which TWO of the following statements are TRUE regarding a time-weighted rate of return? It may be used to compare the performance of two money managers. It is a way of calculating an investor's internal rate of return. It does not consider the inflows and outflows of cash. It measures the average return that a client's investment earned.
It may be used to compare the performance of two money managers. It does not consider the inflows and outflows of cash. Time-weighted return is used to compare the performance of two money managers. Since managers cannot control when investors either deposit or withdraw their funds, the time-weighted return does not consider inflows and outflows. Dollar-weighted return is used to calculate a client's internal rate of return and takes into account how much the client earned based on the amount of money invested. (17279)
