missed questions

Under the Uniform Securities Act, if not denied, an application for registration as investment adviser will generally become effective how soon after filing? A) 30 days B) 10 days C) 15 days D) Immediately

30 If not denied and no disciplinary proceedings are instituted, an application for registration becomes effective at noon on the 30th day after being filed.

An Administrator may deny or suspend a registration in all of the following situations EXCEPT A) if the applicant was convicted of a misdemeanor involving securities within the last 10 years B) if the registrant has failed to properly supervise agents and investment adviser representatives C) if the applicant has been the subject of an adverse order entered by the Administrator of another state within the past 10 years D) if the applicant is not qualified on the basis of experience

D) if the applicant is not qualified on the basis of experience

An Administrator may take disciplinary action against a broker-dealer or its agents when the Administrator -determines that the action is in the public interest -suspects that the registrant's action violated a rule, order, or the USA -issues an injunction that carries the force of law -provides for a public hearing, which must precede issuing a cease and desist order

I and II An Administrator may take disciplinary action against a broker-dealer or its agents when the Administrator determines that the action is in the public interest and suspects that the action violated a rule, order, or the Uniform Securities Act. An Administrator may act upon suspicion that a violation of a rule, order, or provision of the Uniform Securities Act is about to occur. Administrators cannot issue injunctions; they must seek injunctions from a court of competent jurisdiction. Administrators need not conduct public hearings before issuing a cease and desist order.

Under the Uniform Securities Act, the Administrator has the authority to -issue stop orders -approve new issues -review standard registration forms

I and III During the cooling-off period, the Administrator reviews registration statements and may issue stop orders. The Administrator does not approve securities; she only clears them for distribution to the public.

The term derivative would apply to which of the following? A) REITs B) UITs C) DPPs D) Warrants

Warrants

Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns? A) Weak B) Strong C) Random walk D) Semi-strong

Weak The weak form holds that current stock prices reflect all historical market data and that historical price trends are, therefore, of no value in predicting future prices. However, this form holds that credible fundamental analysis and insider information may produce above-market returns. Those who truly believe in the EMH are of the opinion that none of these will do any better than the market; random selection is as good as anything else. Random walk is not one of the 3 forms.

Broker-dealer A wants to promote and reward teamwork. The firm plans to pay out a small percentage of the firm's profits to the clerical staff as a bonus for their hard work. Under NASAA rules, is this permitted? A) Yes, if the entire clerical staff is registered as agents for the firm. B) Yes, no registration is necessary. C) Yes, if all of the agents agree to it. D) No, this cannot be done.

Yes, no registration is necessary. Bonuses based on a broker-dealer's profits may be payable to nonregistered clerical help as long as there is no direct relationship to any specific sales.

Keely Company, Inc., has outstanding equity securities registered with the SEC. The company issues a debt security directly to financial institutions. This sale is an example of A) a nonissuer transaction B) a nonexempt transaction C) an exempt transaction D) an exempt security

an exempt transaction Under the Uniform Securities Act, the sale of securities to financial institutions is an exempt transaction.

Under the USA, an investment adviser's current clients must be delivered a brochure A) annually​, but only​ if the adviser has neither custody nor discretion B) quarterly if the adviser has both discretion and custody C) annually whether or not the adviser has custody or discretion D) within 48 hours of renewal

annually whether or not the adviser has custody or discretion

All of the following practices are unethical under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents EXCEPT A) backdating a customer's records to save the client a substantial amount of income tax B) using deceptive or misleading advertising or sales presentations C) charging higher commissions than normal for executing thinly traded foreign securities D) effecting any transaction in a security that involves no change in beneficial ownership

charging higher commissions than normal for executing thinly traded foreign securities

If an investment adviser purchases a research report from the advisory arm of a nonaffiliated broker-dealer, the adviser may distribute this report to clients A) under no circumstances B) without restriction C) provided a fee is paid to the broker-dealer for each copy distributed D) if the clients are told that the report was prepared by a third party

if the clients are told that the report was prepared by a third party An adviser may use research prepared by others provided disclosure is made that the report was prepared by a third party, not the adviser. There is an exception for certain statistical information, but not research reports.

In accordance with the stated provisions of the Investment Company Act of 1940, renewal of an open-end management investment company's investment adviser's contract must be approved by A) the principal underwriter of the fund B) majority vote of the fund's board of directors or of the outstanding voting shares, as well as by majority vote of the noninterested members of the board C) the SEC D) FINRA

majority vote of the fund's board of directors or of the outstanding voting shares, as well as by majority vote of the noninterested members of the board When it comes to management investment companies (open-end or closed-end), renewal of the investment adviser's contract is approved annually by the fund's board of directors or a majority vote of the outstanding voting shares. The initial contract must be approved by both the board of directors and a majority vote of the outstanding shares. In both of these cases, initial and renewal, a majority vote of the noninterested (outside) members of the fund's board of directors is also required.

Regional Financial Services, LLC, is registered as an investment adviser in States A, B, C, and D. They have just filed an application for registration in State E. Registration of this investment adviser in State E automatically confers registration as an IAR in State E on A) any employee who is functioning as an IAR in State A, B, C, or D B) officers, partners, and directors of the firm who will be functioning in State E as IARs C) clerical employees handling back-office operations D) an employee who will be soliciting clients for the adviser in State E

officers, partners, and directors of the firm who will be functioning in State E as IARs Under the Uniform Securities Act, registration of an investment adviser in a state automatically constitutes registration of any investment adviser representative who is a partner, officer, or director, or a person occupying a similar status or performing similar functions.

Under the Investment Advisers Act of 1940, a registered investment adviser may A) use the initials RIA after its name on a business card B) use the statement "registered with the SEC" in advertisements C) imply SEC approval or sponsorship because of registration D) imply SEC approval or sponsorship because of passing an exam.

use the statement "registered with the SEC" in advertisements Although an investment adviser registered with the SEC may state that fact, a registered investment adviser may not use the title in any way to suggest or imply that the SEC sponsors or approves the adviser. The title in no way indicates that the adviser's abilities or qualifications have been approved. Because RIA is not an academic designation, it may not be used as such.

In a qualified plan, if the employer makes all the contributions, the employee's cost basis is A) the value of the contributions B) one-half of the contributions made C) the increase in value only D) zero

zero Because the employee has not made any contributions, the cost basis is zero. In any qualified plan, if all of the contributions are in pre-tax dollars, the cost basis is zero no matter who contributes the money.

A customer determines that he has been sold unregistered, nonexempt securities in a prohibited transaction. In accordance with the USA, he can exercise the right to file a civil suit within A) 1 year from discovery or 2 years from occurrence, whichever is later. B) 2 years from discovery or 3 years from occurrence, whichever is later. C) 2 years from discovery or 3 years from occurrence, whichever is sooner. D) 1 year from discovery or 2 years from occurrence, whichever is sooner.

2 years from discovery or 3 years from occurrence, whichever is sooner. The civil liabilities provisions of the Uniform Securities Act provide for a statute of limitations equal to the sooner of 2 years from the date of discovery or 3 years from the date of the violation.

Included in the Investment Advisers Act of 1940 are a number of different recordkeeping requirements. Wealth Preservation Specialists is a covered adviser that is organized as a partnership. If the firm were to dissolve, partnership agreements must be kept for A) 3 years after the dissolution B) the lifetime of the firm C) 5 years from the date of organization D) 5 years after the dissolution

3 years after the dissolution ​Both ​​the Investment Company Act of 1940 ​(applicable here because this is a covered adviser) and the NASAA Model Rule on Recordkeeping ​require that investment advisers maintain certain records, such as partnership agreements and corporate articles of incorporation, for a period of no less than 3 years after dissolution.

Under the Investment Advisers Act of 1940, an adviser's registration usually becomes effective how many days after it is filed? A) 10 B) 45 C) 20 D) 30

45

The Wrights live in Texas, where Maria Wright has had an extremely successful cattle business for a number of years. As a very generous person, how much money can Maria give to her spouse, a Canadian citizen, in 2019 without incurring gift tax consequences? A) A limited amount because her spouse is not a U.S. citizen B) $15,000 C) $100,000 D) Unlimited

A limited amount because her spouse is not a U.S. citizen

In a rising market, which of the following is least volatile? A) A stock with an alpha of 0.5 B) A stock with an alpha of 2.0 C) A stock with a beta of 2.0 D) A stock with a beta of 0.5

A stock with a beta of 0.5 Beta is a measure of a stock's volatility relative to the overall market, as measured by the S&P 500. A stock with a beta of 2.0 will move twice as fast as the overall market, while a stock with a beta of 0.5 will move half as fast as the overall market.

Which of the following phrases best describes a prudent investor? A) A person in a fiduciary capacity who invests in a prudent manner B) An investment adviser representative handling a discretionary account C) The custodian for a minor under the Uniform Transfers to Minors Act D) A trustee who invests with reasonable care, skill, and caution

A trustee who invests with reasonable care, skill, and caution Although all of these may have a fiduciary responsibility; the definition, as expressed in the Uniform Prudent Investor Act of 1994, requires reasonable care, skill, and caution.

If yields should change by 75 basis points, which of the following bonds would have the greatest price change? A) ABC 4s 2040 B) JKL 4s 2020 C) GHI 4s 2030 D) DEF 4s 2035

ABC 4s 2040 When all coupons are the same, the bond with the longest maturity will have the longest duration and, therefore, will be subject to the greatest price fluctuations

Which of the following would NOT be defined as a sale or an offer to sell under the Uniform Securities Act? A) ABC issues a $1.50 quarterly dividend to existing stockholders of record. B) ABC issues a rights offering. C) A bonus given as a direct result of the purchase of another security. D) ABC attaches warrants to buy common stock of XYZ Corporation to a bond issue.

ABC issues a $1.50 quarterly dividend to existing stockholders of record. ABC's issue of a $1.50 quarterly dividend to existing stockholders is not a sale as defined in the Uniform Securities Act. Bonuses are considered sales, and rights and warrants are considered offers of the underlying stock.

One of your clients owns 2 different 6% corporate bonds maturing in 15 years. The first bond is callable in 5 years, while the second has 10 years of call protection. If interest rates begin to fall, which bond is likely to show a greater change in price? A) Both will decrease by the same amount B) Both will increase by the same amount C) Bond with the 10-year call D) Bond with the 5-year call

Bond with the 10-year call As interest rates fall, the investor benefits from having the highest interest rate for as long as possible.

An investment adviser new to the business is engaged by an elderly client who, on the grounds of privacy, refuses to disclose his annual income or net worth. The client merely asks the adviser to establish and manage a $50,000 portfolio. If the client brings a cashier's check for $50,000 to the initial meeting, which choice below reflects the best action on the part of the adviser? A) Accept the client but acknowledge in writing the client's refusal to provide financial information B) Decline the client, recognizing that you cannot effectively determine suitability in the absence of financial information C) Accept the client but only allocate his funds to money market type securities D) Decline the client because he is difficult to work with

Decline the client, recognizing that you cannot effectively determine suitability in the absence of financial information An investment adviser cannot perform effectively for a client who refuses to provide information necessary for determining the suitability of investments or a portfolio. Unlike the broker-dealer, who may act merely as order filler, the investment adviser has a fiduciary responsibility and is obligated to determine suitability.

Which of the following statements regarding the risks inherent in bonds is most accurate? A) The reinvestment rate assumption in calculating bond yields is generally not significant to the bond's yield. B) Interest rate risk is the risk that the bond's coupon rate will be adjusted downward if market rates decline. C) Price risk refers to the decrease in bond prices as interest rates fall. D) Default risk deals with the likelihood that the issuer will fail to meet its obligation to pay interest and/or principal.

Default risk deals with the likelihood that the issuer will fail to meet its obligation to pay interest and/or principal.

Which of the following is NOT a characteristic of a corporation? A) It is considered an entity apart from its owners. B) Owners have no personal liability for corporate debts. C) Ownership interests are evidenced by shares of stock. D) Existence terminates when an owner dies.

Existence terminates when an owner dies.

For which of the following is there no active secondary market? A) Futures contracts B) ETFs C) Forward contracts D) Options

Forward contracts

In which of the following cases would the Uniform Securities Act require registration of an investment adviser who had no place of business in the state? A) Under no circumstances is registered required if there is no place of business in the state. B) He had more than 5 institutional clients domiciled in the state. C) He had more than 5 noninstitutional clients who were residents of the state. D) His website was seen by residents of the state.

He had more than 5 noninstitutional clients who were residents of the state. The de minimis exemption applies when there is no place of business in the state and the adviser has no more than 5 noninstitutional (retail) clients in the state during any 12-month period.

Which of the following is (are) TRUE regarding qualified pension plans? -They must not discriminate. -They must have a vesting schedule. -They must be in writing. -Every month the employer must update the current status of all accounts.

I, II, and III An employer must update the status of all employees at least annually, not monthly.

Programs allowing for the direct pass-through of losses and income to investors include all of the following EXCEPT A) S corporations B) new construction real estate direct participation programs C) REITs D) oil and gas drilling direct participation programs

REITs REITs allow for the direct pass-through of income but not losses. The other choices are forms of business which allow for pass-through of income and losses.

Form PF must be filed by A) state-registered private fund managers, regardless of the amount of assets under management B) SEC-registered advisers with no more than $150 million in private fund assets under management C) SEC-registered advisers with at least $150 million in private fund assets under management D) SEC-exempt reporting advisers

SEC-registered advisers with at least $150 million in private fund assets under management

The Investment Advisers Act of 1940 would consider each of the following investment advisers to be exempt from registration EXCEPT A) an adviser whose only clients are venture capital funds B) an adviser whose only clients are banks C) an adviser whose only clients are insurance companies D) an adviser who maintains an office in only one state, advises only residents of that state (none of whom is a private fund), and gives advice relating solely to securities not traded on any national exchange

an adviser whose only clients are banks

The chief compliance officer (CCO) of a registered investment adviser would generally not have responsibility for the actions of A) supervisory personnel of the firm. B) an investment adviser representative of the firm. C) an agent registered with an affiliated broker-dealer. D) ministerial personnel of the firm.

an agent registered with an affiliated broker-dealer.

When Felicity died, she left her estate, including her IRA, to her daughter, Courtney. Because of her financial circumstances, Courtney decided to abjure the inheritance. This would lead to her A) accepting the estate B) becoming the executrix of the estate C) disclaiming the IRA D) contesting the estate

disclaiming the IRA When one wishes to refuse the receipt of an IRA, the procedure is known as disclaiming the IRA.

In general, one of the first steps in becoming an agent for a broker-dealer is the completion of the Form U4. One piece of information that is not disclosed on the Form U4 is A) any other names used. B) disciplinary actions. C) education background and degrees earned. D) employment for the previous 10 years.

education background and degrees earned. There is no place on the Form U4 to indicate the applicant's education background. This can be confusing because if, during the previous 10 years, some of that time was spent in an educational institution, that is shown as part of the previous 10-year's employment history. However, that disclosure only indicates the name of the institution and dates attended; no mention is made of the course of study.

An intrastate offering is exempt from A) state registration B) federal registration C) blue-sky registration D) all registrations

federal registration

The compliance rules of the Investment Advisers Act of 1940 require all of the following EXCEPT A) annual compliance review B) appointment of a chief compliance officer (CCO) C) written compliance policies and procedures D) independent review of an advisory firm's compliance procedures

independent review of an advisory firm's compliance procedures

When advising an investor on the purchase of mutual funds, the agent should instruct the client to compare open-end mutual funds with the same objective for all of the following except A) services offered B) liquidity C) portfolio turnover D) costs

liquidity

The responsibility for administering the Investment Advisers Act of 1940 lies with A) the Administrator B) FINRA C) the Investment Advisers Association (IAA) D) the SEC

the SEC

One way in which closed-end management investment companies differ from open-end investment management companies is that A) they are federal covered securities B) they trade at a price independent of their net asset value C) they were in existence prior to 1940 D) their portfolio may contain common stock, preferred stock and debt securities

they trade at a price independent of their net asset value

Your 55-year-old client owns a nonqualified variable annuity. He originally invested $50,000 4 years ago. The annuity has grown to a value of $60,000. If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? A) $0.00 B) $3,000.00 C) $4,000.00 D) $4,500.00

$4,000.00 Because this is a nonqualified annuity (with no tax deduction), the client pays taxes only on the growth portion or, in this case, $10,000. The tax on this amount is $3,000. However, because the client is not yet age 59½ when making the withdrawal, he also pays a 10% tax penalty, or $1,000. This makes a total of $4,000 tax and tax penalty paid on the random withdrawal.

Under the Investment Advisers Act of 1940, what is the maximum fine that may be imposed for violating the act? A) $10,000 B) $1,000 C) $5,000 D) $20,000

$5,000 Any person who violates the act or SEC rules is subject to a fine of up to $10,000 and/or a prison term of up to 5 years. Note that this is different than the Uniform Securities Act, which provides for penalties of 3 years and $5,000.

Mr. Beale buys 10M 6.6s of 10 at 67. What will his annual interest be? A) $660.00 B) $1,000.00 C) $820.00 D) $670.00

$660.00 Interpret "10M" as "$10,000 worth of." Beale receives the nominal yield of the bonds, which is 6.6% of $10,000. The M is from the roman numeral for 1,000.

Without the need to meet any special conditions, a participant in which of the following retirement plans would be able to withdraw funds prior to age 59½ and not incur a 10% tax penalty? A) 401(k) B) 403(b) C) 457 D) 501(c)(3)

457 The 457 plan allows participants to withdraw funds at any time, not just after age 59½, without incurring the 10% tax penalty. Income taxes would, of course, be due, but no penalty.

Richard purchased a 30-year bond for 103½ with a stated coupon rate of 8.5%. What is the approximate yield to maturity for this investment if Richard receives semiannual coupon payments and expects to hold the bond to maturity? A) 9.36% B) 8.68% C) 8.50% D) 8.24%

8.24% No calculation is necessary here. Why not? Because anytime a bond is purchased at a premium over par (103½% is a premium), the YTM must be less than the nominal (coupon) rate. There is only one choice lower than 8.5%. It isn't about your computational skills; it is about your understanding the relationship between prices and yields.

Which of the following would be used to provide end-of-life instructions once a person becomes incapacitated? A) A living trust B) An incapacitated will C) A living will D) A durable power of attorney

A living will The purpose of a living will is to give clear instructions regarding end-of-life decisions, such as organ donation or when to "pull the plug." There is no such thing as an incapacitated will. A living trust deals with how assets are distributed, and a durable power of attorney grants authorization to a person to legally act on behalf of someone who cannot do so.

Which of the following compensation arrangements is typically NOT allowed under the Investment Advisers Act of 1940? A) An adviser charges all clients a set fee, regardless of how long it takes to generate a recommendation or a recommendation's results. B) An adviser charges clients a percentage of assets under management. C) An adviser waives a client's fee if the client experiences a loss for the year. D) An adviser varies fees according to the time spent managing the account.

An adviser waives a client's fee if the client experiences a loss for the year.

The Affray Compassionate Finance Company (ACFC) is offering $100 million of 150-day commercial paper for sale in State L. The paper is available in minimum denominations of $100,000 and has been rated AA by a leading rating organization. Who of the following would be required to register as an agent in State L in order to legally sell this security in the state? A) An investment adviser who recommends this security to clients. B) Because this security is exempt from registration, offers and sales can be made without registration as an agent. C) An agent of a broker-dealer registered in the state. D) An employee of the Affray Compassionate Finance Company who receives a 1% commission on sales.

An agent of a broker-dealer registered in the state. Those individuals who represent broker-dealers registered in the state must register as agents in that state if they wish to sell securities to that state's residents. It makes no difference what kind of security it is or to whom the security is being sold. Yes, this is an exempt security (less than 270 days' maturity; minimum $50,000 denomination; rating in the top 3 grades), but that only means that the security does not have to register. An exclusion from the definition of agent is given to those who represent issuers of certain exempt securities. Commercial paper is one of the 5 cases where this exclusion applies so ACFC's employee would not be defined as an agent. This is true even though compensation is being received. Investment advisers don't register as agents if all they do is give investment advice.

Which of the following securities is most likely to register by qualification in the state of Virginia? A) An offering of common stock by a Virginia-based corporation to Virginia residents only B) An offering of common stock by a Virginia-based corporation to residents of Virginia and the Carolinas C) An offering of common stock by a Virginia-based corporation that will be simultaneously registered at the federal level D) An offering of common stock by a Virginia-based corporation that will be offered on a nationwide basis

An offering of common stock by a Virginia-based corporation to Virginia residents only Although any issuer may register its securities at the state level by qualification, this cumbersome means of registration is mainly used in conjunction with intrastate (single state) offerings. If a security is offered by a corporation beyond its own home state, the issuer must register with the SEC at the federal level. Registration by qualification, while permitted, would be an unlikely choice.

Under the Uniform Securities Act, which of the following statements is TRUE regarding the Administrator's power to deny or revoke an exemption? A) The revocation may apply to a period prior to the date on which the revocation order was issued. B) The Administrator may not revoke the exemption of securities issued by a nonprofit corporation. C) In a proceeding to revoke an exemption, it is assumed that the exemption applies and the Administrator must prove that it does not apply. D) An order revoking an exemption may be issued without prior notice to the persons affected.

An order revoking an exemption may be issued without prior notice to the persons affected.

Minnie's Uncle Bob would like to contribute to his one-year-old niece's education expenses. He is able to contribute a maximum of $1,200 per year. There is no other family member in a position to make a contribution. If minimizing the taxes at withdrawal and low cost investing, such as index mutual funds, is the objective, which of the following would you recommend? A) Dollar cost averaging B) Section 529 plan C) UTMA D) Coverdell ESA

Coverdell ESA

The employer does not get a current tax deduction when offering which of the following retirement plans? A) SIMPLE plan B) Money purchase plan C) Defined benefit plan D) Deferred compensation plan

Deferred compensation plan

Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include -a charge when a client requests that a stock certificate be issued in his name -a commission charge when a client buys a security on a listed exchange -the interest charged by the firm on money owed by customers in their margin accounts -fees for providing advisory services to high net worth individuals

I and III 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.

The alternative asset investments class is least associated with which of the following characteristics? A) Nonnormal returns B) Illiquidity C) Diversification D) Efficient pricing

Efficient pricing Alternative assets are most often characterized by inefficient pricing, providing potential abnormal returns or alpha returns. That is the prime reason for their popularity, especially with institutional investors.

The Uniform Securities Act empowers the Administrator to begin proceedings to revoke the registration of an investment adviser when certain violations are suspected. Which of the following are considered serious enough to warrant a revocation? A) Being charged with commission of a securities-related misdemeanor B) Failure to obtain approval to maintain custody of client funds or securities C) Failure to supervise the activities of investment adviser representatives D) Being charged with commission of a felony involving a nonfinancial matter

Failure to supervise the activities of investment adviser representatives Among the many violations justifying a revocation is failure to supervise. Maintaining custody of customer funds or securities requires notification to the Administrator, not approval. It is only a conviction, not being charged of a crime, which would be cause for revocation.

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed? -Transaction-based compensation, such as commissions on recommended securities -12b-1 trails on no-load mutual funds in the client's portfolio -Expenses reimbursed by third-party sources -Compensation-sharing arrangements between the investment adviser and its representatives

I ,II, and III All forms of compensation, whether direct or indirect, must be disclosed. However, the method by which an adviser pays its representatives is an internal matter and not for public disclosure.

Under the Uniform Securities Act, which of the following is NOT defined as a security? A) Limited partnership unit B) Preorganization certificate C) Listed stock option D) Fixed annuity

Fixed annuity A fixed annuity is an insurance contract and is not considered a security under the USA. Options on stock, (listed or not), interests in limited partnerships, and preorganization certificates are all defined as securities under the USA.

Which of the following investments would NOT be considered an exchange-traded derivative? A) Forwards B) Warrants C) Futures D) Options

Forwards Forwards are never traded on an exchange; the other 3 choices can be traded OTC or on an exchange.

Employee contributions to a 401(k) plan are subject to -Social Security taxes -federal unemployment taxes -federal income tax withholding -state income tax withholding

I and II Employee contributions are excluded from taxable income at the time of contributions, which exempts them from income tax, but not from payroll taxes.

Under the NSMIA, the term "federal covered adviser" includes a person -registered with the SEC under the Investment Advisers Act of 1940 -registered as an investment adviser in two or more states -excluded from the definition of investment adviser under the Investment Advisers Act of 1940 -required to register with the state Administrator

I and III

Which of the following statements are TRUE? -The Uniform Securities Act is not the actual law of any state or territory of the United States. -The National Securities Markets Improvement Act of 1996 requires states and the federal government to have identical registration requirements. -The state securities Administrator has responsibility for the enforcement and administration of a state's securities law.

I and III The Uniform Securities Act is not the actual law of any state or territory. Rather, it is model legislation that states use as a guide in drafting their own securities laws. Those laws give the responsibility to the state Administrator for enforcement and administration of those laws. The NSMIA's purpose is to eliminate dual registration, not to require identical laws.

Which of the following describe unsystematic risk? -The risk that an individual stock will not perform well -The same as market risk -Can be diversified to lower risk -Cannot be diversified to lower risk

I and III Unsystematic risk is company risk, the risk that an individual investment will perform poorly. Systematic risk is market risk, the risk that the market will perform poorly, dragging one's portfolio along with it. Diversification will remove most unsystematic risk. The more stocks owned, the lower the risk that a poor performer will jeopardize the overall value of the portfolio.

Under the Uniform Securities Act, certain transactions are exempt from the sales literature and advertising filing requirements. Which of the following would be included in that category? -Any isolated, nonissuer transaction -Any sale to a financial institution -Any transaction by the executor of an estate -Any transaction between an issuer and underwriters

I, II, III, and IV

Which of the following statements regarding participant loans in a 401(k) plan are CORRECT? -The maximum allowable loan amount is the lesser of $50,000 or 50% of the participant's vested account balance. -Unless the loan is taken out for the purpose of a mortgage on the participant's principal residence, repayment must be completed within 60 months of obtaining the loan. -Payback of the loan will be through payroll deduction. -Default on the loan will result in the IRS treating the loan as a distribution.

I, II, III, and IV

A member of the investment banking department of ABC Securities is explaining some of the advantages and disadvantages of rights and warrants to the board of directors of XYZ Corporation. Which of the following statements could he make? -The exercise prices of stock rights are usually below the current market price of the underlying security at time of issue. -The exercise prices of warrants are usually above the current market price of the underlying security at time of issue. -Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value. -Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer.

I, II, III, and IV All are true statements. The exercise prices of stock rights are usually below the current market price of the underlying security at time of issue. The exercise prices of warrants are usually above the current market price of the underlying security at time of issue. Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value. Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer.

Which of the following securities is (are) exempt from state registration and filing of advertising materials? -New York City municipal revenue bonds -Montreal bonds guaranteed by the province of Quebec -Preferred stock of the National Bank, N.A., a member of the Federal Reserve System -Preferred stock of Local County Bank, organized and regulated solely by the banking laws of the state of Illinois

I, II, III, and IV Any security issued by a bank that is federally regulated is exempt under the USA. State banks are exempt if regulated by that state. Municipal bonds are exempt if issued by a municipality in the United States or Canada.

The National Securities Markets Improvement Act of 1996 (NSMIA) created a new definition known as a covered security. In general, these securities do not have to register on a state level. If XYZ common stock is listed for trading on the NYSE, which of the following XYZ securities are considered covered? -XYZ participating preferred stock -XYZ first mortgage bonds -Warrants to purchase XYZ common stock -Rights issued in advance of an offering of additional XYZ common stock

I, II, III, and IV Common stock listed on the New York Stock Exchange is a covered security as defined in the NSMIA. Furthermore, any security equal to or senior to that common stock is considered to be covered as well. Warrants and rights are equal to the common stock and the preferred stock and mortgage bonds are senior to the common stock.

According to the Uniform Securities Act, a person who sells securities in violation of state securities laws is civilly liable for which of the following? -Principal -Interest -Court costs -Attorney's fees

I, II, III, and IV The person illegally selling the securities is liable for the purchase price of the securities plus interest from the date of purchase, court costs, and reasonable attorney's fees. Punitive damages will not be assessed, but any income received from the securities will be subtracted from the total.

Securities regulators have taken a strong position on the need for registered broker-dealers to disclose the fees they charge. Among the most common ways for making this disclosure are presenting a chart with all of the fees preparing a list of all of the fees displaying the fees in tabular form A) I, II, and III B) I and II C) II and III D) I and III

I, II, and III

The definition of "offer" (offer to sell) includes which of the following? -An attempt to dispose of a security for value -A solicitation of an offer to buy an interest in a security for value -The actual sale of a security for value -An offer to dispose of a security for value

I, II, and IV The term "offer" (or offer to sell) is any activity in an effort to dispose of a security for value, such as the offer to sell or the solicitation of an offer to buy a security. The term "sale" or "sell" includes every contract of sale, contract to sell, or any disposition of a security for value.

Securities of which of the following issuers are exempt under the USA? National banks State banks Bank holding companies Federal savings and loan associations A) I, II, and IV B) I and II C) I, II, III, and IV D) I only

I, II, and IV Under the USA, the registration exemption for bank-issued securities is justified by strict financial requirements imposed on banks by banking industry regulators such as the FDIC, the Comptroller of the Currency, and the Federal Reserve. Both federal and state banks and federal savings and loan associations are subject to such regulation. However, bank holding companies (as separate legal or corporate entities) are subject to state registration if not otherwise exempt. Thus, securities issued by bank holding companies are not exempt securities under the act.

Tax considerations are frequently an important factor when determining appropriate recommendations for advisory clients. In which of the following accounts is the tax status of the individual a critical factor? -An account opened in the name of the XYZ Corporation, organized as a C corporation, by their chief investment officer -An account opened by a sole proprietor in the name of the company -An account opened in the name of ABC Corporation, an S corporation by one of its shareholders -An account opened in the name of the GHI Fund, a regulated investment company, by the fund's portfolio manager

II and III Sole proprietorships and S corporations have their income and losses pass through to the owners. Therefore, an account opened in the name of the business will create tax consequences for the owners. Regular, or C corporations, pay taxes on their earnings and, even though a regulated investment company passes through at least 90% of its earnings to shareholders, the tax situation of each individual shareholder of the fund is of no consideration when making recommendations to the fund's portfolio manager.

A registration of an IAR can be denied or revoked if it is in the public interest and the registrant fails to include the fact that he had been convicted of a non-securities-related misdemeanor within the last 2 years the registrant has willfully violated the securities laws of a foreign jurisdiction the registrant is qualified on the basis of knowledge and training but lacks requisite experience the registrant has engaged in dishonest or unethical practices in the securities business

II and IV

A registration of an IAR can be denied or revoked if it is in the public interest and -the registrant fails to include the fact that he had been convicted of a non-securities-related misdemeanor within the last 2 years -the registrant has willfully violated the securities laws of a foreign jurisdiction -the registrant is qualified on the basis of knowledge and training but lacks requisite experience -the registrant has engaged in dishonest or unethical practices in the securities business

II and IV Just cause for denial, suspension, or revocation of an IAR's license would include engaging in dishonest or unethical practices in the securities business and willfully violating the securities laws of a foreign jurisdiction. Failure to include convictions for a securities-related misdemeanor (or any felony) constitutes filing an incomplete or misleading application and that too would be just cause for taking action. Don't confuse this with the 10-year rule. These convictions must always be disclosed; 10 years is the time period during which it is almost a sure thing that the application will be denied. An Administrator may not deny a registration solely on the basis of lack of experience.

Terry Bolton opens a UTMA for each of his sons, Josh, age 12, and Drake, age 14. Under current tax regulations (2020 and beyond), after deductions and exemptions, how will the income in the UTMAs be taxed? -Josh's income is taxed at his tax rate. -Drake's income is taxed at his tax rate. -Josh's income in excess of $2,200 is taxed at Terry's marginal tax rate. -Drake's income in excess of $2,200 is taxed at Terry's marginal tax rate.

III and IV Because the income on the UTMAs is not considered to be earned income, the kiddie tax rules apply. Currently (2020 and beyond, but indexed), children younger than 19 having such income in excess of $2,200 are subject to tax at the parent's marginal tax rate. That means if the parent is in the 32% income tax bracket, the children's excess income will be taxed at 32%.

Under the Securities Act of 1933, the definition of prospectus includes an offer of a security made orally a tombstone advertisement for a new issue of common stock an offer of a security made in an email communication A) III only B) I, II, and III C) I and III D) II and III

III only 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.

With regard to the Uniform Securities Act, which of the following statements regarding the omission of a material fact by an agent is NOT true? A) It is a violation because it is a unethical or fraudulent practice. B) It is a violation even if the client failed to make a transaction. C) It is a violation even if material facts were unknowingly omitted. D) It is not a violation if the security is exempt from registration under the Uniform Securities Act.

It is not a violation if the security is exempt from registration under the Uniform Securities Act.

An IAR is registered in New York and Vermont. While working in his New York office, he places a call to the cell phone of one of his clients, who happens to be on vacation in Ohio. After describing the reasons for a particular stock recommendation, the client asks the agent to call back tomorrow. The agent does so and reaches the client in Indiana. The client decides to purchase 100 shares of the stock. When the client arrives home, he notices that he has already received his stock certificate from the transfer agent located in Illinois. In this case, which Administrator does NOT have jurisdiction? A) Ohio B) New York C) Indiana D) Illinois

Illinois The Administrator has jurisdiction from the state in which the offer was made (NY), received (OH), and accepted (IN). Mailing of the certificate is of no consequence.

Which of the following is an example of dollar cost averaging? A) Buying shares of the KAPCO Growth Fund when the price is declining and selling shares when the price is rising B) Purchasing 25 shares of the KAPCO Growth Fund on the 15th of each month C) Maintaining a constant dollar plan in the KAPCO Growth Fund D) Investing $200 into the KAPCO Growth Fund on the 15th of each month

Investing $200 into the KAPCO Growth Fund on the 15th of each month Dollar cost averaging is an investment plan where a fixed amount of money is invested on a regular basis. This automatically results in more shares being acquired when the market price is low and fewer shares purchased when the market price is high.

Paradime Investment Group (PIG), an SEC-registered broker-dealer with offices in 22 states, has recently begun offering a wrap fee program. When promoting this new program to existing brokerage clients, it would be appropriate to point out that the wrap fee charges cover which of the following services? A) Free ATM usage for PIG's debit card and wiring funds to the client's bank B) Research reports and seminar fees C) Investment advice and execution of brokerage transactions D) Financial planning and securities recommendations

Investment advice and execution of brokerage transactions

What happens to outstanding fixed-income securities when interest rates decline? A) Coupon rates increase B) Prices increase C) Yields increase D) No change

Prices increase When interest rates drop, prices will rise, decreasing effective yield. Thus, there is an inverse relationship between interest rates and bond prices.

A client has been contributing to a periodic payment annuity for 20 years. The M&E charge is 1.25% per year. What happens to that charge when the client annuitizes at attained age 68? A) It increases because the client's mortality risk is higher at the older age B) It ceases C) It continues D) It continues but at a reduced rate

It ceases The M&E charge is for mortality and expenses. Once an annuity contract, fixed or variable, is annuitized, that charge no longer applies to the account. There may be an internally computed charge, but unlike the accumulation period, the charge is not broken out separately.

What would be the time horizon for a 65-year-old client who has just retired? A) None, because 65 is the age for retirement. B) It depends on the individual's insurance company's actuarial tables. C) It depends on the individual's available assets. D) It depends on the individual's life expectancy.

It depends on the individual's life expectancy. The time horizon for an individual who has just retired is the balance of expected life

Which of the following statements regarding a qualified profit-sharing plan is TRUE? A) Contributions are required annually. B) It must be established under a trust agreement. C) It must define a specific contribution amount. D) It can permit regular direct cash payouts to participants before retirement.

It must be established under a trust agreement All qualified retirement plans must be established under a trust agreement. Contributions with this type of plan are not required annually, nor can the plan make direct cash payouts to participants before retirement.

Which of the following statements is NOT true? A) Limited partners are not liable for funds in excess of the amounts they have invested or otherwise committed for. B) It is the general partners rather than the limited partners who bear the liability for partnership debt. C) Management of the enterprise is solely within the jurisdiction of the general partner(s). D) Limited partners have the option of actively managing the business operations.

Limited partners have the option of actively managing the business operations.

Nurturing growth of the enterprise would be the objective of which of the following types of investments? A) Growth fund B) Private fund C) Investment adviser D) 529 plan

Private fund Private funds invest into companies where the objective is to use their money and business acumen to grow the company to the point where the fund's holding can be sold at a large profit. Growth funds are looking for growth, but take no role in the operations of the companies in which they invest.

Which of the following would NOT be included in the USA's definition of "exempt transaction"? A) Isolated nonissuer transactions B) Sales of registered nonexempt securities by agents to their individual clients C) Limited offerings to no more than 10 retail clients in the state during a 12-month period D) Transactions initiated by fiduciaries

Sales of registered nonexempt securities by agents to their individual clients The term "exempt transaction" includes sales by fiduciaries, private placements and isolated nonissuer transactions. Any solicited sale to an individual client, even of a properly registered security, is not an exempt transaction.

oan owns and operates a jewelry store, and she has contracted to purchase 5,000 Swiss watches, paying the watch manufacturer in Swiss francs 3 months from the date of contract. To protect (hedge) her currency risk, she purchases call options on Swiss francs. Which of the following statements best describes her transaction in the Swiss franc calls in light of the USA? A) She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA. B) She has not engaged in a securities transaction because she purchased the options to hedge a business risk. C) She has not engaged in a securities transaction because options on foreign currencies are not considered to be securities under the USA. D) She has engaged in a prohibited transaction because American investors are generally prohibited from trading in foreign currencies under the USA.

She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA. Options, regardless of the underlying asset, are considered securities under the USA.

Which of the following practices is considered unlawful under the Uniform Securities Act? A) Soliciting orders for unregistered, nonexempt securities B) Claiming an agent is registered and authorized to conduct business in the state in which he practices C) Accepting indications of interest in securities that are in the process of registering with the SEC D) Not disclosing to a client within 48 hours of entering into an advisory contract that the adviser's brother was recently convicted of a securities-related felony

Soliciting orders for unregistered, nonexempt securities

Which type of individual account allows for investments held in that account to go straight to a named beneficiary outside of probate? A) Account titled JTWROS B) Testamentary account C) TOD account D) Advisory account

TOD account A simple way for an individual account owner to ensure that the assets in the account pass directly to the named beneficiary is to use the Transfer on Death (TOD) option. Although the assets in a JTWROS account pass to the survivor without probate, the question specifies an individual, not a joint account.

Which of these is an advantage of using a Coverdell ESA rather than a 529 plan to fund a child's future education? A) Contributions to the Coverdell are eligible for the annual gift tax exclusion. B) The Coverdell has greater tax advantages. C) The Coverdell allows for transfer of beneficiary. D) The Coverdell offers greater investment flexibility.

The Coverdell offers greater investment flexibility

Under the Securities Exchange Act of 1934, which of the following statements is NOT true about the authority of the SEC to investigate violations of securities laws? A) The SEC may investigate violations of the Securities Act of 1933. B) The SEC may investigate violation of the Securities Exchange Act of 1934. C) The SEC may investigate violations of the Uniform Securities Act. D) The SEC may investigate violations of FINRA's rules.

The SEC may investigate violations of the Uniform Securities Act.

If an agent solicits a client to purchase nonexempt, unregistered securities, and the solicitation results in a sale, which of the following statements is NOT true? A) The broker-dealer who employs the agent may be sued. B) The employing broker-dealer must offer the right of rescission within 30 days of discovery. C) The broker-dealer may be sued if the client loses money, but if money is made the client may keep it. D) The agent may be subject to civil penalties.

The employing broker-dealer must offer the right of rescission within 30 days of discovery

An agent and a broker-dealer maintain wrap fee accounts for several of their customers. Which of the following registrations is required? A) The agent must be registered as an investment adviser. B) Only the registered principal would need to be registered in the state(s) in which they do business. C) The firm must register as an investment adviser. D) Neither the broker-dealer nor the agent is required to have any license other than their regular securities license.

The firm must register as an investment adviser. Once a broker-dealer handles wrap fee accounts, it loses the exclusion from the definition of investment adviser. Therefore, the firm must be registered with either the state or the SEC. Any agents handling these accounts would be registered as investment adviser representatives.

ABC Investment Company shares are trading at $13.80 on a per-share basis. The net asset value per share is $12.00. Which of the following conclusions correctly defines the relationship between trading price and NAV? A) The fund's shares are trading at a premium of 15% to the NAV. B) The fund's shares are trading at a discount of 15% to underlying NAV. C) The value of $13.80 is calculated as total assets minus total liabilities divided by total outstanding shares. D) NAV per share is calculated as per-market demand and supply for the fund's shares.

The fund's shares are trading at a premium of 15% to the NAV.

Which of the following statements accurately captures the significance of the Sharpe ratio? A) The higher the Sharpe ratio is, the better the risk-adjusted performance of the portfolio. B) Its use is limited to portfolios rather than individual securities. C) It measures the degree to which the fund's performance can be attributed to the index against which it is benchmarked. D) It measures the dispersion of the fund's returns over a period of years.

The higher the Sharpe ratio is, the better the risk-adjusted performance of the portfolio. The Sharpe ratio measures the fund's return over and above the risk-free rate. The higher the Sharpe ratio, the better the risk-adjusted performance of the portfolio and the greater the implied level of active management skill.

Which of the following circumstances would require an investment adviser to notify all clients of the firm? A) A partner of the firm was disciplined by the firm. B) The investment adviser hires another partner for the firm. C) The investment adviser acquires the accounts of another firm. D) The investment adviser opens a branch office in another state.

The investment adviser hires another partner for the firm

A pension consultant who advises corporate retirement plans with assets of $135 million must register with which of the following? A) Both the state and the SEC B) SEC C) Either the state or the SEC D) The state

The state Under the Dodd-Frank Bill, until a pension fund manager has at least $200 million in AUM, registration with the states is required. Once the $200 million level is reached, SEC registration becomes an option.

nder the UTMA, which of the following statements is NOT true? A) An UTMA account may have only one custodian for only one minor. B) Only an adult can make a gift to a minor. C) Once a gift is given to a minor, it cannot be reclaimed. D) The maximum amount of money an adult can give to a minor in any one year is $15,000

The maximum amount of money an adult can give to a minor in any one year is $15,000 Any adult can give a gift to a minor in a custodial account. There is no limitation on the size of the gift. However, any gift in excess of $15,000 (or such higher number as indexing provides for) will possibly subject the donor to a gift tax liability.

Transactions meeting certain conditions are exempt from the Uniform Securities Act's registration and advertising filing requirements. Which of the following transactions does NOT meet those conditions to qualify as an exempt transaction? A) The sale of U.S. government securities to a retail client's IRA by a registered government securities dealer B) A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid C) A sale of securities by the executor of an estate D) An offer of a security for which a registration statement has been filed but has not yet become effective

The sale of U.S. government securities to a retail client's IRA by a registered government securities dealer In the sale of U.S. government securities to a retail client, the security is exempt, but the transaction is not. Had the sale been to an institutional client, it would have been exempt. An offer is not a transaction.

A customer suspiciously makes deposits totaling $12,000 in 4 installments of $3,000 each. This attempt to circumvent the currency reporting rules is known as A) layering. B) laddering. C) structuring. D) placement.

structuring.

Which of the following is generally believed to present a more accurate picture of a portfolio manager's performance? A) Dollar-weighted return B) Time-weighted return C) Real rate of return D) Net present value

Time-weighted return

Securities traded in which of the following marketplaces would be excluded from the definition of federal covered securities? A) NYSE American LLC (formerly known as the American Stock Exchange [AMEX]) B) Toronto Stock Exchange C) New York Stock Exchange D) Nasdaq Stock Market

Toronto Stock Exchange

Which of the following documents must an existing customer sign to establish a discretionary account? A) Customer's agreement B) Trading authorization C) New account application D) Options agreement

Trading authorization

When saving money for a child's college education, one consideration is the impact that those savings will have on the child's eligibility for financial aid. Funds saved in which of the following vehicles has the most detrimental effect on financial aid? A) UTMA B) Section 529 C) Coverdell ESA D) Prepaid tuition plan

UTMA Assets held in custodial accounts (UTMA or UGMA) are counted at 20% of their value, which compares unfavorably with the 5.64% valuation of Section 529 or Coverdell ESA assets. Please note: It is highly unlikely that you will need to know the percentages - but you will need to know that custodial accounts do not receive as beneficial treatment when applying for financial aid.

According to the USA, under what circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent? A) The securities are federal covered securities. B) The employee is not paid any commission or salary. C) The transaction is exempt. D) Under no circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent.

Under no circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent.

A risk faced by many seniors is longevity risk. What security would be most appropriate to protect against that risk? A) Common stock B) Fixed annuity C) Variable annuity D) REIT

Variable annuity Longevity risk is the uncertainty that one will outlive his money. The only instrument that guarantees a payout for as long as one lives is an annuity. Because the question asks for a security, only the variable annuity is correct, otherwise the fixed annuity would also offer protection.

​Oscar and Hilda, a married couple, are collecting Social Security. They speak to their financial planner for advice on taxation of those benefits. At what level do their benefits become subject to income tax?​ A) When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $32,000 B) When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $25,000 C) When 50% of their benefits added to all their other income, excluding tax-exempt interest, exceeds $32,000 D) When 50% of their benefits added to all their other income, excluding tax-exempt interest, exceeds $25,000 Explanation

When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $32,000 These are the current numbers used by the IRS to determine if Social Security benefits are taxable. It is interesting that the computation indirectly can cause tax-exempt interest to become taxable. Once the couple's income under this computation exceeds $44,000, 85% of it is taxable. If the question dealt with a single person, the limit would be $25,000 rather than $32,000.

Patrice has an investment portfolio with the following characteristics: Portfolio actual return: 9% Market actual return: 12% Portfolio standard deviation: 4% Market standard deviation: 7% Portfolio beta: 0.65 Risk-free rate of return: 3% What is her portfolio's alpha? Did her portfolio outperform the market on a risk-adjusted basis? A) With an alpha of -0.15%, her portfolio underperformed the market. B) With an alpha of 0.15%, her portfolio outperformed the market. C) With an alpha of 5.10%, her portfolio outperformed the market. D) With an alpha of -5.10%, her portfolio underperformed the market.

With an alpha of 0.15%, her portfolio outperformed the market. As with most computation questions, there is more than one way to arrive at the answer. Using the steps in the LEM (U10LO4), Alpha - (total portfolio return minus risk-free rate) minus (portfolio beta times [market return minus risk-free rate]). Plugging in the numbers, we have (9% - 3%) - (.65 times [12% minus 3%]) = 6% - (.65 x 9%) = (6% - 5.85% = 0.15%

All of the following are true about education funding plans EXCEPT A) proceeds in 529s may be withdrawn income-tax free only if used at a qualified academic institution B) proceeds in ESAs may be withdrawn income tax free for qualified education expenses even if the child is under age 18 C) Section 529 plans allow a gift tax exclusion equal to five times the annual limit that may be repeated every 5 years D) a beneficiary of an ESA who withdraws the funds for nonqualified expenses will be taxed on the entire amount of the withdrawal plus a 10% penalty

a beneficiary of an ESA who withdraws the funds for nonqualified expenses will be taxed on the entire amount of the withdrawal plus a 10% penalty The tax and 10% penalty is only levied against earnings since the contributions were made with after-tax dollars. ESA's may be used for any level of education, including elementary school where it is hoped that the student would be under age 18. In order to receive the favored tax treatment, the proceeds must be used at a qualifying educational institution. Section 529 plans have the unique 5-year front-loading feature.

Early in the year, an investor purchased shares of the GEMCO Fund at $10.40 per share when the net asset value per share was $9.53. Just before the last trading day of the year, this investor liquidated the position at $10.60 per share when the net asset value per share was $10.77. From this, you can discern that GEMCO Fund is A) a closed-end investment company B) a face-amount certificate company C) a unit investment trust D) an open-end investment company

a closed-end investment company It is only the closed-end investment company where shares trade at a premium or discount to the NAV per share.

A broker-dealer registered with State A created a website 2 years ago to promote its services. Recently, they hired a new media person who totally redesigned the site. Under the recordkeeping requirements of the Uniform Securities Act, A) a copy of the new website page must be maintained for a period of 3 years from the first use of the original site B) copies of both the original and the new website page must be maintained for 5 years after original use C) there are no requirements for storage of electronic data D) a copy of the original website page must be maintained for 3 years from original use

a copy of the original website page must be maintained for 3 years from original use

A securities transaction where there is no benefit to the issuer is called A) an issuer transaction B) a nonprofit transaction C) a primary transaction D) a nonissuer transaction

a nonissuer transaction

As a federal covered security, the KAPCO Growth Fund is required to notice file under the laws of State A. State A's Administrator can require the issuer to provide copies of A) the schedule of compensation to the fund manager B) a listing of the officers and directors of the issuer C) a report of the amount of the federal covered security sold in the state D) proxy statements

a report of the amount of the federal covered security sold in the state

A U.S. citizen owns stock in a Canadian company and receives dividends. The Canadian government withholds 15% of the dividends as a tax. As a result, the investor reports A) a reduction in the investor's ordinary income B) a tax credit on the investor's Canadian tax return C) a tax credit on the investor's U.S. tax return D) a nonrecoverable loss on the investor's U.S. tax return

a tax credit on the investor's U.S. tax return An investor receives a credit for taxes withheld on investments by countries with which the United States has diplomatic relations; the tax credit directly decreases the investor's American tax liability.

Under the provisions of the USA, all of the following transactions are exempt EXCEPT A) liquidation of a security pledged as collateral for a loan B) transactions by executors C) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made D) transactions in preorganization certificates if no commission is paid, no subscriber makes any payment, and the number of subscribers does not exceed 10

a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made A transaction pursuant to an offer by an issuer to no more than 10 noninstitutional persons in the state would qualify as a private placement and would be exempt. However, unlike a preorganization certificate, the subscribers do pay for their purchases. All the other transactions are exempt.

All of the following activities comply with the requirements for agency cross transactions EXCEPT A) an adviser sends an annual statement to clients that reveals the total number of agency cross transactions for the client and the total amount of commissions the adviser received from those transactions B) before obtaining a client's written consent in an agency cross transaction, the adviser must disclose that it will receive commissions from both parties and that the transactions involve a conflict of interest C) a client consents (in writing) to the adviser's dual role in the transaction as both adviser to the client and broker to the other party D) after proper written disclosure, an adviser recommends the transaction to both the seller and the buyer

after proper written disclosure, an adviser recommends the transaction to both the seller and the buyer An adviser cannot recommend a trade to both buyer and seller in an agency cross transaction, a transaction in which the adviser acts on behalf of both buyer and seller. The adviser can act as broker to both parties upon proper written disclosure and consent, provided the adviser did not recommend the transaction to both sides.

An investment adviser runs an advertisement in the business section of the local newspaper. The ad describes the nature of the firm's model portfolio and indicates that it has outperformed the overall market by 800% over the past 10 years, and the firm therefore guarantees that clients will more than keep pace with inflation. At the bottom of the ad, in smaller print, is the following statement: "Results are not guaranteed. Past performance is not indicative of future results. These results are not normal and cannot be expected to be repeated." This is an example of A) an improper hedge clause B) a properly worded disclaimer C) a wrap fee account D) a violation of an investment adviser's fiduciary responsibility

an improper hedge clause Hedge clauses may not be used to disclaim statements that are inherently misleading.

A disadvantage of a defined benefit pension plan to the employee is that A) the funds are an integral part of the retirement planning process. B) the risk of fund performance is borne by the employer. C) the individual is guaranteed a payout at the time of her retirement by her employer. D) at retirement, the employee may not be earning as much as when he was at her peak earning power.

at retirement, the employee may not be earning as much as when he was at her peak earning power. In defined benefit pension plans, the retirement benefit is based on two factors: the final salary and the number of years of service. In some cases, earnings are reduced in those final years before retirement as the employee moves to a less stressful position. Because the benefit is defined, the employer bears the investment risk.

One of your clients just inherited some money and wishes to invest $250,000 into the GEMCO International Equity Fund. The client is attracted to the Class B shares because there is no up-front sales charge on them while the Class A shares have a 3% front-end load. The appropriate response would be that A) you feel so strongly that the Class A shares represent a more attractive solution for the client that you will rebate your share of the commissions B) because of the higher 12b-1 charges levied against the Class B shares as well as the CDSC, Class A shares are recommended for a purchase of this size C) the client is doing the smart thing by avoiding the sales charge, even though you will be losing out on the opportunity to earn a nice commission D) as long as the client will hold the Class B shares no longer than 4 years, the higher 12b-1 fees will be much less than the load paid on the Class A shares

because of the higher 12b-1 charges levied against the Class B shares as well as the CDSC, Class A shares are recommended for a purchase of this size

Under the Uniform Securities Act, all of the following are exempt from registration EXCEPT A) airport authority bonds B) airplane equipment trust certificates C) securities issued by a 501(c)(3) nonprofit religious organization D) common stock only sold intrastate

common stock only sold intrastate Local companies that issue common stock sold only within the state must register their securities with the state Administrator. Airport authority bonds, airplane equipment trust certificates, and securities issued by religious organizations are exempt from registration with the state Administrator.

All of the following statements regarding futures contracts are correct EXCEPT A) purchasing a contract for future delivery is considered taking a long position. B) futures contracts can be written on financial assets or commodities. C) a short position will increase in value if the underlying commodity or asset declines in value. D) completing a futures contract requires the delivery of the commodity.

completing a futures contract requires the delivery of the commodity. In almost all cases, the holder of the futures contract will purchase an offsetting contract canceling the original position or sell the contract prior to expiration. In isolated cases, delivery of the commodity may be made but is not required. Futures contracts can be written on financial assets such as currencies and stock indexes, as well as on commodities such as agricultural products or precious metals. As with anyone taking a short position, the value goes up when the price of the underlying asset declines. And, just as purchasing a stock or bond, a long position represents one of ownership.

A client of a broker-dealer calls his agent and submits an order to purchase 1,000 shares of a Peruvian copper mining company. As the order ticket is being prepared, the agent notices that this is a nonexempt unregistered stock. The agent should A) continue to process the order because this is an exempt transaction B) continue to process the order because this is an exempt security C) inform the client that no orders for this stock may be accepted until it is properly registered in the state D) wait for firm approval before processing the order

continue to process the order because this is an exempt transaction Transactions resulting from unsolicited orders are exempt under the USA. Therefore, this order may be taken as placed.

Each of the following are advantages offered by a nonqualified deferred compensation plan that are not found in a qualified plan EXCEPT A) they are an attractive benefit to the employer because participation requirements and nondiscrimination restrictions do not apply. B) they are an attractive benefit for highly compensated employees because they're free from the contribution limits. C) employer contributions to the plan are not subject to current taxation to the employee. D) deferred compensation plans are not subject to most of the requirements of the Employee Retirement Income and Security Act of 1974 (ERISA).

employer contributions to the plan are not subject to current taxation to the employee.

A client is interested in purchasing a REIT and asks you what the differences are between a listed REIT and an unlisted REIT. You could respond that all of the following are differences EXCEPT A) suitability requirements B) fees and expenses C) regulatory oversight D) liquidity

fees and expenses

Section 404(c) of ERISA deals with A) eligibility requirements B) distribution options C) tax qualification of the plan D) fiduciary responsibilities

fiduciary responsibilities

Witherspoon, Eustis, and Brahmin (WEB), an investment banking firm and SEC-registered investment adviser, is the principal underwriter for MTEX's upcoming stock issue. Lynn Black is an analyst and IAR with WEB, and she learned from an employee in MTEX's programming department that a serious problem was recently discovered in the software program of its major new product line. In fact, the problem is so bad that many customers have canceled their orders with MTEX. Black checked the stock's prospectus and found no mention of this development. The red herring prospectus has already been distributed. According to WEB's required code of ethics, Black's best course of action is to A) notify potential investors of the omission on a fair and equitable basis. B) inform her immediate supervisor at WEB of her discovery. C) keep quiet because this is material nonpublic inside information. D) report her discovery to the Administrator of the state where MTEX's principal office is located.

inform her immediate supervisor at WEB of her discovery.

The Investment Company Act of 1940 allows a majority vote of outstanding shares of a registered investment company to authorize the fund to do all of the following EXCEPT A) change the objectives of the fund B) change from an open-end to a closed-end investment company C) invest in securities consistent with the fund's objectives D) change the nature of its business and cease to be an investment company

invest in securities consistent with the fund's objectives Shareholder approval is not necessary to authorize the fund to invest consistent with the fund's objectives; it is required as part of the contract with the fund's investment adviser. Under the Investment Company Act of 1940, a vote of the majority of outstanding shares may approve changing from an open-end to a closed-end company, changing the investment objectives of the fund, and deciding to cease to be an investment company.

Under the USA, each of the following is specifically excluded from the definition of a broker-dealer EXCEPT an A) investment adviser B) international bank C) issuer D) agent

investment adviser 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.

The Uniform Securities Act gives the Administrator the authority to do all of the following EXCEPT A) issue cease and desist orders B) conduct hearings C) examine the records of a broker-dealer, regardless of the state where those records are located D) issue injunctions

issue injunctions Only a court of competent jurisdiction has the power to issue an injunction.

Broker-dealers are required to furnish clients with a fee disclosure document. All of the following are true statements about that document except A) changes to the fee schedule may be shown on the firm's website. B) it must be up-to-date. C) it must be filed with the Administrator of the state in which the broker-dealer's principal office is located. D) changes to the fee schedule must be announced in advance.

it must be filed with the Administrator of the state in which the broker-dealer's principal office is located. There is no requirement that the fee schedule be filed with the Administrator. It must be up-to-date and any changes must be announced in advance (usually a minimum of 30 days). There are a number of ways to disclose the fees, the firm's website is one of them.

One would look at the average maturities when doing a cash flow analysis for A) mortgage-backed pass-through securities B) Brady bonds C) revenue bonds D) subordinated debentures

mortgage-backed pass-through securities Mortgage-backed pass-through securities pass through interest and principal payments to their investors. The rate at which the cash flows are generated depends, among other things, on the rate at which the mortgages mature.

Commodities contracts are available on A) platinum. B) diamonds. C) pearls. D) emeralds.

platinum. You might like diamonds, pearls, emeralds, and rings with those stones mounted in a platinum setting. Only platinum is a precious metal with commodity contracts available.

General industry practice is that mutual funds compute their net asset value per share A) hourly whenever the New York Stock Exchange is open. B) once per day as of 2 p.m. Eastern time. C) once per day as of 4 p.m. Eastern time. D) once per week as of the close of the market on Friday.

once per day as of 4 p.m. Eastern time.

One way in which universal life and variable life are similar is that both A) have flexible premiums B) permit loans against the cash value C) are considered securities D) have a fixed minimum cash value

permit loans against the cash value As long as the policy has cash value, loans are permitted. Neither of these has a fixed minimum cash value, and only universal life has flexible premiums. Only variable life is considered a security.

An agent is employed by a broker-dealer that sets a high minimum net worth requirement for clients to open margin accounts. In an effort to ensure that a client qualifies, the agent adds $100,000 to the value of the client's assets. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this would be A) permitted because margin trading can lead to greater client profits B) prohibited because margin trading is not suitable for this client C) prohibited because the agent is entering fictitious information on the client account form D) prohibited only if this is done without the client's written consent

prohibited because the agent is entering fictitious information on the client account form

All of the following are examples of unsystematic risk EXCEPT A) political risk B) financial risk C) tenure risk D) purchasing power risk

purchasing power risk Unsystematic risk, also known as diversifiable risk, affects only a particular company, country, or sector and its securities. Purchasing power risk is an example of systematic risk that affects the certainty of returns associated with any investment—most particularly, fixed income. Political and financial risk would be considered unsystematic and there is no formal classification known as tenure risk, although some mutual funds whose advisers have a short tenure, might be considered to have that kind of risk. If that were to be considered, it would still be an unsystematic risk.

A federal covered investment adviser is a person A) registered under the Uniform Securities Act B) registered with North American Securities Administrators Association (NASAA) C) registered, or excluded from the definition, under the Investment Advisers Act of 1940 D) exempt from regulation under the Securities Exchange Act of 1934

registered, or excluded from the definition, under the Investment Advisers Act of 1940

Included among the powers of the Administrator is the ability to A) sentence an investment adviser representative who has been convicted of fraud to a prison sentence, not to exceed 3 years B) deny the registration of a securities professional, if doing so is in the public interest C) request the court to appoint a receiver to freeze the bank accounts of a broker-dealer who is the subject of an injunction D) arrest an agent who violates the USA

request the court to appoint a receiver to freeze the bank accounts of a broker-dealer who is the subject of an injunction In order to deny a registration, not only must it be in the public interest, but there must be some other issue, such as insolvency, incomplete application, et cetera. Although the maximum prison sentence under the USA is 3 years, it is the courts that do the sentencing, not the Administrator.

All of the following are exempt securities under the Uniform Securities Act EXCEPT A) securities issued by a federal savings and loan association B) securities issued by a bank holding company C) securities issued by the Canadian government D) securities issued by a Canadian province

securities issued by a bank holding company Securities issued by a bank are exempt. However, this answer refers to a bank holding company that is considered to be an ordinary company subject to state registration if not otherwise exempt.

Under the NASAA Model Rule on Custody Requirements for Investment Advisers, an investment adviser who has custody of client securities or funds must do all of the following EXCEPT A) if not held by a qualified custodian, deposit client funds into one or more bank accounts, not commingled with adviser funds, and notify the clients in writing of where and in what manner the funds are held B) notify the Administrator in writing C) have client funds and securities examined at least once a year by an independent public accountant on a surprise basis D) send clients semiannual, itemized statements detailing the funds and securities in the adviser's custody at the end of the period and all transactions during the period

send clients semiannual, itemized statements detailing the funds and securities in the adviser's custody at the end of the period and all transactions during the period The adviser must send clients quarterly, itemized statements listing the funds and securities in the adviser's custody at the end of the period and all transactions during the period.

Under the Uniform Securities Act, the Administrator may designate another officer to A) set recordkeeping requirements B) grant registration exemptions C) serve subpoenas D) issue a cease and desist order

serve subpoenas An official designated by the Administrator may serve subpoenas because that is basically an administrative function; however, an Administrator may not designate another official to grant registration exemptions or issue cease and desist orders. The recordkeeping requirements are set by law and cannot be altered by the Administrator.

Mary is a bowling buddy of Susan, a covered investment adviser. Mary refers Amanda, a wealthy widow, to Susan, and after a very pleasant meeting, Amanda places $15 million under management with Susan. If Susan were to give Mary a cash payment for the referral, A) only Susan would have to make disclosure to Amanda B) she would have to obtain Mary's permission first C) she would be engaging in an prohibited practice D) both Susan and Mary would have to disclose the cash payment to Amanda

she would be engaging in an prohibited practice

Tax preference items are used for the purpose of computing the alternative minimum tax. They include all of the following except A) straight-line depreciation. B) accelerated depreciation. C) certain incentive stock options. D) excess intangible drilling costs.

straight-line depreciation.

Each of these would be considered an advantage of using a 529 plan rather than a Coverdell ESA to fund a child's future education except A) the 529 plan allows for higher contribution levels. B) the 529 plan has no age limits. C) the 529 plan has no earnings limitation on the donor. D) the 529 plan is counted at a lower percentage of assets when applying for financial aid.

the 529 plan is counted at a lower percentage of assets when applying for financial aid. Funds in both plans are counted as assets of parents at 5.64% if owner is a parent or dependent student, so there is no difference. The 529 plan allows for far greater contribution levels and there is no income limitation on the donor as exists with the Coverdell ESA. The funds in the ESA must be used by the time the beneficiary is 30; no such age restrictions apply to the 529 plan.

The SEC has enumerated specific items that must be included in Investment Adviser written compliance manuals EXCEPT A) the advisory firm must monitor the consistency of portfolios with guidelines established by clients, disclosures, and regulatory requirements B) the advisory firm must review policies and procedures at least on an annual basis C) the advisory firm should indicate the educational requirements necessary for employment D) the advisory firm should implement procedures for allocating investment opportunities such as best executions among clients

the advisory firm should indicate the educational requirements necessary for employment

Suzie McQueen has a very successful interior design shop she has run as a sole proprietorship. She has just celebrated her 60th birthday and has been giving thought to an eventual sale of the business. She wants your opinion on whether she should incorporate or change to a partnership. You might respond that A) the corporate form of business structure would be the easiest for ultimate transfer of ownership B) the corporate form of business structure would be the least expensive to form C) the partnership form of business structure would be the easiest for ultimate transfer of ownership D) the partnership form of business structure would enable Suzie to maximize her sale price

the corporate form of business structure would be the easiest for ultimate transfer of ownership

The Uniform Securities Act requires client consent for assignment of the investment advisory contract. It would be considered that contracts were assigned in all of the following situations EXCEPT A) the death of a partner holding a minority interest with the remaining partners acquiring that share equally B) the sole stockholder of the investment advisory firm pledges all of the stock in the firm as collateral for a bank loan C) the sole proprietor of an investment advisory firm sells the firm to another adviser D) 2 investment advisory firms intend to merge, causing a change in the majority interest of the partners

the death of a partner holding a minority interest with the remaining partners acquiring that share equally Written consent for assignment is required of clients whenever there is a change in a majority interest in an investment management partnership.

If interest rates are dropping, an investor with a maturing bond will be most concerned with A) a positive yield curve B) the difficulty in finding another investment with a like yield C) a negative yield curve D) the quality declining with the yield

the difficulty in finding another investment with a like yield When interest rates decline, investors with maturing bonds will have to accept a lower return on their reinvested principal. This is often called reinvestment risk. Although zero-coupon bonds avoid this risk until maturity, once the bond matures, just like any other bond, the matured principal will have to be invested at current market yields.

When it comes to computing market returns, it is TRUE to state that A) the mode is always higher than the mean B) the median is always lower than the average C) the geometric mean could never be greater than the arithmetic mean D) the median is always higher than the geometric mean

the geometric mean could never be greater than the arithmetic mean

Ebony sets up a revocable trust, naming her daughter, Sylvia, as the sole beneficiary. Ebony has appointed the Pacific Atlantic Trust Institution (PATI) as the trustee. Any income to the trust will be taxable to A) the grantor B) the trustee C) the trust D) the beneficiary

the grantor In almost all cases, income received into a revocable (grantor) trust, whether distributed or not, is taxable to the grantor. Things are different when the trust is irrevocable, but much more complicated and not likely to be tested.

The primary responsibility for supervising the activities of an investment adviser representative who is affiliated with a federal covered investment adviser lies with A) the SEC B) the Administrator C) the investment adviser representative D) the investment adviser the IAR represents

the investment adviser the IAR represents

A client of yours comes to the office and shows you some sales literature from a mutual fund that has him very excited. According to the material, the fund's average annual return over the past 10 years has been in excess of 15% and it has achieved the highest rating from the major fund rating services. Before recommending this fund to your clients, the first thing you would probably check for in the fund's prospectus is A) the fund's expense ratio. B) the fund's objectives. C) the fund's sales charge. D) the portfolio manager's tenure.

the portfolio manager's tenure. Because this client has been "sold" on past performance, you need to verify if the manager achieving those results is still on the job. That is the prime reason why the regulations require disclosure of the fund manager's tenure; it is important for investors to know if the current manager was the one who had the winning streak or if that manager just came on board.

You have a client who invested in the PQR Growth Fund 10 years ago and now, as retirement age approaches, asks you about using the exchange privilege to move into the PQR Balanced Fund. The client should know that A) any tax consequences are deferred until the Balanced Fund shares are liquidated. B) the old shares are liquidated at NAV and the new shares are purchased at the POP. C) the exchange qualifies for any breakpoint reduction. D) this exchange is considered a taxable event as of the date of the exchange.

this exchange is considered a taxable event as of the date of the exchange. The exchange privilege allows for an exchange at net asset value (NAV) between funds that are members of the same "family". The exchange is considered a taxable event. Because the exchange is made at NAV, the concept of breakpoint is irrelevant.

All of the following are exempt from state registration EXCEPT A) fixed annuities issued by a small insurance company B) fixed-income securities issued by a bank C) variable annuities issued by a major insurance company D) common stock in Mutual Savings Bank

variable annuities issued by a major insurance company

Under the Uniform Securities Act, registration by coordination becomes effective A) in 30 days B) when the registration with the SEC becomes effective C) immediately D) in 10 days

when the registration with the SEC becomes effective The registration by coordination becomes effective at the same time it is released (made effective) by the SEC, provided it was filed with the Administrator, in most states at least 10 days before the SEC effective date.

Profit Partners, LLC (PPL), a federal covered investment adviser, sends correspondence regarding its past performance to prospective retail clients in State A. PPL does not maintain a place of business and is not registered in State A. Because PPL is soliciting for new business there, the Administrator of State A A) would be able to bring a claim against PPL for showing past performance in a communication with prospective clients. B) would be able to bring a claim against PPL if it was discovered that the antifraud provisions of the Uniform Securities Act had been violated. C) would be able to bring a claim against PPL for soliciting without being properly registered in the state. D) would have no jurisdiction over PPL because the firm is a federal covered investment adviser.

would be able to bring a claim against PPL if it was discovered that the antifraud provisions of the Uniform Securities Act had been violated.

Mr. Beale buys 10M RAN 6.6s of 32 at 67. What is his total purchase price? A) $10,200 B) $6,600 C) $6,700 D) $10,000

$6,700 For those of you not familiar with bond listings, this means that Beale bought $10,000 (10M) of the RAN Corporation bonds with a 6.6% coupon (interest rate stated on the face of the bond) that mature in 2032 (32). The price is 67, which represents 67% of $10,000, or $6,700.

Julian and Jane are discussing risk-return measures. Julian states that "beta is used when looking at the performance of a fund or portfolio and refers to the extent of any outperformance against its benchmark." Jane disagrees and says that "outperformance of a fund or portfolio is actually measured by standard deviation." Which of the following statement is correct? A) Only Julian is correct. B) Both are incorrect. C) Both Julian and Jane are correct. D) Only Jane is correct.

Both are incorrect. Both Julian and Jane are incorrect. It is alpha, not beta, that is used when looking at the performance of a fund or portfolio. Alpha refers to the extent of any outperformance of a portfolio against its benchmark. Standard deviation is used for measuring volatility, not performance.

An 8% corporate bond is offered on a 8.25 basis. Which of the following statements are TRUE? -Nominal yield is higher than YTM. -Current yield is higher than nominal yield. -Nominal yield is lower than YTM. -Current yield is lower than nominal yield.

II and III A bond offered on an 8.25 basis is the same as at a YTM of 8.25%. Because the yield quoted is higher than the 8% coupon, the bond is trading at discount to par. For discount bonds, the nominal yield is lower than both the current yield and the yield to maturity.

Under the Uniform Securities Act, when may an investment adviser legally have custody of money or securities belonging to a client? -When the adviser has a net worth of at least $25,000 -When the Administrator has not prohibited custodial arrangements -When the adviser does not have discretionary authority over the account -When the adviser has notified the Administrator that he has custody

II and IV The Administrator may prohibit advisers from having custody of client funds or securities. If no such prohibition applies, the Administrator must be notified in writing if an adviser has custody. In almost all jurisdictions, a surety bond or sufficient net worth ($35,000) is required to maintain custody. Discretionary authority does not affect an adviser's ability to have custody.

A client is covered by a noncontributory pension plan. If his employer has terminated the pension plan and made lump-sum distributions, which of the following actions should the client take? A) Roll over the distribution into an IRA within 60 days to maintain tax-deferred status B) Place the distribution in a Section 529 account to avoid tax C) Purchase a single premium annuity to maintain tax-deferred status D) Purchase municipal bonds to avoid tax

Roll over the distribution into an IRA within 60 days to maintain tax-deferred status To maintain the tax-deferred status, the distributions should be rolled over into an IRA within 60 days.

Which of the following is NOT related to the variability of a portfolio's returns? A) Security selection B) Market timing C) Total return D) Asset allocation

Total return

For purposes of the maximum allowable annual contribution, an individual would have to aggregate contributions made to A) a 401(k) and a Roth IRA. B) a 403(b) and a 457. C) a 401(k) and a 457. D) a 401(k) and a 403(b).

a 401(k) and a 403(b).

Which of the following would be deemed to be an assignment of an investment adviser's contracts? -All of the stock in NLT Advisers, a corporation, is acquired by MMS Advisers, Inc. -The Lucky Seven Partnership is an investment adviser with 7 partners. Four of the partners make a fortune and decide to retire. They are replaced by new partners. -Albert is an investment adviser. His clients' accounts are automatically debited monthly for his fee. Because of this steady cash flow, his banker readily accepts a pledge of these accounts as collateral for a loan.

I, II and III It is deemed to be an assignment whenever a majority interest in an adviser changes hands. Pledging a client's contract is considered to be an assignment.

Which of the following entities would issue a Schedule K-1? A) C corporation B) Limited partnership C) REIT D) Sole proprietorship

Limited partnership Schedule K-1s are issued to owners of partnerships (limited or general), LLCs with more than one member, and S corporations. Sole proprietors use a Schedule C, C corporations report dividends and/or interest paid on a Form 1099, and the same is true for distributions from a REIT.

Which of the following does not benefit both the employee and the employer? A) Defined benefit plan B) Traditional IRA C) SEP-IRA D) SERP

Traditional IRA There is no employee/employer relationship in a traditional (or Roth) IRA. A SEP-IRA is different in that the employer makes the contribution, gets the tax deduction, and the employee's account is enriched by that contribution. The same is true for the defined benefit plan and the SERP. A supplemental executive retirement plan is a nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees.

Jasper Whitlock is considered an affiliated person of the Tahor Clean Energy Mutual Fund. Under the Investment Company Act of 1940, Mr. Whitlock is prohibited from all of the following EXCEPT A) borrowing from the fund (money or property) B) buying anything from the fund, except shares of the fund C) selling anything to the fund, except shares of the fund D) being elected to the fund's board of directors

being elected to the fund's board of directors There is no problem with an affiliated person being elected to the fund's board of directors. Under the act, as many as 60% of the board members may be affiliated persons. Affiliated persons may not have any dealings with the investment company (outside of contractual obligations and the purchase or redemption of shares of the investment company), such as buying securities, furniture, real estate, or other property from the company or selling such property to the company.

All of the following industry violations would probably constitute fraud EXCEPT A) omitting material facts in the offer/sale of securities B) inaccurate market quotations C) misrepresentation of the status of a client's account D) charging unreasonable commissions

charging unreasonable commissions Charging an unreasonable commission (or markup or markdown) is a prohibited practice, but it is not considered fraud. It would be fraudulent to make inaccurate statements regarding the amount of commission being charged, such as, when acting as a principal, telling the customer that there was no commission being charged when, in fact, there is a markup or markdown built into the price.

Active Technicians (AT), a state-registered investment adviser serving primarily retail accounts, would be in compliance if it A) filed a brochure with the Administrator, noting that it was available to clients upon request B) did not send an annual brochure to its clients if there was no material change from the previous year C) sent a copy of Form ADV Part 1A and Part 1B within 120 days of the end of AT's fiscal year D) sent a brochure within 150 days of the end of AT's fiscal year

did not send an annual brochure to its clients if there was no material change from the previous year The NASAA Model Rule dealing with brochures states that investment advisers do not have to deliver a summary of material changes or a brochure to clients if no material changes have taken place since the last summary and brochure delivery. If a brochure or summary of material changes is required, the delivery date is 120 days after the end of the adviser's fiscal year, not 150 days. If the adviser wishes to use Form ADV, it should use Part 2A and 2B.

To comply with ERISA Section 404(c), a 401(k) plan must satisfy all the following requirements EXCEPT A) plan participants must have access to at least 3 core diversified investment options. B) plan participants must be provided with the services of a Certified Financial Planner at least annually to assist them with investment decision making. C) plan participants must have the ability to transfer assets among investment options at least quarterly. D) sufficient information must be provided to plan participants about investment alternatives available under the plan to permit informed decision making.

plan participants must be provided with the services of a Certified Financial Planner at least annually to assist them with investment decision making. Section 404(c) relieves a plan fiduciary from liabilities associated with losses stemming from employee investment choices. To qualify for this protection, the plan must provide at least 3 core diversified investment options, participants must have the ability to transfer assets among investment options at least quarterly, and sufficient information must be provided to participants to allow for informed decision making.

All of the following statements regarding the registration of an investment adviser in a state are true EXCEPT A) the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process B) the adviser's registration expires on December 31 each year C) the initial application must include a consent to service of process along with Form ADV and the appropriate fees D) if the investment adviser is not an individual, any officer or partner active in the advisory business is automatically registered as an investment adviser representative

the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process The consent to service is a permanent document that remains on file with the Administrator; it need not be resubmitted for yearly renewal. The initial application for registration must include a consent to service of process along with Form ADV and the appropriate fees. If the investment adviser is not an individual, all officers or partners of the business entity that play an active role in the giving or supervision of giving advice are automatically registered as IARs.

An investor signed a letter of intent to purchase $50,000 worth of Sky-High Mutual Fund. At the end of 13 months, he had only invested $48,000 in the fund. Which of the following is TRUE? A) The fund will liquidate shares to meet the additional sales charge. B) There are no additional requirements; he will receive the breakpoint. C) He has 90 days to invest the additional $2,000 for the breakpoint. D) He must sign a new letter for the $2,000 to receive the breakpoint.

The fund will liquidate shares to meet the additional sales charge. An investor has only 13 months to meet a letter of intent commitment. Once that period of time has elapsed, the investment company is entitled to a refund of the discount it had originally given the investor. This is accomplished by liquidating a sufficient number of shares to cover the additional sales charge to be imposed.

As enumerated in the USA, exempt securities would include those issued by all of these EXCEPT A) a corporation based in Toronto, Ontario, whose common stock trades on the Toronto Stock Exchange B) a promissory note that evidences an obligation to pay cash within 9 months after the date of issuance, is issued in denominations of at least $50,000, and receives a rating in one of the 3 highest rating categories from a nationally recognized statistical rating organization C) any credit union organized and supervised under the laws of this state D) a sovereign foreign government with which the United States maintains diplomatic relations

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.

The Securities Exchange Act of 1934 defines a market maker is A) an agent for the issuer B) an agent whose clients are institutions C) 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 D) a person who buys and sells securities for her own account or for the accounts of others

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 A market maker is a dealer who holds himself out as being willing to buy or sell a security at a quoted price on a regular and continuous basis.

Under the 1940 Investment Company Act, an investment company may take all of the following forms EXCEPT: A) a limited partnership with partners as passive investors B) an open-end investment company C) a closed-end investment company D) a unit investment trust

a limited partnership with partners as passive investors

As defined in the Uniform Securities Act, the term "offer" or "offer to sell" includes all of the following EXCEPT A) a loan with a stated interest rate payable upon demand B) an offer of convertible securities and warrants C) a purported gift of assessable stock D) an offer of a special stock dividend in return for additional payments

a loan with a stated interest rate payable upon demand A loan is not a sale of a security for value and is explicitly excluded from the definition of "offer" or "offer to sell." Although a stock dividend is normally excluded from the terms "offer" and "sale," when additional payment is required, we now have an offer that must be accepted before there is a sale. An offer of a convertible bond or warrant is an offer of both the bond or warrant, as well as the underlying stock. It is only a sale when the offer is accepted. The USA defines a purported gift of assessable stock as both an offer and a sale.

Under the Uniform Securities Act, the definition of a broker-dealer includes A) an agent handling principal transactions with major institutional clients B) a trust company when executing transactions in accounts in which it does not act in a fiduciary capacity C) an authorized representative of the issuer who receives a commission D) a person in the business of making trades in his own account or for the accounts of others

a person in the business of making trades in his own account or for the accounts of others

The risk to bondholders that bonds may lose value during periods of increasing inflation is known as A) interest rate risk B) marketability risk C) credit risk D) reinvestment risk

interest rate risk Interest rate risk is the risk that as interest rates rise, bond prices fall. Periods of inflation are accompanied by rising interest rates. Another risk in this scenario, but not an answer choice, is purchasing power risk; each semiannual interest payment has less purchasing power due to inflation, and, of course, the purchasing power of the principal at maturity will be far less as well.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment advisory contract must contain -the formula used to compute an advisory fee -provisions on discretionary power -a clause stating that the client's consent is needed to assign the contract

I, II, and III Advisory contracts must disclose services provided; the term of the contract; the amount of the advisory fee or the formula used to compute the fee; the amount of fee to be refunded (if any) if the advisory fee is prepaid and the contract is terminated; a provision as to discretionary authority; and a provision requiring the consent of the client to assign the contract. All choices listed must be included.

Which of the following factors determine(s) whether a person is considered an investment adviser under the Investment Advisers Act of 1940? The specificity of the advice The business engaged in Whether compensation is received A) I, II, and III B) II only C) I and III D) I and II

I, II, and III Any person who, for compensation, engages in the business of advising others concerning the purchase or sale of securities either directly or through publications is defined by the act as an investment adviser. The factors that make up the definition include whether the person advises others on securities; whether he does it as a regular business or as part of a business; and whether he receives compensation for doing so.

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? -They must be renewed on an annual basis. -They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. -They must prohibit assignment of the contract without the client's consent.

II and III 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.

An agent would be engaged in a prohibited practice if he -split commissions with other agents of his broker-dealer -sold a nonexempt, unregistered security to a CPA who specialized in auditing financial institutions -shared both the gains and losses in a client's account with written approval of both the client and the employing broker-dealer -aggressively traded a discretionary account on a daily basis with long-term growth as an objective

II and IV An agent cannot lawfully sell an unregistered, nonexempt security unless in an exempt transaction. The sale to the CPA is not an exempt transaction, as would be the sale to a financial institution. Day trading in an account with long-term growth as an objective would constitute unsuitable activity and, therefore, is prohibited under USA. Sharing commissions is only permitted with agents of the same or affiliated broker-dealers. Remember that investment adviser representatives may never share in the gains and losses in a customer's account in the same fashion that agents can.

Under the Uniform Securities Act, one method of securities registration is qualification. When that method is used, which of the following statements is CORRECT? -The registration is valid for 1 year from the effective date. -The registration is valid for 1 year from the effective date unless the underwriter or issuer still has some unsold shares. -The registration is valid until the next December 31st. -The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation is not changed.

II and IV Under the USA, when a security is registered, the registration is valid for 1 year after the effective date. However, the act provides that if the issuer or underwriter still has unsold shares from the offering, the effective date may be extended, so this is a more accurate choice. The act also allows the registration statement to be amended to allow for an increase in the number of shares to be offered as long as the public offering price and the underwriter's compensation is not changed.

Thirty years ago, an investor deposited $100,000 into a single premium deferred variable annuity. Today, the value of the accumulation units is $1.5 million. The investor is ready to annuitize and wishes to maximize monthly payments to be received. You would suggest which of the following settlement options? A) Life with 20 years certain B) Life with 10 years certain C) Joint and survivor D) Straight life

Straight life When one annuitizes, the amount of the annuity payment is highest when the annuitant takes the most risk (and the insurance company the least). Straight life payments end upon the death of the individual, and if that should be the following month, the insurance company keeps the rest of the money. In the period certain choices, the insurance company is "on the hook" for that number of years, even if the annuitant does not live that long.

Tamika is an investment adviser representative with Financial Engineers, LLC, a covered investment adviser. The firm uses an investment policy statement to help design financial plans for their clients. One of Tamika's current clients plans to purchase a new boat 7 months from now. When using the IPS, this would be considered A) an investment constraint B) a capital need C) an investment goal D) a financial objective

an investment constraint Investment constraints are obstacles or restrictions that must be met in order to meet objectives. In this case, we are dealing with a liquidity constraint—in 7 months, cash will be necessary to make the purchase.

Two years after their wedding, Pam and Jim became the proud parents of child. Both grandparents want to help ensure educational funds for their new grandchild by using the Coverdell ESA. Assuming they are within the earnings limitations, which of the following would be permitted? A) $2,000 from Pam's parents and $2,000 from Jim's parents into a single ESA B) $2,000 from Pam's mother, $2,000 from Pam's father, $2,000 from Jim's mother, and $2,000 from Jim's father C) $1,000 from Pam's parents and $1,000 from Jim's parents into separate ESAs D) $2,000 from Pam's parents and $2,000 from Jim's parents into separate ESAs

$1,000 from Pam's parents and $1,000 from Jim's parents into separate ESAs Any individual whose modified adjusted gross income is under the limit set for a given tax year can make contributions. There's no limit to the number of accounts that can be established for a particular beneficiary; however, the total contribution to all accounts on behalf of a beneficiary in any year can't exceed $2,000.

Creative Financial Solutions (CFS) is a broker-dealer registered with the SEC. CFS has its principal and only office in State A. CFS also does business with clients in State B. Which of these clients would cause CFS to have to register in State B? A) 15 other broker-dealers B) 6 banks doing business in State B C) 1 mutual fund registered with the SEC D) 4 retail clients residing in State B

4 retail clients residing in State B Excluded from the definition of broker-dealer under the Uniform Securities Act is a broker-dealer with no place of business in a given state whose clientele consists exclusively of other broker-dealers, financial institutions (banks, investment companies), or existing customers who are temporarily in the state. However, once the BD has even 1 retail (noninstitutional) client who resides in the state, registration is required. There is no de minimis exemption for broker-dealers (unlike investment advisers).

Which of the following is an unethical practice for agents of broker-dealers? A) Failure to make a bona fide public offering of all securities acquired as an underwriter B) Effecting securities transactions not recorded on the books of the employing broker-dealer with the employing broker-dealers' approval in writing C) Borrowing money from a commercial bank that has investment accounts at the broker-dealer D) Effecting securities transactions not recorded on the books of the employing broker-dealer without prior written authorization

Effecting securities transactions not recorded on the books of the employing broker-dealer without prior written authorization It is an unethical practice for an agent of a broker-dealer to effect securities transactions not recorded on the books of the employing broker-dealer, unless prior written authorization is secured. Broker-dealers, acting in the capacity of underwriters, not their agents, must make a bona fide public offering in underwritings.

One of your advisory clients indicates that he would like to sell forward contracts in soybeans. It would be wise to warn the client that he will be facing the following risks: -Liquidity -Creditworthiness of the buyer -Lack of assurance that the delivery price will remain stable -The location for the delivery may change

I and II Because there is no standardization for forward contracts, they are considered to be illiquid. Because there is no entity backing up the contract (as the OCC does with listed options), a seller must always be concerned about the ability of the buyer to pay. Although the market price probably will change, the delivery price is always agreed upon at the time of the contract, as is the method, location, and time of delivery.

Which of the following statements is (are) TRUE regarding the jurisdiction of the SEC under the Securities Exchange Act of 1934? -The SEC has jurisdiction over exchanges and SROs. -The SEC has jurisdiction over broker-dealers, investment advisers, and associated persons that are required to be registered under federal law. -The SEC has jurisdiction over banks and savings and loans regarding their securities activities.

I and II The SEC was created by the Securities Exchange Act of 1934 and has the responsibility of administering all federal securities laws. The SEC has jurisdiction over exchanges, SROs, and all persons required to be registered under federal law. The SEC does not enforce state securities statutes, nor does it have jurisdiction over banks or savings and loans regarding their securities activities. Banking authorities, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation, and others, regulate banks and savings and loans.

Which of the following would be permitted to contribute to an IRA? An individual whose sole income consists of dividends and capital gains A divorced mother whose sole income is alimony and child support under the terms of a divorce agreement signed on October 31, 2018 A self-employed attorney who has a Keogh plan A corporate officer covered by 401(k) A) II, III, and IV B) I and II C) III and IV D) I, II, III, and IV

II, III, and IV An IRA contribution can only be made by someone who has earned or otherwise eligible income. Earned income is defined as salary, wages, commissions, and tips. Alimony, (but not child support) is considered eligible income for an IRA as long as the divorce decree was signed prior to January 1, 2019. Individuals can contribute to an IRA even if they are covered by a corporate pension plan or Keogh plan. Although a contribution can be made, it may or may not be deductible depending on the individual's income. Dividends and capital gains are not considered earned income.

Lamar is an investment adviser representative for Southeast Retirement Advisers (SRA), a wholly owned subsidiary of Southeast Retirement Solutions (SRS), a broker-dealer registered in a number of southeastern states. Lamar is also a registered agent with SRS. If one of Lamar's advisory clients sends a check made payable to SRS for a stock purchase, under NASAA's Model Rule on Custody A) SRA would be in violation of the NASAA requirement to use a qualified custodian B) Lamar would have to post a surety bond in the amount of $35,000 C) Lamar is considered to be maintaining custody of client funds and securities D) SRA is considered to be maintaining custody of client funds and securities

SRA is considered to be maintaining custody of client funds and securities Under the NASAA Model Rule, when an investment adviser uses an affiliated broker-dealer as its qualified custodian, the adviser is considered to be maintaining custody. Therefore, receipt of a check made payable to the BD is acceptable (it does not have to be forwarded). IARs would never take custody, and there is no bonding requirement for IARs.

Under the Uniform Securities Act, which of the following is TRUE regarding the registration of securities? A) The Administrator may require that a prospectus be delivered to every purchaser of a registered security no sooner than the time at which the security is delivered. B) State registration by coordination is available only if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering. C) Registration by coordination becomes effective on a date ordered by the Administrator. D) The effectiveness of a registration statement assures the accuracy of the information contained in the statement.

State registration by coordination is available only if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering. Registration by coordination becomes effective simultaneously with the federal registration. A prospectus may be delivered at or prior to the time actual delivery of the security is made. The act prohibits any statement or implication that registration involves approval of accuracy of facts by the Administrator. The federal registration statement is what the state registration is being coordinated with.

Under the Uniform Securities Act, an offer to sell includes all of the following EXCEPT A) an offer of a warrant to purchase or subscribe to another security B) a solicitation of an offer to buy a security for value C) a distribution of a stock dividend in lieu of a cash dividend D) an attempt to offer to dispose of a security for value

a distribution of a stock dividend in lieu of a cash dividend Under the Uniform Securities Act, an offer to sell includes every attempt or offer to dispose of, or solicitation or an offer to buy, a security for value. If a corporation distributes a stock dividend instead of a cash dividend, and the shareholder is not required to make any payment, then issuance of the stock dividend does not constitute an offer to sell.

As defined in the Uniform Securities Act, the term "offer" or "offer to sell" includes all of the following EXCEPT A) a purported gift of assessable stock B) an offer of a special stock dividend in return for additional payments C) an offer of convertible securities and warrants D) a loan with a stated interest rate payable upon demand

a loan with a stated interest rate payable upon demand A loan is not a sale of a security for value and is explicitly excluded from the definition of "offer" or "offer to sell." Although a stock dividend is normally excluded from the terms "offer" and "sale," when additional payment is required, we now have an offer that must be accepted before there is a sale. An offer of a convertible bond or warrant is an offer of both the bond or warrant, as well as the underlying stock. It is only a sale when the offer is accepted. The USA defines a purported gift of assessable stock as both an offer and a sale.

Your high-net-worth advisory client has a large cash position in his money market account and is considering using the cash to purchase an investment property. You believe that the real estate investment will not provide the same returns that can be realized by investing in bonds, so you prepare a proposal that estimates the income stream and potential capital growth of a portfolio of convertible bonds currently in the firm's inventory. The recommendation is quite suitable for the client based on his current objectives. If the transaction is completed and you fail to disclose that the bonds were sold in a proprietary transaction and receive client consent, you would have A) to disclose the amount of commission on the trade confirmation B) misrepresented a material fact C) committed a prohibited practice D) not breached your fiduciary duty

committed a prohibited practice Under both federal and state law, it is required to disclose to the client that the bonds will be sold from the firm's inventory, from one of the firm's accounts, often called a proprietary account. However, when selling from inventory, there would never be a commission. The charge, if any, would be a markup.

If ABC Brokers, Inc., has its registration as a broker-dealer canceled, individuals registered as agents of ABC may A) continue to conduct business until employed by another broker-dealer, who will then renew their registrations B) not sell any securities because their registrations are only effective when associated with a registered broker-dealer C) continue to sell only exempt securities until employed by a properly registered broker-dealer D) continue to conduct business because ABC's registration was canceled, not theirs

not sell any securities because their registrations are only effective when associated with a registered broker-dealer

Which of the following statements regarding the handling of discretionary accounts are TRUE? Discretionary accounts must be reviewed frequently by the designated supervisory person. An investment adviser representative may decide, without discretionary authority, the security to buy or sell and the amount to buy or sell. A husband or wife may at any time exercise discretionary authority in the spouse's account without specific written authorization. An investment adviser representative may decide, without discretionary authority, the time at which to execute a trade.

I and IV Discretionary accounts must be reviewed frequently by the designated supervisory person, and an investment adviser representative may decide both the time and the price at which to execute a trade without discretionary authority. Only if he is to decide action (whether to buy or sell), asset (what to buy or sell), or amount (how much to buy or sell) is discretionary authority required.

Which of the following are exempt from registration under the Uniform Securities Act? -Preferred stock issued by ZXZ Corporation, whose common stock is traded on the New York Stock Exchange -Common stock issued by a national bank -Equipment trust certificates issued by a railroad company regulated by a state or federal agency -A debenture traded in the over-the-counter market issued by a corporation whose common stock trades on the NYSE

I, II, III, and IV All the securities listed are exempt from registration under the Uniform Securities Act. Preferred stock issued by corporations whose common stock trades on the NYSE is a federal covered security and is exempt from registration with the states. The same is true for a debenture of a company registered on the NYSE, even though the debenture is traded over the counter. The issuers of equipment trust certificates (railroads) are regulated by other agencies, and issuers of bank securities (commercial banks) are regulated by the Federal Reserve and Office of the Comptroller of Currency (OCC); their securities are exempt from registration by the states. The National Securities Markets Improvement Act of 1996 (NSMIA) prohibits dual regulation of securities.

Under the Uniform Securities Act, which of the following statements are TRUE regarding private placements? -They are offered to no more than 10 persons in a state in a 12-month period. -They may be offered to an unlimited number of institutional investors. -Institutional buyers need not be purchasing for investment.

II and III Private placements are transactions resulting from offers to no more than 10 noninstitutional persons (retail clients) in 12 months for investment purposes only. The offeror must be convinced that buyers are purchasing for investment. This means no immediate resale intentions are allowed on the buyer's part. No commissions may be paid, directly or indirectly, for these transactions. However, sales to institutional purchasers are exempt from the limitations regarding number of sales, resale restrictions, and commissions. They may, therefore, be offered to more than 10 persons. (Remember that the term person is defined very broadly in the act.)

In which of the following cases would an individual representing an issuer in a transaction with a retail client be excluded from the Uniform Securities Act's definition of an agent? A) The individual sells shares of a security issued by and representing an interest in a federal savings and loan association. B) The individual successfully solicits an order from an insurance company to purchase 10,000 shares of the issuer's stock. C) The individual sells shares of a federal credit union. D) The individual sells shares of a public utility regulated in respect of its rates and charges by a governmental authority of the United States or any state.

The individual successfully solicits an order from an insurance company to purchase 10,000 shares of the issuer's stock. Individuals representing issuers in the sale of their securities may or may not be defined as agents. When the transaction is exempt, such as sale to an institution like an insurance company, the individual is not defined as an agent. There are two ways to earn the exclusion. One of them is when the transaction in the issuer's security is exempt. The other is when the issuer is in one of the five categories of exempt security listed in the USA. Each of the other three choices represents an exempt security, but none of the three are included in the USA's list of those where the individual representing the issuer is not an agent.

A client owns 300 shares of BACH common stock in a margin account. The stock was originally purchased at a price of $40 per share and the Reg. T call was met. If the BACH is now selling for $50 per share, disregarding interest charges, the client's equity is now A) $1,000 B) $3,000 C) $6,000 D) $9,000

$9,000 Purchasing 300 shares at $40 per share is a total of $12,000. The Reg. T call of 50% requires a deposit of $6,000 with the remaining $6,000 the loan from the broker-dealer. If the market price of the shares increases to $50, the current market value of the account is $15,000. With a debit balance (the amount borrowed from the BD) of $6,000, the equity is $9,000. If you answered $3,000, you probably forgot the investor owned 300 shares, not 100.

One of your clients owns 2 different 6% corporate bonds maturing in 15 years. The first bond is callable in 5 years, while the second has 10 years of call protection. If interest rates begin to fall, which bond is likely to show a greater change in price? A) Both will increase by the same amount B) Both will decrease by the same amount C) Bond with the 10-year call D) Bond with the 5-year call

Bond with the 10-year call As interest rates fall, the investor benefits from having the highest interest rate for as long as possible. The price change will not be the same for both bonds. The greater the call protection, the more likely a bond will appreciate if rates fall. That additional call protection in essence lengthens the duration of the bond and, as we know, the longer the duration, the greater sensitivity to interest rate changes. In this case, with declining rates, bond prices will rise.

Which of the following persons are excluded from the definition of, or exempt from registration as, a broker-dealer under the Uniform Securities Act? -A broker-dealer with no office in the state that effects trades exclusively with other broker-dealers in the state -A trust company with an office in the state that deals with the general public -A broker-dealer with no office in the state that has no more than 5 retail clients resident in the state within the past year -A broker-dealer with no office in the state that effects securities trades exclusively with trust companies or other broker-dealers

I, II, and IV As long as a broker-dealer does not have an office in the state, it is possible to qualify for exclusion from the definition. The primary requirement for the exclusion is that the broker-dealer confine trading to financial institutions or other broker-dealers. Unlike with investment advisers, there is no de minimis exemption for broker-dealers. Trust companies are excluded from the definition of broker-dealer.

Which of the following statements is not true? A) Federal covered securities include those registered under the Investment Company Act of 1940. B) Exempt securities must reestablish their exemptions at least annually. C) Transaction exemptions must be established before each transaction. D) Federal covered securities include securities listed on national exchanges.

Exempt securities must reestablish their exemptions at least annually Exempt securities need not reestablish their exemptions annually or otherwise. Exempt securities are exempt because their issuers are exempt while the basis for an exemption for a transaction must be established before each transaction. Neither the exempt security nor the transaction exemptions are mutually exclusive and a security or transaction may qualify for 2 or more of these exemptions. The term "federal covered securities" includes registered investment companies as well as securities listed on national exchanges.

While the Administrator has great power, the USA does place some limitations on the office. Which of the following statements regarding those powers are TRUE? In conducting an investigation, an Administrator can compel the testimony of witnesses. Investigations of serious violations must be open to the public. An Administrator in Illinois may only enforce subpoenas from South Carolina if the violation originally occurred in Illinois. An Administrator may deny the registration of a securities professional who has been convicted of any felony within the past 10 years. A) III and IV B) I and III C) II and III D) I and IV

I and IV An Administrator can compel the testimony of witnesses when conducting an investigation. Investigation of serious violations need not be held in public. An Administrator in Illinois may enforce subpoenas from South Carolina whether the violation occurred in Illinois or not. Conviction for any felony within the past 10 years is one of a number of reasons that the Administrator may have for denying a license.

Under the Uniform Securities Act, which of the following negates a client's right to a civil suit for damages? The advice that is the subject of the suit was given more than 3 years ago. The client has died. The client willingly signed a statement waiving the adviser's compliance with the provision of the act on which the suit is based. A) I and II B) I only C) I, II, and III D) II and III

I only A civil suit under the terms of the USA must be filed within 3 years of the alleged infraction, or 2 years from discovering the violation, whichever comes first. The death of the adviser or the client does not remove a cause of action for civil liability. Waivers to statements signed by the client waiving the adviser's compliance with the provision of the act on which the suit is based are never valid on the exam.

An investment adviser is required to disclose to a client the amount of compensation received from which of the following third parties? Compensation on the client's transactions executed through a broker-dealer Compensation received from an issuer of a security recommended to the client Compensation received from any nonsecurities products recommended to the client A) I, II, and III B) II only C) I and II D) I only

I, II, and III Investment advisers must disclose the amount of compensation received or to be received from any third party in connection with recommendations made to a client. This includes compensation from any broker-dealer, compensation from any issuer, and compensation from any nonsecurities entities.

A registered investment adviser has a fiduciary duty to disclose all real and potential conflicts of interests to clients. Which of the following are examples of conflicts that would require disclosure? A registered investment adviser spends about 25% of its time on investment advisory activities and the balance on managing rental real estate projects A registered investment adviser spends about 25% of its time supervising the activities of its investment adviser representatives An investment adviser representative, who is also an insurance agent, may decide to recommend a particular insurance product based on an incentive to sell the product An investment adviser representative, who is also an agent with an unaffiliated broker-dealer, directs transactions to that firm

I, III, and IV 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. Recommending products based on an incentive is fine as well, as long as disclosure is made. Finally, IARs can be agents of affiliated or nonaffiliated broker-dealers, but the existence of that relationship must be disclosed. One would hope that the investment adviser devotes enough time to supervising its IARs, but that is not something that is disclosed to clients.

Under the Uniform Securities Act, the Administrator has the power to deny or revoke exemptions for which of the following types of securities? Stock issued by a bank organized under the laws of another state. Securities of nonprofit organizations. Investment contracts issued by employee benefit plans. A) II and III B) I and II C) II only D) I, II, and III

II and III The Administrator may deny or revoke the exemption granted to a nonprofit organization or investment contracts issued by employee benefit plans. Any transaction exemption, except one relating to a federal covered security, may be revoked as well. However, there are certain security exemptions that the USA does not grant the Administrator the power to deny. Included in that list is any security issued or guaranteed by any bank organized under the laws of any state.

An issuer of federal covered securities, whose registration is effective under the Securities Act of 1933, would use which of the following procedures to permit sale of its securities in a specific state? A) Notice filing B) Registration C) Qualification D) Coordination

Notice filing Notice filing is the procedure by which federal covered securities, most commonly registered investment company securities, receive clearance for their securities to be sold in a specific state. No formal registration is required, but payment of fees and filing of certain documents may be.

Under the Uniform Securities Act, the Administrator may require the filing of advertising and sales literature in which of the following offerings? A) Sale of an IPO limited to residents of the state B) Sale of preferred stock of a long-established company registered with the SEC whose common shares trade on the New York Stock Exchange C) Sale of the bonds of AAA insurance company organized under the laws of the state D) Sale of a U.S. Treasury bond maturing in more than 10 years

Sale of an IPO limited to residents of the state The state securities Administrator may require the filing of advertising and sales literature of an IPO limited to residents of the state. The other choices are securities of exempt issuers or, in the case of the NYSE-listed issuer, federal covered securities. The Administrator may not require exempt and federal covered securities to file advertising and sales literature.

A customer purchased a variable annuity from an agent 5 years ago with an initial investment of $200,000. The annuity's surrender fee will expire in year 7, which coincides with the customer's anticipated need for the funds. In the 5th year of the contract, the value of the annuity increased from $300,000 to $375,000. The agent notices that the general market is on the decline and recommends she enter a 1035 exchange of the variable contract for another, thus increasing her death benefit and locking it in at a higher minimum. This recommendation is A) unsuitable unless the customer agrees with the recommendation B) suitable because 1035 exchanges have no adverse tax consequences C) unsuitable because of surrender fees D) suitable because of the increased death benefit

unsuitable because of surrender fees Incurring the surrender fee for the 1035 exchange of one contract and initiating a new long-term contract is inappropriate for a customer, in general, and particularly for this customer, considering her need to access her funds only two years later.