quizzzzz

All of the following statements regarding government and agency securities are true EXCEPT: A) they are always directly backed by the federal government. B) they are considered safer than corporate debt securities. C) interest paid is always subject to federal income tax. D) they are authorized by Congress.

A

One of the most significant risks taken by bond investors is interest rate risk. All of these steps could be used to mitigate the effects of this risk EXCEPT: A) buying bonds of highest quality. B) holding bonds to maturity. C) buying bonds with short-term maturities. D) laddering the portfolio.

A

Life insurance companies offer many different products. Which of the following would NOT be considered a security? Index annuity Modified endowment Variable annuity Variable life A) I and II B) I and III C) II and IV D) III and IV

A, Any insurance product that includes the word variable is a security. Otherwise, it is not.

Under the USA, all of the following statements regarding the registration of agents are true EXCEPT: A) if a broker-dealer's registration is revoked by a state, it has no effect on the agent's registration. B) if an agent resigns and affiliates with another broker-dealer, both firms and the agent must notify the Administrator. C) an agent can only sell securities that have been registered in a state or that are exempt from registration. D) a nonresident agent can solicit business in another state only if the agent and the broker-dealer are registered in that state.

A, If a broker-dealer's (or investment adviser's) registration is revoked by a state, the registrations of all of its agents (or IARs) are suspended. That is, those individuals can no longer function in a registered capacity until they register with another active firm.

Under the Investment Company Act of 1940, the reporting requirements investment companies must comply with include: filing an audited report with the SEC annually. sending semiannual reports to shareholders. notifying shareholders of changes in the portfolio as those changes occur A) I, II and III. B) I and II. C) I and III. D) II and III.

B

XYZ Corporation is registering a new issue of common stock. A final prospectus must be delivered within the statutory time limits to: A) any person who is employed by the issuer. B) any person who purchases shares of the issue. C) any person who has submitted an indication of interest. D) any person solicited by a registered agent.

B

Which of the following is (are) advantages of irrevocable insurance trusts? Provide estate liquidity. Insurance proceeds are removed from the estate of the insured for tax purposes. The insured has the flexibility to alter the trust arrangements. Once set up, no changes may be made. A) I and III. B) I and II. C) III and IV. D) II and IV.

B, As with all life insurance, the proceeds are available almost immediately upon death providing estate liquidity. When done properly, the proceeds of the policy are not included in the deceased's estate thereby saving estate taxes. The trust is irrevocable - no changes can be made, and this is one of the few disadvantages.

Stock prices in the over-the-counter market are determined by: A) a competitive bid. B) an auction. C) negotiation. D) the five percent markup policy.

C

A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client? A) A 10% penalty plus the payment of ordinary income tax on funds withdrawn in excess of the owner's basis. B) A 10% penalty plus the payment of ordinary income tax on all of the funds withdrawn. C) Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis. D) Capital gains taxation on the earnings withdrawn in excess of the owner's basis.

C, Contributions to a nonqualified annuity are made with the owner's after-tax dollars. Distributions from such an annuity are computed on a LIFO basis with the income taxed first. Once the cost basis is reached, any further withdrawals are a nontaxable return of principal. Since the client is older than 59-½ at the time of distribution, the additional 10% penalty tax is not incurred.

Under industry rules, customers who wish to trade options must receive a copy of the options disclosure document (ODD) A) within 15 days of account approval B) at or before the mailing of the confirmation representing the first options trade C) at or before the mailing of the next monthly statement D) at or before account approval

D, All prospective options customers must receive a copy of the ODD at or before the time the account is approved to trade options. It is the options account agreement that must be signed and returned to the broker-dealer within 15 days of account approval.

The tax consequence of transferring proceeds from one fund to another within the same family of funds is: A) no gain or loss is recognized until redemption. B) gains are taxed and losses are deferred. C) losses are deducted and gains are deferred. D) on the date of the transaction, any gain or loss is recognized for tax purposes.

D, An exchange is the sale and then a purchase of a new security and is therefore a taxable event.

An investor's required rate of return is 6%. If the internal rate of return of the investment offered is 5.75%, then the NPV is A) negative B) zero C) positive D) between 5.75% and 6%

A, Any time an investment's IRR is less than the required rate of return, the NPV is negative (and should probably be avoided). NPV is expressed as a dollar amount. It is the IRR which is expressed as a percentage.

Strategic Capital Asset Managers (SCAM) is preparing its Form ADV Part 2B relating to certain individuals. On this form, SCAM must disclose all of the following information EXCEPT A) disciplinary information about material events within the past 10 years B) the name, title, and telephone number of the indi¬vidual supervising any listed person C) compensation earned on dealings with clients D) the fact that any listed person has no formal education after high school

C, It is compensation beyond that paid by the client (such as a sales award or other prize) that must be disclosed.

One of your clients is in the process of forming a new business venture with a friend and is considering whether to operate as a partnership or a C corporation. Among the advantages of operating as a partnership are: I. ease of dissolution. II. ease of raising additional capital. III. flow-through of income or loss. IV. limited liability.

I and III

Market interest rates rise by 50 basis points. If each of these bonds has about the same maturity date, which of the following would decline the least? A) AA corporate bond carrying a 7% coupon. B) Treasury bond issued at par carrying a 7% coupon. C) AAA corporate bond carrying a 6% coupon. D) Treasury bond issued at par carrying a 6% coupon.

B, All other factors being equal, bonds of higher quality experience less price volatility than do bonds of lower quality. Treasury securities have higher quality than other debt securities due to the elimination of default risk. When market interest rates rise, bonds having higher coupons will decline less than bonds having lower coupons.

Jill is an investment adviser representative with FairPlay Advisers, an SEC-registered investment advisory firm. At the recommendation of a close friend who is a client of Jill's, Tom comes in for an interview and portfolio analysis. When examining Tom's IRA, which of the following holdings would Jill feel the need to immediately review? A) JKL Money Market Fund B) ABC Municipal Bond Fund C) GHI Large-Cap Equity Index Fund D) DEF U.S. Government Bond Fund

B, Although not illegal, it is generally considered inappropriate to include tax-exempt securities, such as municipal bonds (whether individual bonds or in a fund), in a tax-deferred retirement plan.

Judy is in the business of giving general investment advice, suggesting appropriate asset allocation percentages, but not recommending specific securities. George's business model is giving investment advice and recommending specific securities. Assuming that both receive compensation, who must register as an investment adviser under the Uniform Securities Act? A) Neither must register. B) Only Judy. C) Only George. D) Both must register. Explanation

D, Two of the three critical elements in the definition of investment adviser are whether the person provides advice regarding securities and receives compensation for doing so. (The third element is "being in the business" and the question states that both are). Even without recommending specific securities, the fact that Judy suggests asset allocation percentages constitutes investment advice. Both Judy and George provide advice regarding securities for compensation and must register, unless specific exemptions apply.