S66 Missed Questions Test 4

Stephen Gigs is about to retire and is concerned about having enough income to supplement his Social Security retirement savings. He would like to buy a conservative investment that can help offset inflation. Mr. Gigs takes the advice of his agent and purchases Treasury Inflation-Protected Securities (TIPS) with a face value of $100,000 and a coupon rate of 2 3/4%. Six months later, he reads that the CPI is up 3 1/2%. What is the approximate amount of Mr. Gigs' next interest payment? QID: 1507417 Mark For Review A$1,375 $1,423 $2,750 D$3,500

$1,423 The CPI rose 3 1/2% and, therefore, the principal of the TIPS will increase by 3 1/2% ($100,000 + [$100,000 x 3.5%]) = $103,500. Mr. Gigs' interest will be calculated by multiplying the new face amount by the coupon rate of 2 3/4%, then dividing by two since interest is paid semiannually. ($103,500 x 2.75%) / 2 = $1,423.13. Remember, the stated rate is an annual rate and will not change. (63033)

Over the past nine years, the annual percentage returns for a mutual fund have been 7%, -6%, -3%, 8%, 6%, 5%, 11%, 13%, and 8%. What is the median return? QID: 1507428 Mark For Review 5.4% B8% 7% D19%

7% The median return is the middle number in a data set. When the returns in this question are listed in order from the lowest to the highest (-6, -3, 5, 6, 7, 8, 8, 11, 13), it is clear that there are four points below 7% and four points above 7%. Therefore, the median return is 7%. The answer 5.4% is the arithmetic mean (or average) of the data set. The answer 8% represents the mode, since 8% appears more often than any other number. The answer 19% is the range or the difference between the lowest and the highest number in the data set.

According to the USA, which of the following is NOT considered to be a state? QID: 1507406 Mark For Review APuerto Rico A Canadian province CWashington D.C. The U.S. Virgin Islands

A Canadian province Although it is true that NASAA membership includes Canada/Canadian provinces, according to the USA Canadian provinces are not considered a state. Under the Uniform Securities Act, the term state is defined as any U.S. state, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, or any territory or possession that is subject to the jurisdiction of the United States. The definition does not extend to Canadian provinces.

Provided a broker-dealer has written procedures allowing for an agent to borrow or lend money to a customer, the agent may do so in all of the following situations, EXCEPT: QID: 1507163 Mark For Review AA customer is a member of the agent's immediate family A customer is registered with a different broker-dealer than the agent CA customer is a financial institution engaged in the business of making loans A customer has a personal relationship with the agent that exists outside their brokerage relationship

A customer is registered with a different broker-dealer than the agent An agent may make loans or borrow money from their immediate family members, or if the client is a financial institution—a bank—or the agent and the customer have a personal or business relationship outside their brokerage relationship. However, in order for an agent to borrow from another registered person, they both must be registered with the same broker-dealer. (89694)

If employed by a federal covered adviser, which of the following individuals would be required to register as an IAR in State A? QID: 1507394 Mark For Review AA person who works at the home office located in State B A person who resides in State A but works at the home office located in State B CA person who resides and works in state B, and has five retail clients who live in state A A person who works at the home office in state A however all of his clients are institutions located in State A and State B

A person who works at the home office in state A however all of his clients are institutions located in State A and State B If an IAR is employed by a federal covered adviser, the de minimis exemption—limiting the number of retail clients—does not apply. The IAR may exceed the five-client threshold in a state as long as he does not have a place of business. However, when an IAR is employed by a federal covered adviser and has an office in the state, the IAR would be required to register in that state, regardless of the number or type of clients being serviced. Remember, IARs of federal covered advisers are required to register in the state(s) in which they maintain an office. For that reason, a person who works at the home office in State A is required to register there. This is true regardless of the type of clients that the IARs may have in State A. (32516)

John and Audrey are a married couple. They are both thirty-five and have a 4-year-old daughter. They both work and together they earn more than $200,000 per year. John received a substantial bonus last year, which they want to save in order to purchase a home in 3 to 5 years. Which of the following investments would be the BEST recommendation for them? QID: 1506931 Mark For Review A short-term, investment-grade bond fund A short-term municipal bond fund CA bond index fund DAn equity-indexed annuity

A short-term municipal bond fund John and Audrey's short-term investment goal is to buy a house in the next couple of years. Therefore, capital preservation and liquidity should be two of their main goals. Although both short-term bond funds are good choices, the stem of the question indicates that they have a high income and are probably in a high marginal tax bracket. A municipal bond fund will provide them with income that is free from federal taxes and is possibly state and local tax-exempt as well. (32442)

A client would like to invest $250 a month and have broad exposure to the U.S. equity market. Which of the following recommendations would be most suitable? QID: 1507145 Mark For Review AA managed closed-end fund An S&P 500 Index mutual fund An S&P 500 Index exchange-traded fund DA DJIA exchange-traded fund

An S&P 500 Index mutual fund Although all these investments would be suitable for a client seeking broad exposure to the U.S. equity market, the mutual fund would be the most cost-effective method for an investor who has $250 a month to invest to accomplish this goal. The closed-end fund and ETFs are purchased on an exchange, and the client pays the current market price plus a commission. Most index mutual funds do not charge the client a sales charge, (i.e., they are no-load). If the investor were purchasing a large dollar amount at one time, any of these funds might be appropriate. (62484)

Under the Investment Advisers Act, the form that is filed annually with the SEC and determines an adviser's continued eligibility for federal registration is called: Annual Updating Amendment Consent to service of process CADV Part 2 DADV-W

Annual Updating Amendment The Annual Updating Amendment is submitted to confirm that an SEC registered investment adviser is still eligible for federal registration. The form must be filed within 90 days after the end of the adviser's fiscal year. (62394)

What name is given to the type of units used during the payout phase of a variable annuity? QID: 1507162 Mark For Review Accumulation units Annuity units CPayment units DPaid-in units

Annuity units When annuitization begins, accumulation units are exchanged for annuity units. Investors then receive payments based on the value of a fixed number of annuity units. The value of the annuity units will fluctuate based on the performance of the variable annuity's separate account, which will cause the payments to rise or fall. (67685)

Randy inherited his father's IRA. If his father died at the age of 69 and Randy did not choose to take a lump-sum distribution, he must withdraw the entire account: QID: 1507404 Mark For Review By no later than the fifth year following the owner's death BAnd rollover the funds into this own IRA By no later than the 10th year following the owner's death DBy the time Randy reaches the age of 70 1/2

By no later than the fifth year following the owner's death According to IRS rules regarding inherited IRAs, a non-spouse who inherits an IRA and the decedent had not yet reached the age of 70 1/2, may take a lump-sum distribution, have the funds distributed over his expected lifetime, or have the funds distributed by the end of the fifth year following the IRA owner's death. (89049)

Regarding the possession of funds held by investment advisers (IAs), which of the following is FALSE? QID: 1506907 Mark For Review AClient notification must be made immediately regarding the location where the firm will hold the funds Client funds may only be held in an account that is established for that specific purpose CClient funds may be held by a qualified custodian that has met certain standards Clients must receive a statement at least annually that discloses certain details of the funds held by the firm

Clients must receive a statement at least annually that discloses certain details of the funds held by the firm Client account statements are sent on a quarterly basis and must include the amount of funds in the firm's possession, a list of securities held in custody, a record of transactions, and all fees charged. If a custodian holds the assets (i.e., not the IA), the IA must have a reasonable belief that the statements are being provided. (67660)

A management company may be established as either open-end or closed-end. What is the difference between the two types? QID: 1506915 Mark For Review AClosed-end funds redeem their own shares BOpen-end fund shares trade in the secondary market Closed-end shares may trade at a premium or discount to the NAV Open-end funds may issue bonds in order to raise additional capital

Closed-end shares may trade at a premium or discount to the NAV Closed-end fund shares trade in the secondary market at either a premium or discount to their NAV. Although closed-end funds may issue senior securities (preferred stock or bonds) to raise additional capital, open-end funds cannot. Also, open-end fund securities are able to be redeemed; they do not trade in the secondary market. (88969)

Melissa is listening to a group of individuals discussing trends in the current market. They are saying that they are fully invested and have no purchasing power and that they believe the market will continue to rise. Melissa, however, anticipates a market peak followed by a downturn. She is most likely a follower of which style of investing? QID: 1506920 Mark For Review AMomentum investing The Random Walk Theory CThe Sharpe Ratio Contrarian investing

Contrarian investing Melissa is an adherent to the contrarian style of investing. She goes against the wisdom of the majority. (62465)

Maria wants to open a 529 savings plan for her daughter. The advantages of this type of account include all of the following factors, EXCEPT: QID: 1506896 Mark For Review Earnings grow on a tax-deferred basis Contributions may be deducted from the donor's federal and state income taxes CThere are no limits on the contributor's income DDistributions are not subject to federal income taxes provided they are used to pay for education expenses

Contributions may be deducted from the donor's federal and state income taxes Contributions to 529 savings plans are not tax-deductible as far as the federal government is concerned. Some states do allow their residents to deduct part or all of their contributions to 529 plans from their state income taxes, provided they invest in a plan sponsored by the state in which they live. (62757)

A Suspicious Activity Report (SAR) should be filed: QID: 1507154 Mark For Review AFor transactions of more than $2,000 For transactions of $5,000 or more Only for transactions of more than $10,000 DOnly for transactions of more than $25,000

For transactions of $5,000 or more A firm must file an SAR whenever a transaction (or group of transactions) equals or exceeds $5,000 and the firm suspects any of the following wrongdoing: The client is violating federal criminal laws. The transaction involves funds that are related to illegal activity. The transaction is designed to evade the reporting requirements (structured transactions). The transaction has no apparent business or other legitimate purpose and the broker-dealer cannot determine any reasonable explanation after examining all the available facts and circumstances surrounding the transaction. (17208)

Which bonds would have the greatest sensitivity to interest rate changes? Bonds with long durations Bonds with short durations Bonds with high coupons Bonds with low coupons I and III I and IV II and III DII and IV

I and IV Duration is a measure (expressed in terms of years) of a bond's price sensitivity to small changes in interest rates. The longer a bond's duration, the greater its price sensitivity. Also, bonds with low coupons are more sensitive to interest changes than bonds with high coupons. Therefore, a change in rates will result in a greater percentage change in a bond's value if it has a low coupon.

Which TWO of the following are TRUE regarding credit spreads? Credit spreads represent the difference between the yields on various bonds and dividend paying stocks Credit spreads represent the difference between yields on various bonds and Treasury securities If a corporate bond yields 5.5% and a Treasury bond with a similar maturity yields 4.5% the credit spread is 2% If a corporate bond yields 6% and a Treasury bond with a similar maturity yields 4.5% the credit spread is 1.5%

II and IV INCORRECT ANSWER CHOSEN A credit spread represents the difference in the yields of various bonds as compared to Treasury securities of similar maturities. If a corporate bond yields 6% and a Treasury bond with a similar maturity yields 4.5%, then the credit spread is 1.5%. Choice (III) is incorrect since the credit spread is 1% (the difference between 5.5% and 4.5%). (88964)

Under the Uniform Securities Act, which of the following statements is/are TRUE of exempt securities?Any security that is exempt under the Uniform Securities Act is also exempt under federal regulationsAny security that is exempt under federal regulations is also exempt under the Uniform Securities ActCertain federal covered securities are required to notice file with the state AdministratorAll Canadian securities are exempt from registration QID: 1507411 Mark For Review AI and III only II and IV only III only DI, II, and IV only

III only Certain federal covered securities are required to notice file with the State Administrator. The notice filing provision applies to investment company securities and securities that are distributed through a Regulation D Rule 506 offering. A security can be exempt under federal law, but not state law, and vice versa. Only securities that are issued by some form of Canadian government are exempt from registration; the exemption does not apply to offerings made by Canadian corporations. (32499)

Sally is self-employed and has established a Keogh plan for her retirement. She has one full-time employee, Tom, who is 25 and has worked for her for 7 months. When is Tom eligible to participate in the Keogh plan? QID: 1506921 Mark For Review AImmediately In 5 months CIn 17 months Never, since he is not self-employed

In 5 months Employees of self-employed persons with a Keogh plan must be covered by the plan if they have worked for the employer for one year and are at least 21. (62497)

Your clients have a sizable estate, which they wish to leave to their children upon their death. Which of the following trusts would remove assets from their estate and potentially reduce their estate tax? QID: 1507161 Mark For Review Irrevocable BRevocable Testamentary DSimple

Irrevocable An irrevocable trust must be established by the grantors in order to remove their assets from the estate thus avoiding estate taxes. (75917)

An investment adviser would like to send an e-mail to potential clients and include a report which contains a listing of all of its recommendations. Is this an unethical business practice? QID: 1507409 Mark For Review AIt is, since an adviser is not permitted to use electronic communication to list past recommendations BIt is, since an adviser is only permitted to send this type of communication to existing clients It is not, provided the report has been filed with either the SEC or the appropriate state prior to the adviser sending the e-mail It is not, provided the first page of the report bears a legend stating that future recommendations will not always be as profitable as those that were made in the past

It is not, provided the first page of the report bears a legend stating that future recommendations will not always be as profitable as those that were made in the past NASAA's Statement of Policy on Unethical Business Practices of Investment Advisers states that any notice, circular, or report is considered advertising whether or not it is delivered by written or electronic means. An adviser is permitted to include a listing of all recommendations, provided the following conditions are met. The adviser furnishes a list of all recommendations it has made within the immediately preceding period of not less than one year and (i) states the name of each such security recommended, the date and nature of each such recommendation (e.g., whether to buy, sell, or hold), the market price at that time, the price at which the recommendation was to be acted upon, and the market price of each such security as of the most recent practicable date, and (ii) contains the following cautionary legend on the first page: "It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list." Advertising does not need to be filed with the SEC or the state prior to being disseminated and may be sent to both existing and potential clients. (62494)

While presenting a financial plan to a customer, an IAR talks about different types of risk. One of the primary risks mentioned by the IAR relates to the impact of current events, consumer confidence, and the general political climate. This risk is called: QID: 1506910 Mark For Review AInflation risk Nonsystematic risk CReinvestment risk Market risk

Market risk Of the choices available, market risk is the best fit. Market risk is the general risk of investing in a given market or economy. Inflation is a form of systematic risk that affects all bonds. Nonsystematic, inflation, and reinvestment risks are not broad enough to cover the events mentioned. (67683)

Robin works part-time for an investment adviser and develops financial plans for the advisory clients. The customized financial plans that she creates for a fee often include recommendations for clients to purchase insurance or variable annuities as well as open IRAs or some other types of retirement accounts. Robin does not earn commissions for selling variable annuities and insurance products to implement the clients' plans. Is Robin an investment adviser? Mark For Review No, she is an investment adviser representative. BNo, since she does not provide investment advice on a full-time basis. CNo, since she does not receive compensation for implementing her financial planning recommendations. Yes, since she charges a fee for financial planning services.

No, she is an investment adviser representative. The stem of the question is full of information that distracts from the fundamental point. Robin is an employee of the investment adviser; therefore, she is considered an investment adviser representative. An investment adviser (IA) is a firm, while investment adviser representatives (IARs) are the employees, officers, and directors of the IA who provide securities-related advice and solicit advisory service for the firm.

Although an exempt reporting adviser (ERA) is not required to register, it must still satisfy which of the following requirements? QID: 1506930 Mark For Review AFile Form ADV Part 2 with the SEC Notice file with the Administrator Amend its ADV within 90 days if material information changes DPrepare an annual brochure

Notice file with the Administrator Exempt reporting advisers are required to file Form ADV Part 1A with the SEC and must notice file with the Administrator. Any material information changes must be reported promptly. As is the case with other investment advisers, an ERA is required to amend its Form ADV within 90 days of its fiscal year end.

According to the Uniform Securities Act, all of the following sales and advertising literature may be subject to filing with the Administrator, EXCEPT a(n): QID: 1507160 Mark For Review Prospectus for a limited partnership BPamphlet for an oil and gas program CBrochure for a mining company Offering circular for an endowment policy

Offering circular for an endowment policy INCORRECT ANSWER CHOSEN The Administrator may require the filing of sales and advertising literature for securities investments. Limited partnerships, oil and gas programs, and mining companies issue securities. Endowment policies are insurance products, not securities. (62391)

On Tuesday, June 3, an IA discovers its net worth has fallen below the minimum requirement. When must the IA file a report of its financial condition with the Administrator? QID: 1506905 Mark For Review On Tuesday, June 3 BOn Wednesday, June 4 On Thursday, June 5 DOn Friday, June 6

On Thursday, June 5 If an IA's net worth is less than the required minimum, it must notify the Administrator by the close of the next business day (in this question, Wednesday, June 4). After notification is made, the IA must file a report of its financial condition by the next business (in this question, Thursday, June 5). Thereafter, the Administrator may require the IA to post a bond for the deficiency. (89048)

According to modern portfolio theory (MPT), the expected return of an investment is the: QID: 1506903 Mark For Review AAverage return including realized and unrealized gains and losses, plus income over a measured time period Market return on the investment adjusted by the beta of the stock or the portfolio Possible returns on the investment weighted by the likelihood that return will occur DStandard deviation of gains and losses over the life of the investment

Possible returns on the investment weighted by the likelihood that return will occur MPT defines the expected return of an investment as the possible returns on the investment weighted by the likelihood that return will occur. (62112)

An investment adviser representative has recommended a real estate limited partnership to a high net worth client who wants some real estate exposure in his portfolio. While the client is considering the investment, the IAR reads in the local press that the previous development that the general partner sponsored has gone bankrupt. What action must the IAR take? The IAR should discuss the situation with a supervisor before taking action The IAR must disclose this information to the prospective investor CThe IAR does not need to do anything since the event is now public knowledge DThe IAR should not do anything without first contacting the general partner

The IAR must disclose this information to the prospective investor INCORRECT ANSWER CHOSEN One of the most important factors in evaluating the merits of a limited partnership is the track record of the general partner. The bankruptcy of the previous project is material information that must be disclosed to the investor. (63051)

According to the Employee Retirement Income Security Act, all of the following persons or entities would meet the definition of a fiduciary, EXCEPT: QID: 1506923 Mark For Review The attorney who sets up the plan BThe investment adviser to the plan An individual who has discretion regarding the administration of the plan DThe trustee of the plan

The attorney who sets up the plan According to the Employee Retirement Income Security Act (ERISA), attorneys, accountants, and actuaries are not considered fiduciaries when acting solely in their professional capacities. Numerous activities involving the retirement plan require a person to act as a fiduciary, that is, to act in the best interests of others. A person who has discretion over the administration of the plan, or who manages the assets of the plan, is responsible for fulfilling the obligations of a fiduciary. Additionally, some activities are business decisions rather than fiduciary actions. Whether a plan will be established for employees and the benefits provided are business decisions.

A broker-dealer sought legal advice regarding a security that could be exempt from registration. Legal counsel determined that the security was exempt. A transaction occurs, but counsel was in error. The client who bought the security brings suit against the broker-dealer. Given these circumstances: QID: 1507403 Mark For Review AThe Administrator will make a private ruling to decide the matter The broker-dealer is still liable despite a good-faith effort in the transaction CThe legal opinion has greater significance than state law and the lawsuit will be dismissed The broker-dealer shifted all liability to legal counsel when retaining them

The broker-dealer is still liable despite a good-faith effort in the transaction The broker-dealer is financially liable regardless of the accuracy of the legal advice sought. (62893)

All of the following factors are disadvantages for a limited partner, EXCEPT: QID: 1507405 Mark For Review The conduit (flow-through) treatment for income and loss Lack of voting power CLack of liquidity DPossible adverse changes in the Internal Revenue Code

The conduit (flow-through) treatment for income and loss INCORRECT ANSWER CHOSEN Limited partnerships are not a liquid investment. Investors should have staying power if they are considering a purchase of a limited partnership interest. Another risk would be changes in the Internal Revenue Code, which could cause the tax benefits from the program to be invalid. Also, a limited partner has no voice (vote) in the operation of the program. A major advantage is that the partnership is not a taxable entity. All income and losses flow through to the partner for treatment on the partner's own tax return. (62113) 76 of 110

An agent of a broker-dealer is soliciting investors for a Regulation D offering. A non-accredited investor asks if he can invest less than the minimum required amount. Which of the following statements is TRUE? QID: 1506902 Mark For Review AThe non-accredited investor can invest less than the minimum required amount. The non-accredited investor cannot participate in a Regulation D offering. The non-accredited investor must invest at least the minimum required amount. DOnly accredited investors are able to avoid investing the minimum required amount.

The non-accredited investor must invest at least the minimum required amount. Securities that are sold under Regulation D are not required to be registered if they're sold to accredited investors and/or up to 35 non-accredited investors. If investors want to purchase securities being distributed through a Regulation D offering (regardless of whether the investors are accredited or non-accredited), they're required to invest the minimum required amount that's established by the broker-dealer selling the securities. Investors are not permitted to invest less than the minimum required amount.

Which of the following would NOT be defined as an affiliated person under the Investment Company Act of 1940? QID: 1507420 Mark For Review AAn insider who owns more than 10% of an investment company's shares BAn officer or director of an investment company The outside legal counsel for an investment company An employee of an investment company

The outside legal counsel for an investment company According to the Investment Company Act of 1940, an affiliated person is considered any officer, director, partner, copartner, or employee of the investment company. The term also includes any person who directly or indirectly owns, controls, or holds, with power to vote, 5% or more of the outstanding securities. (67614)

The rate of return that a mortgage company may earn over the life of a loan to a customer is the: QID: 1507418 Mark For Review Holding period rate of return Real rate of return CRisk-free rate of return DExpected rate of return

The return that is earned over the life of an investment and/or a loan is referred to as the holding period rate of return. Since the question asks for the return over the life of the investment (i.e., the loan), the holding period rate of return is the best answer. (89043)

Which of the following statements is TRUE concerning the posting of a bond by a broker-dealer? QID: 1507421 Mark For Review AThe bond may be waived if the broker-dealer has been in business for at least 10 years There is no bond requirement if the broker-dealer does not have custody or discretionary authority over client funds or securities The Administrator may not waive the bond requirement for any broker-dealer DThere is no bond requirement if the broker-dealer is registered in another state

There is no bond requirement if the broker-dealer does not have custody or discretionary authority over client funds or securities The Administrator may require broker-dealers to post bonds if they have custody of or discretionary authority over client funds or securities. The bond may be waived if the broker-dealer's net capital exceeds a specified amount. The Administrator may determine this amount. (62974)

An investment adviser charges fees based on a percentage of the assets being managed by the firm for the client. The schedule of fees reveals that the more assets the firm manages for the client, the lower the advisory fee. For customers with more than $5 million under management, the firm's advisory fees are negotiable. Which of the following statements is TRUE? QID: 1507410 Mark For Review AThe firm's fee structure is illegal since all customers must be charged the same rate for the same advisory services BThat part of the firm's fees that declines as assets increase is acceptable, but advisers may not negotiate different fees with different clients for the same amount of assets under management This fee structure is acceptable as long as the resulting fees are reasonable Any fee structure is acceptable as long as it is disclosed to the client and the client consents to it

This fee structure is acceptable as long as the resulting fees are reasonable It is unethical for an investment adviser to charge an unreasonable advisory fee. State Administrators may conduct surveys of investment adviser fees to determine what is reasonable. Negotiable fees are acceptable as long as the resulting fee is reasonable. (62945)

Ace Financial Consulting is a registered investment adviser specializing in financial planning. Although Ace's IARs are experienced and knowledgeable, they have many clients with complex tax issues. Ace has a consulting agreement with Block & Tackle, a local law firm that specializes in taxation. Block & Tackle is paid a fee whenever Ace calls them in to consult on the tax issues in a complex financial plan. Which of the following statements is TRUE? QID: 1506925 Mark For Review AIf Block & Tackle is not registered as an investment adviser, it would be required to obtain a waiver from the state Administrator to operate in this advisory capacity If Block & Tackle receives cash compensation from Ace, it must follow the rules for cash solicitors under the Investment Advisers Act CThis arrangement is appropriate provided Block & Tackle is compensated directly by the advisory clients on whose plans it provides advice This is a legitimate use of a professional consultant by the advisory firm and Block & Tackle need not register as an adviser

This is a legitimate use of a professional consultant by the advisory firm and Block & Tackle need not register as an adviser INCORRECT ANSWER CHOSEN It is perfectly appropriate for an investment adviser to consult other qualified professionals to ensure that their advice is accurate and in the client's best interest. Block & Tackle need not register as an investment adviser as long as it does not hold itself out to the public as an investment adviser, and as long as it provides investment advice incidental to its normal law practice. (62347)

XYZ Inc. is an investment adviser. One of its institutional clients would like to sell 1,000 shares of ABC stock. XYZ believes that this would be a suitable investment for another institutional client. XYZ proposes to arrange a trade between the two clients and would charge each customer a small fee for its services. This would allow each client to receive a better price than either could obtain in the open market. Which of the following statements is TRUE in this situation? QID: 1506912 Mark For Review This is permitted since the two clients are institutional investors, but would be prohibited if they were not This is permitted if XYZ discloses to each client that it is acting as a broker for both parties and receives each client's written consent CThis is permitted if XYZ discloses to the buyer that it is representing the seller in the transaction and receives the buyer's written permission DThis is not permitted under any circumstances unless XYZ waives any fee for arranging the transaction

This is permitted if XYZ discloses to each client that it is acting as a broker for both parties and receives each client's written consent An investment adviser that wishes to act as a broker for both parties to a transaction must: Disclose the capacity in which it is acting prior to the completion of the transaction and Obtain the client's written consent. Since both parties to the trade are clients, the disclosure and consent requirements apply to both. (62919)

Why would an investment adviser perform a capital needs analysis for a client? QID: 1507416 Mark For Review To determine how much income the client will need at retirement BTo determine how to best reduce the client's tax liability CTo determine how much disposable income the client has available to purchase insurance To determine how much insurance the client needs in order to fund future financial goals

To determine how much insurance the client needs in order to fund future financial goals A capital needs analysis is used to determine the amount of insurance a client needs to purchase today in order to fund her future financial goals. For example, if the client dies prematurely and the value of her investments are not sufficient to pay for her child's college education, life insurance is needed to fund the difference. (67613)

Which of the following investments would NOT be appropriate for an estate account? QID: 1507396 Mark For Review 3-month CDs BT-bills CCommercial paper Treasury bonds

Treasury bonds An estate is only expected to exist for a limited amount of time (i.e., one or two years at the most). By this time, the executor should have distributed all of the assets to the heirs and completed the estate's affairs. Treasury bonds are long-term investments with maturities exceeding 10 years. All of the other choices represent short-term investments, which are suitable for an estate. Treasury bills mature in one year or less and commercial paper matures in 270 days or less. (32411)

A broker-dealer is a syndicate member involved in a firm-commitment underwriting of a highly anticipated upcoming initial public offering (IPO). During the underwriting, the broker-dealer holds onto some of the shares in order to sell them at a later date since the shares are expected to rise in value. The broker-dealer's conduct is: QID: 1507156 Mark For Review AAcceptable if the issuer approves of the trade Unethical and prohibited under the Uniform Securities Act CAllowable only if the shares will be listed on a national exchange Acceptable since the broker-dealer is accepting risk that the shares may fall in value

Unethical and prohibited under the Uniform Securities Act This situation is known as withholding and is prohibited by both the Uniform Securities Act and the Securities Act of 1933. When a broker-dealer participates in a firm-commitment underwriting, it must sell the shares at the public offering price (POP) as soon as possible. (67598)

Over the past 10 years, an investment adviser has developed a computerized trading algorithm that produces average returns of 30% per year. To recover the costs associated with development, the adviser now plans to charge clients an annual fee equal to 25% of their average balance. An Administrator would consider this fee: QID: 1507397 Mark For Review Unreasonable, since past performance is not indicative of future returns BReasonable based on average results from the past Unreasonable due to the significant amount of the gains being taken as compensation compared to normal fees from other advisers DReasonable, since the system is unique and not available from other investment advisers

Unreasonable due to the significant amount of the gains being taken as compensation compared to normal fees from other advisers Performance-based fees are only available for qualified investors. Assessing a fee of 25% of the gains may be considered reasonable, but an asset-based fee of 25% would certainly be considered excessive. Generally, an asset-based fee exceeding 2% is considered excessive. (67696)

Your client owns a portfolio of blue-chip equity securities and would like to increase the overall rate of return through the use of options. The most conservative strategy to achieve this objective is to: QID: 1507153 Mark For Review Write covered calls Buy calls CWrite covered puts DBuy puts

Write covered calls The most conservative strategy for the investor to achieve his objective is to write covered calls. The call premium received will increase the yield on his portfolio of stocks because it will add to the income generated by the dividends received from the stock. (62485)