S66 - Unit 4

During the previous fiscal year, The Kaplan Family Trust received $24,000 in dividends and $35,000 in interest from corporate bonds. Securities transactions during the year resulted in long-term capital gains of $48,000, $20,000 of which were reinvested in the corpus. The DNI for the Kaplan Family Trust is A. $11K B. $79K C. $87K D. $107K

- $87K

The minimum size order that would be considered a block trade is A. 500 shares B. 1,000 shares C. 10,000 shares D. 100,000 shares

- 10,000 shares

One of your clients enters a sell stop order at 60, limit 59. Subsequent to the entry of the order , trades occur at 61, 61.10, 60, 58.95, 59, 60. The client's order was most likely filled at A. 58.95 B. 59 C. 60 D. 61.10

- 59

Which of the following accounts could be opened with a TOD designation? I. individual II. joint tenants in common III. joint tenants with rights of survivorship IV. UTMA

- I and III

Duration is A. equivalent to the yield to maturity B. a measure of a bond's volatility with respect to a change in interest rates C. the deviation of a bond's returns from its average returns D. identical to a bond's maturity

- a measure of a bond's volatility with respect to a change in interest rates

Which of the following orders would be most likely to add fuel to a bullish stock market? A. buy limit B. buy stop C. sell limit D. sell stop

- buy stop

Under ERISA, a fiduciary must act in all of the following ways EXCEPT A. solely in the interest of plan participants and beneficiaries B. with care, skill, prudence, and caution under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character C. in accordance with the governing plan documents unless they are not consistent with ERISA D. confining investments to only those most likely to achieve growth

- confining investments to only those most likely to achieve growth

An individual is a participant in the 401k plan offered by her employer. If she were to invest $400 per month into a large-cap growth fund, she would be A. following a constant ratio plan B. dollar cost averaging C. matching her employer's contribution D. using tactical asset allocation style

- dollar cost averaging

With respect to taxation, the investment adviser representative should not A. draft tax and estate documents to ensure compliance with current law in order to provide substantial after-tax returns B. discuss the tax implications C. explain the taxable status of particular investments D. consider tax implications as a way of improving a client's after-tax returns

- draft tax and estate documents to ensure compliance with current law in order to provide substantial after-tax returns.

In making suitable investment recommendations, the least significant element would be the client's A. retirement needs B. death and disability needs C. educational level D. current income

- educational level

An estate account with an investment adviser must be managed at the direction of the A. investment adviser B. estate creditors C. estate's executor or administrator D. attorney with guardianship over the surviving children

- estate's executor or administrator

Which of the following is an example of a passive investment management style? A. use of index funds in conjunction with selecting specific securities in the index to overweight certain sectors B. investment in small capitalization technology securities C. exclusive use of index funds D. value investing

- exclusive use of index funds

Which of the following individuals may not open a joint account? A. 2 spouses B. 3 sisters C. 2 strangers D. parent and a minor

- parent and a minor

All of the following investments are eligible for a traditional IRA EXCEPT A. covered call writing B. bank CDs C. works of art D. growth-oriented securities

- works of art

Under the minimum distributions rules, Jason is required to take a minimum distribution of $10,000 this year from his IRA. However, a distribution of only $8,000 has been made. What is the dollar amount of penalty that may be assessed in this situation? A. $200 B. $1,000 C. $2,000 D. $4,000

- $1,000

What is the total return on a 1-year, newly issued (365 days to maturity) zero-coupon debt obligation priced at 95? A. the return cannot be determined without knowing current interest rates B. 5% C. 5.26% plus the implied coupon rate D. 5.26%

- 5.26%

In determining an investor's risk tolerance, an investment adviser representative must consider I. level of tolerance toward market volatility II. investment time horizon, long term or short term III. liquidity requirements IV. investment temperament

- I, II, III and IV

You have a client with a margin account at your BD. If the market price of the securities in the account should fall to a point where you have to ask the client for additional funds, it is A. a reg T call B. a maintenance margin call C. a margin call D. a market call

- a maintenance margin call

Which of the following bond strategies would be considered passive? A. barbell B. bullet C. buy and hold D. laddering

- buy and hold

Regarding the treatment of estates by the IRS, it would not be correct to state any of the following EXCEPT A. estates may be valued either at date of death or 9 months later using the alternative valuation option B. a deceased person may reduce the value of the estate by taking advantage of the annual gift tax exclusion C. income received by the estate is reported on Form 1040 D. the maximum tax rate on estates is the same as that on gifts

- the maximum tax rate on estates is the same as that on gifts

A taxpayer's marginal tax rate is A. the rate of tax paid on margin account interest B. generally lower than the effective tax rate C. the rate of taxation on any additional taxable income received D. the rate of tax paid on total taxable income

- the rate of taxation on any additional taxable income received

Qualified annuity plans offered under Section 403(b) of the Internal Revenue Code, referred to as tax-sheltered annuities (TSAs), are not available to A. a public school custodian B. a church minister C. a nurse at a nonprofit hospital D. a student at a nonprofit college

- a student at a nonprofit college

An investor has $50,000 to invest in bonds. Currently, 10-year bonds are offering very attractive yields, but the client is concerned that in a few years, rates will be even higher. What would you suggest? A. barbell bonds B. bullet bonds C. diversifying D. laddering

- barbell bonds

All of the following statements regarding qualified corporate retirement plans are true EXCEPT A. all corporate pension and profit-sharing plans must be established under s trust agreement B. all qualified retirement plans are either defined contribution or defined benefit plans C. they are covered under ERISA D. with defined benefit plans, the employee bears the investment risk

- with defined benefit plans, the employee bears the investment risk

Which of the following would you expect to see in the investment policy statement of a qualified plan? I. the information in the summary plan document specified by the Department of Labor II. the method to be used to measure the investment performance of the plan III. a listing of the portfolio assets as of the most recent quarter IV. investment limitations placed on the portfolio managers

- II and IV

There are number of potential sources of income to a client that would have to reported on their income Form 1040 tax return. Among them could be all of these EXCEPT A. death benefit received from a life insurance policy B. operation of a sole proprietorship C. ownership of stock in a S corporation D. interests in a DPP

- death benefit received from a life insurance policy

"Stock prices adjust rapidly to the release of all new public information." This statement is an expression of which of the following ideas? A. arbitrage pricing theory B. efficient market hypothesis C. odd-lot theory D. tactical allocation

- efficient market hypothesis

An employer whose 401k plan complies with ERISA Section 404 is placing investment risk with the A. IRA B. plan fiduciary C. plan participant D. SEC

- plan participant

A portfolio manager who routinely shifts portfolio assets to take advantage of the business cycle is said to be engaging in A. asset allocation B. correlation C. rebalancing D. sector rotation

- sector rotation

A BD quotes a stock 42 to a half. The difference between these two numbers is known as A. the broker's commission B. the dealer's markup C. the profit margin D. the spread

- the spread

An investor invests $1,000 into the shares of the Stratford Growth and Income Fund, an open-end investment company registered under the Investment Company Act of 1940. On the purchase application, the investor check the boxes signifying that dividends were to be paid out in cash and capital gains were to be reinvested. During year, the fund pays dividends of $20 and distributes a $250 capital gain. At the end of the year, the fund's value is $1,300. The total return to this investor was A. 25% B. 27% C. 30% D. 32%

- 32%

Dan is the owner of a mutual fund that returned him a before-tax return of 15% last year. Inflation is running at annual rate of 3%, and Dan is in a 27% marginal income tax bracket. What has been Dan's approx. inflation-adjusted after-tax return on the fund over the course of the last year (rounded)? A. 7.95% B. 8.76% C. 10.95% D. 12.00

- 7.95% EXPLANATION: (0.15 * 0.73) - 0.03 = 7.95

Which of the following individuals is clearly eligible to make a catch-up contribution? A. Roger, who has completed 1 year of service B. Emily, who is fully vested C. Sam, who has completed 15 years of service D. Hannah, who is 55 years old

- Hannah, who is 55 years old

An investment adviser rep specializes in the senior market. A number of his clients have reached the age where they are contemplating selling their homes and moving into an assisted living facility. The profit made on the sale of their homes will be used to defray the costs of their new residence. Under the current tax laws, which of the following are TRUE? I. a single person pays no tax on the first $250K of net profit realized on the sale of a primary residence that has been occupied for at least 2 of the past 5 years II. a single person pays no tax on the first $500,000 of net profit realized on the sale of a primary residence that has been occupied for at least 2 of the past 5 years III. a married couple pays no tax on the first $250K of net profit realized on the sale of a primary residence that has been occupied for at least 2 of the past 5 years IV. a married couple pays no tax on the first $500K of net profit realized on the sale of a primary residence that has been occupied for at least 2 of the past 5 years

- I and IV

It would be correct to state that I. the specialist stands ready to buy or sell stock on the floor of an exchange in an effort to keep an orderly market II. the specialist stands ready to buy or sell stock on the OTC market in an effort to keep an orderly market IV. the market maker stands ready to buy or sell stock on the OTC market in an effort to keep an orderly market

- I and IV

As part of its suitability determination, an IA firm requires that all potential non-business clients complete a family balance sheet. Items that would be included are I. gold jewelry II. loan secured by family automobile III. the amount paid thus far this year for Botox injection IV. the balance owed to the dentist for new crowns

- I, II and IV

Which of the following are fiduciaries? I. executor of an estate II. administrator of a trust III. custodian of an UGMA account IV. investment adviser representative granted with discretionary authority over the account

- I, II, III and IV

If 3 individuals have a tenants in common account with a firm and one individual dies, then A. the account must be liquidated and the proceeds split evenly among the 2 survivors and the decedent's estate B. the 2 survivors continue as co-tenants with the decedent's estate C. trading is discontinued until the executor names a replacement for the deceased D. the account is converted to joint with rights of survivorship

- the 2 survivors continue as co-tenants with decedent's estate.

Your client owns a beach-front home that he has been renting out to others for the past 5 years. He plans to start taking things a bit easier and wishes to make personal use of the home part of the year. Under IRS regulations, if he wanted to continue to receive the same tax benefits he's enjoyed in the past, he would be permitted to enjoy the property no more than A. 1 month per taxable year B. 2 weeks per year C. 3 weeks per year D. the greater of 14 days or 10% of the total days rented to others at a fair rental price

- the greater of 14 days or 10% of the total days rented to others at a fair rental price.

An investor wishing to buy US Treasury bonds receives a quote from the dealer of 98.16. This represents A. the bid B. a discount C. the offer D. an indication of falling interest rates

- the offer

Expected return is A. the difference between an investment's present value and its cost B. the current worth of future income discounted to reflect what that income is worth today C. an estimate of probable returns an investment may yield D. the one discount rate that equates the future value of an investment with its net present value

- an estimate of probable returns an investment may yield

The YTM is A. set at issuance and printed on the face of the bond B. determined by dividing the coupon rate by the current market price of the bond C. the annualised return of a bond if it is held to maturity D. the annualized return of a bond if it is held to call date

- the annualised return of a bond if it is held to maturity

While attending a seminar given by one of your firm's analysts, you hear the term, feasible set. That would mean the discussion was dealing with the topic of A. the efficient frontier B. convexity C. a range of returns D. opportunity cost

- the efficient frontier

A wealthy individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed? A. the original value plus any appreciation is taxed as part of the grantor's estate B. the original value plus any appreciation passes to the beneficiaries but is subject to gift tax C. the original value plus any appreciation passes to the beneficiaries and is taxed as ordinary income D. no tax is due if the grantor should die during the term of the trust

- the original value plus any appreciation is taxed as part of the grantor's estate

A basic difference between a Section 457 plan established on behalf of a governmental entity and one established by a private tax-exempt organization is that A. a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants B. a tax-exempt plan participant does not have to include plan distributions in his or her taxable income C. a governmental plan cannot make a distribution before the participant attains age 70.5 D. a tax exempt plan's distributions are not eligible for a favorable lump sum 10-year averaging treatment

- a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants

All of these are true about a traditional 401k plan EXCEPT A. in service employees may be eligible for hardship withdrawals B. employees can choose from a variety of investment options C. employees may have a portion of their contribution matched by the employer D. the employer can contribute more than 25% of total payroll

- the employer can contribute more than 25% of total payroll

Under the UGMA, which of the following statements is NOT true? A. an UGMA account may have only one custodian for only one minor B. only an adult can make a gift to a minor C. the maximum amount of money an adult can give to a minor in any one year is $14,000 D. once a gift is given to a minor, it cannot be reclaimed

- the maximum amount of money an adult can give to a minor in any one year is $14,000

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

An investor wants to provide for his 3 nephews after his brother dies. Under the UGMA, the investor may open A. 1 account for all 3 nephews B. 3 separate accounts and deposit cash and securities C. 3 separate accounts and deposit insurance policies D. 3 separate accounts and deposit fixed annuities

- 3 separate accounts and deposit cash and securities

Which of the following could reduce the amount that an individual may contribute to a Traditional IRA? I. Roth IRA contributions made for the year II. high income level III. participation in an employer-sponsored plan IV. marital status

- I only

A new account is opened for joint tenants with rights of survivorship. All of the following statements are true EXCEPT A. orders may be given by either party B. mail can be sent to either party with the permission of the other party C. checks can be drawn in the name of either party D. in the event of death, the decedent's interest in the account goes to the other party

- checks can be drawn in the name of either party

Which of the following types of orders does NOT restrict the price at which an order is executed? A. limit B. stop C. market D. stop-limit

- market

Which TWO of the following statements are CORRECT? I. time-weighted returns are generally of more use than dollar-weighted returns to evaluate portfolio manager performance II. time-weighted returns are generally of more use than dollar-weighted returns to evaluate individual investor performance III. dollar-weighted returns are generally of more use than time-weighted returns to evaluate portfolio manager performance IV. dollar-weighted returns are generally of more use than time-weighted returns to evaluate individual investor performance

- I and IV

Which of the following would you expect to see in the investment policy statement of a qualified plan? I. the information in the summary plan document specified by the Department of Labor II. the method to be used to measure the investment performance of the plan III. a listing of the portfolio assets as of the most recent quarter IV. investment limitations placed on the portfolio managers

- I, II, III and IV

Which of the following is an allowable early withdrawal from a traditional IRA without penalty? A. a wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence B. a single parent withdraws funds from her IRA to pay for the education of a nephew C. a single parent supplements a home equity loan with funds from her IRA to pay for an additional home (a vacay home) D. a person withdraws funds from his IRA to buy a principal residence after he sold his first home as a result of medical expenses

- a wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence.

A client of a brokerage firm purchases 100 shares of ABC common stock at a price of $50 per share. On settlement date, the firm journals $2,500 from the client's money market account to pay for the trade. No further call for money is made. This trade must have taken place in a A. cash account B. depository account C. margin account D. wrap fee account

- margin account

Which of the following regarding customer accounts is NOT true? A. stock held in a custodial account may not be registered in the name of the minor B. in some cases, a TOD account is referred to as a POD account C. stock held under JTWROS goes to the survivor in the event of the death of one of the tenants D. margin trading in a fiduciary account does not require any special documentation

- margin trading in a fiduciary account does not require any special documentation

Which of the following statements regarding taxation is NOT true? A. earned income includes salary, bonus, and income as an owner of a limited partnership B. passive income is derived from rental property, limited partnership, and enterprises in which an individual is not actively involved C. portfolio income includes dividends, interest, and net capital gains derived from the sale of securities D. items that must be added back into taxable income for calculation of the alternative minimum tax (AMT) include: accelerated depreciation on property placed in service after 1986; local taxes and interest on investments that do not generate income; and income stock options exceeding the fair market value of the employer's stock

- earned income includes salary, bonus, and income as an owner of a limited partnership

IRAs and Keogh plans are similar in the following ways EXCEPT A. deferral of taxes B. distributions without penalty can begin as early as 59.5 C. identical amounts of cash contributions are allowed D. there is a 50% tax penalty for insufficient distributions

- identical amounts of cash contributions are allowed.

If a customer would like to open a custodial UGMA or UTMA account for his nephew, a minor, the uncle can A. open the account provided the proper trust arrangements are filed first B. open the account and name himself custodian C. open the account, but he needs a legal document evidencing the nephew's parents' prior approval of the account D. be custodian for the account only if he is also the minor's legal guardian

- open the account and name himself custodian

While in your office, you see that your firm is going to be holding a training session on municipal fund securities. You wish to attend because you are interested in being able to speak intelligently to your clients about A. the difference between GO bonds and revenue bonds B. the difference between using mutual funds or UITs to invest in municipal bonds C. Section 529 Plans D. Section 457 Plans

- Section 529 plans

Which of the following would not constitute a conflict of interest between the plan and a fiduciary? A. a fiduciary sells a real estate investment to the plan at the current market rate B. a fiduciary participates in a transaction on the plan's behalf that involves a party with interests adverse to those of the plan in order to ensure favorable terms for the plan C. a fiduciary offers reduced commissions to the plan for transactions that are executed through his employing financial institution D. The fiduciary receives fees for acting as a trustee to the plan

- The fiduciary receives fees for acting as a trustee to the plan.

Keogh Plans are qualified plans intended for those with self-employment income and owner employees of unincorporated businesses or professional practices filing a Form 1040 Schedule C with the IRS. Which of the following statements relating to the Keogh Plan is NOT true? A. owner-employee businesses and professional practices must show a gross profit in order to qualify for a tax-deductible contribution B. a participant in a Keogh Plan may also maintain an IRA C. the maximum allowable contribution to a Keogh Plan is substantially higher than that for an IRA D. a former corporate employee who decides to become self-employed may not rollover any distributions from a qualified corporate plan into a rollover IRA if he has created a Keogh Plan

- a former corporate employee who decides to become self-employed may not rollover any distributions from a qualified corporate plan into a rollover IRA if he has created a Keogh Plan

An exchange specialist is A. a trader who makes a market in OTC stocks and ADRs B. a floor broker on the NYSE who only executes trades for other brokers in return for commissions C. a member of the NYSE who executes orders for other members and who also acts as a market maker charged with the responsibility of keeping an orderly market in designated stocks D. an electronic brokerage concerns that executes trades online and through specialized trading order executing services

- a member of the NYSE who executes orders for other members and who also acts as a market maker charged with the responsibility of keeping an orderly market in designated stocks

A BD acting as a principal in a trade would A. add a markup to the bid price when offering shares to a client B. add a markup to the offering price when selling shares to a client C. must always disclose the amount of markup on a client's confirmation statement D. must disclose to clients the amount of earnings he made on principal transactions in excess of the amount he would have made had he charged a commission

- add a markup to the offering price when selling shares to a client

Which of the following statements is an accurate description of dollar cost averaging? A. an investor buys the same number of shares each interval, averaging out his purchase prices over time B. an investor sells when the market rises and buys shares when the market declines in order to average his costs C. an investor invests a set amount of money each interval to buy more shares when the prices are low and fewer shares when prices are high D. an investor averages the costs of his shares purchased and then enters limit orders to purchase additional shares at the average price

- an investor invests a set amount of money each interval to buy more shares when the prices are low and fewer shares when prices are high

Which of the following statements regarding Coverdell ESAs and QTPs is NOT correct? A. If a portion or all of the withdrawal (QTP) is spent on anything other than qualified higher education expenses, the distributee will be taxed at her own tax rate on the earnings portion of the withdrawal B. coverdell ESAs currently permit up to $5,000 in annual contributions, whereas QTPs allow large contributions reaching as high as $250,000 and above C. QTPs are extremely useful tools that provide significant tax savings, allows for substantial investments for a child's education and provide a tool for avoidance of gift and estate taxes if used correctly D. Coverdell ESAs are designed to offer tax benefits to those individuals who wishes to save money for a child/grandchild's higher education expenses

- coverdell ESAs currently permit up to $5,000 in annual contributions, whereas QTPs allow large contributions reaching as high as $250,000 and above

Which of the following statements regarding a traditional IRA for someone filing a 2015 tax return is TRUE? A. a traditional IRA allows a maximum tax-deductible annual contribution of $2,500 per individual of $4,000 per couple B. the income and capital gains earned in the account are tax-deferred until the funds are withdrawn C. distributions without penalty may begin after age 59.5 and must begin by April 1 of the year preceding the year an individual turns 70.5 D. distributions before age 59.5 are subject to a 10% penalty in lieu of income taxes

- distributions before age 59.5 are subject to a 10% penalty in lieu of income taxes.

Risk-adjusted return is calculated by A. multiplying the return of an investment by its standard deviation B. dividing the price of the stock by its standard deviation C. dividing the remainder of the risk-free rate subtracted from the security's actual return by its standard deviation D. dividing the security's price by its beta

- dividing the remainder of the risk-free rate subtracted by the security's actual return by its standard deviation

In this industry, many words have similar meaning. Which of the following choices consists of a pair which are NOT properly considered synonyms? A. inflation risk - purchasing power risk B. interest rate risk - money rate risk C. financial risk - market risk D. liquidity risk - marketability risk

- financial risk - market risk

Since a trust account is managed for the beneficial interest of the beneficiary, the investment adviser representative can A. have funds withdrawn from the account at the direction of the beneficiary B. arrange to have the trust's funds pledged to support a loan for the trustee C. have a check drawn on the account, and payable to the trustee for trustee expenses D. place the securities in the trust fund in a non-custodial brokerage account

- have a check drawn on the account and payable to the trustee for trustee expenses.

A person providing which of the following services to an ERISA plan would be performing in a fiduciary capacity? A. selecting and monitoring third-party service providers B. determining the age at which benefits are to be provided C. amending the plan D. changing the level of employer contributions

- selecting and monitoring third-party service providers

A participant in an ERISA qualified retirement plan is studying the investment policy statement (IPS) prepared by the plan's fiduciary. The contents of the IPS would not include A. determination for meeting future cash flow needs B. specific security selection C. investment philosophy including asset allocation style D. methods for monitoring procedures and performance

- specific security selection