Series 65
Which of the following statements about zero-coupon bonds are TRUE?
Zero-coupon bonds are sold at a deep discount from face value. The owner of a zero-coupon bond receives his return only at maturity.
The fee charged by some mutual fund companies if shares are redeemed within a specified time after being purchased is known as
a contingent-deferred sales charge
As enumerated in the USA, exempt securities would include those issued by all of these EXCEPT
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.
Being a limited partner in a direct participation program is analogous to being
a holder of common stock in a corporation.
Under the Uniform Securities Act, a sale includes all of the following EXCEPT
a pledge of securities for the purpose of obtaining a margin loan
To a technical analyst, the resistance level signifies the price at which a stock's supply would be expected to
increase substantially.
An economic condition where the rate of price increases reaches a stable equilibrium and stays there until a shock to the system occurs, at which time, the rate of inflation changes is known as
inertial inflation.
A bond's yield to maturity reflects its
internal rate of return
The yield to maturity of a bond represents the bond's
internal rate of return (IRR).
XYZ Corporation has a beta of 1.0, and ABC has a beta of 1.4. XYZ has returned 12% and ABC 14.8%. Based on this information, ABC had alpha of
-2% Alpha is the extent to which a security's performance exceeds (or falls short of) that of the market compared to what would be expected based on its beta. A key to this question is that XYZ's beta of 1.0 equals the beta of the market. A stock with a beta of 1.4 would be expected to perform 40% better in an up market than the market itself. Because XYZ with a beta of 1.0 gained 12%, ABC should return 140% of that or 16.8% (12% × 1.4). With an actual return of 14.8%, ABC underperformed the expected by 2% and that is why it has a negative alpha.
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?
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).
The current market interest rate for a bond rated AA with 20 years to maturity is 5%. In an efficient market, a similar bond with a coupon of 4% could be expected to have an internal rate of return of
5% In an efficient market, bonds are priced so that their NPV is zero. That means the bond's yield to maturity is equal to the current market interest rates for similar bonds. When that rate is 5%, as is given in this question, all AA bonds with 20 years remaining to maturity should have a YTM of 5%.
Which of the following statements regarding a $1,000 corporate 8.50% bond offered at 110 is true?
A bond's current yield is calculated by dividing its annual interest by its current (market) price. In this case, it would be $85 ÷ $1,100. The current yield will be higher than its yield to maturity, which takes into consideration the $100 difference between the purchase price and the par value (a loss of $100). The determination of a bond's yield is unrelated to other bonds. In addition, this bond is selling at a premium (more than $1,000), not at a discount (less than $1,000).
Under the Uniform Securities Act, which of the following is a broker-dealer?
A corporation that sells interests in an oil and gas limited partnership to investors with the proceeds going to the issuer
Which of the following situations violates the contractual requirements for investment advisory partnerships under the Uniform Securities Act?
A partner with a 5% interest in an advisory firm leaves the firm and the remaining partners do not inform their clients because the departing partner held a minority interest in the firm. An investment advisory partnership must notify clients of any change in membership within a reasonable time. The death of a minority partner does not constitute assignment of contract. A partnership may assign contracts with written consent of clients. A contract renewal does require written repetition that an adviser shall not be compensated on the basis of a share of capital gains, not assign a contract without consent, and notify clients of any change in membership of partnership.
If AAA Investment Advisers has entered into a written discretionary advisory contract with a client, all of the following information must be stated in the contract EXCEPT
AAA Investment Advisers shall be compensated on the basis of a share in the capital gains exclusive of capital losses AAA Investment Advisers cannot be compensated on the basis of a share in the capital gains without considering capital losses. Performance-based fees are not allowed unless the client meets certain minimum financial standards. Individuals must have a net worth that exceeds $2.1 million or a minimum of $1 million under management with the adviser.
Advisers that manage $110 million or more in customer assets are required to do which of the following?
Advisers that manage $110 million or more in customer assets are federal covered advisers and are required to register with the SEC under the Investment Advisers Act of 1940. In addition, they are normally required to file notice in each state where they conduct business. There are no bonding requirements for federal covered advisers.
In 1933, Congress passed the Securities Act which required the registration of new issues before their offering to the public. However, the law contained a number of exemptions, including that for
Although each of these is considered an exempt security under the Uniform Securities Act (state laws), only the securities of a regulated common carrier carry an exemption from federal registration
Money in an UTMA may be used to pay for certain expenses relating to the minor. Which of the following would be permitted usage of funds in an UTMA?
Although the custodian has wide latitude in how money in this account may be spent, in general, it is not permitted to use it for the basic necessities, such as food, clothing, and shelter.
A major benefit of a revocable trust is that
Among the benefits of a revocable trust is that the grantor (settlor) retains all control over the assets. There are no tax benefits, and the grantor can be the beneficiary (and trustee) if the trust is set up that way.
A broker-dealer holds fully paid-for customer securities for safekeeping. Under the NASAA Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents, the broker-dealer
Any securities held in custody by a broker-dealer (or, for that matter, an investment adviser) must be segregated from those belonging to the broker-dealer (or investment adviser). To do otherwise would be to commit the prohibited practice of commingling. Fully paid securities may not be loaned out, only those collateralizing a debit balance may be and, then, only with customer permission.
A client is risk averse and is planning on retiring in 16 years. The client is rolling over $100,000 from his 401(k) plan, all of which is currently invested in his former employer's stock. As the client's investment adviser, which of the following would you recommend?
Because the assets are in a rollover IRA, the "phantom" tax on zero-coupon bonds is not an issue here. Being risk averse, the safety of AAA bonds with the guaranteed return of increased principal in 16 years makes this the most appropriate investment. The T-bills will probably not offer as much return and will be subject to continual reinvestment risk. Dividends on preferred stock are not guaranteed, even with a highly rated company, and the current tax advantage offered to dividends is wasted in an IRA. Most would agree that the worst option would be to keep the money in one single stock.
Which of the following could accelerate a rise in a bull market?
Buy stop orders are placed above the market, and as prices increase, the stops are hit, creating additional buying.
Core inflation is best described as an inflation rate
Core inflation is measured using a price index that excludes food and energy prices. The primary reason for that is the volatility of those two.
Under current regulations, registration with the SEC is optional for all of the following investment advisers EXCEPT
Currently, registration with the SEC is mandatory (not optional) for any investment adviser managing a registered investment company (open or closed-end). It is optional for: pension consultants once their AUM reach $200 million; small and mid-size advisers who would be required to register in 15 or more states; and those advisers with at least $100 million in AUM, but not $110 million in AUM. Any of these choosing to register with the SEC are federal covered advisers and do not register with any state, although a notice filing may be required.
Which term refers to the taxation, expenditures, and debt management of the federal government?
Fiscal policy
Under the Investment Company Act of 1940, SEC rules permit mutual funds to make sales charge discounts available to each of the following EXCEPT
Discounts for quantity purchases of mutual fund shares are not permitted for investment clubs. SEC and FINRA rules do permit sales charge discounts for individual purchasers making large purchases, tax-exempt organizations (e.g., pension plans, employee benefit plans), and directors, officers, employees, underwriters, and other persons affiliated with the fund.
Which of the following are discretionary orders?
Discretion authorizes a representative to choose the security, the amount of shares, or whether to buy or sell. Time or price alone is not a discretionary decision.
During a trip to visit grandchildren, one of your clients suffers a massive heart attack and dies, intestate. Directions for handling the account could only come from
Dying intestate means that there is no valid will. In that case, the state will appoint someone as administrator of the estate with the responsibility of handling all of the affairs of the deceased. Only when there is a will is there an executor, and a durable power of attorney is canceled upon the death of either party to the power. Only if the account were registered as JTWROS with the spouse (or if the spouse were named the executor) would the spouse have any authority.
ERISA regulation does not apply to
ERISA rules only apply to private sector plans. Government or public sector plans are not subject to the Employees Retirement Income Security Act of 1974.
One of the ways in which U.S. government agency issues differ from those offered directly by the U.S. Treasury is that
Explanation Agencies, with only a very few exceptions, GNMA being one, do not carry the direct backing of the U.S. Treasury. While they are quite safe, that lack of direct backing causes their yields to be somewhat higher. Agencies are never traded on the stock exchanges and their float is almost always smaller than Treasuries. Both are taxable on the federal level.
Samantha Wells, a British citizen temporarily working in the United States, wants to form a business venture with other investors. She is looking for favorable tax treatment of earnings and losses. She also wants to limit the number of investors, but is willing to share control of the enterprise with others to attract them. What business form do you advise to her?
General Partnership Limited partnerships would not work because the other investors have limited say in how the enterprise is run. C corporations do not provide favorable tax treatment of gains or losses. While an S corporation appears to be the right answer, only U.S. citizens or resident aliens can own one.
Included among the powers of the Administrator is the ability to
If a temporary or permanent injunction is issued against any securities professional, upon request of the Administrator, a receiver or conservator may be appointed over the defendant's assets. The Administrator cannot arrest but can seek a warrant. 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.
A 457 plan could cover which of the following?
Independent contractors providing services to the county City employees The 457 plan is a nonqualified deferred compensation plan for municipal employees, as well as for independent contractors performing services for those entities.
An investment adviser representative meets with a couple who explains that they wish to be able to pay for their daughter's college education. The IAR is told that the child will be starting school in 5 years. This 5-year time period would be considered
Investment constraints are limitations on the ability to make use of particular investments. They can be liquidity, time horizon, tax concerns, legal and regulatory factors, and unique circumstances (ethical objectives or social responsibility considerations). The easiest way to determine if it is a constraint or a capital need is if a dollar amount is stated. When a specific sum is mentioned, it is a capital need. The IAR might use a present value computation to determine the amount to be deposited,, and this may be part of the client's IPS, but neither of those answers the question posed.
Which of the following statements regarding nonqualified annuities is CORRECT?
It is possible to receive distributions from an annuity before age 59½ without incurring tax penalties. Nonqualified annuities, fixed or variable, are those where contributions are made with after-tax dollars. Withdrawals due to death or disability or taking substantially equal annuity distributions over the life of the insured can begin before age 59½ without being subject to a tax penalty. The exclusion ratio only applies during the payout period. Even though taxes on earnings are deferred, that portion of the withdrawal that represents a return of principal on a nonqualified annuity, is not subject to tax or penalty.
Which of the following mutual fund share classes generally has a 1% CDSC that is eliminated once the shares have been held more than 1 year?
It is the Class C shares that have no front-end load, but they do have a 1% CDSC for a period of 1 year.
Which of the following would make a corporate bond more subject to liquidity risk?
Long-term maturity, Low credit rating Explanation Liquidity risk is the risk that when an investor wishes to dispose of an investment, no one will be willing to buy it, or that a very large purchase or sale would not be possible at the current price. The available pool of purchasers for bonds with a low credit rating is much smaller than for those with investment-grade ratings (many institutions are only able to purchase bonds with higher credit ratings). As a result, the lower the credit rating, the greater chance of the bond having liquidity issues. Similarly, bonds with short-term maturities attract many more investors than those with long-term maturities, causing the long-term bonds to be less liquid.
A taxpayer's marginal tax rate is
Marginal tax rate is defined as the rate of taxation on any additional taxable income received. It is sometimes referred to as the tax on the "next" dollar or the "last" dollar of income. The effective tax rate is the overall rate paid on the total taxable income.
When building an investment portfolio, it is generally recommended that an asset allocation process be used to increase the portfolio diversification and reduce risk. Which of the following is least likely to be considered an asset class?
Mutual funds
Which of the following is a risk common to all fixed-income securities?
One of the characteristics of all fixed income securities is that the income never changes (fixed), so when interest rates change, the income of those securities can't follow along. Therefore, one risk common to all fixed-income securities is interest rate risk.
Which of the following best describes a nonissuer transaction?
One that occurs between investors in the secondary market In a nonissuer transaction, none of the proceeds go to the issuer, and the most common nonissuer transaction occurs between investors in the secondary market. An issuer transaction provides capital to issuers.
Nurturing growth of the enterprise would be the objective of which of the following types of investments?
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. An investment adviser would like to see portfolio values grow, but you don't invest in an investment adviser. A 529 plan, just like a growth fund, does not take an active role in management.
What is the appropriate procedure to follow when a customer fails to sign the form provided by the investment adviser stating that he has received a copy of the investment adviser's brochure?
Proceed with the account, but make a supervisory person aware of this. Although it is true that there is no legal requirement for a client to sign acknowledging receipt of the brochure, if it is the adviser's practice, the account may proceed, but only with notice to the appropriate supervisory person.
Which of the following statements regarding an agent's registration is CORRECT?
Revocation of the registration of that agent's broker-dealer will result in that agent's effective registration being put "on hold."
Which of the following could reduce the amount that an individual may contribute to a Traditional IRA?
Roth IRA contributions made for the year
Which of the following positions would create the most risk for an investor?
Sell short 100 shares of SSS and sell 1 SSS put. A short sale of SSS stock has unlimited loss potential. Selling a put obligates the customer to buy the stock at the strike price in return for premium. A short sale coupled with a sale of a put is equivalent to selling an uncovered call and creates the most risk.
Securities issued by which of the following entities are considered to be exempt under the Uniform Securities Act?
State of Georgia City of London, Ontario Any state or Canadian province, or political subdivision thereof, is considered an issuer of exempt securities. The exemption also applies to securities issued by foreign governments with whom the United States has diplomatic relations, but not their political subdivisions. Read the question carefully. The securities issued by SEC-registered investment companies are nonexempt issues under the USA. That is, the act does not include them in the list of exempt securities. However, under the NSMIA, they are federal covered securities and, as such, do not register with the states other than a notice filing.
If required by the Administrator, a stock traded on the Nasdaq Capital Market would most likely use which of these?
Stocks listed on any of the three tiers of the Nasdaq Stock Market are federal covered securities and, as such, can only be required to notice file.
An agent 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 Administrators do not have jurisdiction?
The Administrator has jurisdiction from the state in which the offer originated (NY) and was accepted (IN). Mailing of the certificate is of no consequence. Ohio does not have jurisdiction because the client was merely traveling and the call was directed to the New York number.
In conducting investigations, the Administrator may
The Administrator may require written statements under oath, publicize violations, and investigate anywhere necessary to determine whether or not a violation of the act took place in his state. However, he is not authorized to conduct investigations in other states to determine whether a violation of the USA has occurred in those states.
The tactical approach to the asset allocation review process
The approach to asset review that intentionally deviates from the normal asset mix to take advantage of market opportunities is the tactical approach. Investors using this approach try to use market timing to beat the market, so this approach requires a great deal of predictive ability.
Lisa Brownard is considering investing in gold. She owns a portfolio of stocks, bonds, and money market securities. Relative to her existing portfolio, the primary benefit of the gold investment is most likely
low correlation between traditional asset returns and gold.
A company with 20 million shares outstanding paid $36 million in dividends. If the current market value of the company's shares is $36, the current yield is
The current yield formula is annual dividends per share divided by current market price. The dividends per share are $36 million ÷ 20 million shares = $1.80 per share. Current yield is $1.80 ÷ $36.00 = 5%.
Which of the following statements about the federal government's fiscal policy is TRUE?
The federal government's fiscal policy establishes the government's taxation, spending, and debt practices. Fiscal policy can affect the securities markets because it can be used to regulate prices, employment, and economic growth. If fiscal policy includes deficit spending, the government sells bonds to make up the deficit.
Which of the following statements relating to Form ADV-E are CORRECT?
The form is completed by an investment adviser who maintains custody of customer funds and/or securities. The form is submitted by the independent public accountant who examines the funds and/or securities in the custody of an investment adviser.
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?
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.
Under the rules of the Investment Advisers Act of 1940, which of the following need NOT be included in an investment advisory contract?
The past performance record of the investment adviser
Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser would have to disclose that the firm was acting in a principal capacity when
There are 2 principals in every securities trade: the buyer and the seller. In this case, buying shares directly from clients who own those shares places the IA in the position of being one of the principals. This is an action that must be disclosed in writing to the client no later than completion of the transaction. In agency cross transaction, the firm is acting as an agent—that's the reason for the term.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following practices is appropriate for an adviser who does not have custody or discretion over clients' assets?
Tom manages 35 clients who suffer financial loss while he is trying to contact them for authorization to trade. An investment adviser must have a client's authority before placing an order for a purchase or a sale. Discretionary authority must be in written form with two exceptions. First, if the client has determined the specific security and the amount to be transacted, leaving discretion as to price and timing only; and second, if the client has agreed to give the adviser written authority over the account within 10 business days by way of an advisory contract or discretionary agreement. Neither of these cases applies to Vanessa, Shawna, or Chris, who all traded without proper client authority. Only Tom acted properly.
Which of the following investments gives the investor the least exposure to reinvestment risk?
Treasury STRIPS/zero-coupon bonds
As defined in the NSMIA, federal covered securities would include
Under the NSMIA, federal covered securities include all investment companies registered under the Investment Company Act of 1940, regardless of where they trade. Any stock listed on Nasdaq is federal covered, and that makes any security equal to or senior (like their bonds) also federal covered, regardless of where they trade. Canadian government and municipal securities are not federal covered (although under the Uniform Securities Act, they are exempt securities).
The Uniform Securities Act contains a number of security exemptions. The Act empowers the Administrator to revoke the exemption for which of the following?
Under the USA, the Administrator can revoke any transaction exemption, except those involving federal covered securities. When it comes to revoking a security's exemption, the only 2 where the Administrator has to power to do so are those issued by nonprofit organizations and in connection with an employee benefit plan.
One of the advantages of using a 529 plan rather than a Coverdell ESA to fund higher education is
Unless the child is a special needs case, funds in a Coverdell ESA must be used by age 30. Contributions to neither program are tax deductible and both plans allow changing the beneficiary to another member of the beneficiary's family. Although the 529 plan is technically a municipal fund security, that is neither an advantage nor disadvantage to the investor.
A European style option differs from an American style option primarily in that it
can only be exercised on its expiration date
Under ERISA, a fiduciary must act in all of the following ways EXCEPT
confining investments to only those most likely to achieve growth
Debts that will come due more than 1 year after the date on the balance sheet are known as
fixed (or long-term) liabilities
Which of the following is a motivation for creating structured products? Structured products
improve market completeness.
When an Administrator issues a final order, an agent subject to the order may
obtain a review of the order in an appropriate court of law request that additional evidence be presented to the court
One way in which open-end investment companies differ from closed-end investment companies is that an open-end investment company's shares
outstanding will vary in number at any point in time.
A company that has issued noncumulative convertible preferred stock
pays the current dividends on the preferred before paying a dividend on the common
All of the following are examples of unsystematic risk EXCEPT
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.
One element of the formula used to compute the Sharpe ratio is
standard deviation
Investors who are subject to the alternative minimum tax (AMT) will lose the tax benefits normally associated with
tax preference items. Certain items receive favorable tax treatment from the IRS. One example is tax-exempt interest on private purpose municipal revenue bonds. Another example is accelerated depreciation. These types of items are known as tax preference items. For investors who are subject to the alternative minimum tax (AMT), the benefits normally associated with tax preference items are lost, because these items must be added back into the investor's taxable income.
The minimum rate of return that a reasonable investor will accept to acquire an investment (required rate of return) is generally determined by
the current risk-free rate of return plus the risk premium
One of the portions of the USA PATRIOT Act of 2001that affects the opening of an account for a new customer is
the customer identification program
A support level is the price range at which a technical analyst would expect
the demand for a stock to increase substantially.
All of the following statements regarding bonds selling at a discount are correct EXCEPT
they are more likely to be called than comparable bonds selling at a premium Issuers tend to call bonds with higher coupons. Bonds trading at a premium have higher coupons than those trading at a discount (and are more likely to be called—wouldn't you pay off your high interest debt before the low interest debt?). The longer the duration, the more volatile the bond's price. Lower coupon rates mean a longer duration. If rates rise, prices fall. If a bond's rating falls, so does its price.
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?
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 statements is TRUE regarding the Administrator's power to deny or revoke an exemption?
An order revoking an exemption, sometimes called a summary order, may be made effective without prior notice. The injured party may request a hearing in writing, which must be granted within 15 business days of receipt of the request. No denials or revocations may be made on a retroactive basis. The Administrator does have the power to revoke the exemption granted to securities issued by nonprofit entities. In any proceeding, the burden of proving an exemption is on the person claiming it, not the Administrator.
A bond is selling at a premium over par value. Therefore, its
Any bond selling at a premium will yield less than the coupon rate (nominal yield). Conversely, of course, a bond trading at a discount will certainly yield more. Remember, there is an inverse relationship between bond prices and bond yields.
An investment adviser registered in State A decides it wishes to maintain custody of customer assets. As long as the securities laws of State A do not prohibit custody, the investment adviser would have to promptly notify
Explanation The notification to the Administrator (as a state-registered IA; the SEC has nothing to do with this) must be made promptly by amending the Form ADV.
In terms of being considered compensation for determining the allowable contribution to an IRA, receipt of which of the following would be included?
For divorce decrees entered into before January 1,2019, court-ordered alimony is taxable to the payee (and tax deductible to the payor). Therefore, receiving it is considered compensation for purposes of an IRA contribution. Please note: Effective January 1, 2019, there are changes to the tax treatment of alimony for all divorce agreements entered on and after that date (no changes to those already in existence).
GNMA mortgage-backed securities are
GNMA securities are a direct obligation of the U.S. government and are backed by a pool of mortgages. The monthly payments are partially a return of principal and partially taxable interest, which is subject to state and federal income tax. GNMA pass-through securities are available to investors with a minimum issue price of $25,000.
At his death, on January 1, 2017, Morris owned shares of ABC Corporation common stock, with a fair market value of $50 per share, which he had purchased in 2001 for $25 per share. If Morris's executor elected to value the estate by using the alternate valuation date, but then sold the shares through a broker-dealer on May 15, 2017, at $40 per share, what is the estate's basis per share for estate tax purposes?
If the executor elects to value the decedent's estate by using the alternate valuation date, the value per share is the value at the date 6 months after death, unless the property is sold prior. In this case, the value per share is the FMV on the date of sale, $40 in this example.
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
In general, Administrators have no jurisdiction over the activities of federal covered investment advisers. The situation is different, however, when a covered adviser pursues an activity in the Administrator's state that violates the antifraud provisions of the Uniform Securities Act. In that case, the Administrator can take action against the covered adviser. The showing of past performance is permitted as long as the required conditions are met; nothing in the answer choice indicates that the communication is not in compliance.
Mr. Brown has received preemptive rights from one of the stocks held in his portfolio. Which of the following is NOT an alternative regarding these stock rights?
Rights are not redeemable by the issuer. They may be sold in the secondary market or be given to someone else to exercise. If exercised, rights are exchanged for an appropriate number of shares of the underlying common stock.
Under the USA, which of the following fits the definition of a sale?
Sales involve any contract or disposition for value; solicitations and attempts to dispose are offers.
The Investment Company Act of 1940 requires that a mutual fund do which of the following?
The Investment Company Act of 1940 requires that an open-end investment company have a minimum of $100,000 in net assets prior to commencing a public offering. Reports must be sent to shareholders on a semiannual basis. No fund is permitted to own more than 3% of the outstanding shares of another registered investment company.
Under the Securities Exchange Act of 1934, which body regulates the extension of credit for nonexempt securities?
The Securities Exchange Act of 1934 empowered the Federal Reserve Board (FRB) to set margin requirements and regulate the use of credit to purchase securities. The FRB determines what issues may be purchased on margin and what percentage of the purchase price must be deposited by the purchaser.
Which of the following statements accurately captures the significance of the Sharpe ratio?
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.
A state-registered investment adviser with discretionary authority over client accounts discovered on Monday, that the firm's net worth is below the required amount. He must notify the administrator and then file a report no later than the
Unless otherwise exempted, every investment adviser registered or required to be registered under the Act shall by the close of business on the next business day notify the Administrator if such investment adviser's net worth is less than the minimum required. After transmitting such notice, each investment adviser shall file by the close of business on the next business day a report with the Administrator of its financial condition.
Active Technicians (AT) is a state-registered investment adviser. In its brochure supplement, it would include information relating to each of the following individuals EXCEPT
Unless the individual has direct contact with clients (retail or institutional) or exercises discretion, a copy of the Part 2B brochure supplement for each individual is not required. This would include officers and members of the board of directors. Of course, if any of these individuals had direct client contact or exercised discretion, a supplement for them would need to be prepared.
Your client is the sole beneficiary of her late father's IRA, which is valued at $500,000. The client indicates that she has no need for the money and would rather it go to her children. To accomplish this, she would have to
When a beneficiary of an IRA decides not to accept the proceeds, the legal term used is disclaiming the IRA.
As a client's only child is about to complete her college education, it is obvious that the 529 Plan used to accumulate funds has been overfunded. Which of the following might be suggested to minimize tax consequences?
When there is money remaining in a Section 529 plan after a student has completed college, withdrawal of that excess will result in the portion representing earnings being taxed at ordinary income tax rates plus a 10% penalty. Those taxes and penalties can be avoided if the funds are properly used, such as graduate school for the original beneficiary or designating a new beneficiary who is an immediate family member (as defined in the law) and rolling over the funds. There is no such thing as a rollover to a Coverdell ESA and money in a 529 plan is not part of a qualified plan, so rolling over to an IRA is out of the question.
ABC Corporation's 5% mortgage bond is currently trading at a premium. The bond is callable at par in 10 years and matures in 15 years. When comparing the returns available to an investor, it would be accurate to state
Whenever a bond is selling at a premium, the return, in descending order is: nominal yield, current yield, YTM, and YTC. It is the reverse order when the bond is selling at a discount. When the bond is at par, all are the same (if the call is at par).
All of the following statements regarding qualified corporate retirement plans are true EXCEPT
With defined benefit plans, the employer (not the employee) bears the investment risk. The employer must fund the defined benefits, regardless of the investment performance of funds set aside for this purpose. The retiree receives a defined benefit regardless of investment performance. All corporate pension and profit-sharing plans must be established under a trust agreement. All qualified retirement plans are either defined contribution or defined benefit plans.
Which of the following would meet the USA's definition of federal covered adviser? An investment adviser who
is registered under section 203 of the Investment Advisers Act of 1940
With regard to the state registration requirements of agents of registered broker-dealers, all of the following statements are correct except
registration is required in each state in which the employing broker-dealer has a place of business The fact that the broker-dealer does business in a state has nothing to do with a specific agent. Many broker-dealers are registered in all states; very few agents are. Agents must register in each state where they are selling or offering securities, even if the security or the transaction is exempt. That exemption only applies to the need for the security to be registered, not the agent. Soliciting the sale of securities by telephone is considered making an offer, and there is no de minimis exemption available. Finally, registration is not required when making use of the "snowbird" exemption.