Series 65

Regarding the economics of fixed income securities what is true?

Short-term interest rates are more volatile than long-term rates, and long-term bond prices react more than short term bond prices given a change in interest rates.

Employing sons 14 and 12 that earned money through the family business

Since the money is earned income it is not subject to child tax rules, regardless of age, and the children are taxed and their respective tax rates. If it was unearned income anything over 2,500 would be taxed at the parents marginal tax rate.

Which of the following is not a characteristic of owning a limited partnership?

Tax-free income

Computing the Sharpe ratio for the specific stock requires using all of the following except which?

The beta for the subject security. The formula for the Sharpe ratio is ( actual rate - risk free rate of return) / standard deviation of the security. Beta is not a component

A bond analyst reports that there is currently an inverted yield curve. That would mean what?

The closer the bond is to is maturity date, the higher the yield is.

The US places a number of recordkeeping on investment advisers. Records required to be kept by all state registered investment advisers include all of the following except

The key to this question is the requirement for all advisors. A security record is only required for those advisers who have custody of client assets.

When a will calls for property to be distributed per stirpes, it means what?

The property is divided into as many equal shares as there are surviving children of the designated ancestor and deceased children who left surviving descendents.

All the pundits are predicted bad times ahead- not only a recession but a period where prices actually fall (deflation). If they are right, the best place for your client would probably be where?

U.S. Treasury securities

gift of securities, tax and cost basis

if you make a gift of securities, the market value the day of the gift is used to determine the gift tax. the cost basis is determined by the purchase price of the securities.

present value of a dollar

indicates how much needs to be invested today at a given interest rate to equal a cash value in the future

What requiers Registering with a state administrator

investment advisor representatives of federal registered advisors who have natural person clients and have a place of business in the state

how to hedge

options to hedge, when purchasing options purchase them with the opposite veiw if bearish buy bullish and vise versa. call = bull, put = bear

what does the writer of a call option receive

receives the premium

If Janet established a Coverdell education strategy account for her grandson, in each successive year, she may contribute who much?

$2,000, that is the maximum you can contribute annually

S mutual fund regulated by the investment company act of 1940, wishes to change there investment policy. They can with the approval of who?

A majority of the outstanding shares

An investment advisor wishes to advertise a new charting system used to time the market. To be complient with the investment advisers act of 1940 what does it need?

A statement reflecting the limitations and difficulties of using the system must be included in the ad.

A number of different pooled investment vehicles are included in the term alt investment. One of them, is a synthetic investments instrument that has been created to meet a specific need that cannot be met by standardized finacial instrument, is known as?

A structured product, they meet issuer's debt financing needs and result in a lower cost.

Which of the following securities has an easily determinable internal rate of return?

A zero-coupon bond

Uniform securities act, bonds issued by who are non exempt securities?

ABC, Inc. Of Canada, a distributor of beverages in the US and other countries. Government bonds issued by nations the U.S. has diplomatic relations are exempt securities. Not ABC

What is the appropriate procedure to follow when an advisory client delivers a stock certificate to the office of a broker dealer?

Accept the certificate and give the costumer a receipt

The investment advisers act of 1940 excludes from the definition of investment adviser persons whose advice what?

Advice that relates to the issues by or guaranteed by the US treasury and advice solely incidental to their professional practice such as an aeronautical engineer.

What is not a derivative?

An ETF tracking the Bloomberg commodity index. An ETF is an investment company. Futures, Forwards and Equity options are derivatives.

Tamika is an IAR with financial engineers, llc, a covered investment adviser. The firm uses and investment policy statement to help design financial plans for their clients. One of tamika's current clients plans to buy a new boat 7 months from now. When using the IPS, this would be considered

An investment constraint, goals that must be met before you can reach the objective

All statements of Capital market theory are correct except which?

Beta is a measure of volatility, or unsystimatic risk, for stock or portfolio returns. (Beta is a mesure of systematic risk)

When discussing employment and production, which of the following industries are typically more affected by a recession?

Capital goods and consumer durable goods bc they last longer and are larger therefore somewhat discretionary.

The risk known as opportunity cost is often measured by what?

Comparing the investor's actual return to the return on the 91 day treasury bill.

Alex is a registered agent with WM securities, a broker dealer registered with the SEC and 10 states. He is also an IAR with their wholly owned subsidiary, WM investments, a federal covered investment adviser. Many of Alex's advisory clients also maintain brokerage accounts at WM securities. If one of those clients where to call alex and enter an order to purchase shares of a stock the broker dealer is selling out of inventory?

Consent of the client would not be necessary as long as the only capacity in which Alexander is acting is that of an agent.

A living will is used to?

Express the authors end of life wishes

25 people created an investment company. They ask if you as an IA would manage their portfolios. You say you would only take the account if they structure a compensation plan the calls for you to receive a base fee plus 18% of the profits to the extent that the accounts performance exceeds a standard bench mark. Under the uniform securities act, this type of agreement is allowable if what?

If the investment company has a net worth at least in excess of 2.2 million or will place at least 1.1 million under management with the IA.

A customer who follows a strict dollar cost averaging program to acquire shares in a diversified common stock mutual fund should achieve what?

Lower average cost to acquire fund shares relative to the funds average price over the buying period. Buying when cheap not buying as much when high.

An investor looking for liquidity would be least likely to consider what?

NFTs

Sources of income that are eligible for an IRA

Only earned income can be used in an IRA. Income from a S Corp, LP or child support are passive income not earned.

Bond prices are quoted as percentage of what?

Par value, on exam par value is always $1,000.

An investor holding which of the following equity securities would not expect to have preemptive rights?

Preferred stock, these stockholders don't have preemptive rights

Fed securities law requires publicly traded companies to disclose certain information on a regular basis. Which of these forms must be submitted quarterly?

10-Q, Q for quarterly

An investor purchases 100 shares of SBPI at $60 per share. SBPI pay quarterly dividends of $0.55. One year after the purchase, SBPI is at $66 per share, after the second year, it's market price is $63 per share. If the investor were to close the position at this time the total return would be what?

12.33% question 61?

Which of the following funds would you recommend a moderate risk client seeking long-term capital gains who also values professional stock selection?

A large cap growth fund

The Uniform Securities Act states which is true about registration?

A registration statement may be filed by an issuer itself, a broker-dealer, or any other person on whose behalf the offering is to be made. And registration of an agent is not effective when the agent is not associated with a broker dealer.

Outstanding 4%

Bond prices will go down to produce a higher current yield on the bond. Remember that as intrest rates go up, the price of outstanding securities goes down.

Municipal Bond Tax yield

Corps receive the same tax break on municipal bonds as do individuals. The best tax yield is 6.2% municipal bond in the 21% tax bracket.

What term is used to describe which employees will be covered by a pension plan?

Eligibility

In general the business continuity plan of an investment adviser should provide for all of the following except?

Ensuring that the securities in client portfolios will not decrease in value. Noone can guarantee 0% fluctuation

ABC is in the buisness of making machine tools. Which of the following would be included in ABC's cash flow from financing activities

Payment of dividends

One of the reasons why the discounted cash flow method of valuation is useful in assessing the value of fixed income instruments is what?

The predictability of income, discounted cash flow evaluates the expected cash flow from an investment and then factors in the time value of money.

One of the situations that IARs may encounter is the death of a client. When that happens orders may be accepted from who?

The trustee in intestacy or administrator of the estate

The common stock of companies within which industry sector would be most adversely affected by an increase in the general level of interest rates?

The utilities industry, they are usually very heavily funded with debt. If interest rates go up their new debt at higher interest rates would cause lower earnings available for common stocks.

Ginnifer maes

They pay interest on a monthly basis

What best describes the Yankee bond

U.S. dollar- denominated bond issued by non- U.S. entity inside the United States

When can an investment adviser registered with the SEC use the term investment counsel?

When It's principal buisness consists of rendering investment advice, and a substantial portion of its buisness involves investment supervisory services.

Client needs a loan from an IA but the IA isn't in the business of lending

if the IA isn't in the practice of lending money, the client and IA relationship contract must be terminated in order for the loan to be made.

variable annuity risks

market risk, inflation risk, and interest rate risk.

fixed-premium variable life policy

the face value in an insurance policy is the death benefit. in a variable life policy, the face value fluctuates with the separate accounts performance, but it will never decrease below the original minimum face value.

Sally bought 100 shares of CMC at $19 per share on feb 12th. She received a 10% dividend on May 18th. She sold all her CMC at $13 per share in June of that same year. What where her tax results

$470 short term loss, bc the transactions all took place in less than a year, the transaction was a short term loss.

An employer sponsored plan that allows coverage to discriminate in favor of key employees?

457 plan

The uniform securities Act specifically exempts certain issues from the registration and advertising filing requirements of the act. Which of the securities doesn't carry the exemption?

A bank holding company stock

Which must regerister as a broker dealer in the U.S.

A broker dealer with a place of buisness in the state that effects transactions exclusively with broker dealers registered in other states.

A closed-end investment company

A closed-end investment company does not redeem its own shares. It differs from a mutual fund. It sells at the market price based on supply and demand. It is a type of management company. A mutual fund refers to an open-end management investment company that issues redeemable shares.

Early in the year an investor purchased shares of GEMCO Fund at $10.40 per share when the net asset value per share was $9.53. Just before the last trading day of the year, this investor liquidated the position at $10.60 per share when the net asset value per share was $10.77. From this, you can discern that GEMCO fund is what?

A closed-end investment company, only closed end investment company where shares trade at a premium or discount of NAV per share.

The uniform securities act defined many term. Among them is the term sale. Which of the following would be included in the definition of sale?

A gift of assessable stock, is always considered an offer and a sale. An investor exercising preemptive rights previously received directly from the issuer. Exercising the rights constitutes a sale.

An investment advisory contract is considered as assigned if an adviser formed as what?

A partnership with 2 partners and adds 5 partners. For a partnership it is a change in the majority of partners. For a Corp it is a change in the ownership of a majority of the stock.

Based on the investment adviser act of 1940, which is excluded from the definition of investment adviser?

A person whose advice relates solely to government securities are exempt. For lawyers and accountants if there investment services are advertised or they receive a separate fee for them they are not exempt. Aswell as brokers who provide advice beyond their scope are not exempt.

The SEC has determined that advertising regarding past recommendations made by investment advisers is misleading if what is true?

Advertising that reflects past performance must show a minimum period of minimum of 1 year not 3. AWNSER: All investment adviser Advertising must reflect deduction of fees, disclose the specific group of clients to which it applies, if applicable, and state actual market conditions throughout the reference period.

A REIT and a direct participation program are similar because they both?

Are operated by a centralized management.

A municipal bond has a coupon of 6.25%, and at the present time, it's yield is 6.75%. From this information, it can be determined that the municipal bond is trading at what?

At a discount

What is the term given to the item, typically found at the bottom of a corporations balance sheet, that describes such things as significant accounting policies commitments made by the company, and potential liabilities and potential losses?

Footnotes

If an agent in the Utah, of a broker dealer wanted to sell to prospects in California, under Uniform Securities Act, the agent would have to what?

Have to register in California.

Under the uniform securities act, a transaction of securities that is not exempt is what?

In the case of a us gov security, the security is exempt but the transaction is not. All the other choices are exempt transactions because they are either to qn institutional investor to existing owners for no consideration or by certain fiduciaries such as an executor.

What is likely to have a low beta?

Public utility stock tend to have low betas. Where as tech related stocks have high betas.

Which of the following statements regarding investment risk is not correct?

Systematic risk may be reduced or eliminated by effective portfolio diversification. Diversification is less effective against systematic risk.

The investment company act of 1940, an investment company may initially retain the services of an investment advisor only with the approval of the majority vote of who?

The outstanding shares and a majority of that portion of the board of directors that is considered noninterested members

What best describes a global mutual fund?

The portfolio consists of securities of companies domiciled throughout the world including the U.S.

If the IAR of a federal covered adviser that transacts buisness in a state terminates employment with that investment adviser, which of the following statements are true?

The representative must notify the administrator. It is the IAR's job to notify the administrator.

Which is incorrect about hedge funds?

They generally have relatively low minimum initial investments.

In the banking industry, the term POD refers to an account similar to the TOD designation used by broker dealers. An old but sometimes used term to describe this kind of account is what?

Totten trust, the account owner is the trustee, in control of the money that will eventually go to the trust beneficiary, and could change beneficiaries as desired. But whether it is called at Totten trust of POD its the same.

As a fiduciary, the investment adviser rep owes his clients an affirmative duty of utmost good faith, as well as full and fair disclosure of all material facts. This affirmative duty of disclosure is required by the IAR in all of the following except?

When he has donated funds to a nonprofit medical research institute that owns securities that he has recommended. Not a conflict of interest.

properties of duration

duration measures the effect of an interest rate change on the price of a bond or bond portfolio. Duration measures a bond's price volatility by weighing the length of time it takes for a bond to pay for itself. it is also a weighted average term to maturity of a bond's cash flows.

A premature distribution from an IRA would be exempt from the premature distribution penalty under all of the following circumstances except?

As a result of hardship, hardship withdrawals are not permitted in IRAs

Under rule 144, which of the sales are subject to volume limitations?

Control person selling registered stock held for 1 year. Also control person selling restricted stock for 2 years. Control persons are always subject to volume limitations.

The P/E Ratio is what?

It shows how much investors value the stock as a function of earnings to the company's market price.

Five years ago an investor purchased an ABC Corp BBB rated debenture with a coupon of 6% maturing in 2037. Currently, new BBB rated debentures maturing in 2037 are being issued with a coupon of 5%. Based on the discounted cash flow method, one can say the the present value of the investors security is what?

More than the par value

Exchange markets vs OTC markets

One of the big distinguishing factors of a exchange market is the auction process for determining the price of the security. In OTC markets prices are determined by negotiation.

If your 60 year old customer purchases a non qualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action?

Ordinary income tax on earnings exceeding basis.

An covered investment advisor has a client with a large short term position in PQR common stock. Their chief analyst believes that PQR is an attractive target for an acquisition. Based on this information, it might be wise to suggest what to the client?

Purchase call options on PQR, the best protection for a short stock position is buying a call because that fixes the future purchasing price. In the event the analyst is wrong, the client has maintained the short term position and is only out the premium paid for insurance.

Alternative minimum tax AMT is designed to ensure high income taxpayers don't avoid all income tax. The term used for these items which allow us to arrive at the taxpayers AMTI is what?

Tax preference items

Stockholders ability to elect members of the board of directors. What data allows shareholders to vote?

The record date is a date announced by the company as the official date you must be an owner on the company's records in order to participate in the annual meeting and corporate election.

Despite management's best efforts, a corporation with stock traded publicly on the NYSE has had to declare bankruptcy and is being forced to liquidate assets. The liquidation priority is determined by who?

The seniority of the claim, senior debt, which has the highest priority. The SEC has nothing to do with this.

Uniform prudent investor act identified a number of fundamental changes in the former criteria for prudent investing. Which of the following incorrectly states one of the changes?

The standard of prudence is applied to each investment individually. Now it is on a portfolio basis, another change was the ability to delegate portfolio management decisions

What is correct about hedge funds?

They generally require high minimum investments, ranging from 250,000 to 1 million. They are organized as either domestic partnerships or offshore investment corporations and employ highly speculative investment strategies to maximize returns. Hedge funds have become very global and typically feature diverse international investments such as sweeps, currencies, commodities, warrants, and other derivatives.

Under the uniform securities act, if sent to 2 or more people, a file must be maintained containing a copy of what?

All types of communications. unless sent to people connected with the investment adviser, require maintenance of a file containing a sample copy.

In the case of a state registered investment adviser having its only office in oregan with no offices in any other states, the authority of the administrator would include what?

It would require the IAR to pass a qualification exam

What is the best description of a cumulative preferred stock?

Owners have a continuing claim to their dividends, and all arrears (all past dividends) must be paid before any dividends can be paid on common stock.

Which of the following would not be of interest to a technical analyst?

P/E ratio, a tech analyst monitors movement in market price and volume over a period of time. The P/E ratio is a tool for fundamental analysts

SEC- prospectuses and registration statements

The SEC requires full disclosure regarding a new issue so that investors can make informed decisions on the security. The SEC does not, guarantee the accuracy or adequacy of the information, nor does it approve or disapprove of the issue.

A European Corp seeking a short term loan would probably be most concerned about an increase to what?

The SOFR, replaces the LIBOR as the benchmark for setting the interest rates charged on adjustable rate loans.

NASSA model rule on unethical buisness practices of investment advisers, IARs, and fed covered advisers requirements of advisory contracts include which of the following.

They must describe the amount of any prepaid fee that will be returned to the client in the event of contract termination, they must prohibit assignment of the contract without the clients consent.

Under NASAA model rule on custody requirements for investment advisers, an investment adviser who has custody of clients' securities or funds must do what?

They must keep funds deposited in accounts containing only client funds, be subject to a surprise audit preformed at least annually by an independent accountant, and they must send clients quarterly statements showing their balance.