Series 65 Missed Questions
A variable annuity annuitant bears all of the following risks except A) mortality risk B) inflation risk C) market risk D) interest rate risk
A
All of the following investments are eligible for a traditional IRA except A) works of art B) bank CDs C) covered call writing D) growth-oriented securities
A
An agent with a nationally known broker-dealer has been opening new accounts with middle-income clients. When asked for the reason for the success, the agent replies that prospects are offered a money-back guarantee. That is, if any security the agent recommends fails to increase in value by at least 25% in six months, the agent will make up the difference. This type of guarantee A) is an unethical and prohibited practice. B) is permitted only if the guarantee is coming from a third party other than the agent. C) must have been approved by the agent's supervisor before the agent began using it. D) would be considered fraudulent activity.
A
An elderly widower explains to his investment adviser representative (IAR) that he requires his investments to provide the maximum current income. The IAR should recommend A) a mutual fund that matches the investor's stated objective. B) a widow fund, structured specifically for this type of investor. C) a growth fund. D) a zero-coupon bond.
A
An investor plans to fund the college education for her newborn child by purchasing $5,000 of investment-grade bonds on an annual basis. She is most likely using A) the bullet strategy. B) the 529 plan strategy. C) the laddering strategy. D) the barbell strategy.
A
Arthur M. Munger recently joined Piedmont Partners LLP as an analyst and is curious about modern portfolio theory (MPT). He approaches his senior, Sarah, to describe MPT. Sarah tells Arthur that MPT suggests that A) by combining securities into a diversified portfolio, the overall portfolio risk will be less than the weighted average risk of the individual stocks. B) by combining securities into a diversified portfolio, the overall portfolio risk will be more than the weighted average risk of the individual stocks. C) the total risk of a portfolio cannot be reduced at all. D) we cannot outperform the overall market.
A
Due to health reasons, Danny has decided to withdraw his registration as an agent. The withdrawal will take effect A) on the 30th day after filing Form U5 unless the Administrator determines an earlier date. B) immediately. C) when authorized by his employing broker-dealer. D) on the 30th day after filing Form U5.
A
If an agent unknowingly sold securities that were not properly registered in the state, which of these are true? 1. The agent has committed fraud. 2. The agent is subject to civil action. 3. The agent is subject to criminal sanctions for up to five years from the date of sale. 4. The agent engaged in a prohibited business practice. A) II and IV B) I and IV C) II and III D) I and III
A
Using industry jargon, the tax on the last dollar of income is at A) the marginal rate. B) the effective rate. C) the average rate. D) the final rate.
A
A 54-year-old individual invests $25,000 into a nonqualified single premium deferred variable annuity. Five years later, with an account value of $35,000, the investor engages in a Section 1035 exchange into a variable annuity issued by a different insurance company. Four years later, with an account value of $50,000, the investor withdraws $20,000. The tax consequence of the withdrawal is A) $15,000 of ordinary income, $5,000 nontaxable return of principal. B) $20,000 of ordinary income plus a 10% penalty tax. C) $20,000 of ordinary income. D) $15,000 of ordinary income, $5,000 of long-term capital gain.
A) $15,000 of ordinary income, $5,000 nontaxable return of principal. B) $20,000 of ordinary income plus a 10% penalty tax. C) $20,000 of ordinary income. D) $15,000 of ordinary income, $5,000 of long-term capital gain. C Explanation A partial withdrawal from a nonqualified annuity is taxed on a LIFO basis. That is, the last money in (assumed to be earnings), is the first money out. The cost basis is the original $25,000. The 1035 exchange merely carried that cost basis over and resulted in no current tax on the $10,000 of earnings. When $20,000 is withdrawn, all of it represents the earnings and that is taxed as ordinary income. There is never capital gains taxation on an annuity and there is no 10% penalty tax because this investor is older than 59½ at the time of the withdrawal.
A self-employed CPA has earned $38,000 from his practice; he also earned $2,300 interest on his savings. What is the basis for his deposit into his defined contribution Keogh (HR-10) account this year? A) $2,300 B) $40,300 C) $35,700 D) $38,000
A) $2,300 B) $40,300 C) $35,700 D) $38,000 D Explanation Only earned income may be included in determining the income eligible for Keogh contributions. Dividends and interest are classed as portfolio income and are not included.
An investor purchases 100 shares of Shilaf Baby Products, Inc. (SBPI) at $60 per share. SBPI pays quarterly dividends of $.55. One year after the purchase, SBPI is at $66 per share, and after the second year, its market price is $63 per share. If the investor were to close out the position at this time, the total return would be A) 12.33%. B) 6.83%. C) 17.33%. D) 8.67%.
A) 12.33%. B) 6.83%. C) 17.33%. D) 8.67%. Explanation Total return combines income and gains. In this question, the total income for the two-year holding period is $440 ($.55 per quarter = $2.20 per year x 100 shares). The sale is at $63 which is a $3 per share gain. That makes the total return $440 + $300 which equals $740. Dividing that by the original $6,000 cost results in a total return of 12.33%.
BFJ Corp.'s 5% convertible bond is trading at 120. The bond is convertible at $50. An investor buying the bond now and immediately converting into common stock would receive A) 20 shares plus cash for fractional shares. B) 24 shares. C) 20 shares. D) 2.4 shares.
A) 20 shares plus cash for fractional shares. B) 24 shares. C) 20 shares. D) 2.4 shares. C Explanation The conversion ratio always uses the par value ($1,000), never the current market price. With a par value of $1,000 and a conversion price of $50 per share, this bond is convertible into 20 shares ($1,000 / $50).
If Maria turned 73 on August 16, 2023, when must she make the first required minimum distribution (RMD) from her IRA? A) April 1, 2024 B) April 1, 2025 C) December 31, 2024 D) December 31, 2023
A) April 1, 2024 B) April 1, 2025 C) December 31, 2024 D) December 31, 2023 A Explanation The SECURE Act 2.0 requires that RMDs commence no later than April 1 of the year following the year that the owner of the IRA turned 73 years old. Maria turned 73 on August 16, 2023. Therefore, distributions must commence by April 1, 2024.
Juliette, a math teacher in the local high school, owns a qualified, tax-deferred annuity. When she retires, what will be the tax consequences of her annuity payments? A) Her annuity payments are all taxable as ordinary income. B) Her annuity payments are partly taxable and partly tax-free return of capital. C) Her annuity payments are tax free. D) Her annuity payments are partly taxable as capital gain and partly taxable as ordinary income
A) Her annuity payments are all taxable as ordinary income. B) Her annuity payments are partly taxable and partly tax-free return of capital. C) Her annuity payments are tax free. D) Her annuity payments are partly taxable as capital gain and partly taxable as ordinary income. A Explanation The key word here is qualified! The investment Juliette made was with pre-tax dollars, the money grows tax-deferred, and everything is taxed at distribution at ordinary income rates. No annuity payment is ever treated as a distribution of capital gains. Note: On the exam, all contributions to retirement plans are fully -deductible unless something in the question specifies otherwise.
An agent in New Hampshire mails an offer to sell securities to clients in New York. Under the Uniform Securities Act, which of the following is true? 1. An offer to sell has been made in New York if a client receives it in New York. 2. An offer to sell has been made in Virginia if a client receives forwarded mail in Virginia. 3. The agent is subject to the statutes of both New Hampshire and New York.
A) I and II B) I and III C) I only D) II only B
The Uniform Securities Act provides an exemption from registration for certain securities and for certain transactions. However, the Administrator is not empowered to deny an exemption from state registration to which of these? U.S. government securities Private placement transactions A transaction with an insurance company Municipal bonds issued by another state
A) I and III B) II and III C) I and IV D) II and IV C
Under the NASAA Model Custody Rule, an investment adviser is considered to have custody of client assets if which of these are true? The adviser inadvertently receives a check from a client for a purchase that is made payable to the investment adviser and does not return the check within 24 hours. The adviser inadvertently receives a check from a client for a purchase that is made payable to a third party and does not forward the check within 3 business days. The adviser inadvertently receives stock certificates from a client and does not forward them within 3 business days. The adviser inadvertently receives stock certificates from a client and does not return them within 3 business days. A) I and IV B) II and III C) II and IV D) I, II, and IV
A) I and IV B) II and III C) II and IV D) I, II, and IV C Explanation Checks made payable to a third party must be forwarded to that party within three business days of receipt or the IA will be considered to be maintaining custody. In the case of certificates or checks made out to the IA for a securities purchase, return must be made within three business days of receipt in order to avoid custody issues; they are never forwarded.
As part of its suitability determination, an IA firm requires that all potential nonbusiness clients complete a family balance sheet. Items that would be included are gold jewelry loan secured by the family automobile the amount paid thus far this year for Botox injections the balance owed to the dentist for new crowns
A) I, II, III and IV B) II and III C) I and IV D) I, II and IV D
Formula methods of investing that involve selling equities in rising markets and buying them in falling markets would include constant dollar plan constant ratio plan dollar cost averaging DRIPs A) II and III B) I and II C) III and IV D) I and IV
A) II and III B) I and II C) III and IV D) I and IV B Explanation In both a constant dollar plan and a constant ratio plan, the goal is to maintain a balance between equity and debt securities in the portfolio. This is done by selling equities as their price rises (the proportion has now changed) and buying equities when the prices fall to get back to the constant dollar or ratio. Both dollar cost averaging and dividend reinvestment programs (DRIPs) involve buying securities at regular intervals, not buying and selling based on the direction of the market.
According to the Uniform Securities Act, which of the following would be considered exempt transactions? 1. The sale of an unlisted corporate bond by an executor of an estate 2. The gift of 100 shares of a NYSE-listed stock from a father to his minor child 3. Preorganization certificates subscribed to by 14 institutional investors during a 12-month period for which no payment has been made 4. An unsolicited order from an individual client to purchase a nonexempt, unregistered security A) II and III B) III and IV C) I and IV D) I and II
A) II and III B) III and IV C) I and IV D) I and II C Fiduciary transactions and unsolicited orders, regardless of the security being purchased or sold, are always exempt transactions under the USA. Preorganization certificates are limited to a maximum of 10 subscribers, whether individuals or institutions. A gift of securities is not a sale, so no transaction has taken place.
An investor is in a low tax bracket and wishes to invest a moderate sum in an investment that will provide some protection from inflation. Which of the following should you recommend? A) Money market mutual fund B) Ginnie Mae fund C) Mid-cap common stock mutual fund D) Municipal unit investment trust
A) Money market mutual fund B) Ginnie Mae fund C) Mid-cap common stock mutual fund D) Municipal unit investment trust C Explanation Mid-cap stocks (see Glossary of Terms) have historically provided good hedges against inflation making them appropriate for an investor seeking long-term growth and inflation protection. There are several key words here to remember for the exam. Whenever you see "low tax bracket," the answer cannot be a municipal bond. Likewise, whenever you see "inflation protection," the answer will be common stock (unless a TIPS is given as a choice).
Which of the following statements best represents a bond's present value? A) Present value is the sum of all the discounted future payments. B) Present value is the discounted future repayment of principal. C) Present value represents the internal rate of return (IRR) of the bond. D) Present value is the sum of all the discounted future interest payments.
A) Present value is the sum of all the discounted future payments. B) Present value is the discounted future repayment of principal. C) Present value represents the internal rate of return (IRR) of the bond. D) Present value is the sum of all the discounted future interest payments. A
Which of the following would be a common feature of mutual funds and hedge funds? A) Redemption of ownership interests within seven days B) Registration with the SEC C) Portfolio transparency D) Investors have pooled their money together
A) Redemption of ownership interests within seven days B) Registration with the SEC C) Portfolio transparency D) Investors have pooled their money together D
Which of the following orders would be most likely to add fuel to a bullish stock market? A) Sell stop B) Sell limit C) Buy limit D) Buy stop
A) Sell stop B) Sell limit C) Buy limit D) Buy stop D
A senior citizen had the following scenarios presented to him by his IAR. Which one had the lowest volatility? A) Stock high return: +18%; low return: −4%; Standard Deviation: 8% B) Stock high return: +12%; low return: −2%; Standard Deviation: 5.5% C) Stock high return: +9%; low return: −2%; Standard Deviation: 4.9% D) Stock high return: +5%; low return: −1%; Standard Deviation: 3.6%
A) Stock high return: +18%; low return: −4%; Standard Deviation: 8% B) Stock high return: +12%; low return: −2%; Standard Deviation: 5.5% C) Stock high return: +9%; low return: −2%; Standard Deviation: 4.9% D) Stock high return: +5%; low return: −1%; Standard Deviation: 3.6% D Explanation The higher the standard deviation, the higher the volatility and the higher the risk. So, the lower the standard deviation, the lower the volatility and the lower the risk.
Under the Uniform Securities Act, which of the following is an investment adviser? A) The trust department of ABC Bank provides investment advice to its clients. B) Tom writes a newspaper column that analyzes and recommends securities. C) Jill is an attorney specializing in estate planning who, as a side job, structures portfolios for the beneficiaries of her deceased clients at a reduced fee. D) Jane advises customers regarding the value of gold and silver coins.
A) The trust department of ABC Bank provides investment advice to its clients. B) Tom writes a newspaper column that analyzes and recommends securities. C) Jill is an attorney specializing in estate planning who, as a side job, structures portfolios for the beneficiaries of her deceased clients at a reduced fee. D) Jane advises customers regarding the value of gold and silver coins. C
A client is long 400 shares of ABC common stock. The current market price of ABC is $150 per share. The client is of the opinion that the market is going to be moving sideways for a while and would like to generate additional income from the ABC stock. What strategy might you recommend? A) Write four ABC 150 call options B) Write four ABC 150 put options C) Write an ABC 150 call option D) Buy two ABC 150 put options and write two ABC 150 call options
A) Write four ABC 150 call options B) Write four ABC 150 put options C) Write an ABC 150 call option D) Buy two ABC 150 put options and write two ABC 150 call options A Explanation Writing call options on a long stock position (a covered call) is a common strategy for generating additional income from a stock holding. If the market moves sideways (neither up nor down), the option will likely expire unexercised and the client will earn the premium and still have the stock. Being long 400 shares would mean writing four contracts. Writing put options would generate premium income, but if the stock price falls, the writer could be exercised requiring the purchase of an additional 400 shares at $150 per share (the client really doesn't want to own 800 shares). If the client buys two options and sells two options, the premiums will likely offset each other and not help the client reach the objective of generating additional income.
Nonsecurities derivatives include futures and forwards. Among the differences between futures and forwards is that futures contracts A) are rarely exercised, while forwards generally are. B) are preferred to forwards by producers. C) are nonstandardized, while forwards are. D) are not regulated by the CFTC, while forwards are.
A) are rarely exercised, while forwards generally are. B) are preferred to forwards by producers. C) are nonstandardized, while forwards are. D) are not regulated by the CFTC, while forwards are. A Explanation In the vast majority of the cases, futures contracts are closed out prior to expiration. That is one reason they are more popular with speculators than forwards. Because forwards are generally delivered, they are the preferred tool by producers, and it is futures that are standardized and CFTC regulates, not forwards.
The Uniform Securities Act contains a number of actions potentially leading to revocation of an agent's registration. Not included in that list would be when the individual is A) declared insolvent. B) convicted of a securities-related misdemeanor. C) accused of murder in the first degree. D) convicted of a non-securities-related felony.
A) declared insolvent. B) convicted of a securities-related misdemeanor. C) accused of murder in the first degree. D) convicted of a non-securities-related felony. C
The term used to describe a broker-dealer contacting a margin account client with a demand for additional funds is A) margin call B) Reg. T call C) maintenance margin D) market call
A) margin call B) Reg. T call C) maintenance margin D) market call C Explanation The original call for funds is the Reg. T or margin call. But, when the call is for additional money, it is known as maintenance margin. This generally occurs when the value of the collateral in the account has fallen sharply
A discussion referring to blue-sky laws would include all of the following except A) the Securities Act of 1933 and Securities Exchange Act of 1934. B) a state securities law that grants state securities Administrators the power to deny or revoke a broker-dealer's or an agent's registration within its state. C) forms requiring issuers selling securities in the state to comply with state securities laws. D) state laws that are designed to protect the public against fraud in securities sales within a state.
A) the Securities Act of 1933 and Securities Exchange Act of 1934. B) a state securities law that grants state securities Administrators the power to deny or revoke a broker-dealer's or an agent's registration within its state. C) forms requiring issuers selling securities in the state to comply with state securities laws. D) state laws that are designed to protect the public against fraud in securities sales within a state. A Explanation Blue-sky laws are state securities laws. The Securities Act of 1933 and the Securities Exchange Act of 1934 are federal securities laws.
An investor owns a long-term U.S. Treasury bond with a 5% coupon and 15 years to maturity. The client wishes to sell and receives a quote from a dealer of 104.22. This number represents A) the premium B) the yield to maturity C) the offer price D) the bid price
A) the premium B) the yield to maturity C) the offer price D) the bid price D Explanation If you are looking to sell, the dealer will pay you his bid price. Had the question said the client wanted to buy, then the quote would have been the offer (ask) price.
Under the Uniform Securities Act, a client who purchased securities from a broker-dealer may request that the trade be rescinded if A) the security is nonexempt and subject to the USA. B) the security was sold in violation of the USA. C) the broker-dealer charged a commission and is also registered as an investment adviser. D) the trade can be reversed prior to settlement date
A) the security is nonexempt and subject to the USA. B) the security was sold in violation of the USA. C) the broker-dealer charged a commission and is also registered as an investment adviser. D) the trade can be reversed prior to settlement date. B
An investor has just received an inheritance of $100,000 and has decided to use the money to buy a new home. Because it will take time to decide where to buy, it is expected that the purchase will not be made for another 6-9 months. If this investor placed the money into a broad market index ETF, the primary risk taken would be A) unsystematic risk B) business risk C) interest rate risk D) market risk
A) unsystematic risk B) business risk C) interest rate risk D) market risk D Explanation A major risk involved with investing in equities, even through a broad market index ETF (or mutual fund), is the systematic risk known as market risk. The shorter the time horizon (and less than 1 year is certainly a short time horizon), the greater the market risk. An advantage of the broad market index investment is the reduction to business risk, one of the most significant unsystematic risks. At least for exam purposes, interest rate risk will only apply to fixed income securities.
Under ERISA, a fiduciary must act in all of the following ways except A) 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 B) in accordance with the governing plan documents unless they are not consistent with ERISA C) solely in the interest of plan participants and beneficiaries D) confining investments to only those most likely to achieve growth
A) 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 B) in accordance with the governing plan documents unless they are not consistent with ERISA C) solely in the interest of plan participants and beneficiaries D) confining investments to only those most likely to achieve growth D Explanation Under ERISA, a fiduciary is not limited to confining investments to only those most likely to achieve growth. The fiduciary is required to diversify investments so as to minimize the risk of losses, unless doing so is clearly not prudent under the circumstances.
A broker-dealer receives a request from a client to purchase an OTC stock. When the broker-dealer's trading department contacts the market maker in the stock, she receives a quote of 35 − 35.25, 7 by 9. Based on this information, the spread is A) within the allowable range of NASAA's 5% markup policy. B) $0.25 C) $2 D) $0.63
B
A business organized as which of the following pays federal income tax on its income? A) Partnership B) Sole proprietorship C) S corporation D) LLC
B
A company's working capital equals its A) cash flow minus its retained earnings B) current assets minus its current liabilities C) fixed assets minus its fixed liabilities D) current liabilities minus its current assets
B
A manager of a venture capital fund would be most interested in investing in A) a company interested in going private. B) a young, promising company. C) a company listed on a major stock exchange. D) a well-established company going through management changes.
B
A popular funding technique that involves investing the same amount at regular intervals is known as dollar cost averaging. Participating in this funding approach tends to lessen which risk? A) Market B) Timing C) Credit D) Inflation
B
Advisers that manage $110 million or more in customer assets are required to do which of the following? Register with the Securities Exchange Commission. File notice with FINRA. Post a bond in an amount specified by the appropriate regulatory body. File notice with the state in which their principal office is located if notice filing is required by the Administrator. A) I and III B) I and IV C) II and III D) II and IV
B
An Administrator may summarily suspend the registration of an agent or an IAR pending final determination of proceedings under the Uniform Securities Act. However, the Administrator may not enter a final order without which of these? 1. Appropriate prior notice to the applicant as well as the employer or prospective employer of the applicant 2. An opportunity for a hearing 3. Findings of fact and conclusions of law 4. Prior written acknowledgment of the applicant A) I and II B) I, II, and III C) I only D) I, II, III, and IV
B
An investor is short stock at 60. The current market price of the stock is 35, and he anticipates it will continue to decline. If he thinks the price will rise temporarily and if he does not wish to close out his short position, his best strategy to prevent a loss would be to A) sell an XYZ 35 put B) buy an XYZ 35 call C) sell an XYZ 35 call D) buy an XYZ 35 put
B
If general interest rates increase, the interest income of a bond unit investment trust will probably A) change as soon as the portfolio manager can take advantage of the higher rates now available in the marketplace. B) remain the same. C) increase. D) decrease.
B
If the efficient market hypothesis is true, portfolio managers should do all of the following except A) add some negatively correlated securities to the portfolio. B) spend more time working on security selection. C) work more with clients to better quantify their risk preferences. D) minimize transaction costs.
B
If the yield curve is positive (sloping upward), this means that long-term interest rates are A) lower than short-term rates. B) higher than short-term rates. C) the same as short-term rates. D) expected to decline.
B
Investors who are subject to the alternative minimum tax (AMT) will lose the tax benefits normally associated with A) losses on options positions. B) tax preference items. C) gains associated with variable annuity portfolios. D) capital losses.
B
Rachel is an agent registered with a broker-dealer in this state. It would be prohibited for her to A) execute a transaction in a discretionary account after having received the necessary documentation. B) solicit sales of a nonexempt security whose registration is not yet effective. C) share in the profits and losses in a client account without a financial contribution to the account. D) disclose to a client that a transaction in a thinly traded stock will result in a higher-than-normal commission.
B
The Securities Act of 1933 regulates A) investment advisory firms. B) offerings of new securities. C) self-regulatory organizations (SROs). D) broker-dealers and associate members.
B
Under Section 303 of the Uniform Securities Act, in order for an issue to register using coordination, it must simultaneously register under the provisions of A) the Uniform Securities Act. B) the Securities Act of 1933. C) the Securities Exchange Act of 1934. D) the Investment Company Act of 1940.
B
When an Administrator acts summarily to postpone or suspend a registration of a security, which of the following statements is true under the Uniform Securities Act? The suspension will not go into effect until after a hearing. The registrant must be promptly notified of the action and given an opportunity for a hearing. A hearing must be held within 15 days of written request of the registrant. A) I, II, and III B) II and III C) I only D) I and III
B
When contrasting call options, preemptive rights, and warrants, it would be correct to state A) only call options are traded on listed exchanges. B) only preemptive rights and warrants are issued by the underlying corporation. C) only call options and warrants have time value. D) all of these are issued by the underlying corporation.
B
When does a deliberate omission of a fact in a securities sale constitute fraud? A) Anytime the information is known by more than 15 people B) If a reasonable person would base an investment decision on the omitted information C) Only if the information was known to be true D) Only when a new issue of securities is being offered
B
Which of the following indicates a bond selling at a premium? A) 5% coupon yielding 5.0% B) 8% coupon yielding 7.5% C) 10% coupon yielding 11.0% D) 8% coupon yielding 8.5%
B
Which of the following is likely to be characterized by no management fees and a portfolio consisting of municipal or corporate bonds? A) Closed-end investment company B) Unit investment trust C) Open-end investment company D) Face-amount certificate company
B
Which of the following items are not included in the gross estate of a decedent? A) Property held in an account registered tenants in common B) Proceeds from a life insurance policy owned by the deceased's spouse C) Proceeds from a life insurance policy held in a revocable trust D) The first $250,000 of a primary residence if owned singly, $500,000 if owned jointly with spouse
B
Which of the following persons is defined as an agent by the Uniform Securities Act? A) President of the state university who sits on the broker-dealer's board of directors B) Clerk at a broker-dealer who is authorized to take orders C) Silent partner of a broker-dealer D) Secretary of a branch office sales manager
B
Which of the following statements referring to renewal of a broker-dealer's registration under the Uniform Securities Act are correct? Annual renewal takes place on the anniversary of the registrant's initial registration. Each renewal application must be accompanied by the appropriate fee. Each renewal application must be accompanied by a consent to service of process signed by an authorized supervisory person of the firm. Registrations expire December 31 unless renewed or canceled. A) I and IV B) II and IV C) I and III D) II and III
B
Which of the following statements regarding a cease and desist order is true? It is an order to stop a specified activity immediately. If the registered agent continues to violate the statute, the registered agent may become the subject of a court-issued injunction. It may be issued by the state Administrator. A) I and II B) I, II, and III C) I only D) I and III
B
Which of the following transactions for ERISA plans is not specifically prohibited? A) Lending money or extending credit between a plan and a disqualified person B) A transfer of plan income or assets for the benefit of a plan beneficiary or plan participant which they are entitled according to the provisions within the plan C) A transfer of plan income or assets to, or use of them by or for the benefit of a disqualified person D) Any act of a fiduciary by which plan income or assets are used for the fiduciary's own interest
B
A bond is paying $100 per year in annual interest and is selling at par. If the discount rate is 10%, the net present value is A) the same as the coupon B) negative C) zero D) positive
C
Due to an inheritance, one of your clients now owns a large position in LMN stock. She is concerned that the stock may decline in the upcoming months while she is deciding what to do with the investment. What type of investment strategy could she employ to protect the stock from substantial downside risk? A) Purchase call options on LMN stock B) Diversify into an index fund C) Purchase put options on LMN stock D) Write call options on LMN stock
C
In contrast with a typical forwards contract, futures contracts have A) nonstandard terms. B) less liquidity. C) standardized terms. D) greater counterparty risk.
C
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 A) 6%. B) 4%. C) 5%. D) 8%.
C
Under the Securities Exchange Act of 1934, which body regulates the extension of credit for nonexempt securities? A) The SEC B) The Comptroller of Currency C) The Federal Reserve Board D) The New York Stock Exchange
C
Under the Uniform Securities Act, what is true regarding prepaid advisory fees? 1. They must be detailed in the advisory contract. 2. They may not exceed 2% of the customer's deposited assets. 3. Fees in excess of $500 for six months or more of service require the adviser's balance sheet to be included in the brochure. 4. They may never be accepted. A) I, II, III, and IV B) II and IV C) I and III D) I, II, and III
C
Which of the following does not refer to a style of investing? A) Value B) Growth C) Equity D) Passive
C
Which of the following is not a type of life insurance policy? A) Endowment policy B) Universal life policy C) Variable annuity policy D) Term to 65 policy
C
Which of the following statements regarding an agent's authority to place orders for a client's account under NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents is true? A) The agent is not required to obtain authorization to place orders for a client's account unless a conflict of interest is involved. B) Written approval from the client authorizing a stated amount of a specified security is required before placing an order. C) The client's oral approval is sufficient for a specific order. D) The agent may, without the client's approval, place a sell order for the purpose of avoiding losses but may not place a buy order without the client's authorization.
C
Which of the following statements regarding the antifraud provisions of the Uniform Securities Act (USA) is true? A) Exempt securities are not subject to the antifraud provisions of the USA. B) The only securities exempt from the provisions are those issued by national governments or political subdivisions of countries that maintain diplomatic relations with the United States. C) No securities are exempt from the antifraud provisions of the act. D) The only securities exempt from the provisions are those that are properly registered under blue-sky laws.
C
Which of the following statements regarding the growth style of investing is correct? A) Growth managers focus on the numerator in the P/E ratio, desiring a low stock price relative to earnings or book value of assets. B) Growth managers look for a high-dividend yield and often take a contrarian approach. C) Growth managers focus on the denominator in the P/E ratio, searching for firms and industries where high expected earnings growth will drive the stock price up even higher. D) Growth managers believe that, although a firm's earnings are depressed now, the earnings will rise in the future as they revert to the historical range.
C
Which of these is not considered to be a systematic risk? A) Exchange rate risk B) Purchasing power risk C) Default risk D) Market risk
C
A stock traded on the Nasdaq Stock Market has a beta of 1.20. One could expect that the stock's volatility compared to the S&P 500 would be A) negatively correlated to the S&P B) 20% less volatile C) 20% more volatile D) too variable to tell
C Beta is a measurement of a security's volatility when compared with the overall market, best measure by the S&P 500. The "market" is assigned a beta of 1.00, so when the beta is higher than 1.00, the stock has greater volatility and when lower than 1.00, the volatility is less.
A person who has no place of business in this state would not be considered a broker-dealer if he effects transactions in this state exclusively with all of the following except A) other broker-dealers. B) insurance companies. C) the issuers of the securities involved in the transaction. D) investment advisers.
D
A person who renders investment advice solely with respect to securities issued by the U.S. government A) is exempt from state registration under the Uniform Securities Act but must be federal registered under the Investment Advisers Act of 1940. B) must be registered both with the SEC and the state. C) need not be federal registered under the Investment Advisers Act of 1940 but must register in any state in which it has an office. D) is excluded from the definition of investment adviser under federal law and is, therefore, exempt from state registration requirements.
D
A stock that does not have a ready market is said to have a higher than average degree of A) market risk B) investment risk C) business risk D) liquidity risk
D
A well-diversified investor following a rebalancing portfolio strategy in a rising market will most likely A) sell all the stock in the portfolio B) purchase additional stock C) write covered calls on the long stock currently in the portfolio D) sell part of the stock in the portfolio
D
All of the following are exempt transactions except A) a pledgee liquidating securities that were put up as collateral for a loan that has now gone into default. B) a client, on his own initiative, requesting a transaction in a security that is not registered in the state. C) an administrator of an estate selling securities to liquidate the estate's assets. D) a Certified Financial Planner selling NYSE-listed securities to numerous high-net-worth individual clients.
D
All of the following statements relating to an account registered as tenants in common are true except A) each cotenant has an undivided interest in the entire account B) this form of registration is less common for married couples than JTWROS C) cotenants can own unequal percentages of the assets in the account D) upon the death of one of the cotenants, that individual's share of the account passes to the survivor(s)
D
An agent for a well-known broker-dealer has taken it upon herself to look for investment opportunities for her clients. Her research indicates that, in spite of record earnings, the stock of GEMCO, Inc., is poised for a price reversal. Should this analysis prove correct, this would be an example of A) financial risk B) regulatory risk C) reinvestment risk D) market risk
D
An investor buys 10M RAN 6.6s of 32 at 67. What is the total purchase price? A) $10,000 B) $10,200 C) $6,600 D) $6,700
D
Compared to a publicly traded fund, a private equity fund is most likely to A) exhibit stronger corporate governance. B) provide more details regarding its financial performance. C) be more concerned with short-term results. D) disclose less information about its financial performance.
D
DEF Investment Advisers, organized as a partnership, is currently registered with State Y. Marjorie is one of the partners and is registered as an IAR. If DEF were to register with State Z, A) because DEF is a state-registered investment adviser, Marjorie could only register in State Z if she is a resident of the state. B) Marjorie's registration as an IAR in State Z would become effective after passing the Series 65 or Series 66 exam. C) Marjorie would be required to complete an application for IAR registration with State Z. D) Marjorie would automatically be registered as an IAR in State Z.
D
Margin regulations are determined by the Board of Governors of the Federal Reserve System. The authority for them to do so is found in A) the Maloney Act of 1938 B) the Federal Reserve Act of 1913 C) the Securities Act of 1933 D) the Securities Exchange Act of 1934
D
Regarding open-end investment companies, which of the following sales charges is based on the NAV per share? A) Sales load B) Commission C) 12b-1 fee D) Redemption fee
D
The potential for the market price of common stock in the ABC Corporation to fluctuate due to its tendency to move with all securities of the same type represents what kind of risk? A) Interest rate B) Inflation C) Business D) Market
D
Under the terms of the Uniform Securities Act (USA), an agent who sells shares of a Nasdaq Stock Market security to an insurance company has engaged in A) an unsuitable transaction. B) an unlawful transaction. C) an issuer transaction. D) a sale exempt from the registration and advertising provisions of the USA.
D
What would likely happen to the market value of existing bonds during an inflationary period coupled with rising interest rates? A) The price of the bonds would increase. B) The price of the bonds would stay the same. C) The nominal yield of the bonds would increase. D) The price of the bonds would decrease.
D
When preparing a client profile, it is prudent to investigate the prospect's non-financial considerations. Included would be that client's: age. attitudes. experience with investments. values. A) I and III. B) II and IV. C) I, II, and IV. D) I, II, III, and IV.
D
Which of the following is a direct obligation of the U.S. government? A) Fannie Maes B) Bank for cooperatives bonds C) Government bond mutual funds D) Ginnie Maes
D
High P/E ratios are one of the keynotes of
Growth Investing
If a married couple establishes a JTWROS account with a balance of $25 million and the wife dies, what is the husband's estate tax liability? A) He pays federal estate taxes only on the amount that exceeds the estate tax credit. B) He pays federal estate taxes on the entire balance. C) He pays no estate tax. D) He pays federal estate taxes on $12.5 million.
He pays federal estate taxes only on the amount that exceeds the estate tax credit. B) He pays federal estate taxes on the entire balance. C) He pays no estate tax. D) He pays federal estate taxes on $12.5 million. C Explanation Establishing a joint tenants with right of survivorship account allows for the transfer of assets to the survivor upon death. The surviving spouse is not taxed on assets transferred in this manner because under current tax law, there is an unlimited marital deduction.
Only earned income may be included in determining the income eligible for
Keogh contributions
Recall the P.R.I.M.E. acronym for systematic (or nondiversifiable) risk:
Purchasing power, Reinvestment, Interest rate, Market, and Exchange rate risks.
Fiduciary transactions and unsolicited orders, regardless of the security being purchased or sold, are always
exempt transactions under the USA.
Remember, the Securities Act of 1933 deals with whereas the Securities Exchange Act of 1934 deals with the , persons (i.e., broker-dealers, associate members), and exchanges.
new issues, secondary market
Securities are registered at the federal level under
the Securities Act of 1933.
An investor wishes to be able to obtain the right, but not the obligation, to purchase 100 shares of KAPCO common stock at $50 per share for the next six months. KAPCO is currently selling for $52 per share. This investor's wishes could be met by the purchase of a forward contract. B) the sale of a put option. C) the purchase of a preemptive right. D) the purchase of a call option.
the purchase of a forward contract. B) the sale of a put option. C) the purchase of a preemptive right. D) the purchase of a call option. D
Default or credit risk is a form of
unsystematic (or diversifiable) risk.
