Series 65 Practice Questions
After receiving some money from an inheritance, an individual purchases a rare gold coin for $10,000. Five years later, he gives the coin to his daughter-in-law after receiving an appraisal showing the coin is worth $15,000. The daughter-in-law's cost basis of the coin is?
$10,000 - when a gift is made of an asset, the donor's cost basis passes to the donee.
When are estate taxes due? What form do they have to be filed on?
9 months are the date of death on Form 706
A 35-year-old client purchases a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is
9%
Beth Jamison is an agent and an IAR for Consolidated Wealth Planning, a FINRA member broker-dealer and SEC-registered investment adviser. An advisory client purchases 300 shares of RMBN and the sale is made from Consolidated's inventory. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, A) Beth would be required to obtain consent for this principal transaction if it was the subject of a recommendation. B) Beth must obtain written consent of any advisory client whenever a sale is made as principal. C) the amount of commission charged for this transaction must be clearly disclosed. D) selling out of inventory to advisory clients would be considered an unethical business practice.
A) Beth would be required to obtain consent for this principal transaction if it was the subject of a recommendation.
Under the Investment Advisers Act of 1940, the records that must be maintained by an investment adviser may be kept in which of the following forms? 1. Hard copy 2. Microfilm 3. Computer disk
All. 1. Hard copy 2. Microfilm 3. Computer disk
Which of the following compensation arrangements is typically NOT allowed under the Investment Advisers Act of 1940? A) An adviser charges all clients a set fee, regardless of how long it takes to generate a recommendation or a recommendation's results. B) An adviser varies fees according to the time spent managing the account. C) An adviser waives a client's fee if the client experiences a loss for the year. D) An adviser charges clients a percentage of assets under management.
An adviser waives a client's fee if the client experiences a loss for the year.
If Maria turned 72 on August 16, 2020, when must the first required minimum distribution (RMD) be made from her IRA?
April 1, 2021
When are sole proprietor and C corporation tax returns due?
April 15th
Which of the following statements regarding both traditional and Roth IRAs is true? A) Withdrawals at retirement are tax free. B) Contribution limits are the same. C) Contributions are tax deductible. D) Distributions must begin in the year after the owner reaches age 72.
B) Contribution limits are the same.
Assume Frank has a portfolio with an actual return of 10.50% for the past year. The portfolio beta equals 1.25, the return on the market equals 9.75%, and the risk-free rate of return equals 3%. Based on this information, what is the alpha for Frank's portfolio and did it out outperform or underperform the market? A) −1.6875%, underperform B) −0.9375%, underperform C) +3.3750%, outperform D) +9.1875%, outperform
B) −0.9375%, underperform alpha = (actual return - risk free rate) - (beta x [market return - RF]))
The separate account subaccounts chosen by the purchaser of a variable life insurance policy have had outstanding performance over the past 15 years. There would generally be no tax implications in which of the following situations? A) There is a cash withdrawal in excess of the cost basis B) The policy is surrendered C) A loan is taken equal to 95% of the policy's cash value D) The death benefit is paid
C) A loan is taken equal to 95% of the policy's cash value
The employer does not get a current tax deduction when offering which of the following retirement plans? A) Money purchase plan B) SIMPLE plan C) Deferred compensation plan D) Defined benefit plan
C) Deferred compensation plan Because there is no constructive receipt of income until the deferral period is over, the employing company does not get a current tax deduction.
Which portfolio mix would you recommend to a client who is most concerned about projected near term volatility?
Choose the portfolio with the lowest SD.
Which of the following statements about plan fiduciaries under ERISA are TRUE? 1. Plan fiduciaries sometimes have conflicting obligations to plan participants and other parties in interest. 2. Plan fiduciaries must ordinarily diversify plan investments. 3. Plan fiduciaries are personally liable for fines if they violate their fiduciary duties.
D) II and III
Which of the following statements about equity securities is NOT true? A) Common stock is less sensitive to interest rate risk than preferred stock. B) Preferred stock pays a fixed dividend. C) Preferred stock is usually nonvoting. D) Preferred stock is an equity security while common stock is a hybrid.
D) Preferred stock is an equity security while common stock is a hybrid.
Which of the following types of mutual funds would be most likely to have capital appreciation as its stated objective?
Growth
Under Safe Harbor provisions of 28(e) how may IA's receive compensation from BDs?
In the form of research, customer-related software, and seminar registration fees
If general interest rates increase, the interest income of an open-end bond fund whose sales exceed redemptions will likely
Increase Any increase in the general interest rate would allow the fund to purchase new, higher-yielding instruments, which would increase the fund's income.
If a broker-dealer purchases 100,000 shares of common stock from an individual investor, this is A) a local transaction B) a private placement C) a prohibited transaction D) a nonissuer transaction
a nonissuer transaction- the proceeds of the trade do not benefit or go to the issuer.
An investment adviser who is discussing forward contracts with a client would most likely be referring to an investment in
an agricultural commodity. Forward contracts are available in commodities.
One of your clients has named you as the trustee for a trust he has established. The beneficiary of the trust approaches you with a request for a disbursement that is contrary to the provisions of the trust document. In accordance with the provisions of the Uniform Prudent Investor Act, you should
follow the terms of the trust
The main difference between the current ratio and the quick ratio is that the quick ratio excludes
inventory
Under the Uniform Securities Act, investment advisory contracts
must contain a description of fees
During the past 2 quarters, the GDP declined by 3%, unemployment rose by 0.7%, and the Consumer Price Index fell off by 1.3%; this economic condition is called
recession- two consecutive quarters of economic decline is termed a recession
Form ADV-E
the annual financial examination of an IA. It is completed by the IA and submitted by the independent accountant. (only for those with custody)
If an investment can be expected to return 8%, using the rule of 72, what is the present value needed to have $50,000 for a child's education in 18 years?
$12,500
A customer purchased a 5% U.S. government bond yielding 6%. A year before the bond matures, new U.S. government bonds are being issued at 4%, and the customer sells the 5% bond. The customer probably did which of the following? 1. Bought it at a discount 2. Bought it at a premium 3. Sold it at a discount 4. Sold it at a premium
1. Bought it at a discount 4. Sold it at a premium The customer purchased the 5% bond when it was yielding 6% (at a discount). The customer sold the bond when other bonds of like kind, quality, and maturity were yielding 4%. The bond is now at a premium. Therefore, the customer realized a capital gain.
Which of the following entities are considered to be exempt issuers under the Uniform Securities Act? 1. State of Michigan 2. City of Calgary, Alberta 3. City of Birmingham, UK 4. Kapco Leveraged Partners, an unregistered hedge fund whose adviser is registered with the SEC
1. State of Michigan 2. City of Calgary, Alberta Any state or Canadian province, or political subdivision thereof, is considered an exempt issuer.
An investment policy statement would likely include 1. expected returns of the recommended strategy and the expected range of these returns 2. recommended allocations among differing asset classes 3. strategies used for selecting specific stocks in the equity portion of the portfolio 4. disclosure of the fees that the adviser will earn for implementing the recommended strategy
1. expected returns of the recommended strategy and the expected range of these returns 2. recommended allocations among differing asset classes 3. strategies used for selecting specific stocks in the equity portion of the portfolio
Which of the following business accounts does not require considering the suitability of the owners? A) C corporation B) General partnership C) Sole proprietorship D) S corporation
A) C Corporation Because the C corporation is an entity separate from its shareholders, suitability for a C corporation account is based solely on the company itself
An investment adviser representative is assuring clients of steady returns on an investment. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, this activity is A) prohibited because the IAR is guaranteeing a profit B) acceptable if the client has been made aware of the risks C) prohibited because the customer may still experience loss D) acceptable if the security being recommended is an investment-grade bond
A) prohibited because the IAR is guaranteeing a profit
Under the Uniform Securities Act, the Administrator may institute an action if an agent: 1. borrows money from his wealthy clients' accounts 2. solicits orders for nonexempt unregistered securities 3. buys and sells securities in accounts to generate a high level of commissions 4. alters market quotations to induce a client to invest in an attractive growth stock
All of the above
Protection of the investing public is one of the major objectives of the SEC. Much of the protection comes from the disclosure requirements enveloping the industry. Among the disclosure forms used is Form 13F. To come under the SEC's requirement to file a Form 13F, an institutional manager must have discretion over A) a portfolio of at least $100 million B) a portfolio of at least $100 million of 13(f) securities C) a portfolio of at least $50 million D) more than 10% of the outstanding voting securities of a reporting company
B) a portfolio of at least $100 million of 13(f) securities
All of the following statements are true EXCEPT A) state securities Administrators do not have authority to issue injunctions and must submit requests to appropriate state courts to issue injunctions B) there is no statute of limitations for criminal violations of the USA C) upon appearance or likelihood that a violation will occur, the Administrator may issue a cease and desist order without a prior hearing D) under a civil violation of the USA, a cause of action survives the death of the plaintiff or defendant
B) there is no statute of limitations for criminal violations of the USA There is a 5-year statute of limitations for criminal violations under the USA.
An agent making a sales presentation to a client about a mutual fund's historical returns is required to explain to the client the difference between the fund's A) current yield and real return. B) current yield and holding period return. C) current yield and total return. D) total return and risk-adjusted return.
C) current yield and total return.
A sales assistant employed by a full service broker-dealer would be required to register as an agent when accepting orders for A) gold coins. B) fixed annuities. C) direct participation programs. D) commodity futures contracts.
C) direct participation programs. An individual employed by a broker-dealer who is involved in the sale of securities must register as an agent. The security here is the DPP.
One of your new clients has only been working for 3 years but is already interested in retirement planning. In order to be fully eligible for Social Security, the client must
have a minimum of 40 covered quarters of employment. Current Social Security requirements are a minimum of 40 covered quarters of employment (10 years).
Witherspoon, Eustis, and Brahmin (WEB), an investment banking firm and SEC-registered investment adviser, is the principal underwriter for MTEX's upcoming stock issue. Lynn Black is an analyst and IAR with WEB, and she learned from an employee in MTEX's programming department that a serious problem was recently discovered in the software program of its major new product line. In fact, the problem is so bad that many customers have canceled their orders with MTEX. Black checked the stock's prospectus and found no mention of this development. The red herring prospectus has already been distributed. According to WEB's required code of ethics, Black's best course of action is to
inform her immediate supervisor at WEB of her discovery.
Registration statements for securities under the Uniform Securities Act are effective for
1 year from the effective date
Why would you suggest a client invest in international mutual funds or ETFs? 1. Diversification 2. Tax benefits 3. Avoids having to pick individual stocks 4. Greater regulatory controls
1. Diversification and 3. Avoids having to pick individual stock There are no specific tax benefits to investing through the fund. No controls since these are pooled investments (foreign or domestic)
The James Henry Company (JHC), an SEC-registered securities broker-dealer with offices in Chicago and Los Angeles, limits its clientele to banks and trust companies. JHC makes a sale of U.S. government securities to the Wall Street Bank located in New York City. Which of the following statements is (are) TRUE under the Uniform Securities Act? 1. The security itself is exempt from registration. 2. The transaction is exempt. 3. The broker-dealer is not required to be registered in the state of New York.
1. The security itself is exempt from registration. 2. The transaction is exempt. 3. The broker-dealer is not required to be registered in the state of New York. Security is exempt, transaction with a financial institution is exempt, and no broker dealer in that state
Which of the following investments is not registered under the Investment Company Act of 1940? A) ETNs B) UITs C) FACCs D) ETFs
A) ETNs
Which of the following statements are TRUE? 1. An agent may never be simultaneously employed by more than one broker-dealer. 2. An agent must submit separate registrations for each broker-dealer with which he is registered. 3. Certain states prohibit agents from dual or multiple registration. 4. An agent who sells securities in several states must be registered with different broker-dealers in each state.
2. An agent must submit separate registrations for each broker-dealer with which he is registered. 3. Certain states prohibit agents from dual or multiple registration.
Aaron is a client of XYZ Financial Services. Over the past several years, Aaron has been suspicious of possible churning of his account, but has taken no action because account performance has been outstanding. After reviewing his most recent statement, Aaron suspects that excessive transactions have occurred. He consults his attorney, who informs him that under the Uniform Securities Act any lawsuit for recovery of damages must commence within
3 years of occurrence or 2 years of discovery, whichever comes first
An agent unintentionally sells nonexempt securities that have not been registered. Under the Uniform Securities Act, the broker-dealer may write a letter and offer to buy back the security plus interest, minus any income received. The client gives up the right against the firm to bring action in court if he does not respond within how many days of receipt of the letter?
30
All of the following positions expose a customer to unlimited risk EXCEPT A) Short 2 XYZ uncovered puts B) Short 200 shares of XYZ C) Short 200 shares of XYZ and short 2 XYZ puts D) Short 2 XYZ uncovered calls
A) Short 2 XYZ uncovered puts A put writer will lose money if the stock goes down, but the furthest it can drop is to zero. Therefore, the potential loss is not unlimited.
What would best describe a Yankee bond?
A U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States
A client has a more-than-average aversion to risk with a primary investment objective of capital preservation. Given the following choices of portfolio allocations, which would probably be the most suitable for this investor? A) A mix of investment-grade bonds and cash/cash equivalents B) A preponderance of growth stocks and limited partnership vehicles C) A mix of high-yield bonds and cash/cash equivalents D) A preponderance of speculative stocks and high-yield bonds
A mix of investment grade bonds and cash/cash equivalents
Defalcator Investment Planning (DIP) has $175 million in AUM and has offices in States A, K, and R. DIP would be required to provide a balance sheet as part of its brochure if it charged fees of A) $1,500 for the next year's advisory service. B) $1,500 for the next 3 months of advisory service. C) $1,200 for the next 6 months of advisory service. D) $600 for the next 6 months of advisory service.
A) $1,500 for the next year's advisory service. Remember, it is more than $1,200 and it must be for at least 6 months of service to count.
Under the Uniform Securities Act, which of the following is NOT an offer or a sale? A) 100 shares of ABC stock received in exchange for 200 shares of XYZ stock as a result of a corporate merger B) A broker-dealer offering 10 shares of XYZ common stock as a free gift to any client who invests at least $10,000 in mutual funds C) The sale of a warrant D) A gift of assessable stock
A) 100 shares of ABC stock received in exchange for 200 shares of XYZ stock as a result of a corporate merger
Mary is a bowling buddy of Susan, a covered investment adviser. Mary refers Amanda, a wealthy widow, to Susan, and after a very pleasant meeting, Amanda places $15 million under management with Susan. If Susan were to give Mary a cash payment for the referral, A) she would be engaging in an prohibited practice B) both Susan and Mary would have to disclose the cash payment to Amanda C) only Susan would have to make disclosure to Amanda D) she would have to obtain Mary's permission first
A) she would be engaging in an prohibited practice
Jill is an investment adviser representative with FairPlay Advisers, an SEC-registered investment advisory firm. At the recommendation of a close friend who is a client of Jill's, Tom comes in for an interview and portfolio analysis. When examining Tom's IRA, which of the following holdings would Jill feel the need to immediately review? A) JKL Money Market Fund B) DEF U.S. Government Bond Fund C) ABC Municipal Bond Fund D) GHI Large-Cap Equity Index Fund
ABC Municipal Bond Fund
Which of the following statements concerning the books and records of a state-registered investment adviser under the Uniform Securities Act is (are) true? I. Books and records must be maintained in the principal office of the adviser for the first two years from the origination date. II. Books and records must be maintained in an easily accessible place for no less than five years from the end of the last fiscal year in which an entry was made. III. Copies of all investment letters, advertisements, or communications to 10 or more persons must be preserved for five years from the end of the fiscal year of the publication date. IV. An adviser who ceases business continues to be responsible for the maintenance and preservation of certain records, such as corporate charters and minute books, for three years after termination of the enterprise.
ALL.
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclosing which of the following fees? A) Markups and markdowns B) Advisory fees C) Account closing fees D) Commissions
Account closing fees Three primary expenses involved with a brokerage account: 1. commissions 2. markup/markdowns 3. advisory fees
A prospective client has been interviewing a number of investment advisers and wishes to see your firm's investment policy statement. Your IPS would probably include which of the following headings? 1. Investment objectives 2. Investment philosophy 3. Investment selection criteria 4. Monitoring procedures
All - investment objectives -investment philosophy -investment section criteria -monitoring procedures
The underwriter, issuer, broker-dealer, investment adviser, and agent agree to defraud customers. Which of the following is subject to civil and criminal penalties? The underwriter The issuer The broker-dealer The investment adviser
All of them.
A new customer has a $35,000 CD maturing in 2 weeks. With the objective of maximizing his income on capital invested, he wishes to invest the proceeds in a mutual fund. Which of the following types of funds should be recommended?
An income fund. It is just what the name implies; it invests for income.
Top-down analysis
Attempts to profit by finding the best-performing sectors of the economy and buying stocks in that sector with the expectation that companies will do well.
An investment adviser representative is researching a security and notices that its beta is zero. Which of the following securities is probably the subject of that research? A) An ETF tracing the index of gold stocks B) A 91-day U.S. Treasury bill C) A public utility stock D) A 5-year U.S. Treasury note
B) A 91-day U.S. Treasury bill
An individual has just received a bonus of $12,473 and wishes to generate some income without risking loss of capital. Assuming the client is in a low tax bracket, which of the following would be the most suitable choice? A) Public utility stocks B) Bank-insured CDs C) Growth stocks D) Insured municipal bonds
B) Bank-insured CDs The only choice here with no risk to capital is the bank-insured CD.
Which of the following is NOT considered to be in the business of investment advising? A) A person who prepares reports about securities in general B) Insurance agents who discuss the merits of whole life insurance verses nonsecurities financial instruments and who receive commissions on the sale of life insurance only C) An insurance agent who provides investment advice regularly, but such advice represents a small portion of her business D) A financial planner who provides advice on many types of financial instruments, including securities, and receives commissions on the sale of life insurance
B) Insurance agents who discuss the merits of whole life insurance verses nonsecurities financial instruments and who receive
Under the Investment Advisers Act of 1940, exclusions from the definition of an IA include
Banks, LATE, Broker-Dealers, Publishers, and any person whose advice relates solely to securities issued or guaranteed by the U.S. Government
Under the USA, exclusions from the definition of an IA include:
Banks, LATE, publishers, and IAR's
Taxation of inherited stock
Beneficiary receives stepped-up basis cost basis
What is the best way to hedge against a short stock position?
Buying a call option
What is the best way to hedge against a long stock position?
Buying a put
Under the Uniform Securities Act, all of the following conditions must exist in order for a private placement to be considered an exempt transaction EXCEPT A) broker-dealers and their agents must reasonably believe that noninstitutional clients are buying the securities for investment purposes and not for resale B) the offer must be directed to no more than 10 individuals during any 12-month period C) noninstitutional clients must not make payment for their purchases D) commissions may not be paid to sales agents of the broker-dealer offering the securities to noninstitutional clients
C) noninstitutional clients must not make payment for their purchases
What accounts impose the greatest impact on financial aid?
Custodial accounts
Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle?
Cyclical rotation
A customer's portfolio has a beta coefficient of 1.1. If the overall market increases by 10%, the portfolio's value is likely to
Increase by 11% beta of 1.1 means the portfolio is 1.1 times more volatile than the overall market.
A bond with a par value of $1,000 and a coupon rate of 6%, paid semiannually, is currently selling for $1,200. The bond is callable in 6 years at 103. In the computation of the bond's yield to call, which of the following would be a factor? A) Present value of $1,030 B) Interest payments of $30 C) Future value of $1,200 D) 20 payment periods
Interest payments of $30 YTC = interest payments to be received, length of time to call, and the current and call price.
The capital asset pricing model (CAPM) is used by many to assess the expected return of a security. If the current risk-free rate is 3%, the current return on the market is 10%, and a particular stock's beta is 1.4 with a standard deviation of 2.2, the expected return would be A) 17.0% B) 14.0% C) 9.8% D) 12.8%
D) 12.8 (10%-3%)*1.4 (beta) = 12.8
Potential investment company clients should be advised to investigate a fund by looking at which of the following? Investment policy Number of shares outstanding Custodian bank Portfolio
Investment Policy and Portfolio
Which of the following is NOT a security? A)Corporate equity B)Variable annuity C)Corporate debt D)Participating whole life insurance that pays annual dividends
D)Participating whole life insurance that pays annual dividends
Taxation of gifted stock
Donee acquires the stock at the donor's basis
Monetary Policy
Federal Reserve Board; discount rate, reserve requirements, open-market operations, NOT prime rate
An IAR is doing some research on a company. When viewing the corporation's financial statements, prepaid expenses would most likely be found
as a current asset on the balance sheet.
Under the Investment Advisers Act of 1940, which of the following is (are) excluded from the definition of investment adviser? I. The publisher of a financial newsletter on a paid subscription basis, which contains only general securities recommendations II. Persons whose investment advice relates solely to issues distributed or guaranteed by the U.S. government III. A lawyer who charges a separate fee for investment advice that is provided as a separate part of the business
I. The publisher of a financial newsletter on a paid subscription basis, which contains only general securities recommendations II. Persons whose investment advice relates solely to issues distributed or guaranteed by the U.S. government
An increase in a help-wanted ad is what type of indicator?
Leading indicator
What is not permitted in an IRA?
Life insurance (whole or term life)
When are S-Corp, Partnership, and LLC tax returns due?
March 15th
A married couple in their early 50s saving for retirement would most likely have which of the following objectives?
Moderate risk, moderate safety, low liquidity
Mr. Hawkins sets up a revocable trust for the benefit of his adult daughter, Madeleine. His wife may draw from it only if she needs to. Income on the trust will be taxed to
Mr. Hawkins as the donor; he has an economic interest
The Safe Harbor provisions of 404(c) of ERISA say a fiduciary is what?
Not liable for losses to the plan resulting from the participant's selection of investments in the participant's own account. The plan provides the participants with: - 3 alternative investments -ability to change investments quarterly -access by phone or internet to accounts
An investor holding which of the following equity securities would NOT expect to have preemptive rights? 1. Preferred Stock 2. Common stock acquired in private placement 3. Common stock 4. Control stock
Preferred Stock Preemptive rights allow common stockholders to subscribe to additional issues of shares before they are offered to the public.
Which of the following is least likely to be considered an investment constraint when preparing an investment policy statement? A) Legal and regulatory factors B) Tax concerns C) Risk tolerance D) Liquidity needs
Risk tolerance
Which retirement plan is the only individually funded plan permitted after age 70 1/2 and has no RMDs?
Roth IRA- minors may be named as beneficiaries
Tracking small-cap securities is generally done by measuring against
Russell 2000
Tracking mid-cap securities is generally done by measuring against
S&P 400
Tracking large-cap securities is generally done by measuring against
S&P 500
Which of the following is the most significant difference between corporate secured debt and unsecured debt?
Secured debt has specific collateral pledged to protect the lender's interest.
Sharon Smith is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act,
Sharon must be registered in State X in order to accept the order. Regardless of whether the security is exempt or the transaction is exempt, one must be licensed in the state that is the domicile of a client placing an order.
FinCEN Form 112, the Currency Transaction Report, is filed with
The Department of Treasury
To calculate the amount to be received on redemption of open-end investment company shares, which of the following would be used?
The NAV, minus the redemption fee
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 what strategy?
The bullet strategy. The bullet strategy is used when aiming at a target. In this case, the target is having sufficient funds about 18 years from now. This strategy involves buying bonds at different intervals, but all with approximately the same maturity date.
Opening a margin account involves significant documentation. Which of those documents discloses the interest rate charged by the broker-dealer, including the method of interest computation and situations under which interest rates may change?
The credit agreement
Bottom-up analysis
attempts to profit by identifying individual companies that will outperform others in the industry
If a customer buys a 6% bond maturing in 8 years on a 7.33 basis, the price of the bond is
below par A bond with a basis, or yield to maturity, greater than its coupon is trading at a discount, or below par.
UTMA
can hold almost any asset, and transfer at age 21 or later
A day order is entered to buy 500 LMN at 24.35. By the close, the firm has 100 shares at 24.25 and 200 at 24.35. If the remainder is unfilled, what is the outcome? A) The customer may reject the incomplete order unless the remainder can be filled within 3 business days. B) The customer may demand that the firm deliver the remaining shares at 24.35. C) The customer may reject the incomplete order unless the broker-dealer can guarantee filling the remainder by the end of the day. D) The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close.
The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close. The representative cannot guarantee that the order will be filled by the end of the day.
Margin is borrowing money from a broker-dealer to buy a stock using the investment as collateral. In many cases, the brokerage firm then uses that collateral for a loan from a bank. Which of the following account documents authorizes the firm to pledge the customer's stock?
The hypothecation agreement
What does the term "guaranteed" mean when used to describe a security?
The security has a third party other than the issuer that guarantees the payment of principal and interest or dividends.
Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns? A) Random walk B) Semi-strong C) Weak D) Strong
Weak - The weak form holds that current stock prices reflect all historical market data and that historical price trends are, therefore, of no value in predicting future prices.
Of the following securities, which is most commonly recommended to fund a child's college education?
Zero-coupon Treasury bonds. They provide a certain, quantifiable sum at a certain date in the future.
A common measurement used to evaluate attitudes regarding future economic conditions is the difference in yields between U.S. Treasury bonds and corporate bonds. This is known as
a yield spread
Under the Uniform Securities Act, all of the following are exempt from registration EXCEPT A) airport authority bonds B) airplane equipment trust certificates C) securities issued by a 501(c)(3) nonprofit religious organization D) common stock only sold intrastate
common stock only sold intrastate
Credit risk is commonly referred to as
default risk
Which of the following is an example of a passive investment management style? A) Exclusive use of index funds B) Use of index funds in conjunction with selecting specific securities in the index to overweight certain sectors C) Value investing D) Investment in small capitalization technology securities
exclusive use of index funds
Stages of the business cycle
expansion, peak, contraction, trough
The acid-ratio test (Quick Ratio) excludes
inventory
Segment rotaion
involves altering portfolio compensation based on which sectors are poised to outperform as the business cycle is changing phases.
The most common exempt transactions
isolated non-issuer transactions, unsolicited orders, transactions with institutions, transactions between the issuer and underwriter, transactions by fiduciaries, and private placements (10 or fewer offers to nonin-stitutional clients within 12 months)
UGMA
limited to securities and cash, and transfer at majority
Trade deficit/negative balance of payments
more imports than exports; leads to a weaker dollar
If a client has 100 shares of XYZ publicly traded stock and it undergoes a split, afterward the client will have:
no effective change in the value of his ownership share stock split: number of shares increase but the value of each share decreases proportionately
A customer with no other mutual fund investments wishes to invest $47,000 in the XYZ Technology Fund. If the Class A shares are eligible for a breakpoint sales charge discount at the $50,000 investment level, the action least appropriate for an agent is to A) inform the customer that he can reduce his sales charge by investing an additional $3,000 B) inform the customer that he can reduce his sales charge through a letter of intent C) place the order as instructed D) inform the customer that he can reduce his sales charge by combining purchases in other funds offered by XYZ group
place the order as instructed
What items are considered a "sale"?
securities given as a bonus, gifts of assessable stock, and sales of rights or warrants
Net exports
stronger dollar
Health Savings Accounts (HSAs)
tax-deductible contributions for medical expenses, individual, employer, or both may contribute. Must have a HDHP
Fiscal Policy
taxing and budgeting; Congress and the President
When investing in a foreign bond fund, a customer will profit if
the US dollar weakens and foreign currencies strengthen
The following documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities." refers to
the loan consent agreement
Name the critical factors in a defined benefit plan.
the participant's age, annual earnings, years to retirement, but NOT gender.
The gross domestic product (GDP) for the United States is composed of
the sum of all consumer goods, capital goods, and services produced in the United States and net exports to other countries
Net imports
weaker dollar
The term "sale" includes which of the following? 1. A contract of sale 2. A contract to sell 3. The disposition for value of an interest in a security 4. A warrant (for common stock of the issuer) given with the purchase of a bond
1. A contract of sale 2. A contract to sell 3. The disposition for value of an interest in a security 4. A warrant (for common stock of the issuer) given with the purchase of a bond
Which of the following are required in order to be in compliance with the record keeping requirements of the Uniform Securities Act? 1. Broker-dealers must maintain customer ledgers for 3 years. 2. Investment advisers must keep partnership records for 3 years after the partnership is terminated. 3. Agents must keep customer records for 3 years. 4. Investment adviser representatives must maintain records for 5 years
1. Broker-dealers must maintain customer ledgers for 3 years. 2. Investment advisers must keep partnership records for 3 years after the partnership is terminated.
A member of the investment banking department of ABC Securities is explaining some of the advantages and disadvantages of rights and warrants to the board of directors of XYZ Corporation. Which of the following statements could he make? 1. The exercise prices of stock rights are usually below the current market price of the underlying security at time of issue. 2. The exercise prices of warrants are usually above the current market price of the underlying security at time of issue. 3. Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value. 4. Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer.
1. The exercise prices of stock rights are usually below the current market price of the underlying security at time of issue. 2. The exercise prices of warrants are usually above the current market price of the underlying security at time of issue. 3. Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value. 4. Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer.
Penalties for violations of the Uniform Securities Act include 1. fines of up to $5,000 and/or imprisonment for up to 3 years 2. fines of up to $5,000 and/or imprisonment for up to 5 years 3. imprisonment for 3 years and/or fines of up to $5,000, regardless of whether the violator had knowledge of the rule or order 4. fines of up to $5,000 or imprisonment, regardless of whether an indictment had been returned later than 5 years after the alleged violation
1. fines of up to $5,000 and/or imprisonment for up to 3 years
One type of alternative investment considered to be a pooled investment vehicle is the exchange-traded note. Exchange-traded notes (ETNs) are 1. unsecured debt securities 2. unsecured equity securities 3. issued by financial institutions, such as banks 4. insured by the FDIC
1. unsecured debt securities 3. issued by financial institutions, such as banks ETNs prices can be impacted by changes in the credit rating of the issuer, and they are not insured by the FDIC.
Which of the following statements regarding hedging with options is CORRECT? 1.A long stock position is hedged with a long put. 2.A long stock position is hedged with a short put. 3.A short stock position is hedged with a short call. 4.A short stock position is hedged with a long call.
1.A long stock position is hedged with a long put. 4.A short stock position is hedged with a long call.
An investment adviser representative is required to make disclosure to the client when 1. the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated 2. the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale 3. transactions recommended to a specific client are inconsistent with those for other clients with objectives that are identical to that particular client 4. transactions recommended to the client are inconsistent with those for the IAR's own account
2. the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale 4. transactions recommended to the client are inconsistent with those for the IAR's own account
Under the rules of the Securities Exchange Act of 1934, trading in a client's account would be considered excessive if 1. the agent receives a commission from trading 2. trading is conducted without considering the client's investment objectives 3. trading is inappropriate in view of a client's resources
2. trading is conducted without considering the client's investment objectives 3. trading is inappropriate in view of a client's resources Trading is considered excessive if the agent induces a client to trade securities in transactions that are excessive in size or frequency in view of the financial resources, investment objectives, and character of the client's account.
An Administrator may initiate a suspension or revocation proceeding against a broker-dealer registered in his state 1. up to 2 years after a broker-dealer voluntarily withdraws its registration 2. when an agent of the broker-dealer is convicted of a felony violation of the Securities Exchange Act of 1934 3. upon discovery that the broker-dealer's license had been suspended in another state 4. upon discovery of new facts unknown to the Administrator at the time of the broker-dealer's initial registration
3. upon discovery that the broker-dealer's license had been suspended in another state 4. upon discovery of new facts unknown to the Administrator at the time of the broker-dealer's initial registration
A complex trust has the following income for the year: $1,500 in taxable interest, $2,000 in dividends (reinvested in the stock), and $3,000 in tax-exempt interest. In addition, the portfolio realized $3,500 in capital gains that were reinvested in the corpus. What is the distributable net income (DNI) for the trust?
$6,500
Which of the following is not included in the calculation of a mutual fund's NAV per share? - accrued custodian bank fees -closing values of portfolio assets -accrued sales charge -accrued management fees
-accrued sales charge NAV = liabilities - assets
You receive a note from your firm congratulating you on passing the exam and indicating that it has received notice from the Administrator that your registration as an agent is effective. At this point, you could NOT A) state that you have passed the required licensing exams B) begin to prospect for new clients in the state C) indicate to prospects that you are approved by the state D) begin to accept orders from clients resident in the state
C) indicate to prospects that you are approved by the state
An individual has been employed by a broker-dealer to solicit new subscriptions for the firm's free monthly stock market report. The individual is paid a salary plus bonus based on his success rate with signing up subscribers. Under the USA, this person would A) have to be registered as an investment adviser representative B) only be allowed to contact existing clients of the broker-dealer C) not have to be registered as an agent of the broker-dealer D) have to be registered as an agent of the broker-dealer
C) not have to be registered as an agent of the broker-deale A free-market report is not a security.
A state-registered investment adviser maintains custody of client funds and securities. On Thursday, the chief financial officer of the firm informs the chief compliance officer that their net worth is $31,578. Under the provisions of the Uniform Securities Act, the firm would A) do nothing, as their net worth is far in excess of the minimum requirement of $10,000 B) send a detailed financial report to the Administrator by the close of business Friday C) send a detailed financial report to the Administrator by the close of business Monday D) need to increase the amount of their surety bond
C) send a detailed financial report to the Administrator by the close of business Monday. A state-registered investment adviser who maintains custody of client assets must maintain net worth of at least $35,000 or a bond of the same amount (not both). If the net worth should fall below the minimum, by the close of the next business day after discovery (Friday in our example), notice of the deficiency must be sent to the Administrator of the state in which the principal office of the adviser is located.
A sudden decrease in market interest rates will have the effect of increasing the trading price of an existing bond because A) the future value of the bond's present cash flows increases B) lower interest rates will result in a higher rating for the bond C) the present value of the bond's future cash flows increases D) a reduction in market interest rates generally signifies a stronger economy
C) the present value of the bond's future cash flows increases Bond valuations using discounted cash flow take into consideration the present value of the bond's future cash flows. because the coupon rate of the existing bond is fixed, the present value of those interest payments increases, creating a higher value for the bond.
Which of the following regarding the registration of investment advisers and their representatives is TRUE? A) XYZ Advisers, Inc., is a federal covered investment advisory firm registered with the SEC; therefore, its representatives need not be registered with the Administrator. B) ABC Advisers, Inc., is an investment advisory firm registered with the Administrator; therefore, its representatives need not be registered with the Administrator. C) An investment adviser representative, terminated his employment with ABC Advisers and, 6 months later, was employed as an advisory representative by KLM, a federal covered adviser. Each firm is required to notify the Administrator of each event. D) ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly.
D) ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly. *Only state-registered investment advisory firms are required to notify the appropriate state administrator when employment is terminated or begun.
Which of the following is not an annuity purchase option? A) Single premium immediate annuity B) Single premium deferred annuity C) Periodic payment immediate annuity D) Periodic payment deferred annuity
Periodic payment immediate annuity
A bond, preferred stock, or debenture exchangeable at the option of the holder (for common stock of the issuing corporation) is
a convertible security
As enumerated in the USA, exempt securities would include those issued by all of these EXCEPT A) a promissory note that evidences an obligation to pay cash within 9 months after the date of issuance, is issued in denominations of at least $50,000, and receives a rating in one of the 3 highest rating categories from a nationally recognized statistical rating organization B) a corporation based in Toronto, Ontario, whose common stock trades on the Toronto Stock Exchange C) a sovereign foreign government with which the United States maintains diplomatic relations D) any credit union organized and supervised under the laws of this state
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.
If an agent misrepresents the price of a customer's stock by $10 per share to encourage the client to sell, this activity is
a misrepresentation and a fraudulent act
A review of the prospectus of an open-end investment company reveals that its portfolio consists entirely of negotiable CDs, Treasury bills, and commercial paper. This is probably
a money market fund - holds CDs, Treasury Bills, and commercial paper
While an application for registration as an agent of a broker-dealer is still pending, that person would be permitted to
assist registered employees of the firm by doing research on securities they are following
The Uniform Securities Act lists a number of securities that are exempt from both the registration and the advertising filing requirement of the Act. Included in that list would be all of the following except A) universal life insurance policies issued by insurance companies authorized to do business in the state. B) common stock issued by the Bailey Brothers Building and Loan, organized under the laws of New York State and authorized to do business in this state. C) securities issued by the Podunk and Western Railroad, a regulated common carrier. D) securities issued by the XYZ Industrial Loan Association organized and supervised under the laws of this state.
universal life insurance policies issued by insurance companies authorized to do business in the state. They are not an exempt security because they are NOT a security.
