Series 65: Simulated Exam 2
Among the reasons to consider investing in a variable annuity would be all of the following except A. avoiding probate upon the death of the investor B. a guaranteed death benefit for death before annuitization C. basically, no limit on the amount that can be contributed D. capital gains treatment on any realized gains upon withdrawal
Capital gains treatment on any realized gains upon withdrawal
The Canadian government is looking to create their own digital coin that will allow them to regulate digital assets safely and securely. What is the name of this developing stablecoin? A. Bitcoin B. CanadaCoin C. Central Bank Digital Currency D. Ethereum
Central Bank Digital Currency
A 3x leveraged fund priced at $42 tracks an index that is up 2% one day and then down 3% on the next day. What should this fund be approximately priced at following these two volatile days? A. $40.50 B. $45.86 C. $43.18 D. $41.55
$40.50
An investor purchases a Treasury note and the confirmation shows a price of $102.21. Rounded to the nearest cent, the investor's cost, excluding commissions, is A. $1,022.10. B. $1,026.56. C. $1,022.21. D. $102.21.
$1,026.56
A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year or for the two previous years. How much must the company pay the customer per share before it may pay dividends to the common stockholders? A. $0 B. $16 C. $24 D. $8
$24
A management investment company owns portfolio securities with a current market value of $100 million. The company owes $10 million for securities purchased but not yet paid for and accrued management fees of $5 million. If there are 2,611,437 shares outstanding, the net asset value per share is closest to A. $34.46. B. $36.38. C. $32.55. D. $26.11.
$32.55
At his death, on January 1, 2017, Morris owned shares of ABC Corporation common stock, with a fair market value of $50 per share, which he had purchased in 2001 for $25 per share. If Morris's executor elected to value the estate by using the alternate valuation date, but then sold the shares through a broker-dealer on May 15, 2017, at $40 per share, what is the estate's basis per share for estate tax purposes? A. $50 B. $125 C. $40 D. $15
$40
An investor purchases shares of ABC stock at $50 per share. One year later, ABC is selling for $54 per share and, at the end of the 2nd year, the price is $52 per share. ABC has paid dividends of $2 per year. Upon liquidation, the investor would have earned a return of A. $8 per share B. $4 per share C. $2 per share D. $6 per share
$6/share
Use the following chart to answer this question: STOCK 50% 30% 10% 0% BONDS 50% 70% 90% 100% High return 39.4% 37.2% 34.3% 32.7% Low return 1.4% 6.5% 7.2% 8.5% Ave. return 15.8% 16.2% 15.5% 15.2% Std. Dev. 11.25 10.75 10.15 10.34 Which portfolio mix would you recommend to a client who is most concerned about projected near-term volatility? A. 30%/70% B. 10%/90% C. 100%/0% D. 50%/50%
10%/90%
An analyst is viewing a subject company's financial statements. She notices that the company has current assets of $20 million, fixed assets of $50 million, and total liabilities of $45 million (of which $10 million is considered long-term). This company's debt-to-equity ratio is A. 40% B. 22.2% C. 64.3% D. 28.6%
28.6%
Under the Investment Advisers Act of 1940, an adviser's registration usually becomes effective how many days after it is filed? A. 30 B. 45 C. 10 D. 20
45
Which of the following choices offers the highest tax-equivalent yield? A. 5.0% municipal bond to an individual in the 35% tax bracket B. 5.8% municipal bond to an individual in the 25% tax bracket C. 5.5% municipal bond to an individual in the 28% tax bracket D. 6.2% municipal bond to a corporation in the 21% tax bracket
6.2% municipal bond to a corporation in the 21% tax bracket
You are doing an investment plan for a new client, age 55, who plans to retire at age 70. The client is somewhat risk averse and wants to preserve capital while at the same time not falling prey to possible inflation. Which of the following portfolios would probably be most suitable? A. 90% large-cap stocks; 10% high-quality bonds B. 90% high-quality bonds; 10% large-cap stocks C. 60% high-quality bonds; 30% large-cap stocks; 10% cash equivalents D. 40% high-yield bonds; 60% large-cap stocks
60% high-quality bonds; 30% large-cap stocks; 10% cash equivalents
An investor purchases 100 shares of Kapco stock at $50 per share. At the time of the purchase, the stock is paying a quarterly dividend of $0.25. The dividend increases 5% each year over the next five years. The purchaser sells the 100 shares five years after purchase for $82 per share. What is the total return for the investor over the five-year holding period? A. 10% B. 74% C. 11% D. 75%
75%
Marv teaches literature at the local high school and makes about $60,000 per year. He could maximize his annual retirement savings by participating in A. a 403(b) plan. B. a SEP-IRA C. a 401(k) plan D. a Roth IRA.
A 403(b) plan
Under the Uniform Securities Act, broker-dealers are required to prepare and maintain certain records. Which of the following statements reflects the position of the act? A. A firm registered in more than one state must meet the recordkeeping requirements of the state where its principal office is located, even if those requirements are less comprehensive than those of some of the other states where it is registered. B. Once a broker-dealer's trade blotter has been posted, it may be discarded. C. A broker-dealer's website is considered advertising. D. A firm must maintain records of every email sent from the office by agents.
A broker-dealer's website is considered advertising
All of the following are eligible to open an IRA except A. a divorced individual whose sole source of income is $10,000 per month in child support B. a corporate officer not covered by his company's pension plan C. a corporate officer covered by his company's pension plan D. a self-employed person covered by a Keogh plan
A divorced individual whose sole source of income is $10k/mo in child support
A private equity fund would most likely be structured as A. an open-end investment company. B. an ETF. C. a limited partnership. D. a unit investment trust.
A limited partnership
A manufacturer of soybean oil is concerned that the price of soybeans will increase over the next six months. The best strategy to employ would probably be A. a neutral hedge. B. a long hedge. C. a short hedge. D. a trimmed hedge.
A long hedge
Under the Uniform Securities Act, all of the following are excluded from the definition of an investment adviser except A. banks. B. broker-dealers and their agents. C. a person providing advice on municipal bonds. D. a federal covered adviser.
A person providing advice on municipal bonds
Which of the following statements best describes a preemptive right? A. A privilege extended to existing holders of a company's common stock enabling them to sell their shares when additional shares are issued B. The right given to existing holders of a company's stock enabling them to receive dividends in proportion to their equity in the company C. The right given to existing holders of a company's stock enabling them to vote ahead of preferred stockholders D. A privilege extended to existing holders of a company's common stock enabling them to maintain their proportionate interest in the company when additional shares are issued
A privilege extended to existing holders of a company's common stock enabling them to maintain their proportionate interest in the company when additional shares are issued
If AAA Investment Advisers has entered into a written discretionary advisory contract with a client, all of the following information must be stated in the contract except A. AAA Investment Advisers charges 1% annually on the value of assets under management. B. consent of the client is required for AAA Investment Advisers to assign the contract to another manager or adviser. C. AAA Investment Advisers shall be compensated on the basis of a share in the capital gains exclusive of capital losses. D. AAA Investment Advisers has discretionary authority to make investment decisions on behalf of the client.
AAA Investment Advisers shall be compensated on the basis of a share in the capital gains exclusive of capital losses
An investor in an equity security A. is assured of a minimum rate of return. B. becomes a creditor of the company. C. has a say in the day-to-day operations of the business. D. acquires an ownership interest in the company.
Acquires an ownership interest in the company
If an investment adviser uses a client questionnaire to determine a client's financial situation, the adviser is A. acting correctly to determine if a conflict of interest exists. B. acting unethically, as this information may be used to determine how large an advisory fee to charge. C. acting unethically, as client information is confidential. D. acting ethically, as the information is necessary to determine the suitability of recommendations.
Acting ethically, as the information is necessary to determine the suitability of recommendations
A tax-advantaged medical savings account available to employees enrolled in a high-deductible health plan is A. an FSA. B. a Section 162 plan. C. an HSA. D. Medicare, Part C.
An HSA
Under the Uniform Securities Act, a person whose business model is selling reports on a subscription basis concerning specific securities to investors based on their individual objectives will be defined as A. a broker-dealer. B. an agent. C. a journalist. D. an investment adviser.
An investment adviser
The Uniform Securities Act considers certain transactions to be exempt from the requirements to register and to file advertising material. Included in that group are all of the following except A. any offer or sale to a pension or profit-sharing trust, as long as the plan has assets of no less than $750,000. B. any transaction executed by a bona fide pledgee without any purpose of evading the act. C. an isolated nonissuer transaction effected through a broker-dealer. D. any transaction by an executor, administrator, sheriff, marshal, or guardian.
Any offer or sale to a pension or profit-sharing trust, as long as the plan has assets of no less than $750k
Broker-dealers operating on the premises of a financial institution must disclose, orally and in writing, that the securities products purchased or sold in a transaction with the broker-dealer 1. are not insured by the Federal Deposit Insurance Corporation (FDIC). 2. are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution. 3. are insured by the Securities Investor Protection Corporation (SIPC). 4. are subject to investment risks, including possible loss of the principal invested.
Aren't insured by the Federal Deposit Insurance Corporation (FDIC), aren't deposits or other obligations of the financial institution and aren't guaranteed by the financial institution, and are subject to investment risks, including possible loss of the principal invested
If disposable personal income has fallen steadily over the past year, which of the following is most likely going to be affected? A. Automotive industry B. Tobacco industry C. Pharmaceutical industry D. Firms that produce nondurable consumer goods
Automotive industry
The Administrator may, by rule, A. forbid investment advisers registered in that state from taking custody of client funds. B. suspend the registration of a federal covered adviser because the contract did not meet the requirements for a state-sanctioned investment advisory contract. C. allow an agent to waive provisions of the USA. D. suspend federal law if the Administrator believes it to be in the public interest.
Forbid investment advisers registered in that state from taking custody of client funds
Shibboleth Research Associates (SRA) meets the definition of an investment adviser and wishes to register with the Securities and Exchange Commission. Assuming the firm meets the requirements, registration is accomplished by filing A. Form ADV Part 1A. B. Form ADV Part 1A and Part 1B. C. Form ADV-W. D. Form ADV Parts 1 and 2.
Form ADV Part 1A
For which of the following is there no active secondary market? A. ETFs B. Forward contracts C. Options D. Futures contracts
Forward contracts
Which of the following purchases is most suitable for an investor pursuing an aggressive investment strategy? A. GHI stock with a beta coefficient of 1.3 B. AMF stock with a beta coefficient of 1.0 C. LMN stock with a beta of -0.6 D. DOH stock with a beta coefficient of 0.7
GHI stock w/ a beta coefficient of 1.3
Which economic concept attempts to explain why investors behave irrationally? A. Efficient market hypothesis (EMH) B. Laffer curve C. Behavioral finance D. Modern portfolio theory (MPT)
Behavioral finance
Which of the following is a direct obligation of the U.S. government? A. Ginnie Maes B. Fannie Maes C. Bank for cooperatives bonds D. Government bond mutual funds
Ginnie Maes
A 69-year-old client of yours indicates that she is interested in changing the portfolio mix of her IRA. She wishes to sell most of the bonds in the account and replace them with 3x leveraged ETFs. You would probably infer from this that the client A. is preparing for her minimum required distributions. B. has insufficient retirement savings. C. is risk averse. D. has recently retired.
Has insufficient retirement savings
Present value is a computation that is frequently used to determine the amount of a deposit needed now to meet a future need, such as a college education. If an investor uses an expected return of 8% but the actual return over the period is 10%, the future value will be A. too varying to tell B. lower than anticipated C. the same as anticipated D. higher than anticipated
Higher than anticipated
A client with 25 years until retirement should invest primarily in A. bonds B. common stocks C. preferred stocks D. private placements
Common stocks
While searching for a suitable investment for your client, you narrow the choice to the following four companies: Company A with returns over the past 4 years of 12%, 14%, 10%, 12% Company B with returns over the past 4 years of 17%, 18%, −19%, 32% Company C with returns over the past 4 years of 22%, 18%, 12%, −4% Company D with returns over the past 4 years of 15%, 20%, −5%, 18% Based on their standard deviation, which of these choices has the highest volatility? A. Company D B. Company B C. Company C D. Company A
Company B
When it comes to issuing a debt security, which of the following features will generally enable the issuing corporation to borrow at the lowest interest rate? A. Zero-coupon B. Callable C. Cumulative D. Convertible
Convertible
An individual has filed an application for registration as an agent with a broker-dealer in this state. Which of the following would be ample cause for the Administrator to deny the registration? 1. Bankruptcy filing by the individual 5 years and 4 months ago 2. Conviction for a felony committed less than 10 years ago 3. Conviction for a misdemeanor involving the securities industry less than 8 years ago 4. The applicant is not a legal resident of this state
Conviction for a felony committed less than 10 yrs ago and conviction for a misdemeanor involving the securities industry less than 8 yrs ago
A free trade agreement is entered into between Country A and Country B. As time goes on, the value of Country A's currency increases while that of Country B's decreases. The effect of this will likely be that A. the free trade agreement will be abrogated. B. Country B's imports from Country A will increase. C. Country A's imports from Country B will increase. D. Country A's exports to Country B will increase.
Country A's imports from Country B will increase
One way in which internal rate of return (IRR) differs from most return computations is that A. it takes into consideration the time value of money B. its application to debt securities is limited C. it is always an annualized rate of return D. it takes into consideration the rate of inflation
It takes into consideration the TVM
What is the most typical organizational structure of a private equity investment? A. C corporation B. Limited partnership C. S corporation D. Sole proprietorship
Limited partnership
Under the Uniform Securities Act, all of the following are exempt from state registration as investment advisers except A. investment adviser representatives. B. publishers of financial publications that are not addressed to clients' specific individual investment situations. C. financial planners who provide fee-based investment advisory services to clients. D. investment advisers with no office in the state who only advise employee benefit plans with assets of more than $1 million.
Financial planners who provide fee-based investment advisory services to clients
Debts that will come due more than one year after the date on the balance sheet are known as A. fixed (or long-term) liabilities. B. accounts payable. C. deferred charges. D. current liabilities.
Fixed (or long-term) liabilities
An agent must obtain written verification of an investor's net worth for which of the following investments? A. Direct participation programs B. Variable contracts C. Unit investment trusts D. Real estate investment trusts
Direct participation programs
An investment constraint that is unique to private foundations is the requirement to A. have a board of directors. B. distribute 5% of its assets each year as qualifying distributions. C. have an investment policy statement. D. invest 5% of its assets each year in qualifying investments.
Distribute 5% of its assets each yr as qualifying distributions
Which of the following statements about diversification are true? 1. Diversification involves investing a portfolio in 1, or very few, classes of investments. 2. Diversification is a way to reduce unsystematic risk in a portfolio. 3. Diversification is a defensive investment strategy.
Diversification is a way to reduce unsystematic risk in a portfolio and is a defensive investment strategy
Each of the following are advantages offered by a nonqualified deferred compensation plan that are not found in a qualified plan except A. they are an attractive benefit for highly compensated employees because they're free from the contribution limits. B. deferred compensation plans are not subject to most of the requirements of the Employee Retirement Income and Security Act of 1974 (ERISA). C. employer contributions to the plan are not subject to current taxation to the employee. D. they are an attractive benefit to the employer because participation requirements and nondiscrimination restrictions do not apply.
Employer contributions to the plan aren't subject to current taxation to the employee
Which of the following does NOT constitute market manipulation under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents? A. Engaging in transactions that would cause an appearance of increased market activity when no beneficial change of ownership actually occurs. B. Excessive trading in a client's account for the sole benefit of increasing commission income. C. Entering numerous buy orders at the close of the trading day to prevent a stock from closing lower. D. Deliberately responding to a request for a quote with inaccurate information.
Entering numerous buy orders at the close of the trading day to prevent a stock from closing lower
Under the National Securities Markets Improvement Act of 1996 (NSMIA), states are prevented from doing which of these? 1. Registering securities 2. Establishing capital and custody requirements that exceed those provided for in the Securities Exchange Act of 1934 3. Establishing recordkeeping requirements for broker-dealers or investment advisers that exceed those required under federal securities law 4. Registering investment advisers
Establishing capital and custody requirements that exceed those provided for in the Securities Exchange Act of 1934 and establishing recordkeeping requirements for broker-dealers or investment advisers that exceed those required under federal securities law
Which of the following is a risk faced by investors in foreign stocks that is not found when investing in domestic issues? A. Exchange rate risk B. Market risk C. Business risk D. Credit risk
Exchange rate risk
The exchange privilege offered by open-end investment companies allows investors to A. purchase new fund shares from dividends. B. exchange shares of one open-end fund for another in the same fund family at a net asset value basis. C. delay the payment of taxes on shares. D. exchange personally owned securities for shares of the investment company.
Exchange shares of one open-end fund for another in the same fund family at a net asset value basis
Which of the following pieces of customer information must an agent attempt to obtain when opening a new account? 1. Emergency contact person 2. Financial condition 3. Investment objective 4. Education
Financial condition and investment objective
Which of the following investments is required by law to have at least 75% of its assets represented by real estate assets such as real property or loans secured by real property, cash, and U.S. government securities? A. Real estate investment trust B. Real estate sector fund C. Real estate money market fund D. Mutual fund with the name MNO Real Estate Investments Fund
Real estate investment trust
Arthur M. Munger is the sole owner of Munger's Meritorious Planning (MMP). MMP does full service financial planning, including investment securities. Arthur is registered as an agent with Fast Execution Brokers (FEB) and directs all client securities transactions to FEB. Arthur decided it is time to get registered as an investment adviser representative so that he can earn fees for giving advice. Arthur is a good friend of the manager of the local branch of National Investment Advisers, Inc. (NIAI), and decided to speak to his friend about becoming an IAR. Under the provisions of the Uniform Securities Act, Arthur would be told A. if he wishes to become an investment adviser representative, he should affiliate with the broker-dealer where he is already an agent. B. if he wishes to become an investment adviser representative, he must affiliate with a registered investment adviser and terminate his registration as an agent. C. he cannot be an agent for one firm and an IAR for another; both registrations must be with the same firm. D. if he wishes to become an investment adviser representative, he must affiliate with a registered investment adviser.
If he wishes to become an investment advisor representative, he must affiliate w/ a registered investment advisor
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 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. Lynn 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, Lynn's best course of action is to A. keep quiet because this is material nonpublic inside information. B. inform her immediate supervisor at WEB of her discovery. C. report her discovery to the Administrator of the state where MTEX's principal office is located. D. notify potential investors of the omission on a fair and equitable basis.
Inform her immediate supervisor at WEB of her discovery
An investor originally purchased a debt security at par value. Unfortunately, the value has fallen to $920, even though the company has reported record earnings. This decline in value would be representative of what type of risk? A. Interest rate risk B. Timing risk C. Credit risk D. Purchasing power risk
Interest rate risk
Which of the following is an example of dollar cost averaging? A. Buying 20 shares of the XYZ Fund each month on the 20th of the month B. Maintaining a constant ratio plan C. Rebalancing your portfolio each quarter on the 20th of the month D. Investing $100 into the XYZ Fund each month on the 20th of the month
Investing $100 into the XYZ Fund each month on the 20th of the month
Under the Uniform Securities Act, a broker-dealer is defined as any person who A. is registered with the SEC. B. buys securities. C. sells securities. D. is in the business of effecting securities transactions for its own account or for the accounts of others.
Is in the business of effecting securities transactions for its own account or for the accounts of others
Which of the following practices is fraudulent? A. Failing to state all the facts related to a security B. Marking up a security by 10% more than industry standards with the customer's knowledge and consent C. Selling a security to a customer with a commission that exceeds industry standards D. Marking up a security by 5%, but indicating to the client that the markup is only 2%
Marking up a security by 5%, but indicating to the client that the markup is only 2%
Mary Huggins is the ex-wife of Charlie Huggins. They were married for 12 years and then finalized a divorce. Charlie is now 70 and has begun taking his Social Security benefits. Mary remarried last year. It would be correct to state that A. Mary is entitled to full spousal benefits because they were married for at least 10 years. B. Mary is entitled to Charlie's Social Security benefits only when she reaches full retirement age. C. Mary is entitled to Charlie's Social Security benefits or those of her new husband, whichever is the greater. D. Mary is not entitled to any of Charlie's Social Security benefit.
Mary isn't entitled to any of Charlie's SS benefit
One of the prohibited practices under the Uniform Securities Act is market manipulation. Which of the following are examples of a broker-dealer engaging in that practice? 1. Arbitrage 2. Churning 3. Matched orders 4. Wash trades
Matched orders and wash trades
Meera is a client of Panache Preferred Investments (PPI), a broker-dealer registered in 17 states and with the SEC. Meera gave a standing order to PPI in writing that her annual tax information should be sent directly to her CPA. Several years after this arrangement came into effect, a change in tax laws makes it urgent that a certain security in Meera's account be sold. Meera is vacationing at a remote island location that has no telephone or internet access. Because of the urgency, the CPA contacted the agent handling the account and, after explaining the situation, gave an order to liquidate the relevant position. The agent handling the account A. will recognize that the CPA already has written authorization over the account and immediately process the order. B. must act in the best interest of the customer and that means following the CPA's instructions. C. must explain to the CPA that without written trading authorization, the sell order cannot be accepted. D. should contact the appropriate supervisor for advice on how to deal with this.
Must explain to the CPA that w/o written trading authorization, the sell order cannot be accepted
Components of a company's net worth would include all of these except A. goodwill. B. inventory. C. fixed assets. D. operating income.
Operating income
Amie Lear is a securities analyst employed by Empyreal Benefits, Inc., a registered broker-dealer. She is assigned to cover a number of different equity and debt investments. One of the investments is Taylor, Inc. (Taylor), a manufacturer of a wide range of children's toys. Based on her extensive analysis, she determines that her expected return on the stock, given Taylor's risks, is 10%. However, when applying the capital asset pricing model (CAPM), the result is a 12% rate of return. Based on Lear's analysis, Taylor's stock is A. correctly valued. B. neither overvalued nor undervalued. C. overvalued. D. undervalued.
Overvalued
All of the following information must be included on a customer's order ticket except A. payment for order flow if applicable. B. terms and conditions of the order (e.g., limit). C. time of receipt of the order. D. if a sell order, is it long or short.
Payment for order flow if applicable
Alice is a financial planner who is properly registered as an investment adviser and occasionally meets with clients with negative cash flow and substantial indebtedness. Alice refers such clients to Norman, a bankruptcy attorney. Likewise, when Norman encounters clients who need help managing their assets, he refers them to Alice. This activity is A. permissible if the referral arrangement is disclosed to clients. B. permissible without disclosure if it occurs on an incidental basis. C. permissible without restriction. D. prohibited.
Permissible if the referral arrangement is disclosed to clients
If an investment adviser's client wishes to save current income taxes by placing certain investments in a charitable trust, ethically, the investment adviser should A. refuse to discuss the trust with the client because the adviser is not an attorney. B. recommend the client consult with a qualified attorney. C. help the client draft the appropriate documents following a discussion of the advantages of the arrangement. D. urge the client to consult with an attorney who pays a referral fee to the investment adviser.
Recommend the client consult w/ a qualified attorney
An investor has bonds maturing in three weeks on the first day of the upcoming month. Since his purchase of the bonds five years ago, interest rates have fallen. To which one these risks are these bonds most likely to be subject? A. Interest rate risk B. Default risk C. Purchasing power risk D. Reinvestment risk
Reinvestment risk
A life insurance policy where the premium increases each time the policy is renewed while the face amount remains level is A. decreasing term B. renewable level term C. increasing term D. variable universal
Renewable level term
Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle? A. Strategic portfolio management B. Segment rotation C. Tactical portfolio management D. Cyclical rotation
Segment rotation
Which of the following would not be considered a defensive security? A. Steel company stock B. Tobacco stock C. Food chain stock D. Utility company stock
Steel company
A senior citizen had the following scenarios presented to him by his IAR. Which one had the lowest volatility? A. Stock high return: +12%; low return: −2%; Standard Deviation: 5.5% B. Stock high return: +5%; low return: −1%; Standard Deviation: 3.6% C. Stock high return: +18%; low return: −4%; Standard Deviation: 8% D. Stock high return: +9%; low return: −2%; Standard Deviation: 4.9%
Stock high return: +5%; low return: −1%; Standard Deviation: 3.6%
All of the following are exempt from state registration requirements except A. a closed-end investment company registered under the Investment Company Act of 1940 but not traded on a recognized stock exchange. B. a registered open-end investment company whose portfolio consists exclusively of Georgia municipal bonds. C. stock issued by a Canadian company that provides actuarial services to insurance companies. D. a Canadian government bond.
Stock issued by a Canadian company that provides actuarial services to insurance companies
A general risk component representing the variability of a stock's total return as it directly relates to overall movements in the general economy is known as A. political risk. B. systematic risk. C. business risk. D. financial risk.
Systematic risk
Examples of identity theft would include which of these? 1. Taking over an individual's credit card account 2. Applying for new credit cards in the compromised individual's name 3. Lending money in the name of the compromised individual 4. Purchasing lottery tickets in the name of another individual
Taking over an individual's credit card account and applying for new credit cards in the compromised individual's name
Which of the following is a component of U.S. fiscal policy? A. Reserve requirements B. Taxes and budgeting C. Discount rate D. Money supply
Taxes and budgeting
It is not uncommon for many federal covered advisers to be affiliated with a broker-dealer. Take the case where an IAR with a federal covered adviser is also an agent with a broker-dealer. When dealing with advisory clients, all of the following are true except A. the IAR must disclose that the advisory services he offers are separate from the broker-dealer. B. the IAR must disclose that he may earn commissions in addition to the fees charged for advice. C. the IAR must disclose that he is liable for any losses suffered in the account due to poor portfolio performance. D. the IAR must disclose that trades will be executed through his broker-dealer unless the client elects otherwise. Explanation
The IAR must disclose that he is liable for any losses suffered in the account due to poor portfolio performance
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 Federal Reserve Act of 1913 B. the Securities Exchange Act of 1934 C. the Securities Act of 1933 D. the Maloney Act of 1938
The Securities Exchange Act of 1934
A client approaches an agent about investing in a risky security and insists on doing so, even when told by the agent that the security is not suitable for that client. What should the agent do? A. The agent should suggest that the client engage the services of another broker-dealer. B. The agent should refuse the transaction because it is unsuitable for the client. C. The agent should explain the risks of investing, and if the client still insists, place the order and mark it unsolicited. D. The agent should contact a supervisor and accept the order only with the supervisor's approval.
The agent should explain the risks of investing, and if the client still insists, place the order and mark it unsolicited
When a bank's reserve account is running low, it might choose to borrow from the Fed. When doing so, the bank will be charged A. the prime rate. B. the federal funds rate. C. the discount rate. D. the call loan rate.
The discount rate
Under the Uniform Securities Act, an investment adviser who has custody of or discretionary authority over client assets or who charges fees of more than $500 six or more months in advance is required to disclose which of the following to its clients? 1. The financial condition of the adviser that could impair its ability to meet contractual commitments to clients 2. A legal or disciplinary event that would be material to evaluating the adviser's integrity or ability to meet its contractual commitments to clients 3. That the adviser was convicted of or pleaded no contest to a felony within the past 10 years or is currently subject to a criminal proceeding involving a felony 4. That the adviser was found to have violated SRO rules, which resulted in suspension, expulsion, or a fine of more than $2,500
The financial condition of the adviser that could impair its ability to meet contractual commitments to clients, a legal or disciplinary event that would be material to evaluating the adviser's integrity or ability to meet its contractual commitments to clients, that the adviser was convicted of or pleaded no contest to a felony within the past 10 years or is currently subject to a criminal proceeding involving a felony, and that the adviser was found to have violated SRO rules, which resulted in suspension, expulsion, or a fine of more than $2,500
The pundits are predicting slowly-rising inflation over the next 5 years. An IAR recommends that one of her clients splits his bond portfolio into equal percentages with maturities ranging from 1 to 5 years. As each bond matures, the proceeds are used to purchase bonds with a 5-year maturity. The IAR is using A. the barbell strategy. B. the laddering strategy. C. the bullet strategy. D. the interest discount model.
The laddering strategy
Using industry jargon, the tax on the last dollar of income is at A. the average rate. B. the marginal rate. C. the effective rate. D. the final rate.
The marginal rate
Among the differences between C corporations and S corporations is 1. the liability assumed by the shareholders 2. the number of allowable shareholders 3. the tax treatment of the corporation's earnings 4. residency requirements of shareholders
The number of allowable shareholders, the tax treatment of the corporation's earnings, and residency requirements of shareholders
Which of the following statements regarding modern portfolio theory is not correct? A. The optimal portfolio for an investor depends upon the investor's ability to assume risk. B. The optimal portfolio has the lowest risk for a given level of return. C. The optimal portfolio will always lie above the efficient frontier. D. The optimal portfolio offers the highest return for a given level of risk.
The optimal portfolio will always lie above the efficient frontier
Jean owns a $1 million life insurance policy on her mother, Clara. Jean is named as sole beneficiary, and so far she has paid $150,000 in premiums. If Clara dies, which of the following will occur? 1. The proceeds will be exempt from income tax. 2. Some of the proceeds ($850,000) will be subject to income tax. 3. The proceeds will be included in Clara's estate for estate tax purposes. 4. The proceeds will not be included in Clara's estate.
The proceeds will be exempt from income tax and the proceeds won't be included in Clara's estate
Which of the following would be of least interest to a chartist? A. The volume of shares traded during the past month B. The advance/decline line C. The short interest D. The relationship between the current market price of an issuer's common stock and most recently reported earnings per share
The relationship btwn the current market price of an issuer's common stock and most recently reported earnings per share
If Brokers, Inc., a broker-dealer registered in this state, refuses to comply with the Administrator's order to retain records for two years longer than required by the Securities Exchange Act of 1934, which of the following statements are true? 1. The securities Administrator cannot require registrants to retain books and records longer than required by the SEC. 2. Brokers, Inc., is not in violation of the Securities Exchange Act of 1934. 3. Both the securities Administrator and Brokers, Inc., are in violation of both the Securities Exchange Act of 1934 and the Uniform Securities Act. 4. Brokers, Inc., must comply with orders issued by state securities regulators, whether or not the orders are in compliance with the NSMIA.
The securities Administrator cannot require registrants to retain books and records longer than required by the SEC and Brokers, Inc., is not in violation of the Securities Exchange Act of 1934
Which of the following statements regarding a 100% stock dividend are true? 1. The share price is reduced by half. 2. The total market value of the outstanding stock decreases. 3. The total market value of the outstanding stock may increase or decrease as a result of the split. 4. The number of shares doubles.
The share price is reduced by half and the number of shares doubles
The common stock of companies within which industry sector would be most adversely affected by an increase in the general level of interest rates? A. The clothing industry B. The electronics industry C. The utilities industry D. The food industry
The utilities industry
Assuming all of the following mature at about the same time, which of the following bonds should experience the greatest price decline if interest rates rise by 1%? A. Treasury bond issued at par carrying a 7% coupon B. Treasury bond issued at par carrying a 5% coupon C. Treasury bond issued at par and carrying a 4% coupon D. Treasury bond issued at par carrying a 6% coupon
Treasury bond issued at par and carrying a 4% coupon
Which of the following does not provide for a change of beneficiary? A. Section 529 plan B. Coverdell ESA C. UTMA account D. Roth IRA
UTMA account
Jon, an agent with Johnson-Bayer Securities, was reacting to peer pressure to use email as a prospecting tool. He decided to highlight the exciting new process for drug delivery that was covered in the new offering prospectus when explaining why he felt the issuer found the next "aspirin." He summed up the email by stating potential investors needed to act quickly to get in on the ground floor. His decision to do so fell into the category of which of the following? A. Unethical business practice B. Phishing C. Fraud D. Advertising
Unethical business practice
Which items would change if a company declared a cash dividend? 1. Working capital 2. Total assets 3. Total liabilities 4. Shareholders' equity
Working capital, total liabilities, and shareholders' equity
Which types of accounts are billed a single fee that includes a group of services, such as execution of transactions and advice? A. Discretionary accounts B. Option accounts C. Wrap fee accounts D. Margin accounts
Wrap fee accounts
An agent may determine which securities to purchase or sell for a client when A. written or oral discretion authority has been received by the broker-dealer within 10 days of the initial discretionary transaction. B. written discretion authority has been received by the broker-dealer before executing the first discretionary transaction. C. written discretion authority has been received by the broker-dealer within 10 days of the initial discretionary transaction. D. written or oral discretion authority has been received by the broker-dealer before executing the first discretionary transaction.
Written discretionary authority has been received by the broker-dealer before executing the first discretionary transaction
Your client is 75 years old and has $100,000 to invest. He enjoys a relatively high income and is not concerned with immediate liquidity, although he is risk averse. The most suitable asset allocation strategies listed below would be A. a 50% municipal bond fund, 40% government bond fund, 10% money market fund B. a 50% municipal bond fund, 50% large-cap common stock fund C. a 50% municipal bond fund, 40% government bond fund, 10% large-cap common stock fund D. a 50% municipal bond fund, 40% money market fund, 10% large-cap common stock fund
a 50% municipal bond fund, 40% government bond fund, 10% large-cap common stock fund
