Series 66 12/29 PT
An investor would be unlikely to use internal rate of return to analyze the potential return for which of the following investments? A) Municipal bonds B) Common stock C) Direct participation programs (DPPs) D) Treasury notes
B) Common stock The internal rate of return (IRR) is the discount rate that makes the future value of an investment equal to its present value. Because this computation involves the time value of money, in order to reasonably compute present value, there must be either a maturity date or some other kind of ending date, such as that which is usually projected in a DPP. Common stock has nothing comparable to that.
Due to health reasons, Danny has decided to withdraw his registration as an agent. The withdrawal will take effect A) when authorized by his employing broker-dealer. B) on the 30th day after filing Form U5 unless the Administrator determines an earlier date. C) immediately. D) on the 30th day after filing Form U5.
B) on the 30th day after filing Form U5 unless the Administrator determines an earlier date. Although the normal time for withdrawal of a registration is the 30th day after filing Form U5, the Administrator has the jurisdiction to shorten that period if circumstances warrant it.
A) I, II, and III B) I, III, and IV C) II and IV D) I and III
D) I and III ADRs are vehicles that facilitate U.S. trading of foreign securities. They are issued in English in the United States by domestic banks. Dividends are declared in the foreign currency but are payable to holders in U.S. dollars, which means that ADR holders are subject to foreign currency risk.
Under the UTMA, which of the following statements is not true? A) Once a gift is given to a minor, it cannot be reclaimed. B) An UTMA account may have only one custodian for only one minor. C) Only an adult can make a gift to a minor. D) The maximum amount of money an adult can give to a minor in any one year is $17,000
D) The maximum amount of money an adult can give to a minor in any one year is $17,000 Any adult can give a gift to a minor in a custodial account. There is no limitation on the size of the gift. However, any gift in excess of $17,000 (or such higher number as indexing provides for) will possibly subject the donor to a gift tax liability.
The Uniform Securities Act specifically exempts certain issues from the registration and advertising filing requirements of the act. Which of the following securities does not carry that exemption? A) Bank holding company stock B) Six-month commercial paper C) Canadian government bond D) Tax-free municipal bond
A) Bank holding company stock The securities of banks, trust companies, and savings institutions are exempt; the securities of bank holding companies are not. Commercial paper with a maturity of 270 days or less is also included in the list of exempted securities.
Which of the following would be most suitable for a young couple investing the assets of their IRAs? A) Call options on large-cap stocks B) Growth mutual funds C) Penny stocks D) Oil and gas exploration programs
B) Growth mutual funds IRA accounts are designed to provide for future retirement needs. An IRA is a personal pension plan for anyone who receives earned income. While the rules are fairly liberal regarding suitable investments for IRAs, penny stocks, options, or oil and gas programs would not likely be suitable because of the high risks inherent in these securities. However, growth mutual funds are suitable.
A federal covered investment adviser is a person A) registered with the North American Securities Administrators Association (NASAA). B) registered, or excluded from the definition, under the Investment Advisers Act of 1940. C) registered under the Uniform Securities Act. D) exempt from regulation under the Securities Exchange Act of 1934.
B) registered, or excluded from the definition, under the Investment Advisers Act of 1940. A federal covered investment adviser refers to a natural person or firm registered under the Investment Advisers Act of 1940 or excluded from the definition of investment adviser under that act. A person registered under the Investment Advisers Act of 1940 is exempt from state registration or licensing requirements of state securities Administrators under the Uniform Securities Act. Federal covered investment advisers are not exempt from the antifraud provisions of the USA. Investment advisers, whether state or federal registered, do not register with NASAA.
A) I only B) II and III C) I, III, and IV D) I, II, and IV
C) I, III, and IV The Administrator may impound the proceeds of an offering in an escrow account until the issuer receives a specified amount. The Administrator may also suspend a security's registration if excessive fees or commissions are charged as part of the offering. State Administrators have the authority to cooperate with each other in enforcing the provisions of the USA by ensuring that the subpoenas from other states are enforced. Injunctions are judicial orders that can only be issued by a court of law, not by an administrative agency such as a state securities Administrator.
Which investment style does not take into consideration whether a specific security is under or overvalued? A) Growth B) Active C) Indexing D) Contrarian
C) Indexing The style known as indexing merely attempts to mimic the underlying index. Therefore, security selection is not based upon any fundamental (or technical) parameters, but only changes made to that index.
One of the questions investors should ask when evaluating a mutual fund is about the tenure of the fund manager. This refers to A) the inability to discharge the manager. B) the fund's performance for the past 1, 5, and 10 years. C) the length of time the manager has managed the fund. D) the length of time the manager has been registered.
C) the length of time the manager has managed the fund. A fund manager's tenure refers to the length of time that person has managed the fund's portfolio. Unlike the academic term, which generally means that the individual may not be terminated without just cause, management contracts for an investment company must be renewed each year (after the initial 2-year contract), so it is relatively easy to remove the manager.
C) would be able to bring a claim against PPL for soliciting without being properly registered in the state. D) would be able to bring a claim against PPL if it was discovered that the antifraud provisions of the Uniform Securities Act had been violated.
C) would be able to bring a claim against PPL for soliciting without being properly registered in the state. In general, Administrators have no jurisdiction over the activities of federal covered investment advisers. The situation is different, however, when a covered adviser pursues an activity in the Administrator's state that violates the antifraud provisions of the Uniform Securities Act. In that case, the Administrator can take action against the covered adviser. The showing of past performance is permitted as long as the required conditions are met; nothing in the answer choice indicates that the communication is not in compliance.
Which of the following statements regarding ADRs are true? i. The securities are vehicles used to facilitate U.S. trading of foreign securities. ii. Dividends are received in the foreign currency. iii. Holders have foreign currency risk. iv. The receipts are issued by a foreign branch of a domestic bank.
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A client is risk averse and is planning on retiring in 16 years. As the client's investment adviser, which of the following would you recommend? A) 50% in an S&P 500 index fund; 50% in a portfolio of high-quality bonds B) A high-yield bond fund C) A government bond fund D) A diversified open-end investment company concentrating in small-cap stocks
A) 50% in an S&P 500 index fund; 50% in a portfolio of high-quality bonds Even though the government bond fund carries less market risk, with a 16-year retirement goal, some inflation protection is necessary. The index fund carries some market risk, but does offer purchasing power protection. The 50/50 mix would seem to be most appropriate.
If a person not registered in a state knowingly makes a misleading filing with the Administrator, that person may be A) fined $10,000. B) fined $5,000. C) imprisoned for five years. D) excused from liability because the person is not registered.
B) fined $5,000. Willful violation is punishable by a fine of up to $5,000, imprisonment of up to three years, or both. A state Administrator has jurisdiction over any transaction conducted in that state and over all applications filed in the state.
A 35-year-old client purchased a variable life insurance policy. Under current regulations, the maximum sales charge permitted over the life of the policy is A) 9% per premium payment. B) 8.5% of total premiums over the life of the plan. C) 8.5% per premium payment. D) 9% of premium per year, computed over a 20-year period.
D) 9% of premium per year, computed over a 20-year period. A variable life insurance plan may include a maximum sales charge of 9% over a period not to exceed 20 years. It may be loaded as much as 50% of the first year's premium but must average no more than 9% over the first 20 years.
An Administrator has specific authority under the USA to do which of these? i. Suspend the registration of a security if the suspension is in the public interest and the offering has excessive underwriting fees. ii. Issue emergency injunctions to prevent a violation of the act. iii. Enforce subpoenas in the state at the request of an Administrator of another state for alleged violations that occurred in another state. iv. Require that the proceeds from an offering be held in escrow until the issuer receives a certain percentage of the sale of the securities offered.
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Profit Partners, LLC (PPL), a federal covered investment adviser, sends correspondence regarding its past performance to prospective retail clients in State A. PPL does not maintain a place of business and is not registered in State A. Because PPL is soliciting for new business there, the Administrator of State A A) would have no jurisdiction over PPL because the firm is a federal covered investment adviser. B) would be able to bring a claim against PPL for showing past performance in a communication with prospective clients.
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To determine the amount of change in the GDP from one year to another, both years' GDP should be converted into A) constant dollars. B) the current dollar price of gold bullion. C) the exchange value of the dollar, as compared with major foreign currencies. D) international depositary receipts.
A) constant dollars. To compare GDP from one year to another, and thus to compare the amount of actual economic activity, economists use constant dollars to eliminate distortions caused by inflation.
Under the Uniform Securities Act, which of the following would not be considered an exempt transaction? A) The sale of ABCD common stock, listed on the Nasdaq Stock Market, to a trust company B) The purchase of an unregistered nonexempt security by an individual client at that client's request C) An agent selling U.S. Treasury notes to an individual client D) An executor liquidating the estate's portfolio
C) An agent selling U.S. Treasury notes to an individual client Even though the bonds are an exempt security, the sale to an individual client is not an exempt transaction. Sales to institutions, sales by fiduciaries, or unsolicited transactions are all exempt.
One of your clients has told you that his employer has just instituted a Roth 401(k) plan. If the employer wishes to make matching contributions, A) it may contribute a specified percentage of the employee's pay to the Roth 401(k) B) the employee may choose whether he wants the matching contribution to be made to the Roth 401(k) or a regular 401(k) C) it may contribute a specified percentage of the employee's pay to a regular 401(k) D) current tax law does not permit matching contributions to be made on behalf of any employee participating in a Roth 401(k) plan
C) it may contribute a specified percentage of the employee's pay to a regular 401(k) In order to have matching contributions, participants in a Roth 401(k) plan must actually have 2 accounts—the Roth and a regular 401(k). The employer contributions are made on a tax-deductible basis to the regular 401(k) and are fully taxable upon withdrawal.
Which of the following transactions on the NYSE in ABC common stock would meet the minimum size requirement to be considered a block trade? A) 200,000 shares B) 100,000 shares C) $100,000 total market value D) 10,000 shares
D) 10,000 shares A block trade is defined as at least 10,000 shares of stock or a trade with a total market value of at least $200,000.
One would look at the average maturities when doing a cash flow analysis for A) revenue bonds B) Brady bonds C) subordinated debentures D) mortgage-backed pass-through securities
D) mortgage-backed pass-through securities Mortgage-backed pass-through securities pass through interest and principal payments to their investors. The rate at which the cash flows are generated depends, among other things, on the rate at which the mortgages mature as well as prepayments. Therefore, unlike most fixed income securities that have generally even cash flows, mortgage-backed securities use the average maturities to analyze cash flow.
A hedge fund manager is compensated using the 2 & 20 rate. If the management contract calls for a hurdle rate of 5%, it means that if the fund's return is 20%, A) the manager receives the 2% base rate but no incentive because the return did not exceed the 20% level. B) the manager's incentive fee applies to the full return because it exceeds the hurdle rate. C) the manager receives 2% of the 5% hurdle rate and 20% of the 15% in excess of the hurdle. D) the manager's incentive fee applies to the excess return of 15%.
D) the manager's incentive fee applies to the excess return of 15%. The hurdle rate in a hedge fund is the minimum performance required before the incentive rate (the 20%) kicks in. That incentive rate applies only to the performance in excess of the hurdle; in this case, 20% exceeds 5% by 15%.
Corporations have found that one way to increase employee motivation is to grant options to purchase stock in the company. Incentive (qualified) options differ from nonqualified options in all of the following respects except A) there is a maximum 10-year limit for exercising an ISO; no such time limit exists for an NSO. B) ISOs may only be granted to employees, while NSOs may be given to virtually anyone. C) the holder of an ISO can recognize capital gain (loss) as a result of exercise, whereas ordinary income (loss) is the result with an NSO. D) the recipient of the grant of the ISO has no income tax consequences at the time of the grant.
D) the recipient of the grant of the ISO has no income tax consequences at the time of the grant. Whether the grant is of an ISO (qualified) or an NSO (nonqualified), there are no tax consequences to the recipient at the time of the grant. It is only after exercise (NSO) and sale after exercise (ISO) that the recipient of the grant has tax consequences. Each of the other choices represents a difference. ISOs can only be granted to employees, while the NSO can also be granted to members of the board of directors and even to vendors.
(con't) A) the investment company has a net worth at least in excess of $2.2 million or will place at least $1.1 million in assets under management with the IA. B) the individual in charge of the investment company is a qualified investor. C) the contract is signed by one of the investors who is an accredited investor. D) a majority of the shareholders in the investment company are qualified investors.
1. a natural person or a company who, immediately after entering into the contract, has at least $1.1 million under the management of the investment adviser; or 2. a person who the investment adviser and its investment adviser representatives reasonably believe, immediately before entering into the contract, is a natural person or a company whose net worth, at the time the contract is entered into, exceeds $2.2 million. Do not be confused by thinking this is an institutional client (a registered investment company)—they need at least 100 investors and registration with the SEC.
An investment adviser representative is evaluating DEF stock to see if it is a good fit for a client's portfolio. Using the security market line (SML), what is the expected return for DEF when the return on the market is 8%, the 91-day Treasury bill is yielding 6%, DEF's beta is 1.50, and the inflation rate, as measured by the CPI, is 4%? A) 9% B) 12% C) 8% D) 5%
A) 9% The formula for this computation is as follows: 8% (the return on the market is a beta of 1.0) minus the risk-free rate of 6%, or 2%. Then, multiply that by the beta of this stock (1.5) to arrive at 3%. That is, the stock should return 3% over the risk-free rate of 6%, or 9%. Inflation rate is only important if we are looking for the real (inflation-adjusted) return, not the expected return.
On April 15, ABC Advisers, Inc., made application for registration as an investment adviser with State X. Absent a denial or stop order, registration will become effective A) May 15. B) April 30. C) May 1. D) April 15.
A) May 15. If no denials or stop orders are in effect and no proceedings are pending to do so, registration automatically takes effect at noon on the 30th day after the application was filed.
An investor diversifying a corporate bond portfolio does not consider A) domicile of the investor B) issuer C) maturity D) quality
A) domicile of the investor Domicile, or geographic location of the investor, is not relevant in diversifying a corporate bond portfolio. For example, it is irrelevant if the client is located in Michigan or New Jersey or any other state; that will have no impact on the risks facing the issue. This could be a factor for municipal bond investors due to the possibility of avoiding state income tax. A corporate bond portfolio can be diversified by issuer, quality (rating), domicile of the issuer, and maturity.
If a corporation issues mortgage bonds, all of the following would be affected except A) shareholders' equity. B) total assets. C) working capital. D) total liabilities.
A) shareholders' equity. When issued, the corporation receives the net proceeds in cash, increasing current assets (and thus total assets). Simultaneously, the corporation's long-term liabilities increase, reflecting the debt (and thus total liabilities). Working capital increases because of the increase in current assets. Shareholders' equity, or net worth, is only affected by the sale of new equity securities or by any profit or loss generated by the corporation.
A) the investment company has a net worth at least in excess of $2.2 million or will place at least $1.1 million in assets under management with the IA. B) the individual in charge of the investment company is a qualified investor. C) the contract is signed by one of the investors who is an accredited investor. D) a majority of the shareholders in the investment company are qualified investors.
A) the investment company has a net worth at least in excess of $2.2 million or will place at least $1.1 million in assets under management with the IA. An investment adviser may enter into, extend, or renew an investment advisory contract that provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds, or any portion of the funds, of the client if the client entering into the contract is
Alexander is registered as an agent with WorthMore Securities, a broker-dealer registered with the SEC and 10 states. He is also an investment adviser representative (IAR) with their wholly owned subsidiary, WorthMore Investments, a federal covered investment adviser. Many of Alexander's advisory clients also maintain brokerage accounts at WorthMore Securities. If one of those clients were to call Alexander and enter an order to purchase shares of a stock the broker-dealer is selling out of inventory, A) the order would have to be refused because of the potential conflict of interest. B) consent of the client would not be necessary as long as the only capacity in which Alexander is acting is that of an agent. C) consent of the client would be necessary anytime an advisory client is sold securities out of the broker-dealer's inventory. D) the commission charged on the trade would have to be fair and reasonable.
B) consent of the client would not be necessary as long as the only capacity in which Alexander is acting is that of an agent. Only when acting in an advisory capacity is there a requirement to obtain client consent when selling out of inventory. In this case, unless there was a statement to the effect that the security had been recommended by Alexander, this is just a brokerage transaction and consent is not necessary (although the principal capacity would have to be stated on the trade confirmation). Because this is a principal transaction, there is no commission, only a markup.
A client is meeting with you to discuss the best way to invest today to meet the goal of funding their child's college expenses. The least important information needed to determine the amount to deposit is A) current college costs B) expected inflation rate C) parent's salary D) age of the child
C) parent's salary This is the type of present value question you are apt to have on the exam. The client is basically asking, "How much do I have to deposit now to have enough for college in x years?" The number of years depends on the age of the child. The future cost depends on today's cost plus expected inflation. Those numbers are entered into the present value calculation and result in the amount that must be deposited today to reach the future goal. When looking for a lump sum, salary is not relevant.
Prohibited business practices under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents would not include A) borrowing money for graduate school tuition from a client who happens to be the agent's father. B) sharing in the profits and losses in a client's account without making a financial contribution to the account. C) making specific investment recommendations to the group attending a free lunch seminar. D) sharing commissions with an agent of a nonaffiliated broker-dealer.
B) sharing in the profits and losses in a client's account without making a financial contribution to the account. Unlike the FINRA rule, agents may share in the profits and losses in a client's account without making a financial contribution; all that is required is consent of the client and the employing broker-dealer. The so-called free lunch seminars are typically promoted as educational, and in any case, how can the agent make specific recommendations to a group without having suitable information on each attendee? Borrowing money from a client, regardless of the purpose, is not permitted unless the lender is in the business of lending money. Sharing commissions with an agent licensed with the same or affiliated broker-dealer is permitted, but one with which there is no affiliation is not permitted.
You have a client who originally invested $25,000 into the ABC Growth Fund. Over the past five years, there have been no distributions and the value of the shares is now $35,000. If the client should ask about exchanging the entire holding for shares of the ABC Income Fund, you would explain that A) the new shares will have the same cost basis as the old ones. B) there is a long-term capital gain of $10,000. C) taking advantage of the exchange privilege results in taxes being deferred until the liquidation of the account. D) the new shares would be acquired at the public offering price.
B) there is a long-term capital gain of $10,000. The exchange privilege permits shares of one fund in the family (the ABC Fund Group) to be exchanged for shares of another at net asset value, not the public offering price. However, for tax purposes, it is considered a sale and a purchase, so there would be a capital gain realized on any difference between the cost basis and the proceeds. In this case, the new shares would have a new cost basis of $35,000.
George and Martha Washington are both in their mid-70s, are very active in their community, and both plan to start working part time at the local community bank. They would like to contribute a small portion of their earnings to some form of retirement plan. Which of the following choices would be the most appropriate for this couple? A) A Keogh Plan B) The bank's 401(k) plan C) A Roth IRA D) A traditional IRA
C) A Roth IRA One of the distinguishing characteristics of the Roth IRA is that there are no required minimum distributions (RMDs) once the taxpayer attains age 73. At their age, opening a traditional IRA would mean they would be investing into the plan, but withdrawing at the same time. That does not help them accumulate funds for the future. Because they will be employed by the bank, they are not eligible for a Keogh plan. If the bank offers a 401(k) plan, it is unlikely they would be eligible. Although part-time employees who work at least 500 hours per year may be covered, coverage does not start until they've worked for at least three years.
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) Entering numerous buy orders at the close of the trading day to prevent a stock from closing lower. B) Engaging in transactions that would cause an appearance of increased market activity when no beneficial change of ownership actually occurs. C) Excessive trading in a client's account for the sole benefit of increasing commission income. D) Deliberately responding to a request for a quote with inaccurate information.
C) Excessive trading in a client's account for the sole benefit of increasing commission income. Excessive trading for the purpose of increasing commissions is the prohibited practice known as churning, but it is not a form of market manipulation. Intentionally providing inaccurate quotes, creating fictitious volume, and entering orders to prevent a stock from moving up or down are forms of market manipulation.
An individual has served with the local police force for 15 years. The plan is to remain on the force for another five years to be able to earn a nice pension benefit. Instead of simply retiring, the individual wishes to pursue a B.A. in accounting and then work in corporate tax. The individual approaches you for suggestions on the best way to save for the upcoming college expenses. You would probably suggest opening A) an options account. B) a Coverdell ESA. C) a Section 529 plan. D) an UTMA account.
C) a Section 529 plan. Because the Section 529 plan has no age limit, it would be the most appropriate recommendation. Contributions to an ESA end at the 18th birthday of the beneficiary, and UTMA accounts end at the age of majority or an older age specified by the state (generally not older than 21). Nothing in the question indicates that the individual is a suitable candidate for options, and that is not the type of strategy one would employ for targeted savings, such as educational expenses.
The term federal covered investment adviser would apply to a person who A) limits the advice offered strictly to securities listed on the New York Stock Exchange (NYSE). B) limits the advice offered strictly to securities issued or guaranteed by the U.S. government or one of its political subdivisions. C) is registered as such under the Investment Advisers Act of 1940. D) is registered as such under the Investment Company Act of 1940.
C) is registered as such under the Investment Advisers Act of 1940. Only federal covered investment advisers register under the Investment Advisers Act of 1940. Even if the person only gives advice on exchange-listed securities (which are federal covered securities), that does not make the person federal covered. After all, if the AUM is under $100 million, registration is only possible with the state(s), unless meeting an exception. Although the term federal covered adviser does apply to those who limit their advice to securities issued or guaranteed by the U.S. government, it would not apply if advice is given on political subdivisions (states, cities, etc.).
In an effort to further protect the interests of clients, the Investment Advisers Act of 1940, as amended, contains recommendations for implementing a code of ethics. This code A) is not required unless the firm has been found to have committed violations of federal securities law. B) is not subject to minimum standards set forth by the SEC. C) must reflect the nature and scope of the business done by the firm. D) is only required by firms performing comprehensive financial planning.
C) must reflect the nature and scope of the business done by the firm. In adopting the code, the SEC did not specify a particular standard that firms would be required to adopt. However, the commission did indicate a minimum standard. The SEC directed each firm to adopt standards that reflect the nature and scope of the business done by that firm and applicable state and federal fiduciary laws. In the words of the commission, "A good code of ethics should effectively convey to employees the value the advisory firm places on ethical conduct." Codes of ethics are required for all registered investment advisers.
Which of the following statements regarding an investment adviser's use of a full-service broker for an account over which the adviser has investment discretion is true? A) A full-service broker may not be used for any transaction that could be done by a discount broker. B) A full-service broker may be used only if the broker is not affiliated with the adviser. C) Sales incentives, such as free vacations, may be taken into consideration by the adviser in determining whether to use a full-service broker. D) A full-service broker may be used if the charges are reasonable in relation to the advice, analyses, or other services provided.
D) A full-service broker may be used if the charges are reasonable in relation to the advice, analyses, or other services provided. Use of a full-service broker to effect transactions for an account over which an adviser has investment discretion is not a breach of fiduciary duty, provided the full-service broker's charges are reasonable in view of the services provided. Services include advice, analyses, research, and custodial services, but not sales incentives offered to the adviser; investment advisers are required to disclose this fact on Form ADV, Part 2A.
Which of the following would be included in the USA's definition of an agent? A) An individual employed by an issuer. B) A broker-dealer selling nonexempt securities to its customers. C) A sales assistant of an agent who is responsible for mailing trade confirmations to the agent's clients. D) A research analyst for a broker-dealer who maintains a limited retail customer base.
D) A research analyst for a broker-dealer who maintains a limited retail customer base. Broker-dealers and sales assistants whose duties are clerical in nature are not included in the definition of an agent. An employee of an issuer would only be defined as an agent if the job function was selling the issuer's securities and neither they nor the transaction were exempt. A research analyst who maintains even a small clientele is an agent, as defined by the USA, and must register as such.
Paradime Investment Group (PIG), an SEC-registered broker-dealer with offices in 22 states, has recently begun offering a wrap fee program. When promoting this new program to existing brokerage clients, it would be appropriate to point out that the wrap fee charges cover which of the following services? A) Free ATM usage for PIG's debit card and wiring funds to the client's bank B) Financial planning and securities recommendations C) Research reports and seminar fees D) Investment advice and execution of brokerage transactions
D) Investment advice and execution of brokerage transactions Although firms can bundle a number of items into their wrap fee accounts, the two primary services that are always present are advisory services and execution of trades. Research reports and seminar fees are items that are usually provided by broker-dealers to investment advisers as soft-dollar compensation.
Federal covered securities, as defined under the Uniform Securities Act, A) must be registered in the state before they can be offered within the state B) would not include securities senior to a common stock listed on the NYSE C) must be registered with the SEC before they can be offered in the state D) include shares of an investment company registered with the SEC under the Investment Company Act of 1940
D) include shares of an investment company registered with the SEC under the Investment Company Act of 1940 It is true that many federal covered securities are registered with the SEC. However, the term also includes those exempt from registration, such as government and municipal bonds. Although these investment company securities are exempt from registration in any state, the state may still require a notice filing, including a consent to service of process and payment of fees, for these offerings to be sold in the state. If the common stock is a covered security, as one listed on the NYSE would be, then any security with a senior claim, such as preferred stock or bonds, would also be considered federal covered.
A bond's yield to maturity reflects its A) taxable equivalent return B) nominal return C) return based on annual interest as a percentage of current price D) internal rate of return
D) internal rate of return Yield to maturity reflects the internal rate of return on a bond. Internal rate of return (IRR) equates the cost of an investment to the cash flows produced by that investment.
If a customer would like to open a custodial UGMA or UTMA account for his nephew, a minor, the uncle can A) open the account provided the proper trust arrangements are filed first B) be custodian for the account only if he is also the minor's legal guardian C) open the account, but he needs a legal document evidencing the nephew's parents' prior approval of the account D) open the account and name himself custodian
D) open the account and name himself custodian The donor may name himself the custodian of an UGMA or UTMA account. No documentation of custodial status is required to open an UGMA account, and the custodian is not required to be the minor's legal guardian.
(con't II) Corporations have found that one way to increase employee motivation is to grant options to purchase stock in the company. Incentive (qualified) options differ from nonqualified options in all of the following respects except A) there is a maximum 10-year limit for exercising an ISO; no such time limit exists for an NSO. B) ISOs may only be granted to employees, while NSOs may be given to virtually anyone. C) the holder of an ISO can recognize capital gain (loss) as a result of exercise, whereas ordinary income (loss) is the result with an NSO. D) the recipient of the grant of the ISO has no income tax consequences at the time of the grant.
D) the recipient of the grant of the ISO has no income tax consequences at the time of the grant. With an ISO, capital gain (loss) treatment is available upon the sale of the stock if the recipient holds the stock purchased through exercise at least one year from the date of exercise and at least two years from the date of the grant. With an NSO, the recipient can only have ordinary income (loss) based on the difference between the exercise price and the market value when the option is exercised. Finally, if the recipient of an ISO does not exercise the option within 10 years of the grant, it is treated as an NSO for tax purposes.
Twenty-five individuals have formed an investment company. They have heard wonderful things about you as an investment adviser (IA) and ask if you would be interested in managing their portfolio. You reply that you would be interested but will only take the account if you can structure a compensation arrangement that calls for you to receive a base fee plus 18% of the profits to the extent that the account's performance exceeds a standard benchmark. Under the Uniform Securities Act, this type of agreement is allowable if
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A person who renders investment advice solely with respect to securities issued by the U.S. government A) is excluded from the definition of investment adviser under federal law and is, therefore, exempt from state registration requirements. B) need not be federal registered under the Investment Advisers Act of 1940 but must register in any state in which it has an office. C) must be registered both with the SEC and the state. D) is exempt from state registration under the Uniform Securities Act but must be federal registered under the Investment Advisers Act of 1940.
A) is excluded from the definition of investment adviser under federal law and is, therefore, exempt from state registration requirements. A person who renders advice solely with respect to securities issued or guaranteed by the U.S. government is excluded from the definition of investment adviser under the Investment Advisers Act of 1940 and is, therefore, a federal covered adviser under the NSMIA of 1996.
Under modern portfolio theory (MPT), all portfolios that can be constructed from a given set of stocks is referred to as A) the feasible set B) the correlation coefficient C) the capital market line D) the efficient set
A) the feasible set A feasible portfolio is defined as a portfolio that an investor can construct given the assets available. The feasible set is the collection of all feasible portfolios. Once we have the feasible set, we can select the efficient set (the most return for a given amount of risk, or the least risk for a given amount of return).
According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts, A) the schedule should be made available on the broker-dealer's public website without requiring any login or password. B) as long as the schedule is available in electronic form, it is not necessary to provide a paper version to retail customers. C) the schedule should be made available on the broker-dealer's public website and should be password protected. D) fee schedules should only be delivered by hand or postal mail, to reduce cybersecurity threats.
A) the schedule should be made available on the broker-dealer's public website without requiring any login or password. Transparency requires that obtaining the fee schedule should be a simple process for retail customers and prospects. That means access without logging in to the broker-dealer's website or needing a password. Paper copies should always be available, and cybersecurity is not a threat because there is no confidential information included.
