Series 66
A short call represents A. Obligation to sell B. Obligation to buy C. Right to sell D. Right to buy
A. A long option position always grants the holder a legal right. A short option position obligates the writer. To call means to buy. Since the long investor has the right to buy, the short investor is obligated to sell
An issuer may use which registration method if the same offering is registered simultaneously with the SEC under the Securities Act of 1933? A. Registration by coordination B. Registration by qualification C. Registration by filing D. Registration by notification
A. An issuer may submit a registration by coordination if the same offering is registered simultaneously with the SEC under the Act.
Which of the following does not appear on an income statement? A. Assets B. Expense C. Depreciation D. Sales
A. Assets are a balance sheet item. The other items all appear on an income statement
Which of the following is false regarding the current ratio? A. A lower ratio is better B. It includes inventory C. It measures the solvency of a corporation D. The components of the ratio are balance sheet items
A. Because the ratio is current assets divided by current liabilities, a higher ratio is better. A large balance of assets compared to liabilities is better.
Which of the following is not a characteristic of tactical portfolio management? A. Dividing funds among different asset classes B. Market timing C. Active management focused on short term results D. Identifying industry sector cycles
A. Dividing funds among different asset classes is strategic asset allocation
Under ERISA, a fiduciary is prohibited from engaging in certain types of transactions. Each of these transactions specifies that the fiduciary may not engage, directly or indirectly, with which of the following? A. A party in interest B. An employee of the plan itself C. A member of the Federal or State government D. Any banking or lending institution
A. ERISA specifies 5 categories of transactions that a fiduciary may not cause the plan to engage in, directly or indirectly, with a "party of interest"
An adviser is developing a financial planning model for this client. When considering the client's financial goals, the adviser should do which of the following? A. Consider goals for each life phase that the client will transition throughout the plan B. Focus only on identifying goals that the client will commit to financially at this time C. Only focus on goals with a timeframe of 5 years or less D. Develop only retirement oriented goals and implement those prior to any other goals
A. Financial goals should be developed for each life phase that the client will transition into, such as early marriage, married with children, child in college, pre-retirement, and retirement
An investor sells stock in her IRA at $28 per share. She bought this security at $22 13 months ago. She will be A. Taxed at ordinary income rates upon withdrawal B. Exempt from tax upon withdrawal if she is at least 59 1/2 C. Taxed at ordinary income rates D. Taxed at capital gains rates upon withdrawal
A. If this were a taxable account, she would be taxed at preferential capital gains rates since she held the security for more than 1 year.
An investment adviser representative has done extensive personal research on a pharmaceutical company. he wants to take advantage of what he considers an excellent growth opportunity by purchasing the company's stock at the current market price; however, he has limited funds to do so. Under what circumstances may the IAR borrow funds from his clients to make the trade? A. He may borrow the funds from any client that is an affiliate of the Investment Advisor and is willing to make the loan B. he may not borrow the funds to execute this transaction under any circumstances as it is a direct violation of the SEC bylaws. C. If he has a client that has sufficient money market funds who is willing to make a brokerage loan against the account, he may set-up the loan. D. He may borrow the funds from his pooled funds in his custodial account listed under his name for his client's funds
A. It is inappropriate for an investment adviser or an investment adviser representative to borrow from or loan to clients any form of security or funds unless the client is a broker/dealer, an affiliate of the investment adviser, or a financial institution engaged in the lending business
Which of the following communications would subject an investment adviser representative to the investment adviser advertising rules? A. Meeting with a prospective client and offering the firm's securities-related investment advisory services B. Talking with an existing customer over the phone about the customer's current portfolio holdings C. Speaking on a radio program about the securities market D. Answering a question as a guest speaker on a panel about industry trends
A. Offering investment advisory services to prospective clients falls under the definition of advertising. However, one-on-one communications with existing customers are excluded from the definition of an advertisement with the caveat that they don't involve new advisory services. Also excluded are extemporaneous, live, and oral communications, either broadcast or one on one
Which of the following is the price-to-book ratio? A. Current market price/ book value per share B. Current assets / book value per share C. Current market price / par value per share D. Current assets / authorized shares
A. The formula for the price-to-book ratio is current market price / (total assets-intangible assets-liabilities / number of outstanding shares)
Which of the following statements is true concerning a trust? A. It is a documented, legal fiduciary relationship between a trustee and a grantor B. A "grantor" such as a trust company has fiduciary responsibility for assets on behalf of a beneficiary or "trustee" C. A trust may be created by any party other than the intended beneficiary D. All of the above are true
A. The trustee has legally established fiduciary responsibility concerning the assets of the intended beneficiary, who may or may not also be the grantor of the assets
A person transferring an IRA to another trustee via a trustee to trustee transfer A. Will not be subject to any penalties or taxation B. May only do so twice per year C. Will pay a penalty unless the person is at least 59 1/2 D. Will receive a check that must be rolled over to another qualified plan within 60 days to avoid taxation.
A. There is no penalty or taxation for the transfer of an IRA from one trustee to another. Also, there is no limit on the number of trustee-to-trustee transfers that may be done in any time period. If the distribution was made payable to the IRA owner, then 20% withholding and the 60-day reinvestment rule applies. Rollovers are limited to one time per year
Which of the following is false regarding S corporations? A. Earnings are taxed at the shareholder's individual tax rate B. Sub S corporations and C corporations are taxed in the same manner C. All expenses and earnings are represented on the shareholder's K1 D. For tax liability, the shareholder and Sub S corporation are one and the same
B. A Corporation is subject to double taxation but an S corporation is not
Under the USA, which of the following persons is a broker/dealer in a state? I. A broker/dealer with no office in the state that transacts business exclusively with banks II. A broker/dealer with an office in the state that transacts business exclusively with insurance companies III. A bank in the state that has a trust department with custody of private pension fund investment assets IV. A person with offices in the state that effects securities transactions for itself or for customer A. II and III B. II and IV C. I, II and III D. I and II
B. A broker/dealer with an office in a state must be registered to effect trades with customers even if it transacts business only with institutional customers
Which of the following is the most appropriate scenario for executing a limit order? A. Trying to lock in a profit of a particular security B. Buying a security when the market price has fallen to a specified limit C. Buying a security at the most advantageous price D. Selling a security that the seller does not own
B. A limit order is an order to buy at or below a specified price, or to sell a stock at or above a specified price. It is a conditional order
An Investment Adviser may charge a performance-based fee to a qualified client. The definition of a qualified client is a person with A. Yearly income of $300,000 and net worth of more than $1 million B. $1.1 million or more in investments or net worth of more than $2.2 million C. $200,000 or more in investments or net worth of $1 million D. Yearly income of $200,000 and net worth of more than $1 million
B. A qualified client is a person with $1.1 million or more under management or a net worth of more than $2.2 million. Although generally not permitted, an SEC exception to the rules allows investment advisers to charge qualified clients performance-based fees.
Which of the following is not a characteristic of term insurance? A. Simplicity B. Cash value C. Low cost D. Temporary coverage
B. Unlike permanent insurance, term life insurance does not build cash value. It is temporary coverage only
All of the following statements regarding Form 13D are correct EXCEPT A. It must be filed when a person acquires over 5% of the voting stock of a company registered under the 1934 Act B. It must accompany all rights offerings C. It is frequently used in tender offers D. It must be filed with the SEC within 10 days of an applicable stock purchase
B. Form 13D is filed with the SEC when a person or group acquires over 5% of the voting stock of a company registered under the Act of 1934. It is not required to accompany a rights offering
When must form ADV-E be filed? A. Within 30 days of the day when the IA first takes custody of client's assets B. Within 120 days of the audit C. Within 30 days of the audit D. No later than December 31
B. Form ADV-E must be filed by the auditor of an IA with custody of client's assets within 120 days of the audit
To Open an IRA account, all of the following are required EXCEPT A. Adoption agreement B. Hypothecation agreement C. New account form D. Beneficiary designation form
B. Hypothecation agreements are required for margin accounts. IRA accounts cannot trade on margin.
On Sept. 1, 2019, an investor discovered that on March 1, 2019 his agent sold him a nonexempt unregistered security that resulted in a substantial loss. Under the Securities Act of 1933, how long does the investor have to file a civil lawsuit? A. Until March 1, 2022 B. Until Sept. 1, 2020 C. Until March 1, 2020 D. Until Sept. 1, 2022
B. The Securities Act of 1933 states that an investor may bring civil suits within 1 year of discovery of a violation or within 3 years of the date the violation occurred, whichever is earlier. This investor has 1 year from the date of discovery (Sept 1, 2020) since that is the earlier date
ABC broker/dealer bought DEF stock at 35 for its inventory position. Three months later, when the inter-dealer market for DEF was 32.50-33.25, the broker/dealer sold DEF stock to a customer from the inventory. What was the basis for the dealer's markup? A. 32.50 B. 33.25 C. 35 D. 36
B. The basis for a markup cannot be historical cost; it can only be the current inter-dealer ask, or offer price
When comparing the IRR of two investments yielding the same amount, which provides the most value to an investor? A. The lower dollar value over the term of the investment B. Highest IRR above "0" C. The higher dollar value over the term of the investment D. Lowest IRR as it represents the discounted value to investors
B. The highest IRR (above 0) offers the most value to an investor. Zero represents breakeven and a value above zero represents value above the NPV of the amount invested
A customer places an order to buy 100 ABC @ 35, but not for more than 36. What type of order is this? A. Buy limit order B. Buy stop limit order C. Buy market order D. Buy stop order
B. This is a buy stop limit. The first price is the stop or trigger price, and the second is the price limit
What method of calculating the cost basis of mutual fund shares sold requires accurately recording each share transaction and accounting for individual shares sold? A. First-In, First-Out (FIFO) method B. Share identification method C. Average Share Cost Basis method D. Individual Share Cost Basis method
B. Under this method, the investor keeps track of the cost of each share purchased and identifies the specific shares to be liquidated (i.e., the shares purchased on a given date at a given cost)
Under the Uniform Securities Act, which of the following may be defined as a "person"? I. An insurance policy II. A minor III. A business trust IV. A government body A. I and IV B. II and III C. III and IV D. I and II
C. Business trusts and government bodies or political subdivisions are among the definitions of "a person" under the Act. Insurance policies are not persons. Minors are excluded from the definition because they may not legally enter a contract
According to the Uniform Securities Act, the registration of an agent A. Is continuously in effect unless revoked or suspended B. Expires every two years on the anniversary effective date C. Expires December 31st of each year D. Is only good for one year after the effective date, unless renewed
C. Agents registrations expire every year on December 31st, unless renewed. Some states, however, renew on the anniversary of the effective date, but December 31st is the date stipulated in the Act
Which of the following persons is NOT required to file a Consent to Service of Process with the state administrator? A. Broker/dealer B. Investment adviser representative C. Agent for an issuer D. Investment adviser
C. Agents, broker/dealers, IAs and IARs are all required to file Consent to Service of Process with the state administrator. Issuer agents who are exempt from registration are not.
Which one of the following statements regarding Coverdell Education Savings Accounts is correct? A. Funds not used for education may not be rolled over into an IRA for the beneficiary B. All distributions are taxable to the beneficiary C. Contributions are made with after-tax dollars and grow tax-deferred D. Contributions must cease when the beneficiary turns 30
C. Contributions to a Coverdell are made with after-tax dollars and grow tax-deferred. Withdrawals are tax-free when used for qualified education expenses. Contributions are not permitted once the beneficiary turns 18 and the money must be used by age 30 or rolled over to a Coverdell for another qualified family member. Unused funds cannot be rolled into an IRA
Sector rotation is a form of A. Value allocation B. Strategic allocation C. Tactical allocation D. Momentum allocation
C. Sector rotation involves short term management to take advantage of seasonal or other sector trends. Strategic allocation is long term planning
One of the biggest differences between a C corporation and a Subchapter S corporation is that A. C corporations are not used to double taxation B. A C corporation is ongoing and a Sub S corporation has a predetermined liquidation date C. Sub S corporation earnings and expenses are reported on form K1 D. C corporation owners have limited liability; sub S owners have unlimited liability
C. Subchapter S corporation earnings and expenses flow through directly to the owners, who report them on form K1. Both entities are perpetual and offer their owners limited liability. C corporations experience double taxation
To be eligible for a Health Savings Account, an individual must be covered by a A. Nonqualified plan B. Health plan with no deductible C. High-deductible health plan D. Low-deductible health plan
C. To be eligible for an HSA, an individual must be covered by a high-deducible health plan
Meredith is withdrawing money from her variable life insurance policy. Meredith's withdrawal will be treated on a A. Weighted average assumption B. LIFO basis C. FIFO basis D. Exclusion ratio assumption
C. Unlike annuities, dollars distributed from a life insurance policy prior to death are withdrawn assuming FIFO
An investment returned 4% for a given year. If inflation for that year is running at 2%, what is the real rate of return? A. 10% B. 6% C. 5% D. 2%
D. The inflation adjusted return, or real rate of return, is 4% minus 2% inflation = 2%
When considering an investment for an ERISA account, the primary consideration is A. Production of income B. Inclusion on the state legal list C. Compatibility with the present portfolio D. Potential risk
D. ERISA regulations apply to retirement accounts, and conservation of principal is a primary account objective
A broker/dealer who is making a market in a security is A. Standing ready to buy at the ask and sell at the bid B. Acting in a broker/agency capacity, incurring no risk and is compensated by commission C. Acting in a broker/agency capacity and is incurring risk D. Acting in a dealer/principal capacity, incurring risk and is compensated by the mark-up or "spread"
D. A market maker publishes a bid and ask for a given security and buys/sells for its own account. A market maker is acting in the capacity of a dealer/principal/market maker, is compensated by the difference in the bid and ask price and, thus, incurring risk
According to ERISA, what are the rules that a 401(k) plan fiduciary must follow regarding participants' choice of investment options? A. The plan must allow immediate access to all investments, and any transaction requests must be executed the same business day B. Only written instructions by participants may be accepted by the plan C. The plan may have open/closed periods which allow participants to reallocate investments, but investment instructions must be accepted at least annually D. The plan must allow participants the opportunity to change investment options at least once per quarter
D. At a minimum, participants must be given the opportunity to give investment instructions no less frequently than once per quarter, must be able to move readily from more volatile investments to less volatile ones, and must be given the opportunity to obtain written confirmation of their instructions
The type of risk that includes influences such as competitive pressures, market share and competence of management and is usually managed with a long-term focus is called A. Market risk B. Inflation risk C. Management risk D. Business risk
D. Business risk is the risk associated with the specific circumstances of any particular company. It includes many influences associated with business success or failure such as competitive pressures, market share and competence of management. Business risk is usually managed with a long-term focus
HSAs are owned by the individual, not the employer, which means the individual is not dependent on a particular employer to enjoy the advantages of having an HSA. What term best describes this? A. Mobile B. Attached C. Stationary D. Portable
D. HSAs are portable, which means the individual is not dependent on a particular employer to enjoy the advantages of having an HSA, because it is owned by the individual
An example of an AMT preference item is A. use tax credits from underdeveloped countries B. Exemptions allowed to high net worth investors C. Reduced deduction for trading expenses D. Interest from private activity municipal bonds
D. Interest from private activity municipal bonds, also referred to as private activity revenue bonds, are AMT preference items
Sector rotation is a form of A. Momentum allocation B. Value allocation C. Strategic allocation D. Tactical allocation
D. Sector rotation involves short term management to take advantage of seasonal or other sector trends. Strategic allocation is long term planning.
Which of the following is NOT a permissible soft dollar expenditure? A. Educational seminars B. Subscriptions to securities publications C. Portfolio management software D. Computer systems
D. Soft dollars may only be spent on items which directly benefit customers and not on overhead or items which benefit the investment adviser. Office furniture, computers, personnel, and travel expenses to educational seminars are not permissible
Adjusting a portfolio to adapt to a seasonal market trend is an example of A. Contrarian management B. Risk-adjusted management C. Strategic management D. Tactical management
D. Tactical allocation involves market timing, identifying and reacting to current market trends, and confusing on short term results
Which annuity provision guarantees payments as long as the annuitant lives? A. Death benefit B. permanent period C. Lifetime guarantee D. Mortality guarantee
D. The annuity company guarantees that it will make payments as long as the annuitant lives through a mortality guarantee
Which of the following is not a consideration regarding the time value of money? A. Whether the money could be put to better use B. The hurdle rate of return C. The risk of inflation D. The risk of default by the investor
D. The risk of default lies with the borrower, not the investor
To calculate taxes due on mutual fund shares being sold during using the average cost basis for the shares, what must the investor account for? A. Any cash dividends paid out to the investor during the holding periods B. All dividend and capital gains paid out to the investor in cash after the shares were purchased C. Only the capital gains received in cash during the holding period D. The taxes paid on dividend and capital gain reinvestments made for additional shares
D. To be calculated correctly, investors must also take into account all taxes previously paid on shares that have been purchased through dividend or capital gains reinvestment programs
A bond with a C rating is considered A. To have financial risk B. To have high credit risk C. To be lowest investment grade D. To be medium investment grade
b. A C rating is the lowest speculative rating before a bond is defaulted
