SERIES 66

Which of the following equations correctly shows the relationship between the items on a company's balance sheet?

Assets = liabilities + stockholders' equity

Asset-based sales charges will generally be lowest when holding which of the following mutual fund share classes?

Class A shares

Which of the following statements regarding provisions of the Investment Advisers Act of 1940 is true?

Five Partners Advisers, Ltd., must inform all clients that one of the five partners has retired and been replaced by a new partner.

A customer who seeks to supplement his retirement income and has a high risk tolerance would find which of the following securities most suitable?

High-yield bond funds

A Credible Investment Specialist (CIS) is a state-registered investment adviser with its only offices in State A. Where would registration be required? I. State A, where the only clients are large pension plans II. State B, where the only clients are banks III. State C, where the only clients are insurance companies IV. State D, where there are six or fewer retail clients over any 12-month period

I and IV

As defined in the Uniform Securities Act, the term offer to sell would include

a gift of warrants.

A premature distribution from an IRA would be exempt from the premature distribution penalty under all of the following circumstances except

as a result of hardship

An investor is short stock at 60. The current market price of the stock is 35, and he anticipates it will continue to decline. If he thinks the price will rise temporarily and if he does not wish to close out his short position, his best strategy to prevent a loss would be to

buy an XYZ 35 put

Derivatives have a major role to play in the management of many large portfolios and can be used for all of the following except

highly risk-averse investors.

Several years ago, an investor purchased an investment-grade bond with a 6% coupon. Today, that bond is priced to yield 4.6% to maturity in five years. If the bond is called at par in one year, the bond's yield will be

less than 4.6%.

The most common form of organizational structure for venture capital investment is the

limited partnership.

David is registered as an agent in States H and M with Stanley Securities, a broker-dealer registered in every state. He would now like to register in State W. In order to do so, all of the following would be required except

passing State W's qualification exam.

Some registered investment advisers (IAs) are federal covered, while others register on a state-by-state basis. In the case of a state-registered investment adviser having its only office in Oregon with no offices in any other state, the authority of the office of the Administrator would include

requiring IARs to pass a qualification exam.

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

$1,026.56.

A complex trust has the following income for the year: $1,500 in taxable interest, $2,000 in dividends (reinvested in the stock), and $3,000 in tax-exempt interest. In addition, the portfolio realized $3,500 in capital gains that were reinvested in the corpus. What is the distributable net income (DNI) for the trust?

$6,500

Under the Uniform Securities Act, if not denied, an application for registration as an investment adviser will generally become effective how soon after filing?

30 days

An investor purchased 200 shares of Affinage Refining Company (ARC) common stock at $63 per share. Over the next six months, two quarterly qualified dividends of $0.50 per share were paid. The investor liquidated the position at $66 per share. If the investor is in the 32% federal income tax bracket, the approximate after-tax return is

4.6%.

Which of the following industries would tend to be the most cyclical?

Appliance manufacturers

Under the NASAA Model Rule on Custody Requirements for Investment Advisers, if an investment adviser has custody of customer funds and securities, how often must the adviser send the customer a statement of account activity?

Quarterly

Which of the following investment strategies reflects determining an appropriate portfolio allocation based on the short-term market movements and risk tolerance of the client?

Tactical asset allocation

A TIPS bond with a par value of $1,000 has a coupon rate of 4%. During Years 1 and 2, the inflation rate has been 6%. What effect will this have on the TIPS 2½ years later?

The next interest payment will be $23.19.

Market interest rates rise by 50 basis points. If each of these bonds has about the same maturity date, which of the following would decline the least?

Treasury bond issued at par carrying a 7% coupon

A basic difference between a Section 457 plan established on behalf of a governmental entity and one established by a private tax-exempt organization is that

a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants

Being a limited partner in a direct participation program is analogous to being

a holder of common stock in a corporation.

In preparing a research report, an investment adviser reviewing the returns on a specific stock over the past 10 years, notices that the median is lower than the mean. The most probable cause for this is

a majority of the returns are less than the mean

Sharon is an investment adviser representative (IAR) with Highwater Advisers, a federal covered investment adviser with its principal office in State X. Sharon provides advisory services to a bank located in State X, a state in which she has no place of business. Under current regulations,

because Sharon has no place of business in State X, she does not have to register as an IAR in State X.

A federal covered investment adviser may enter into a contract with a client that provides for performance-based compensation under all of the following conditions except

disclosure that the performance compensation may create an incentive for the adviser to take greater risks.

All of the following are considered to be equity securities EXCEPT

equity-linked notes

Broker-dealers, investment advisers, and agents must renew their licenses with the state Administrator

every December 31, unless otherwise specified by state law.

Prohibited investments in an IRA would include all of the following except

municipal bonds.

First Securities Advisers, Inc., a subsidiary of First Securities Broker-Dealers, Inc., requires customers to have a minimum of $250,000 under management and charges them 1% in advisory fees based on the amount of assets in their accounts. Clients also pay commissions for securities transactions in their accounts. First Securities Advisers, Inc., has

not violated the prohibition against performance fees.

Matt, a registered investment adviser, operates an office down the hall from Jane, a CPA. Because Jane has no interest in portfolio management, she frequently refers her clients to Matt for investment advice. When one of Jane's clients signs a letter of engagement with Matt, Matt sends Jane a $200 referral fee. This occurred five times in the previous year. This situation is

permitted if the referral fee is disclosed to the appropriate 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

recommend the client consult with a qualified attorney.

In the secondary market, U.S. Treasury bond prices are most influenced by

the inflation rate.

All of the following investments are eligible for a traditional IRA except

works of art

A bond with a par value of $1,000 and a nominal yield of 6% paid semiannually is currently selling for $1,300. The bond matures in 25 years and is callable in 15 years at $1,080. In the computation of the bond's yield to call, which of these would be a factor?

Interest payments of $30

A potential investor in mutual funds is bewildered by the different share classes. You are asked for advice. When comparing Class A, B, and C shares, it would be fair to state that all of the following are features unique to Class A shares except

the method of calculating the redemption price.

An investor's required rate of return is 6%. If the internal rate of return of the investment offered is 6%, then the NPV is

zero

The price of which of the following will fluctuate most with fluctuating interest rates?

Long-term bonds

An agent is discussing an equity index annuity purchase with a client. The agent explains that there are several that she feels are equally suitable for the client, but one of the companies is offering a trip for two to Las Vegas for reaching certain sales goals. She continues by stating that this sale will put her over the goal and win her the trip. If the client purchases that annuity, the agent

should pack her bags for the trip; she earned it.

Your client, Jane, died, and her 35-year-old son, Patrick, is the beneficiary of her IRA account. There was $750,000 in the account at the time of her death. All contributions were made with pre-tax dollars. Ten years later, the account had grown to $1.2 million, and Patrick distributed all of the money during that year. The distributions will be

taxed on the amount withdrawn in a given year.

A client who purchased a variable life insurance policy 15 months ago has suffered a stroke. In addition, he has developed adult onset diabetes. When receiving treatment for the stroke, he was diagnosed with lung cancer. He has decided to convert his variable policy to a whole life policy. Which of the following statements is correct? I. He will not be able to convert to a whole life insurance policy because his health has deteriorated to such a severe level. II. The new policy will bear the same issue date and age as the original policy. III. The face amount must remain the same. IV. The premium will be rated because his health has taken a marked turn for the worse.

II and III

Jake Aaron is registered as an agent with ABC Securities, a broker-dealer registered with the SEC doing business in 34 states. In addition, Aaron has his own investment advisory business, Jake's Money Advisers, and is registered with the SEC. To comply with all appropriate regulations, which of the following would have to be stated on the business card for Jake's Money Advisers? Jake Aaron, RIA Jake's Money Advisers, RIA Jake's Money Advisers, registered investment adviser Securities offered through ABC Securities

III and IV

A corporation offering securities registered under the Act of 1933 may make which of the following statements? I. The SEC has passed on the merits of these securities as an investment. II. The SEC has released our securities for sale to the public. III. The SEC has passed on the accuracy of the information in our prospectus. IV. The SEC has declared this prospectus effective.

II and IV

Under the NASAA Model Custody Rule, an investment adviser is considered to have custody of client assets if which of these are true? I.The adviser inadvertently receives a check from a client for a purchase that is made payable to the investment adviser and does not return the check within 24 hours. II. The adviser inadvertently receives a check from a client for a purchase that is made payable to a third party and does not forward the check within 3 business days. III. The adviser inadvertently receives stock certificates from a client and does not forward them within 3 business days. IV. The adviser inadvertently receives stock certificates from a client and does not return them within 3 business days.

II and IV