Series 66 set 2

Which of the following accurately describes a cease and desist order as authorized by the USA?

A cease and desist order is a directive from an administrative agency to immediately stop a particular action. The order can come from a federal, state, or judicial body; it is not exclusive to any single body. However, because this question is referring to the Uniform Securities Act, we focus on the actions of the Administrator, not a federal agency. Administrators may issue cease and desist orders with or without a hearing. Courts issue injunctions, usually when the cease and desist order is ignored. Brokerage houses cannot issue cease and desist orders to each other.

Which of the following statements regarding the registration of a successor firm under the Uniform Securities Act are TRUE? A filing fee is required with the application. The successor firm's registration will be effective for the unexpired portion of the year. The successor firm need not be in existence when the application for registration is filed. The successor firm must have been in existence for 3 months when the application for registration is filed.

A registered broker-dealer or investment adviser may file an application for registration of a successor, whether or not the successor is then in existence, for the unexpired portion of the year. There shall be no filing fee. The state does not need additional filing fees because the registration must be renewed on December 31 (as will all professional registrations), at which time the next year's fees will be due.

An investor has rights that allow him cumulative discounts on mutual fund shares. These rights are known as a) Breakpoints. b) Accumulation rights. c) Letters of intent. d) None of the above.

An investor has rights that allow him cumulative discounts on mutual fund shares. These rights are known as b) Accumulation rights. The right of accumulation must be made available to an investor for at least 10 years.

Blue-sky laws pertain to all of the following EXCEPT the: A) registration of securities within a state. B) regulation of securities transactions in a state. C) registration of securities salespeople in a state. D) regulation of securities trading in other countries. the answer is D

Blue-sky (Uniform Securities Act) laws refer to state securities regulation in the state. Blue-sky laws require new securities to be registered with the state and regulate trading of securities in a state.

All of the following must be sold with prospectus EXCEPT:

Closed-end company shares trading in the secondary market are not new securities, so they are not required to be sold with a prospectus. However, a prospectus must be used in an initial offering of closed-end company shares. All open-end company shares must be sold with a prospectus because they are considered continuous primary offerings.

A customer is interested in an exchange-traded fund (ETF). With regard to the trading of ETFs, the customer should be aware that:

ETFs can be traded throughout the trading day. Changing price quotes are available in real time as investors buy and sell. Although ETFs have an NAV that is calculated on the basis of the portfolio holdings, the trading price is determined by supply and demand in the open market, with customers paying commissions.

An investment advisory contract is considered assigned if an adviser formed as a: partnership with 2 partners and adds 5 partners.

If an advisory firm is formed as a partnership and there is a change in the majority of partners, this is considered to be an involuntary assignment to the new partnership. In this case, client approval is required.

Which of the following securities is subject to the Uniform Securities Act? a) U.S. Treasury bills b) Debenture of a company listed on the New York Stock Exchange c) Nonprofit organization issues d) Interests in limited partnerships

Interests in Limited Partnerships The Act defines limited partnership interests as a security; therefore, they are nonexempt.

The statistical method used to determine the return profile of a security or portfolio that recreates potential outcomes by generating random values based on the risk and return characteristics of the securities themselves

Monte Carlo simulation

An agent's recommendation for the purchase of a municipal security to a customer who wants fixed income and is in a relatively low tax bracket would in most cases be:

Municipal bonds provide a fixed income, but they are generally suitable only for high tax-bracket individuals. In this case, such a recommendation is probably unethical and could result in suspension or revocation of the registered agent's license.

The Uniform Securities Act gives the Administrator the authority to do all of the following EXCEPT: Issue injunctions.

Only a court of competent jurisdiction has the power to issue an injunction. The Administrator may go to the court to request the injunction but cannot issue it himself. The Administrator may issue a cease and desist order with or without a prior hearing. Records, no matter where they are located, may be subpoenaed by the Administrator.

Standard Deviation

Standard deviation is the statistic that indicates how much an investment's returns have fluctuated compared to its average returns over a given period of time. An investment with a high standard deviation tends to have a higher level of risk than an investment with a low standard deviation.

Under the Uniform Securities Act, the Administrator may:

The Administrator has power to make, amend, and rescind such rules, forms, and orders it has issued as necessary to carry out the provisions of the act. The state Administrator may not waive provisions of the act.

Under the Uniform Securities Act, an offer and sale does NOT exist if it is: the result of a class vote by stockholders regarding a merger or consolidation. a bona fide pledge or loan. an act incident to a judicially approved reorganization in which a security is issued in exchange for one or more outstanding shares. a gift of nonassessable securities.

The Uniform Securities Act specifically excludes all four choices from the definition of an offer and a sale.

One measure of a corporation's intrinsic value is its book value per share. When performing this computation, the value of which of the following would normally be subtracted from the corporation's net worth? Patents and preferred stock

The computation of book value per share is basically net tangible worth per share of common stock. Therefore, we subtract both the par value of the preferred stock and the value listed on the balance sheet for the intangible assets, such as patents.

When must form ADV-E be filed? a) Within 120 days of the audit b) Within 30 days of the audit c) No later than December 31 d) Within 30 days of the day when the IA first takes custody of clients assets

When must form ADV-E be filed? a) Within 120 days of the audit Form ADV-E must be filed by the auditor of an IA with custody of clients assets within 120 days of the audit.

A "buy and hold" approach to portfolio management could be expected to do which of the following? a) Result in a lower portfolio turnover rate than alternative portfolio management styles. b) Have lower management expense but yield inferior overall performance over the long term. c) Minimize the potential for loss due to a much lower portfolio turnover rate. d) More closely mirror the performance of the overall stock market.

A "buy and hold" approach to portfolio management could be expected to do which of the following? a) Result in a lower portfolio turnover rate than alternative portfolio management styles. A passive investment style minimizes overall expenses due to reduced trading and research costs. A "buy and hold" management style does not necessarily produce performance results different than an "active" style or that the overall market would experience. It does, however, reduce portfolio turnover, which may result in lower management expense.

Under the Investment Company Act of 1940, which of the following statements regarding the investment objective of a mutual fund are TRUE?

A majority of the outstanding shares must vote to approve any change in investment objective or policy. The investment adviser's job is to try to achieve the investment objective.

In an efficient market:

An efficient market is one in which every individual can quickly obtain and use information about new events in the marketplace. Because information is disseminated quickly, any new information that could affect a stock's value is quickly reflected in its price.

An investment adviser is registered with the SEC. Which of the following is true? I. The adviser may need to pay a state filing fee. II. The adviser may need to submit to the state all documents given to the SEC. III. If the adviser is registered with the SEC, then filing fees or forms with the state is not required. IV. The adviser is immune to sanctioning authority of the administrator. a) II and III b) II and IV c) I and II d) I and III

An investment adviser is registered with the SEC. Which of the following is true? I. The adviser may need to pay a state filing fee. II. The adviser may need to submit to the state all documents given to the SEC. III. If the adviser is registered with the SEC, then filing fees or forms with the state is not required. IV. The adviser is immune to sanctioning authority of the administrator. c) I and II Although federal covered advisers are not required to register with the state, the state may require advisers registered with the SEC to file with the state a copy of any documents filed with the SEC, file consent to service of process, and pay a state filing fee. Federal covered advisers are subject to the sanctioning authority of the state administrator.

An unregistered employee of a broker/dealer effects securities transactions. Which of the following statements is FALSE? a) The broker/dealer may be subject to disciplinary action. b) The unregistered person that effected the transaction may be denied a future registration application. c) The unregistered person is subject to disciplinary action only if a customer submits a complaint. d) The customer may recover the original purchase price plus interest on any unprofitable investments and decide to retain profitable investments.

Both the unregistered person who submitted the order and broker/dealer are subject to disciplinary action under the civil liabilities provisions of the Act. A customer does not have to submit a complaint to expose this action. The action is already in clear violation of the Act and enforceable by the Administrator.

Brandywine Investment Advisers has several clients whose contracts call for performance-based fees. These fees may be based on a performance comparison with S&P 500 and Russell 2000

If an investment adviser charges performance-based fees to qualified clients, the fees may be based on the accounts' actual performance relative to a benchmark such as the S&P 500 Index or the Russell 2000. The previous years' performance or the performance of other accounts is not a valid basis for the calculation of performance-based fees.

If representatives of a federal covered adviser terminate their employment, who is required to inform the state administrator? a) The federal covered adviser b) The adviser representatives c) Neither the adviser nor the representatives because the representatives are employed by a federal covered adviser d) Both the adviser and the representatives

If representatives of a federal covered adviser terminate their employment, who is required to inform the state administrator? b) The adviser representatives Because the adviser is federal covered, the adviser has no obligation to inform the state administrator. The representatives, however, are required to inform the administrator.

When broker/dealers effect trades for the accounts of others, they are acting in what capacity? a) Individual b) Agency c) Dealer d) Principal

When a firm trades for the account of others, it is acting in an agency capacity. In this capacity, it is also known as the broker.

Which of the following orders are reduced by the specialist of the NYSE on the ex-dividend date of a listed stock? I. Open buy limits; II. Open sell stops; III. Open sell limits; IV. Open buy stop limits a) III and IV b) I and II c) I and III d) II and IV

Which of the following orders are reduced by the specialist of the NYSE on the ex-dividend date of a listed stock? I. Open buy limits; II. Open sell stops; III. Open sell limits; IV. Open buy stop limits b) I and II Only orders that are placed at or below current market price are adjusted: buy limits, sell stops, and sell stop limits. Sell limits, buy stops and buy stop limits are placed above the current market value.