Series 66
Agents
individuals
When prices in an economy are adjusted with relation to a price index by force of contract, this is called:
inertial inflation
To deny or revoke a securities registration, the Administrator may issue a:
stop order -to deny or revoke registration
If a corporation issues new stock at a price above par value, the excess above par is termed:
surplus capital
The advantage of a custodian account opened under either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) is:
there is relatively little paperwork to complete as compared to that required for opening a trust account
An individual is considering leasing a new automobile. Which quantitative method is used to calculate the monthly payment?
time value of money
A plan trustee is considering making an investment in XYZ stock for a trust that has multiple beneficiaries. Under the provisions of the Uniform Prudent Investor Act, this investment decision must give consideration to the role that this investment plays:
to the overall portfolio strategy
The P/E ratio of a stock measures:
valuation
Standard deviation measures the:
variability of investment returns
The State Administrator would revoke an investment adviser's registration if the adviser:
was convicted of a securities misdemeanor 5 years ago
Registration of securities in a State by Coordination becomes effective:
when the Federal registration becomes effective
All of the following information must be included on a customer confirmation EXCEPT:
whether the transaction was solicited or unsolicited
An adviser that charges a performance fee to clients must disclose that such a fee arrangement:
will give the adviser increased compensation based on realized and unrealized appreciation of the customer's securities
A customer invests $100,000 in an Equity Indexed Annuity contract tied to the Standard and Poor's 500 Index. The contract has a 90% participation rate and a 15% cap. Interest is credited to the contract under the annual reset method and is compounded annually. The performance of the Standard and Poor's Index over the next 3 years is: Year 1: + 20% Year 2: - 4.5% Year 3: + 10% At the end of year 3, the customer will have a principal balance of:
$125,350 The best answer is C. The first year increase in the index of 20% with a 90% participation means that 18% would be credited to the account - however, because of the 15% cap, this is the first year credit, so the $100,000 balance is worth $115,000 after the first year. Because this is an insurance product, the customer does not bear investment risk, and the "floor" rate is 0% (unless the product offers a higher floor rate). Because of the 0% floor, the balance stays at $115,000 as of the end of year 2. In the 3rd year, the 90% participation in the 10% increase means that the account will be credited with a 9% increase against the $115,000 value = $115,000 x 1.09 = $125,350.
A father and mother established a 529 plan for their son when he was age 12. The son has just turned 18 and is entering college. The father gets the first tuition and boarding bill from the college for $22,000. Since the son will be commuting home every other weekend, the father withdraws $25,000 from the 529 plan to pay for the college bill and the commuting expenses. Which statement is TRUE?
$3,000 of the distribution is subject to both regular income tax and a penalty tax
Safe Harbor 401(K) plan
-Mandatory annual employer matching contributions -no annual "top heavy" benefits testing -immediate 100% vesting of employer-paid benefits
Under the provisions of the Uniform Securities Act, required records for broker-dealers must be kept in accordance with the provisions of the:
-Securities Exchange Act of 1934
Which statements are TRUE about the use of testimonials in advertising?
-Testimonials are permitted in broker-dealer advertising -Testimonials are prohibited in investment adviser advertising
IRR is the Internal Rate of Return
-This is the rate of return that discounts all of the cash flows from an investment to a present value of "0." -closest to YTM
An individual is considering leasing a new automobile. Which quantitative method is used to calculate the monthly payment?
-Time value of money
Which of the following is (are) included in the computation of stockholders' equity?
-Treasury Stock -Retained Earnings -Additional Pain-In Capital
Specialists (DMMs) can perform:
-act as a market maker -act as a broker's broker -handle odd-lot transactions *CAN'T act as an underwriter
Trade confirmation
-amount of commission -order flow -customer name -account number -size of the trade -price of execution
Which of the following statements concerning closed-end management companies are TRUE? Closed-end management company shares:
-are issued in a one-time offering -trade in the secondary market
Under the Investment Advisers Act of 1940, the SEC policy regarding emails maintains that:
-both business related and personal emails are required to be recorded and maintained -records must be retained for 5 years
Cash payments made to investors from which of the following investments are subject to the lower 15% maximum tax rate?
-common stocks -preferred stocks *interest payments received from bond investments do not qualify for the lower tax rate
A customer wishes to place a buy order for a security that has not been registered with the SEC. The security may be purchased if the security:
is exempt from SEC registration
The main difference between a cash forward contract and a commodity futures contract is that the forward contract:
is not marked to market each day
If a defined benefit plan is terminated due to the bankruptcy of the company, any unfunded pension liability is:
-covered by PBGC Pension Benefit Guaranty Corporation provides insurance for defined benefit plans formed under ERISA that are terminated that have an unfunded pension liability
rebalanced monthly and actively managed is called: "Active/Active;" rebalanced annually and actively managed is called: "Passive/Active;" rebalanced monthly and invested in index funds is called: "Active/Passive;" and rebalanced annually and invested in index funds is called: "Passive/Passive."
*rebalance considered first
Structured Products
-A "structured product" is a derivative security that is "structured" to have the characteristics of a debt, but give the higher returns typically associated with "equity" securities -Structured products give a rate of return linked to an equity index such as the Standard and Poor's 500 index -Structured products have a fixed maturity at par in around 7 years based on an embedded option in the security They are NOT standardized and liquid instruments
Which of the following are advantages of "DRIPs"?
-Additional shares of the issuer are purchased with no commission charges -The investor can add to an existing position in that issuer without having to place an order through a broker -The process of buying additional shares via a DRIP allows for dollar cost averaging
Investment advisers are prohibited from doing the following:
-Assigning a customer's contracts without permission -charging commissions on trades effected for the client -changing partnership management without notifying clients
Which of the following are generally required to be included in the State registration application of a broker-dealer or investment adviser?
-Consent to service of process -business history of applicant -fingerprints of the officers -proposed method of business -form and place of organization -financial condition and history
A private fund adviser must file:
-Form PF with the SEC -Form ADV parts 1 and 2 with the SEC
Which of the following is NOT a benefit of making an investment in an emerging markets fund?
-Higher Investment Yield Benefits -diversification -liquidity -reduced investment risk
Which form(s) MUST be signed by the customer in order to open a margin account?
-Hypothecation Agreement
Which of the following is NOT defined as a security under the Uniform Securities Act?
-IRAs -Keoghs
Which statements are TRUE regarding licenses held by broker-dealers and agents?
-If a broker-dealer's license is suspended, all of its agents' licenses are suspended -If the broker-dealer's license is suspended, its agents may become associated with another broker-dealer
A trader maintains a position in a small capitalization stock that has low trading volume. The trader has a high level of:
-Liquidity risk -Business risk
Advisory contract
-description of services provided -term of contract -formula for computing fees -amount of prepaid fees to be returned if contract is terminated early -assignment of the contract is not permitted unless the customer approves -whether the contract grants discretionary authority to the adviser -disclosure that the fee for managing equity securities may be higher than the fee for managing debt securities
Taxable income of a corporation
-dividends received -gains on any asset -interest income
A corporate investor may exclude from taxation, part of:
-dividends received from common stock investments -dividends received from preferred stock investments -dividends received from convertible preferred stock investments *corporate investors may exclude 50% of dividends received from taxation *interest income received is 100% taxable
Broker dealer
-engages in the business of effecting securities transactions for the account of others -engages in the business of trading for his own account (known as "proprietary trading")
Compensation
-fixed fees -hourly fees -fees based upon assets under management -prepaid fees
The weak form of efficient market theory states that:
-historical stock prices have no validity for predicting future stock price movements -technical analysis cannot be used to improve investment returns
NOT EXCLUDED from the definition of an "investment adviser"
-insurance companies -investment companies -Financial Planners
RULE 147
-intrastate offerings are exempt transactions -securities act of 1933 -100% of the issue must be offered and sold to residents of that state -the issuer must have its principal place of business in that state -for a 6 month period after purchasing the issue, resale is only permitted to residents of that state
EXCLUDED from the definition of an "investment adviser"
-investment adviser representatives -broker-dealers -depository institutions (banks, trust, savings and loans) -professionals (lawyers, accountants, teachers, engineers) -newsletters that do not render advice based upon a specific client situation
Geometric rate of return
-is the compound annual rate of return produced by an investment
"PERSONS"
-joint ventures -individuals -unincorporated businesses -municipalities
Which of the following would be included in the evaluation of a viatical or life settlement?
-life expectancy -amount of discount -availability of investors *NOT escrow agent for the settlement transaction
The principal difference between a structured product and an ETN is:
-liquidity risk *structured products are "buy and hold" securities-there is almost no trading market *ETNs are "exchange traded notes"-they are an equity index linked structured product that is listed and trades on an exchange.
Which of the following are "critical" pieces of information that MUST be collected from a customer to open a new account?
-name -address -DOB -SSN
Forward contract
-not standardized -privately created -trading cannot occur on an exchange
Finding TIPS
-real rate of return at the time the bond was issued -nominal rate of the bond -coupon rate of the bond NOT internal rate of return of the bond's cash flow
Securities Exchange Act of 1933
-regulates new issue offerings
Order ticket
-size of the trade -desired execution price -customer identification
Modern Portfolio Theory
-states that the best investments are those that lie on or above the "efficiency frontier" -these are the investments that give the highest return per unit of risk assumed
If an investment adviser wishes to effect an "agency cross transaction:"
-the adviser cannot have recommended the transaction to both the buyer and the seller -written consent from the customer is required to effect the transaction -the total remuneration to be received in connection with the transaction must be disclosed to the customer -an annual disclosure statement must be sent to customers detailing the number of agency cross transactions effected and the total dollar remuneration received by the adviser for those transactions
An agent moves from one broker-dealer to another. Notification of the change of employer must be made by:
-the agent -the previous employer -the new employer
The best answer is C. The Uniform Securities Act states that registration of a security is not required if:
-the issue is exempt; or -the issue is non-exempt but is offered in an exempt transaction; or -the issue does not fall under the definition of a security; or the issue is a federal covered security.
Adjusted gross income on a tax return includes:
-wages -commissions -royalties -social security payments -pension plan payments -investment income -capital gains NOT municipal bond interest income (not federally taxable)
A director of a broker-dealer that is registering for the first time in a State:
-will be automatically registered as an agent at the time that the broker-dealer is registered
An adviser that charges a performance fee to clients must disclose that such a fee arrangement:
-will give the adviser increased compensation based on realized and unrealized appreciation of the customer's securities -fee arrangement may cause the adviser to enter into more speculative investments than would be the case otherwise -the periods that will be used to measure performance and their significance in the computation of the fee -That the fee arrangement is based on both unrealized appreciation and realized capital gains -The nature and significance of any index used as a comparative measure -The reason why the adviser believes the use of any comparative index is appropriate *only if customer is wealthy ($1,000,000 of assets with the firm of a $2,100,000 net worth)
A customer invests $2,000 in an investment that is expected to generate $100 in the first year, $200 in the second year, and $300 in the third year, at which time the original $2,000 investment will be returned. What is the Return on Investment (ROI)?
10 The best answer is A. Return on Investment is a simple measure that takes an initial investment and shows how well it performs. The annual cash flows generated by the investment are averaged, and divided by the original investment amount. In this example, $2000 is invested. The investment is expected to generate cash flow of $100 in the first year, $200 in the second year, and $300 in the third year, at which point the $2,000 original investment will be returned. The average annual cash flow is $100 + $200 + $300 = $600/3 years = $200 per year. Since $2,000 was invested, the ROI is $200 / $2,000 = 10%.
A customer buys 100 shares of DEFF stock at $150 per share. During the first year of owning the stock, the customer receives $450 of dividends. At the end of the year the stock is trading at $161.25. Assuming that the customer does not sell the shares, what is the customer's Total return on investment for the holding period?
10.50% The best answer is C. Return on Investment includes both income and asset appreciation. Over a 1-year holding period, this stock appreciated from $150 per share to $161.25 per share. This is a gain of $1,125 on 100 shares, plus $450 of dividends were received for a total return of $1,575 / $15,000 original investment = 10.50% return.
Which is NOT a feature of a safe harbor 401(k) plan?
100% of eligible employees must choose to participate The best answer is D. A safe harbor 401(k) relieves the employer of having to perform annual benefits testing to show that the plan does not favor highly compensated employees (a so-called "top-heavy" plan). To get the safe harbor, the employer must agree to make annual matching payments into the plan of either 4% of salary of participating employees or 3% of salary of all eligible employees (it is not mandatory that each eligible employee participate). These employer-paid benefits must 100% vest immediately.
custody of client funds
3 business days for third party check. -must keep a record of the receipt of the check
In a secondary offering, a member who acted as manager or co-manager CANNOT issue a research report on that company within how many days following the effective date?
3 calendar days
A customer invests $1,000 over a 10-year time horizon. At the end of 10 years, the investment is worth $4,000. The non-compounded annual rate of return is:
30% The investment of $1,000 is worth $4,000 after 10 years. The return on investment is: $3,000 gain $1,000 investment = 300% earned over 10 years 300% 10 years = 30% annual non-compounded rate of return
Under the Investment Company Act of 1940, violations are punishable for up to how many years in jail?
5 years
A customer buys a 3-year maturity, 6% coupon bond at par. If market interest rates rise to 8%, then the bond's price will fall by:
5% The customer bought this 3-year bond at par with a coupon rate of 6%. If market interest rates rise to 8%, then the present value of the bond's cash flows will fall as follows: Year 1: $60 / 1.08 = $55.55 Year 2: $60 / (1.08)2 = $51.44 Year 3: $1,060 / (1.08)3 = $841.46 Total Present Value = $55.55 + $51.44 + $841.46 = $948.45 The bond will fall in price by $51.55 from $1,000 par, for a fall of 5.155%
A corporation buys the stock of another company. Which percentage of dividends received from the investment in the acquired company's shares are excluded from tax to the corporate purchaser of those shares?
50%
A customer who lives in Minnesota buys a Florida General Obligation bond with a 4.5% coupon at par. The customer is in the 30% federal tax bracket and the 5% Minnesota state tax bracket. What is the customer's equivalent taxable yield?
6.577% This bond is not fully tax-free. The customer must pay 5% state tax on the 4.50% yield, so the customer keeps 95% of the return after tax = .95 x 4.50% = 4.275%. This is the customer's return on the municipal bond after taxes are paid. If the customer bought a taxable bond, 35% of the return would go to tax (interest income would be taxable at both the federal and state level), and 65% would be kept after tax. Therefore, to find the equivalent taxable yield, you would take the municipal yield after all taxes - 4.275% - and divide by .65 = 6.577%
If market interest rates decline, which statement is TRUE?
A bond's yield to maturity will fall *if market interest rates fall, then bond prices will rise. This will reduce the bond's current yield and yield to maturity
Which statement is TRUE about property held in a Joint Tenancy account?
A contribution of more than 50% by one of the parties is essentially a gift to the other
Which item(s) is (are) needed to determine tax filing status? I Marital status on the last day of the year II Age of the filer III Residency on the last day of the year IV Citizenship of the filer
A. I only *5 possible filing statuses -single -married filing jointly -married filing separately -head of household -qualifying widow(er) with dependent child
Which securities can be purchased on margin? A. NASDAQ issues B. Pink Sheet issues C. Options D. Open End Fund shares
A. NASDAQ issues
All of the following actions would be permitted under the Uniform Securities Act EXCEPT: A. engaging in wash trades for a customer B. engaging in tax swaps for a customer C. omitting facts when making a recommendation to a customer D. recommending unregistered exempt securities to a customer
A. WASH TRADES are quick "in and out" trades in a stock to create the appearance of trading activity, without any actual change of ownership. Also known as "painting the tape" *one can omit facts when making a recommendation to a customer- the unethical practice would be to omit MATERIAL facts when making a recommendation
All of the following are covered under the Securities Exchange Act of 1934 EXCEPT:
A. registration of new issues B. registration of broker-dealers C. registration of insiders D. registration of securities information processors Correct Answer is A
Which of the following securities is EXEMPT under the Uniform Securities Act?
AMEX (NYSE American) issues
An investment adviser registered with the SEC under the Investment Advisers Act of 1940 changes from an S Corporation to a C Corporation. Which statement is TRUE?
An amendment to Form ADV must be filed promptly with the SEC *note, in contrast, that the NASAA rule for updating amendment is that it be filed in 30 days
Money purchase retirement plans have:
mandatory employer contributions
Which of the following is NOT market manipulation? A. Fictitious quotes B. Commingling customer funds C. Effecting trades at the close of the market to affect the closing price D. Spreading rumors of sensational nature
B. Commingling customer funds *prohibited, but not market manipulation
Under the Uniform Securities Act, which statements are TRUE regarding investment advisers that take custody of customer funds? I The administrator must give written approval before an adviser can take custody of customer funds II The administrator can require a higher surety bond for advisers that take custody of customer funds III Statements of account must be sent to customers whose assets are held in custody at least quarterly
B. II and III only *there is not requirement for an investment adviser to get prior approval from the administrator to take custody of customer funds
A portfolio manager who believes that an extremely large short interest in NYSE listed issues is bullish would be called a:
B. contrarian *a "contrarian" is an analyst that goes against the conventional wisdom *a very large short interest (that is, lots of investors have sold that stock short) indicates an "oversold" market, hence prices have been pushed too low and its time to buy
synonymous terms for investment companies
Bid, Redemption Price, and Net Asset Value *this is the price at which a customer can sell (redeem) his or her shares
An Investment Adviser has clients who have positions in ACME Company. If the company has an earnings miss at its next quarterly earnings announcement, she believes the stock will fall rapidly. She wants to place orders for her customers that have ACME positions to sell the stock if the price falls. She has other customers who do not have a position in ACME stock, and believes that if the price falls sufficiently, the stock represents a buying opportunity. For these customers, she wishes to place orders to buy if the price falls sufficiently. What two orders should she use?
Buy Limit and Sell Stop Placed below current market price
Equity investments fall out of favor with investors due to a period of steep economic decline and stock prices fall broadly. This is an example of:
C. Market risk
A customer wishes to open an account to help pay for her 15-year old son's college education expenses. She is concerned that the son may not be "college material" and wants to be able to take the funds back if he does not attend college. She could do this with all of the following account types EXCEPT:
D. Custodian Account *when funds are donated to a custodian account under UGMA or UTMA, the gift is irrevocable
An associated person is an agent of a broker-dealer registered in State A. The agent quits and goes to work for a broker-dealer located in State B. Which is NOT responsible for notifying the appropriate State Administrator? A. The broker-dealer in State A B. The agent C. The broker-dealer in State B D. The administrator of State B
D. The administrator of state B
Which of the following is NOT defined as correspondence? A. Written letter to a client B. E-mail C. Instant message D. Group E-mail
D. Group e-mail *a group e-mail would fall under the definition of "sale literature". -communication to 25 or more existing or prospective customers
An insurance company that sells an Equity Indexed Annuity (EIA) would use any of the following methods to credit the change in investment value EXCEPT: A. Annual reset B. Point-to-point C. High-water mark D. Moving average
D. Moving average
A broker-dealer registered in States A and B has an agent that is registered in State A. The agent takes an unsolicited order from a customer in State B. The agent will have to register in State B if: A. this is an existing customer who resides in State A but is temporarily vacationing in State B B. the customer is the issuer of the securities involved in the transaction C. this is an isolated transaction D. the customer is an accredited investor
D. The customer is an accredited investor
The risk premium is the rate of return on an investment over the:
money market return *money market instruments are considered to be almost riskless, so their rate of return approximates the "risk-free" rate of return
What is "financial leverage?"
Debt as a percentage of equity
A value investor seeks stocks that have high:
Dividend yields
CAPM
Expected Rate of Return=Risk-Free ROR+B(Expected Market Return-Risk-Free ROR)
If a person accumulates a 5% or greater holding in a publicly held company with the intention of exercising control:
Form 13d must be filed within 10 business days
Under the Uniform Securities Act, which of the following are defined as federal covered investment advisers? I Investment advisers managing assets of $100,000,000 or more II Investment advisers to investment companies registered under the Investment Company Act of 1940 III Investment advisers to insurance companies
I and II Federal covered advisers need only register with the SEC; they are not required to register with the State; though they may be required to file notice with the State.
A private fund adviser must file: I Form PF with the SEC II Form BD with the SEC III Form ADV with the SEC IV Form RIA with the SEC
I and III
Which statements are TRUE regarding licenses held by broker-dealers and agents? I If a broker-dealer's license is suspended, all of its agents' licenses are suspended II If an agent's license is suspended, the broker-dealer's license is suspended III If the broker-dealer's license is suspended, its agents may become associated with another broker-dealer
I and III
An agent of a broker-dealer puts up a website that promotes the benefits of dollar cost averaging, including the caveat that it is suitable for investors only if they can maintain their periodic payments regardless of economic conditions and that it requires a long-term investment time horizon. If the website is viewed by an individual in another State where both the broker-dealer and agent are not registered, which of the following disclosures are required on the site in order not to be in violation of the Uniform Securities Act in that State?
I"The broker-dealer or agent may only transact business in the State if registered in the State or if exempted or excluded from registration" II"Follow ups or individualized responses to persons in the State that involve either effecting or attempting to effect transactions in securities will not be made absent compliance with State registration requirements or an applicable exemption or exclusion"
Investment advisory contracts, under the Investment Advisers Act of 1940 MUST: I be in writing II detail the advisory fee III detail the States in which the adviser is registered IV provide for customer approval if the contract is to be assigned to someone else
I, II, IV
To be registered with the SEC as an investment adviser, which of the following are required?
IFiling of Form ADV Part 1 IIFiling of Form ADV Part 2 -a consent to service of process is only filed for State registration, not for SEC registration
Which of the following would NOT be included in Adjusted Gross Income on a tax return?
II Municipal bond interest III Distributions from non-qualified retirement plans attributable to cost basis
Under NASAA rules, which of following are unethical practices when recommending a mutual fund to a customer? I Recommending a letter of intent if the customer does not have the immediate funds to reach a breakpoint II Not disclosing to a customer the sales charge discount if a purchase is made at the breakpoint level III Not disclosing to a customer that dividends can be automatically reinvested without any sales charge imposed IV Recommending the purchase of shares which results in the customer simultaneously holding shares in different investment company portfolios with similar investment objectives
II and IV
Which statements are TRUE about mutual fund distributions that are automatically reinvested? I Dividend distributions that are automatically reinvested are not taxable until the shares are redeemed II Dividend distributions that are automatically reinvested are taxable in the year the distribution is made III Capital gains distributions that are automatically reinvested are not taxable until the shares are redeemed IV Capital gains distributions that are automatically reinvested are taxable in the year the distribution is made
II and IV
Which of the following is (are) included in the computation of stockholders' equity? I Cash II Treasury Stock III Retained Earnings IV Additional Paid-In Capital
II, III, IV The best answer is C. Common stockholders' equity consists of: Common at par + Capital in Excess of Par + Retained Earnings, reduced by any buy backs of that company's stock for its Treasury. Cash is not part of the computation.
Issuers
Incorporated or unincorporated businesses -joint ventures -municipalities
Which item is NOT included in a client's income statement?
Insurance policy amount
All of the following retirement plans allow for the same maximum salary reduction contribution EXCEPT a:
MONEY PURCHASE PLAN -Do not provide for salary reduction contributions -employer can make a maximum annual contribution of 25% of income, up to $56,000 in 2019 -max for 401(k), 403(b) and 457 plans is $19,000 in 2019
The primary risk associated with investing in an index fund is:
Market Risk
Royalties received from an oil and gas program are:
Passive income
The Dividend Discount Model values common stock based on the:
net present value of anticipated future dividend payments
What rate would be used to find the present value of a TIPS?
Real Rate of Return at the time the bond was issued
Which investment offers the greatest protection against purchasing power risk?
Real estate investments
Which of the following is the SIMPLEST business type to form?
Sole Proprietorship
Which statement is TRUE about an individual seeking a waiver from taking the Series 65 exam?
State Administrators will grant a waiver from taking the Series 65 exam to anyone holding a: -CFP - Certified Financial Planner (granted by the CFP Board of Standards); -CIC - Chartered Investment Counselor (granted by the Investment Adviser Association); -ChFC - Chartered Financial Consultant (granted by the American College); -PFS - Personal Financial Specialist (granted by the American Institute of Certified Public Accountants); and -CFA - Chartered Financial Analyst (granted by the Chartered Financial Analyst Institute).
Investment advisers that manage under $100,000,000 of assets are subject to:
State registration only
Weak Form
States that prices reflect all past publicly available information, but that this has no validity for predicting future price movements. It essentially states that price movements are random. This implies that technical analysis is basically useless to improve returns, but fundamental analysis still has potential value.
Strong Form
States that prices respond rapidly to both publicly available and private information, so that no one can profit by trading on this information.
Semi-Strong Form
States that prices respond rapidly to publicly available information, so that no potential gains can be made by trading on that information. This implies that anyone with inside information has an inherent advantage and can profit by trading on it.
What item could a State Administrator require a broker-dealer operating as a sole proprietor to file with the State that would not be required to be filed with the SEC?
Surety Bond
A Totten Trust opened in a deposit taking institution is most similar to a:
TOD account
What type of joint account can only be opened by married couples?
Tenants By Entireties
Investment advisory contracts must include a:
no assignment clause
Stock specific risk is the same as:
non-systematic risk
An investment adviser representative gives a new client who has agreed to buy advisory services the "brochure," but did not obtain the client's signature attesting to this fact at that time. In the brochure is a paragraph stating that the client has the "2 day right of rescission." Which statement is TRUE about this under NASAA rules?
The IA and IAR have failed to comply with NASAA rules because the customer must be given 5 business days after signing the contract to rescind without penalty *no less than 48 hours prior to entering into either an oral or written advisory contract with a customer (a "2 day free look") -or- the customer can sign the contract and be given the Brochure and supplement, and then has 5 business days to terminate without penalty *This is the NASAA rule- the SEC rules under the Investment Advisers Act of 1940 is NOT the same- it simply requires delivery of the Brochure and Supplement, at or prior to, entering into any advisory contract
An agent is employed by First Patriot Bank and Trust Company of Connecticut as a banking representative. The agent is registered in the State with a general securities license through First Patriot Securities, a separate operating subsidiary of First Patriot Holdings - the parent company of the bank. A retired couple that is making their monthly visit to the bank to deposit their social security checks asks the agent about the appropriateness of investing in either mutual funds or certificates of deposit. Which statement is TRUE regarding the actions that the agent may take when giving a response to these customers?
The agent may give advice to the couple about the suitability of investing in either mutual funds or certificates of deposit
Stock specific risk is the same as:
non-systematic risk in a portfolio. As more and more stocks are added to a portfolio, that portfolio begins to resemble the market as a whole. Thus, Non-systematic risk can be diversified away
A broker-dealer is offering an IPO to the public. The broker-dealer is:
not permitted to withhold shares from sale to the general public
A customer buys a 3-year maturity, 6% coupon bond at par. If market interest rates rise to 8%, then the bond's price will fall by: A. 2% B. 5% C. 10% D. 25%
The best answer is B. The customer bought this 3-year bond at par with a coupon rate of 6%. If market interest rates rise to 8%, then the present value of the bond's cash flows will fall as follows: Year 1: $60 / 1.08 = $55.55 Year 2: $60 / (1.08)2 = $51.435 Year 3: $1060 / (1.08)3 = $841.64 Total Net Present Value = $55.55 + $51.435 + $841.64 = $948.625 The bond will fall in price by $51.375 from $1,000 par, for a fall of 5.1375%.
A customer buys 100 shares of ABC stock at $51 and sells 1 ABC Jan 50 Call @ $4. The maximum potential loss is:
The best answer is B. The worst case is the stock becoming worthless. The customer loses the full value of the stock ($5,100) net of the $400 in collected premiums, for a net loss of $4,700.
Years ago, a bond was issued at par with a 7% coupon. This year, new issue bonds of similar credit quality are being issued at 10%. Which statement is TRUE?
The new bonds will be issued at a premium to the current price of the 7% bonds
What is a characteristic of a dark pool?
Users are not aware of the size or identity of available orders
To calculate a company's Debt/Equity ratio, the needed information is found on the:
statement of financial condition (balance sheet)
An agent moves from one broker-dealer to another. Notification of the change of employer must be made by:
The best answer is D. When an agent moves from one broker-dealer to another, the old broker-dealer, the new broker-dealer, and the agent must notify the Administrator.
A news reporter for the local television station contacts you, the agent, asking about whether one of your customers, a local political figure, has a holding in ABC stock in his portfolio. The news reporter explains to you that he is following a lead that ABC Corporation is about to be awarded a big municipal construction project at the direction of this political figure, and this is likely to increase the value of ABC stock. Which statement is TRUE?
The representative must inform the news reporter that the customer information is confidential and cannot be released
ACME Securities is a registered broker-dealer in State A. ACME is soliciting individuals to work for the firm in their spare time, from a home office. For selling ACME's products to customers, these individuals will be paid 25% of commissions generated. Since these individuals are not working in ACME's office, ACME has classified them as independent contractors. Which statement is TRUE?
These individuals must be registered as representatives in State A by ACME Securities
Two bonds are issued at the same time, by the same company, with the same coupon and maturity. One year after issuance, the bonds are traded at the same time in the market at two different prices. Which statement is TRUE about this?
This could occur because the bonds are traded OTC
A customer of a broker-dealer is extremely satisfied with her investment returns. She calls her agent, who made the recommendations that did so well, and tells him: "Just to say thank you, next year, you get to keep 10% of any investment gains in my account." Which statement is TRUE?
This is not permitted because the agent is sharing in a customer account
A customer wishes to make an investment that provides liquidity, marketability and current income. The BEST recommendation is:
Treasury Note *both preferred stock and Treasury notes provide current income, but Treasuries are more marketable and more liquid so this is the best choice
Inherited cost basis
step up cost basis -date of death
Monte Carlo Simulation
a computer-driven "decision-tree" analysis of possible portfolio returns that can be achieved based on varying factors, such as differing future interest rate levels; equity return levels; inflation rate levels, etc
broker-dealer
a person in the business of effecting securities trades for others or for its own account
Modern portfolio theorists would make investments in securities that lie:
above the efficiency frontier
An investment adviser sends quarterly account statements to each of its clients instead of having the statements sent by the qualified custodian. Under the Investment Advisers Act of 1940, this is permitted as long as the:
adviser is subject to an annual surprise audit by an independent public accountant
An agent
an individual who represents either a broker-dealer or an issuer in effecting securities transactions with customers
To satisfy the requirements of the NASAA brochure delivery rule, customers who wish to buy advisory services must receive a copy of the brochure:
at least 48 hours prior to entering into an advisory contract
The weighting of the Standard and Poor's 500 Index is:
based on the market capitalization of each company included in the index
A customer wishes to maximize liquidity and minimize interest rate risk. The BEST recommendation is:
bonds with short term maturities
A portfolio manager that trades options would:
buy a call option to lock in a stock's price prior to an anticipated price rise
The P/E ratio of a company has been rising. This would occur if investors anticipate that the:
company's growth will accelerate in the future The best answer is B. The P/E ratio is the Price to Earnings Ratio. It measures the stock's price relative to its earnings per share. A high P/E ratio means that the market is giving the stock a high valuation is an indication that the company has strong growth prospects. A low P/E ratio is an indication that the company has poor growth prospects.
The maximum amount that can be given to a child in a 529 plan is:
determined by the limitations established by the State
All of the following must be disclosed by an investment adviser to a customer under the Investment Advisers Act of 1940 EXCEPT an investment adviser who:
does not take custody of client funds is 6 months late paying the rent on the office space
An indication of interest for a new stock offering is normally taken:
during the 20 day cooling off period
Churning
excessive trading of a customer's account with the intention of generating commissions for the agent
All of the following State-registered advisers must file an annual audited financial statement with the Administrator within 120 days of completion of a surprise audit EXCEPT an adviser that:
exercises discretion in customer accounts under a limited power of attorney
An investment in a Real Estate Limited Partnership:
exposes the limited partner to capital risk of the amount invested
Universal life
general account product, as is whole life. These do not offer investment options
The rate of return that considers compounding of returns of the time horizon of an investment is:
geometric rate of return
Broker-dealers
incorporated or unincorporated businesses
Under the Investment Advisers Act of 1940, a solicitor that contacts a customer to purchase the services of an investment adviser must, upon entering into a written contract:
obtain a signed and dated statement from the customer acknowledging receipt of both the adviser's brochure and the solicitor's brochure
Under the Investment Advisers Act, of 1940, required information in the registration application for an investment adviser includes:
officers, directors, and non-participating shareholders of the investment adviser
Royalties received from an oil and gas program are:
passive income
An annuitized account in a variable annuity is most similar to:
pension payments
If an investment company is trading in the market at a price that is higher than NAV, this signifies that the fund is:
priced at a premium
Registration by Qualification would most likely be used for a(n):
primary offering from a new company
The State Administrator, as a condition of registration in the State as an investment adviser, can require the:
publication of an opening announcement in a local newspaper
Under the Investment Advisers Act of 1940, if an adviser accepts prepaid advisory fees of $1,200 or more, 6 months or more in advance of services rendered, each new client MUST:
receive a copy of the adviser's balance sheet *adviser must include a balance sheet in the ADV Form Part 2A that constitutes the "Brochure" that must be given to customer at, or prior to, entering into an advisory contract
An individual who invests in a limited partnership unit has the right to:
receive payouts from the partnership
Securities Exchange Act of 1934
requires the registration of exchanges, member firms, salespersons, transfer agents, clearing organizations, securities depositories and securities information processors -it also requires that "insiders" (officers, directors and holders of 10% or more of a publicly held company) file notices with the SEC
If Congress decides to lower income tax rates, municipal bond yields will:
rise
Non-systematic risk
risk that can be eliminated by diversification
Gifting cost basis
same as donors cost basis
Registration of a security in a State is required if the:
security has been registered with the Securities and Exchange Commission under the 1933 Act
A new customer calls a representative and says the following: "I own 1,000 shares of DEF stock, which is currently held at another broker-dealer. I want to sell the shares at the market." The representative accepts the order from the customer. The order ticket should be marked:
short sale held at other firm, so won't every be able to deliver on time
The fiduciary engaged in the administration of a trust finds that, under the directions of the trust document, there is a conflict of interest relating to a proposed investment. Under the provisions of the Prudent Investor Act, the fiduciary:
should ask the settlor of the trust to amend the trust document by express provision, expanding or restricting the provisions of the trust document for this investment
A portfolio with an objective of global investing would:
spread its investments across both domestic and foreign securities, overweighting countries that are likely to experience faster rates of growth
Futures contracts
standardized contracts to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price (the futures price)