Simulated exam 11.1.17
Advantages of using the partnership form of business organization include which of the following?
Ease of dissolution. Partnerships are relatively easy to form and to dissolve. They are not practical for raising large sums of capital as are corporations. General partners have full personal liability, and partnership agreements specify events that will lead to the termination of the entity. Reference: 14.3.7 in the License Exam Manual
A bond with a par value of $1,000 and a nominal yield of 6% paid semi-annually 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 The YTC computation involves knowing the amount of interest payments to be received, the length of time to the call, the current price, and the call price. With a 15-year call, there are only 30 semiannual interest payment periods, not 50. The present value is $1,300 and the future value is $1,080; the reverse of the numbers indicated in the answer choices. Reference: 5.3.1.4 in the License Exam Manual
Which of the following would NOT be considered an investment adviser under Release IA-1092?
The president of an investment club who provides research and advice to the members of his club on a regular basis as an integral part of his duties. The president of the investment club does not meet all three of the required elements in the definition of an investment adviser as outlined in Release IA-1092. The investment club president is neither in the business of providing advice nor does he receive compensation for his services. Agents for athletes are considered investment advisers if they include investment recommendations as part of their services, whether or not they have discretion over the funds. Reference: 3.2.1 in the License Exam Manual
As an investment adviser, you feel that RAN common stock is an appropriate addition to the portfolio for several of your clients. You enter an order to purchase 1,000 shares and receive two 500 share confirmations, but they are not at the same price. Which of the following is the proper procedure for you to follow:
allocate using the average of the two prices. This is the only fair thing to do. Reference: 3.19.3 in the License Exam Manual
Credit risk would be a concern to investors in
equity-linked notes Credit risk is found in debt instruments. The only choice in this question that represents a debt obligation is the ELN. Reference: 7.1.8 in the License Exam Manual
A bond's yield to maturity reflects its
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. Reference: 12.1.1.5 in the License Exam Manual
One of your annuity clients contacts you for some information. The client recently saw a presentation touting the benefits of variable life insurance and wants to know how that product is similar to the variable annuity in his portfolio. You could respond that both products
offer a choice of separate account subaccounts The one similarity between these two variable contracts offered by life insurance companies is that money is deposited into a separate account. This separate account will generally have a number of subaccounts with different risk profiles in order to meet the client's objectives. Only the life policy with provide tax-free benefits at death; the death benefit of the VA is subject to income tax. Cash value only applies to VL, not a VA, and only the VL policy requires a physical exam. Reference: 8.2.4.10 in the License Exam Manual
An investor owns a 2x leveraged reverse ETF. If the underlying index should increase in value,
the fund shares will decrease in value by a factor of 2 A reverse, or inverse, fund will move in the opposite direction of the underlying index. Because this is a 2x (2 times) leveraged fund, it will move at a rate that is twice that of the index. Reference: 7.1.10 in the License Exam Manual
A Canadian broker-dealer is registered in Province Q. The firm has clients who vacation in several New England states and they would like to continue to do business with them while on their holidays. Under the Uniform Securities Act:
this is permissible if the broker-dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states. The Uniform Securities Act provides for a form of limited registration for Canadian broker-dealers wishing to do business with their clients who are vacationing or otherwise traveling through the United States. In order to qualify for the limited registration, the BD must be properly licensed in its home province and they're only dealing in the states is with an existing client. Reference: 2.3.2.6 in the License Exam Manual
The Investment Company Act of 1940 allows a majority vote of outstanding shares of a registered investment company to authorize the fund to: I. borrow money from a commercial bank. II. invest funds in securities consistent with the fund's objectives. III. change the objectives of the fund. IV. change the nature of its business and cease to be an investment company.
I, III and IV. Under the Investment Company Act of 1940, a vote of the majority of outstanding shares may approve borrowing money from a bank, changing the investment objectives of the fund, and deciding to cease to be an investment company. Shareholder approval is not necessary to authorize the fund to invest consistent with the fund's objectives. Reference: 1.10.7 in the License Exam Manual
Under the Investment Advisers Act of 1940, in which of the following cases has an investment adviser acted improperly by not making appropriate disclosures to clients? I.An adviser that requires prepayment of $1,000 in fees, nine months in advance, has liabilities that exceed its assets and does not disclose this fact to clients. II.An adviser that has investment discretion over client accounts cannot meet its financial obligations as they come due and does not disclose this fact to clients. III.An adviser that does not require prepayment of fees and does not have discretion over accounts or custody of client securities or funds has just been found by a state court to have violated a rule issued by the SEC and does not disclose this fact to clients.
II and III An adviser's financial impairment must be disclosed to clients if the adviser has discretion or has custody or requires prepayment of more than $1,200 in fees, six or more months in advance. Legal or disciplinary action taken against an adviser by a court or a regulatory authority within the past ten years must be disclosed to clients in any case. Note also that by requiring prepayment of over $1,200 in fees, six or more months in advance, an adviser is required to include an audited balance sheet with Part 2 of Form ADV, which must be filed with the SEC and made part of the adviser's disclosure brochure. Reference: 3.6.4 in the License Exam Manual
Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle?
Segment rotation, more commonly known as sector rotation, involves altering portfolio composition based on which sectors are poised to outperform as the business cycle is changing phases. Reference: 16.6.3 in the License Exam Manual
According to the USA, under which of the following circumstances may an Administrator cancel an agent's registration?
The agent is judged to be mentally incompetent. Registration may be canceled by the Administrator if the registered individual has been judged mentally incompetent. Cancellation is a nonpunitive action of the Administrator. Reference: 2.14.5.2 in the License Exam Manual
A client has a $250,000 portfolio accumulated by aggressively trading speculative stocks. The client grants discretionary authority to a registered investment adviser and directs the adviser to continue the speculative strategy. If after 1 year the account value has declined by ½ and the client complains to the adviser about the performance, the investment adviser should:
do nothing since the adviser acted in accordance with the customer's directions. The investment adviser acted in accordance with the customer's directions and therefore, should do nothing. If, however, the complaint was in writing, it must be noted and placed into the complaint file with a description of the action taken and final disposition. Reference: 3.12 in the License Exam Manual
Under the net present value (NPV) method of evaluating investments, an investment is acceptable if the present value of the expected returns is:
greater than zero. Under the net present value (NPV) approach, an investment is acceptable only if the present value of the expected returns is greater than the amount of the investment outlay. In other words, an investment is acceptable if the net present value is greater than zero. Reference: 12.1.1.4 in the License Exam Manual
A sale of a security has been made by an agent not registered in the state. The agent is brought to court by the Administrator. The court has the power to require the agent to:
make the client whole. The Administrator may bring a case to court where the agent is found civilly liable. In that case, restitution may be ordered by the court. The Administrator does not have to go to court to require the agent to retake a qualification exam. Civil cases like this would not result in a prison sentence. Reference: 2.15.1.2 in the License Exam Manual
One of the surest ways to explain to a client that an investment opportunity presented via social media is likely to be a scam is
the promise of high returns with low risk A high return with low risk is almost always an indication that something is not right about an investment. Even though SEC-registration is no guarantee of success, at least we know the issuer has gone through the rigor of filing the registration statement and making full disclosure. An escrow account offers investors protection and audited financial statements allow for a true look at the issuer's financial condition. Reference: 2.4.6.1.1 in the License Exam Manual
