1 Week
Which of the following would be considered a precious metal? A. Tin B. Lead C. Platinum D. Copper
C. The easiest way to answer this question is to add a word to each choice - copper wire, lead pipe, platinum ring, and tin can. Along with silver and gold,
A client of yours owns some convertible preferred stock. She notices an article in the business section of her local newspaper that reports the company is going to pay a 20% stock dividend on their common stock. She wants to know how this will affect her? A. More than likely, the price of the preferred stock will rise B. If there is an antidilution clause, her conversion privilege will permit her to acquire 20% more shares than before the stock dividend C. She will also receive 20% more shares because preferred stock has a priority claim ahead of common D. There will be no effect
B. Most convertible securities are sold with antidilutive clauses that provide for an adjustment in the number of shares based on stock splits or stock dividends
To which of the following situations does the transaction exemption apply? A. The sale of an estate's holding of IBM shares by an executor B. Offering an unregistered security to a maximum of 12 individual customers in a 10-month period C. Canadian government bond offering D. City of Chicago bond offering
A. An exempt transaction relieves the security from any state advertising or registration. Transactions by executors and estate administrators are examples of exempt transactions. Municipal and government bonds are exempt securities, and whether or not they are exempt transactions depends on to whom or how they are sold (that information is not given in this question). The sale of the unregistered stocks is not an exempt transaction (private placement) because the USA only permits offers to a maximum of 10 noninstitutional investors over a 12-month period
A client of your broker-dealer, currently long 1,000 shares of DEF Corporation common stock, wishes to liquidate the position. Based on the following market maker quotes, it would be expected that the firm's trader would direct a market order to A. MMD: 9.75-9.90, 5 x 10 B. MMB: 9.65 - 9.75, 10 x 10 C. MMC: 9.75 - 9.85, 20 x 20 D. MMA: 9.65 - 9.85, 5 x 5
C. A market order to sell 1,000 shares would be directed to the market maker with the highest bid price that is firm for at least 1,000 shares. The highest bid price is $9.75 by both MMC and MMD, but MMD's quote is only firm for 500 shares
A man divorces his spouse after 10 years of marriage and remarries. If the man is the sole provider, what part of the worker's Social Security benefits is the new spouse entitled to? A. She is entitled to the same Social Security benefits as the ex-spouse B. She will be entitled to the same Social Security benefits as the ex-spouse after 10 years of marriage C. The new spouse is entitled to more benefits than the ex-spouse D. The new spouse is entitled to splitting the benefits with the ex-spouse
A. When an individual remarries, the new spouse is entitled to full Social Security benefits. As long as the previous marriage lasted at least 10 years, the ex-spouse (if not remarried) is also entitled to full benefits. That means it is possible for 2 people to receive full benefits at the same time
A state-registered investment adviser maintains custody of client funds and securities. On Thursday, the chief financial officer of the firm informs the chief compliance officer that their net worth is $31,578. Under the provisions of the Uniform Securities Act, the firm would A. Need to increase the amount of their surety bond B. Send a detailed financial report to the Administrator by the close of business Monday C. Send a detailed financial report to the Administrator by the close of business Friday D. Do nothing, as their net worth is far in excess of the minimum requirement of $10,000
B. A state-registered investment adviser who maintains custody of client assets must maintain net worth of at least $35,000 or a bond of the same amount (not both). If the net worth should fall below the minimum, by the close of the next business day after discovery (Friday in our example), notice of the deficiency must be sent to the Administrator of the state in which the principal office of the adviser is located. Then, by the close of business the day after that (Monday in our example), a detailed financial report, including the number of clients served by the adviser, must be sent to the Administrator. The firm would need to increase their net worth, not the bond
You are discussing features of qualified pension plans with a client. You state that in one type of plan "the eventual amount of pension benefits will depend upon the fund's investment performance". You must be referring to which of the following? A. IRA B. Deferred compensation plan C. Defined contribution plan D. Defined benefit
C. The obligation of the employer in a defined contribution plan is to add a specified contribution to the plan. Based on the performance of the investment, the employee will receive a lump sum upon retirement. In a defined benefit plan, the ending value is pre-determined, usually based on the length of service and final salary. A deferred compensation plan is not qualified and an IRA is not a pension plan
Fast Execution Services (FES), a registered broker-dealer, provides investment advice as an incidental part of its commission business. Madeleine, an agent registered with FES, charges for investment advice as a freelance investment adviser outside the scope of her employment at the firm. Which of the following statements are TRUE? I. FES must register as an investment adviser II. Madeleine must register as an investment adviser III. Madeleine need not register as an investment adviser IV. FES need not register as an investment adviser A. III and IV B. I and III C. I and II D. II and IV
D. Broker-dealers who offer advice as an incidental part of their commission business are not required to register as investment advisers. Because Madeleine provides investment advice outside the scope of her employment at the broker-dealer, she must be registered as an investment adviser. Why not an IAR? Because Madeleine is operating this as her own freelance business, she is, in essence, a sole proprietor investment adviser
An agent is registered with a broker-dealer whose principal office is located in State X, but who also does business in State Y. However, the agent is only licensed in State Y and confines her business to residents of that state. The Administrator of State X has what kind of authority over this agent? A. Can check the records of the agent in state Y only with proper prior notification B. Can check the records of the agent in state Y with no prior notification C. Can only take action against this agent when she is physically present in State X D. Cannot check the records of the agent in state Y because it is not State X's jurisdiction
D. Even though the broker-dealer is registered in State X, the agent in question is not; she is only registered in State Y. Therefore, the Administrator has no jurisdiction over the activities of this agent in a state other than his own
Under ERISA, which of the following activities may a fiduciary employ for a corporate retirement plan? A. Employ third-party pension consultants to advise the plan on the purchase of complex financial instruments B. Loan funds to the plan at favorable interest rates C. Lease office space to the plan D. Charge a reasonable commission for the purchase of interests in a real estate partnership that the fiduciary owns
A. Employing third-party consultants to advise the plan on complex financial instruments is permissible, but parties in interest cannot engage in self-dealing under ERISA
Which of the following are regulated under the Securities Exchange Act of 1934? I. Broker-dealers II. Investment advisers III. Pension plans IV. Transfer agents A. I and IV B. III and IV C. II and III D. I and II
A. The Securities Exchange Act of 1934 regulates broker-dealers and transfer agents. Investment advisers are regulated under the Investment Advisers Act of 1940 (and, to a certain extent, the Investment Company Act of 1940), whereas pension plans in the private sector are regulated under ERISA
Which of the following statements concerning universal life insurance are CORRECT? I. Universal life has flexible premiums II. Universal life is based on the assumption that level annual premiums are to be paid throughout the insured's life III. The death benefit can fluctuate, but never below the guaranteed minimum face amount IV. Cash values can fluctuate and may even fall to zero A. I and IV B. I and II C. II and III D. III and IV
A. Universal life features flexible premiums that add to the cash value account, although there are no guarantees and the cash value can disappear if insufficient premiums are paid. There is no guaranteed minimum death benefit as there is with fixed (scheduled) premium variable life. The assumption that level annual premiums are to be paid throughout the insured's life is associated only with ordinary whole life and scheduled premium variable life policies
Although there may be some slight differences in methodology, when S&P or Moody's evaluate a security in order to assign a rating, they would be least likely to consider the issuer's A. Asset turnover ratio B. Liquidity ratio C. Cash flow to debt ratio D. Profitability ratio
A. What is the purpose of a security's rating? To inform investors of the financial risk of an investment. The higher the rating, the lower the risk. This is one of those questions that students answer correctly because all of the other choices are incorrect (they are important factors). Remember, this is a negative question: "least likely". Certainly profitability of the issuer is a key factor in assessing the safety of the issue. Liquidity and cash flow are important factors as well. The rate at which assets are turned over is not nearly as important to determining a rate as the other three
Which of the following are TRUE of a REIT? I. It can qualify for special tax treatment under Subchapter M of the Internal Revenue Code if it distributes at least 90% of its taxable income. II. It may loan money for commercial construction projects III. It generates income by the spread between rental income, the combined mortgage interest, and operating expenses of the property IV. It is only suitable for an investor who is in a 28% or higher tax bracket, who has a net worth in excess of $200,000, or who is able to benefit from the flow-through of losses A. I, II, and IV B. I, II, and III C. II and III D. I and III
B. A real estate investment trust is an investment that makes direct investments in real estate, generating its income from renting the property (e.g., apartments, shopping malls) to lessees. Alternatively, it can make mortgage loans and generate income from them. Depending on its distribution of income, it may qualify for the same type of special tax treatment as a regulated investment company. REITs are not flow-through vehicles, as are DPPs
Which of the following investment advisers would be permitted to use the term "investment counsel"? A. An investment adviser who has been admitted to the bar in the state in which the firm's principal office is located B. A firm whose exclusive business is placing clients' assets into model portfolios C. A financial planner offering a wide range of services to his clients, including tax planning, estate planning, insurance planning, and investment advice D. A professional providing a market timing service with an annual subscription fee of $995, with this service attempting to maximize profits by suggesting entry and exit points for over 100 listed stocks
B. In order for the term "investment counsel" to be used, two criteria must be met. First, the principal business of the adviser must be the rendering of investment advice. Second, the nature of the advice must meet the definition of investment supervisory service. That means giving continuous investment advice to clients based on their individual needs. That is frequently accomplished by selecting model portfolios most appropriate to the client's needs. The financial planner clearly is not principally in the business of offering investment advice because he describes his service as offering a wide range of services, of which advice is only a part. The exam frequently uses that wording to indicate that advice is not the principal activity. While the publisher's principal business activity may be offering advice, nothing about the description indicates that individual client accounts are being monitored
If a company successfully gets the owners of its long-term bond issue paying 7% annual interest to exchange them on a dollar-for-dollar basis with the company's preferred stock paying a 7% annual dividend, what is the effect on EPS? A. Increase B. Decrease C. Not enough information D. No effect
B. The 7% interest payment is moved from a pre-tax deduction to an after-tax dividend payment.. This increases the amount of taxable income, thereby increasing the company's tax liability. The 7% payment remains the same. With an increased tax burden and everything else remaining the same, the EPS will decrease
DERP Corporation's 5% convertible debentures maturing in 2030 are currently selling for 120. The conversion price if $40. One would expect the DERP common stock to be selling A. Somewhat above $48 per share B. Somewhat below $48 per share C. Somewhat above $30 per share D. Somewhat below $30 per share
B. The first step here is to compute the parity price. A conversion price of $40 means the debenture is convertible into 25 shares of the common stock (par of $1,000 divided by $40 = 25 shares). With a current market price of $1,200, the parity price of the stock would be $48. Because convertible securities generally sell at a slight premium over their parity price, the stock should have a current market value a bit less than $48 per share
Under the Securities Act of 1933, all of the following must sign a registration statement for a new issue of nonexempt securities EXCEPT A. The chief financial officer of the issuer B. The managing underwriter of the issuer C. A majority of the members of the board of directors D. The chief executive officer of the issuer
B. The registration statement, which is an issuer document, must be signed by members of the board, as well as by the CEO and the CFO. It is also signed by the lawyers and accountants representing the issuer who express their opinions on the legal and accounting aspects of the proposed new issue
