66 Final #3 - Part 1

A customer has invested $20,000 in a non-tax qualified variable annuity contract. The investment in the separate account is now worth $30,000. The customer is age 60, and wishes to liquidate $5,000 from the account. LIFO taxation is used. The tax consequence of the withdrawal is: A. $5,000 taxable ordinary income B. $5,000 taxable long-term capital gain C. $5,000 non-taxable return of capital D. No tax due if the entire amount is rolled over into an IRA within 60 days

A. $5,000 taxable ordinary income

For the year 2017, the maximum annual contribution to an Individual Retirement Account for a single person is: A. 100% of income or $5,500, whichever is less B. 100% of income or $5,500, whichever is greater C. 100% of income or $11,000, whichever is less D. 100% of income or $11,000, whichever is greater

A. 100% of income or $5,500, whichever is less

Payments received by the owner of a tax qualified variable annuity are: A. 100% taxable as investment income B. only taxable to the extent of earnings above the holder's cost basis C. only taxable to the extent of the holder's cost basis D. non-taxable

A. 100% taxable as investment income

An investment adviser representative has been reviewing the likelihood that an equity investment will produce the desired return. He has determined that the mean return on the investment is 20%, with a 15% standard deviation, and a 95% probability of occurrence. This means that he would expect the range of returns to be approximately: A. 5.00% - 35.00% B. 17.00% - 21.10% C. 4.75% - 33.25% D. 16.15% - 20.05%

A. 5.00% - 35.00%

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" III "The services being offered do not represent an offer to sell securities or a solicitation of an offer to buy the securities in the State unless the subject securities are registered or are subject to an applicable exclusion" IV "The Securities and Exchange Commission has not approved, nor has it disapproved of offering made in this advertisement" A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

A. I and II only

Which of the following are ALWAYS reasons why an agent would be denied registration in a state? I The agent was convicted of a drug felony 7 years ago II The agent was convicted of a securities misdemeanor 8 years ago III The agent was convicted of drunk driving 5 years ago IV The agent is the subject of a securities litigation that has not yet settled A. I and II only B. III and IV only C. II and IV only D. I, II, III, IV

A. I and II only

A cyclical stock would be characterized by: I earnings variability due to changes in economic growth II no earnings variability due to changes in economic growth III a stock price that tends to move in the same direction of the market as a whole IV a stock price that tends to move in the opposite direction of the market as a whole A. I and III B. I and IV C. II and III D. II and IV

A. I and III

An adviser opens a new account for a client. The client gives the adviser $20,000 in cash to open the account. The adviser: I must file a CTR report with FinCEN II must file an SAR report with FinCEN III in 15 days IV in 30 days A. I and III B. I and IV C. II and III D. II and IV

A. I and III

An agent for a broker-dealer tells a customer that the price of a stock is higher than it actually is. Based on this information, the customer sells the stock. Which statement is TRUE? A. The agent is subject to civil action taken by the Administrator B. The agent is only subject to civil action taken by the Administrator if the customer loses money C. The agent's actions are acceptable if the customer is given the opportunity to make up for the trade with purchases of stocks at prices below the current market D. The agent's actions are acceptable if the agent buys the shares back from the customer at an agreed upon price

A. The agent is subject to civil action taken by the Administrator

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? A. This could occur if the bonds were offered through two different dealers B. This could occur if the bonds were position traded by the same dealer C. This could occur if the bonds were trading flat D. This could occur only if there was a trade execution error

A. This could occur if the bonds were offered through two different dealers

An open-end management company is a: A. mutual fund B. publicly traded fund C. fixed unit investment trust D. real estate investment trust

A. mutual fund

State registration of a security registered by qualification becomes effective: A. when the Administrator so determines B. when the SEC registration becomes effective C. 10 business days after filing D. 20 calendar days after filing

A. when the Administrator so determines Registration by Qualification is the most difficult method of registering securities in a State. It is used when an issuer is not registering securities with the SEC and is doing its first time registration in the State. The State knows nothing about the issuer, so it must "qualify" to register securities in the State and the registration is effective only when the Administrator so determines. In contrast, Registration by Coordination "coordinates" an SEC registration with the State registration and the State registration is effective when the SEC registration is effective last registration method - Registration by Filing - can be used by issuers that are either doing SEC filings or by issuers that have previously registered issues in the State. Registration by filing generally becomes effective 5 business days after the filing is completed

Which statements are TRUE? I Strategic portfolio management establishes the basic portfolio structure II Tactical portfolio management establishes the basic portfolio structure III Strategic portfolio management allows market timing adjustments to portfolio structure IV Tactical portfolio management allows market timing adjustments to portfolio structure A. I and II B. I and IV C. II and III D. III and IV

B. I and IV

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 A. I and II only B. II and III only C. I and III only D. I, II, III

B. II and III only

An investor that buys securities issued by companies based in Third World countries would be MOST concerned with: A. Currency exchange risk B. Political risk C. Purchasing power risk D. Interest rate risk

B. Political risk

A customer, age 25, is looking to invest in securities with the objective of growth to protect against the effect of long term inflation on his portfolio's value. The customer believes that active asset management, along with its higher fees, is not worthwhile. Which recommendation is MOST suitable for this customer? A. Long-Term U.S. Government Bond Fund B. S&P 500 Index Fund C. High Technology Growth Fund D. Special Situations Fund

B. S&P 500 Index Fund

An agent of a broker-dealer is effecting non-exempt transactions through a private investment firm owned by his friend. The arrangement has been approved by the broker-dealer, who is not recording the transactions because they are being recorded on the books of the private investment firm. Why is the agent permitted to do this? A. The agent is permitted to do this because the securities involved are non-exempt B. The agent is permitted to do this because the broker-dealer gave approval C. The agent is permitted to do this because an agent is free to engage in securities transactions with any employer once that agent is licensed D. The agent is permitted to do this because the private investment firm is not subject to the provisions of the Investment Company Act of 1940

B. The agent is permitted to do this because the broker-dealer gave approval

For an investor seeking a tax sheltered investment, the primary advantage of a real estate direct participation program is the: A. high level of liquidity provided by the investment B. ability of the program to generate losses for tax purposes but provide positive cash flow C. ability to offset passive losses generated by the program against the investor's earned income D. ability of the program to generate increasing losses until liquidation

B. ability of the program to generate losses for tax purposes but provide positive cash flow

A person who renders investment advice relating solely to municipal securities is: A. exempted from the definition of an investment adviser, and is not required to register under the Act B. defined as an investment adviser and must register under the Act C. defined as a broker-dealer and must register under the Act D. defined as an agent and is required to register under the Act

B. defined as an investment adviser and must register under the Act

All of the following are relevant considerations when determining if a customer account has been churned EXCEPT the: A. customer's investment objective B. length of time that the customer had the account with that broker-dealer C. character of the customer's account D. financial condition of the agent responsible for the account

B. length of time that the customer had the account with that broker-dealer

An IAR has been hired by an executor of an estate to manage the estate's financial assets until they are distributed to the heirs. The account holds the following assets: $2,000,000 ABC Common Stock with a Cost Basis of $600,000 $4,000,000 XYZ Common Stock with a Cost Basis of $4,000,000 The IAR believes that the ABC Common Stock position has peaked in value and is susceptible to a decline, while he also believes that the XYZ Common stock position has some near-term upside. The BEST action for the IAR to take is to: A. do nothing because the account assets must be distributed to the heirs within 9 months B. sell the ABC common stock position and retain the XYZ common stock position C. sell the XYZ common stock position and retain the ABC common stock position D. either hold or sell either of the stock positions using the prudent investor rule as a guideline

B. sell the ABC common stock position and retain the XYZ common stock position

Which of the following statements in an advertisement by an investment adviser would NOT be in violation of the Investment Advisers Act of 1940? A. "We will achieve a 20% rate of return annually over the next 5 years" B. "We guarantee that the rate of return on our investments will not fall below the inflation rate" C. "We have achieved a 20% rate of return annually over the past 5 years" D. "We are likely to achieve a 20% rate of return over the next 5 years"

C. "We have achieved a 20% rate of return annually over the past 5 years"

Which transaction can ONLY be done in a margin account? A. Purchase of stock B. Long sale of stock C. Short sale of stock D. Purchase of an option

C. Short sale of stock

A TIPS is issued with a 3.5% coupon rate and a 5 year maturity. If inflation runs at 4% per year for the 5-year life of the bond, the redemption value of the bond at maturity will be approximately: A. $1,000 B. $1,051 C. $1,219 D. $1,445

C. $1,219 __________________________________________________ After the 1st year, the bond's value is $1,000 x 1.02 x 1.02 = $1,040.40 After the 2nd year, the bond's value is $1,040.40 x 1.02 x 1.02 = $1,082.43 After the 3rd year, the bond's value is $1,082.43 x 1.02 x 1.02 = $1,126.16 After the 4th year, the bond's value is $1,126.16 x 1.02 x 1.02 = $1,171.66 After the 5th year, the bond's value is $1,171.66 x 1.02 x 1.02 = $1,218.99

A customer sells 2 ABC Jan 40 Puts @ $9 when the market price of ABC is $36. The maximum potential loss for the customer is: A. $3,100 B. $4,000 C. $6,200 D. $8,000

C. $6,200

An individual that has not reached retirement age that has an IRA account dies, splitting the estate equally between his wife and his son. The wife has a 16-year life expectancy and the son has a 35-year life expectancy. What is the maximum period of time over which the assets held in the IRA can be distributed to the beneficiaries? A. 1 year B. 5 years C. 16 years D. 35 years

C. 16 years The IRS requires that when an IRA account is left to a beneficiary, as long as distributions have not commenced, the payout from the account must be made based on the life of the "designated beneficiary". This is the beneficiary with the shortest expected life; or alternatively, the distribution can be made over a 5-year period. Since this question asks for the longest period of time for the distribution, this would be 16 years - the life of the wife - who has a shorter expected life than the son.

All of the following risks are essentially equivalent for long term corporate bonds EXCEPT: A. Interest rate risk B. Market risk C. Default risk D. Inflation risk

C. Default risk

Which of the following may be required by the Administrator to be filed by a broker-dealer to maintain registration? I Financial reports II Registration renewal fees III Sales literature IV Renewal consent to service of process A. I only B. II and III C. I, II, III D. All of the above

C. I, II, III

An agent of a broker-dealer wishes to create a website to solicit securities business from customers. Based on each customer's responses to questions asked, appropriate investment recommendations will be made. Which statements are TRUE? I The broker-dealer must review and approve the content of the website II The Administrator must review and approve the content of the website III The broker-dealer must be registered in each State where a customer responds to the website IV The agent must be registered in each State where a customer responds to the website A. I and II B. III and IV C. I, III, IV D. I, II, III, IV

C. I, III, IV

Limited liability companies: I are limited as to the number of investors II give limited liability to investors III allow for flow through of gain and loss A. I only B. I and II C. II and III D. I, II, III

C. II and III

Which of the following are associated with variable annuities? I Level benefit payments II Variable benefit payments III Benefit payments that will fluctuate based on stock market movements IV Benefit payments that are unaffected by stock market movements A. I and III B. I and IV C. II and III D. II and IV

C. II and III

Which of the following statements are TRUE regarding Regulation A offerings? I Offerings of $10,000,000 or under are given a simpler method of SEC registration II Offerings of $50,000,000 or under are given a simpler method of SEC registration III The dollar limitation is based upon any sales by that issuer within a 12 month time frame IV The dollar limitation is based upon any sales by that issuer within a 24 month time frame A. I and III B. I and IV C. II and III D. II and IV

C. II and III

Which of the following are defined as "portfolio income" under IRS guidelines? I Distributive share of income from limited partnership holdings II Proceeds from the sale of securities in excess of the tax basis of those securities III Interest income received from bond holdings IV Dividends received from preferred stock holdings A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

C. II, III, IV

Which statement is TRUE about the use of funds held in a 529 plan? A. The funds can only be used to pay for higher education in the State where the account is established B. The funds can be used to pay for higher education anywhere in the United States C. The funds can be used to pay for higher education in the United States or in foreign institutions that qualify D. The funds can be used to pay for higher education anywhere in the world

C. The funds can be used to pay for higher education in the United States or in foreign institutions that qualify

Examinations given by the Administrator can be: A. written only B. oral only C. both of the above D. neither of the above

C. both of the above

All of the following actions by an investment adviser are violations of the Uniform Securities Act EXCEPT the adviser: A. makes misleading statements to a client, but the client profits from the advice B. makes misleading statements to a client, but no transaction results from the advice C. discloses the risks of the investment, but the client loses as a result of the advice D. makes misleading statements to a client, but the client is an accredited investor

C. discloses the risks of the investment, but the client loses as a result of the advice

An investment adviser has determined that it MUST register as a federal covered adviser. This means that the adviser: A. solicits clients on behalf of other investment advisers B. currently operates in at least 10 States C. has at least $110,000,000 of assets under management D. provides financial planning to customers for compensation as a regular business

C. has at least $110,000,000 of assets under management

Under Regulation SP, customers must be given a privacy notice: A. prior to each recommendation B. prior to each trade execution C. prior to the first transaction D. with each statement of account

C. prior to the first transaction Regulation SP ("Statement of Privacy"), customers must be given a privacy notice at, or prior to, account opening.

All of the following are needed to determine tax filing status EXCEPT: A. marital status on the last day of the year B. whether the filer has a dependent child C. residency of the filer D. cost of home upkeep

C. residency of the filer •Single; •Married Filing Jointly; •Married Filing Separately; •Head of Household; •Qualifying Widow(er) With Dependent Child.

A portfolio with an objective of global investing would: A. invest only in securities issued in foreign countries B. invest only in securities issued by U.S. corporations that have global operations C. spread its investments across both domestic and foreign securities, overweighting countries that are likely to experience faster rates of growth D. spread its investments across both domestic and foreign securities, weighting investments relative to the GDP of each country

C. spread its investments across both domestic and foreign securities, overweighting countries that are likely to experience faster rates of growth

Under the Uniform Securities Act, the financial records of a broker-dealer must be retained for: A. 5 years, with the prior 2 years records readily accessible for audit B. any time period specified by the State Administrator C. the time period specified by the Securities Exchange Act of 1934 and if the record is not specified in the 1934 Act, then the time period specified by the Administrator D. the lesser of the time period specified by the State Administrator or the time period specified in the Securities Exchange Act of 1934

C. the time period specified by the Securities Exchange Act of 1934 and if the record is not specified in the 1934 Act, then the time period specified by the Administrator

Which statements are TRUE when comparing an index mutual fund to an index exchange traded fund? I Mutual funds can be purchased on margin; exchange traded funds cannot be purchased on margin II Mutual funds cannot be purchased on margin; exchange traded funds can be purchased on margin III Mutual funds can be sold short; exchange traded funds cannot be sold short IV Mutual funds cannot be sold short; exchange traded funds can be sold short A. I and III only B. I and IV only C. II and III only D. II and IV only

D. II and IV only

Which security would be expected to have the greatest duration? A. 5 year; 5% coupon bond B. 5 year; zero-coupon bond C. 20 year; 6% coupon bond D. 20 year; zero-coupon bond

D. 20 year; zero-coupon bond

Which statement is FALSE about Exchange Traded Funds (ETFs)? A. ETFs are registered under the Investment Company Act of 1940 B. ETFs are typically structured as open-end management companies C. ETFs hold the underlying shares of companies included in a stock index D. ETFs permit individual investors to buy creation units

D. ETFs permit individual investors to buy creation units

A customer that has $40,000 to invest, but who wishes to use the funds 3 years from now to buy a new car, could be recommended all of the following EXCEPT: A. Money market mutual fund B. Bank CD C. 10 year Treasury note with 3 years left to maturity D. Emerging market mutual fund

D. Emerging market mutual fund

Which statements are TRUE regarding the taxation of capital gains? I A capital gain is first considered to be long term if a position is liquidated at a profit after being held for 1 year or less II A capital gain is first considered to be long term if a position is liquidated at a profit after being held for over 1 year III For investors in the maximum tax bracket, any long term capital gains will be taxed at the same tax rate as that bracket IV For investors in the maximum tax bracket, any long term capital gains will be taxed at a lower rate than that bracket A. I and III B. I and IV C. II and III D. II and IV

D. II and IV Remember the highest tax bracket still gets a discount because maximum tax bumps up to 20% for anyone over $400,000.

In a corporate liquidation, the priority of claim to corporate assets is: A. Unpaid wages and taxes, debenture holders, mortgage bond holders, preferred stockholders B. Unpaid wages and taxes, preferred stockholders, debenture holders, mortgage bondholders C. Mortgage bond holders, debenture holders, unpaid wages and taxes, preferred stockholders D. Mortgage bond holders, unpaid wages and taxes, debenture holders, preferred stockholders

D. Mortgage bond holders, unpaid wages and taxes, debenture holders, preferred stockholders The priority of claim to corporate assets in a liquidation is: Secured creditors, unpaid wages and taxes, trade creditors, unsecured bondholders, preferred stockholders, common stockholders.

A customer enters a bank branch where he has a savings account and is approached by the branch manager who asks: "Are you interested in earning a higher rate of return than we offer on our savings accounts? Let me introduce you to our securities representative." If the customer opens a securities account, which disclosure is NOT required to be made? A. Securities products are not insured by the Federal Deposit Insurance Corporation B. Securities products are not deposits or other obligations of the financial institution C. Securities products are subject to investment risks, including possible loss of principal D. Securities products are subject to taxation of income and capital gains

D. Securities products are subject to taxation of income and capital gains

Under the Investment Advisers Act of 1940, all of the following are requirements for a family office to be excluded from the definition of an Investment Adviser EXCEPT: A. The family office must only provide investment advice to clients who are part of that family B. The family office must be wholly owned by family clients and exclusively controlled by family members or entities C. The family office cannot hold itself out as an investment adviser D. The family office must have less than $100 million of assets under management

D. The family office must have less than $100 million of assets under management

A customer that is short ABC stock in his portfolio buys put options on that stock. Why would the customer do this? A. To protect the ABC stock position from an adverse market move B. To derive additional income from the ABC stock position C. To speculate on the price of the stock going up D. To lock in a price at which the short position can be increased in the portfolio

D. To lock in a price at which the short position can be increased in the portfolio

Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following practices is prohibited? A. Buying a stock on one exchange and selling the stock short on another exchange to lock in a temporary price differential B. Using discretion as to when a customer order to buy 1,000 shares of a specific stock is placed C. Using discretion as to what security to buy with written authorization from a customer D. Using discretion as to what security to buy with oral authorization from a customer

D. Using discretion as to what security to buy with oral authorization from a customer

All of the following statements are true regarding the private placement exemption under Uniform State Law EXCEPT: A. offers can be made to no more than 10 persons in a 12 month period to qualify for the exemption B. all purchases must be made for long term investment C. no commissions may be paid to anyone other than for transactions with financial and institutional investors D. all payments made by subscribers must be deposited to an escrow account until the offering is completed

D. all payments made by subscribers must be deposited to an escrow account until the offering is completed

All of the following are defined as impersonal advisory services under the Investment Advisers Act of 1940 EXCEPT: A. oral advice that is not based upon specific customer situations B. written advice that is not based upon specific customer situations C. statistical information prepared using a computer program about the performance of a security or group of securities D. financial plan prepared using a computer program based upon statistical information provided by the customer

D. financial plan prepared using a computer program based upon statistical information provided by the customer __________________________________________________ The "Brochure Rule" is not required for providers of so-called "impersonal advisory services" that require payment of $500 or less. Such services do not render advice based upon a specific client situation. If the advice is tailored to a customer's specific financial situation and needs (as is the case in Choice D), then such advice is not defined as "impersonal advisory services" and the "Brochure" must be delivered to the customer.

Which of the following risks is the primary concern when investing in a municipal bond? A. purchasing power risk B. market risk C. credit risk D. legislative risk

D. legislative risk

A firm's market making desk, aware that the firm is about to publish a bullish research report on ABCD stock, purposefully increases its long position in order to satisfy anticipated retail demand. This action is: A. permitted without restriction B. permitted as long as the research report is released within 48 hours of the first trade made to increase the firm's position C. permitted as long as the market listing the stock is notified, in writing, of the impending research report D. prohibited

D. prohibited

An order placed to buy or redeem mutual fund shares is filled at: A. yesterday's opening Net Asset Value B. yesterday's closing Net Asset Value C. that day's opening Net Asset Value D. that day's closing Net Asset Value

D. that day's closing Net Asset Value

All of the following transactions are exempt under the provisions of the Uniform Securities Act EXCEPT: A. isolated non-issuer transactions B. transactions effected between an issuer and an underwriter C. unsolicited non-issuer transactions effected by a broker-dealer D. transactions effected between broker-dealers and the public

D. transactions effected between broker-dealers and the public

A customer sells short 100 shares of ABC stock at $60 and sells 1 ABC Oct 60 Put @ $6. The maximum potential loss is: A. $600 B. $5,400 C. $6,000 D. unlimited

D. unlimited