final 1

in which two of the following situations would an IA be required to file the appropriate audited financial statements with a state administrator? 1. discretionary authority has been given to the IA 2. the IA is federally registered under the IA act of 1940 and requires any fees totaling more than $1,200 to be paid 6 months or earlier in advance of service 3. the IA manages assets totaling more than $30,000,000 4. client funds are held in the custody of the IA

a) 1 and 2 b) 2 and 4 c) 2 and 3 d) 1 and 4 B) choice 1 is not included bc when an IA has discretionary authority of a client's funds or securities, the balance sheet filed does not have to be audited. under NASAA reporting requirements, every investment advisor registered at the federal level under the IA act of 1940 must file with the administrator an audited balance sheet as of the end of the IA's fiscal year if the advisor requires payment of advisory fees 6 months or more in advance and in excess of $1,200 per client. also, the audited financial statements must be filed if the IA has custody of client funds or securities

which of the following should be a part of a personal balance sheet 1. the cash value of life insurance policies 2. outstanding credit card balances 3. the original purchase cost of securities owned 4. the market value of the person's residence

a) 1 and 2 only b) 2 and 3 only c) 1, 2, and 4 d) 1, 2, 3, and 4 C) all choices listed represent items which would appear on a person's balance sheet except the original cost of securities owned. securities should be listed according to the current market value as of the date of the balance sheet

an inverted or negative yield curve would indicate which of the following 1. long term maturities are yielding more than short term maturities 2. long term maturities are yielding less than short term maturities 3. short term maturities have moved up quickly with rising interest rates 4. long term maturities have moved up quickly with rising interest rates

a) 1 and 3 b) 1 and 4 c) 2 and 3 d) 2 and 4 C) an inverted or negative yield curve indicates that interest rates have gone up quickly and short term maturities have reacted to the change more quickly than long term maturities. this causes short term maturities to yield more than long term maturities, remember: short term maturities react more quickly to changes in interest rates (faster price fluctuation) whereas long-term maturities will, over time, react more (greater price fluctuation)

which of the following statements are true regarding dollar weighted return and time weighted return 1. dollar weighted return allows investors to compare the performance of one manager to the performance of another manager 2. time weighted return allows investors to compare the performance of one manager to the performance of another manager 3. dollar weighted return allows investors to see a snapshot of their investments in relation to their financial goals 4. time weighted return allows investors to see a snapshot of their investments in relation to their financial goals

a) 1 and 3 b) 1 and 4 c) 2 and 3 d) 2 and 4 C) time weighted return eliminates the effect of cash flows to give an idea of performance. it is an effective way to measure the performance of portfolio managers to one another as well as to a benchmark. dollar weighted return includes cash flows so that investors can get an idea of the returns and growth of their portfolio in relation to their financial goals. it is not an effective way to compare managers

an administrator may deny or revoke an exemption from registration under the USA for which of the following types of securities? 1. municipal bonds 2. stock issued by a bank that is headquartered in another state 3. a security issued by a non-profit corp that has been organized for the exclusive purpose of athletics

a) 1 only b) 3 only c) 1 and 3 only d) 1, 2, and 3 B) as a general rule, the administrator is not permitted to deny or revoke federal exemptions. exceptions to this general rule are made with regards to exchange listed securities, the securities of non-profit organizations, certain investment contracts associated with employee benefit plans, and exempt transactions. here, the administrator is permitted to deny the exemption for the securities of the non-profit org, but would not be permitted to deny the exemptions for the municipal bonds or the stock issued by a bank outside of the administrator's state. these federal exemptions over-ride the administrator's authority

the intent of ERISA is to protect the funds within an employee retirement fund from which of the following

a) ERISA is designed to protect retirement funds from poor management by investment advisory firms and investment advisor representatives b) ERISA is designed to protect retirement funds from fraudulent activity which may take place at an executing broker dealer's place of business c) ERISA is designed to protect retirement funds from poor management by an employer who handles the company retirement policy d) ERISA is designed to protect retirement funds from predatory taxation policies of the federal government C) ERISA was designed and put in place to protect the retirement funds of employees from poor management by employers. it places limitations and establishes guidelines associated with how funds can be invested and used within the retirement plan

which of the following statements is true with regard to the registration of IAs and IARs under the USA

a) IARs are not required to be registered in a state as long as the IA is registered in the state b) IARs are required to be registered only if the IA is registered in a state c) IARs are required to register even when the IA itself doesn't have to register bc of an exemption d) IARs that are giving advice about exempt securities do not have to be registered, even when the IA itself is required to be registered C) it is unlawful for any investment advisor required to be registered to employ an IAR unless the IAR is also registered. the IA may not be required to register in the state, for example, if they are a federal covered advisor

the definition of an investment advisor representative in the USA in any given state would include

a) a clerical employee of an IA which has a place of business in the state b) a tax planner located in the given state who is involved in soliciting, offering, or negotiating sales of IA services c) an officer of a federal covered advisor which has clients in a particular state, but which has its main place of business in another state d) an accountant who gives occasional investment advice in connection with his accounting practice in the state B) an IAR includes anyone who "solicits, sells, or negotiates" investment advisory services, but excludes clerical employees and employees of federal covered advisors. the 4 LATE professions are excluded from the definition if the advice is incidental to their practice and no extra compensation is charged

under the USA, which of the following would not necessarily be considered an investment advisor representative

a) a person who makes recommendations or gives advice with regard to securities b) a person who performs analysis of securities and writes research reports c) a person who determines the suitability of recommendations d) a person who supervises employees who provide advice with regard to the securities B) under the USA, all choices except B are included in the definition of an IAR. a person who does analysis of securities and writes reports is not included in the definition

which of the following is not a money market security

a) a warrant which expires in 9 months b) a banker's acceptance c) CDs that are negotiable d) demand notes with a variable rate A) money market securities are typically short term debt securities. a warrant, or subscription warrant, is a type of security which entitles the holder to buy shares of the stock, usually common. such instruments are usually issued with expirations that extend years or to perpetuity of the underlying stock

excluded from the definition of an investment advisor under the uniform securities act is:

a) an insurance company that, for a fee, provides investment advice to clients b) a trust company that, for a fee, provides investment advice to clients c) a firm that, for a fee, provides investment advice about public institutions only d) a firm that, for a fee, provides investment advice about municipal bonds only B) the uniform securities act defines an investment advisor as anyone who provides advice related to any security for compensation. excluded from the definition are banks, savings institutions, and trust companies (but not insurance companies)

an administrator may require the filing of advertising and sales literature for which of the following securities

a) an oil lease certificate of interest b) common stock offered to existing shareholders c) insurance company guaranteed bonds d) mutual fund shares A) certificates of an interest in an oil lease would be a non-exempt security which must be registered and is subject to the advertising filing requirements. securities that are guaranteed by an insurer are exempt securities and are exempt from registration and the filing of advertisements. issuing securities to existing shareholders is an exempt transaction. investment company shares (mutual fund shares) are considered federal covered securities and are exempt from the registration requirements of the USA

arthur has been henry's investment advisor representative for the last 20 years. recently henry's health has been failing and he was moved into a nursing home. one day henry's son edward calls arthur to ask about his dad's account he is wondering if they should make any changes to the account since it looks like henry will remain in the nursing home. arthur already knows that edward will be the executor of henry's estate when henry passes. which of the following is true with regard to the situation

a) arthur may meet with edward to discuss henry's account since arthur has been informed that edward will become the executor of henry's assets b) arthur may meet with edward to discuss henry's account if and when arthur is provided with such consent from henry c) arthur would not be allowed to provide info about the account to edward under any circumstances, until henry dies and edward is appointed executor of the estate d) arthur would not be allowed to provide info about the account to edward unless henry went into a coma B) NASAA model rules state that IAs shall not disclose the identity, affairs, or investments of any client unless they are required to do so by law or unless consented by the client. with consent, the account can be discussed prior to the client's death

generally, if stock prices are rising and such moves are above the moving averages for that stock's price over the past measured period it would be a signal to a technical analyst to do which of the following

a) buy the stock b) sell the stock c) hold the stock d) sell the stock short A) although there are many components to moving averages, generally if stock prices are increasing and are exceeding that stocks moving averages of past measured periods (60 days, 90 days, 200 days), it would be a signal to buy the stock for the technical analyst

new structured products issued with principal protection have a guarantee of

a) either full or partial return of the original investment if held to maturity b) either full or partial return of the original investment if sold prior to maturity c) full return of the original investment if held to maturity d) partial return of the original investment if held to maturity A) many structured products are issued with a principal protection guarantee of either full or partial return of the original investment if the structured product is held to maturity. you can sell it prior to maturity but the value could be lower than the maturity value. however, the market value could also go higher than the maturity value

a client wants to leave his brokerage account to his 3 adult children as follows: 50% to his son and 25% each to his 2 daughters. the best way for him to establish this account would be as a

a) joint tenancy with a right of survivorship b) tenants in common c) transfer on death d) in trust C) the best and easiest way for a customer to leave the account to his adult children would be to sign a transfer on death or payable on death agreement and designate his children as the beneficiaries under the agreement. on death, the account avoids probate and passes directly to the children. a joint tenancy with a right of survivorship creates beneficial interests in the children now while the parent is still alive (not his intent) and requires that all of the owners have equal ownership interest (not his intent). tenants in common also creates ownership interest now (not his intent). a trust will probably require the services of an attorney to draft the documents and can be complicated and expensive to administer

a single taxpayer with an existing IRA elects to participate in his company's newly formed pension plan. his AGI is $200,000. which of the following is true of this employee's situation

a) no contributions of any kind can be made to an IRA b) contributions can continue as before on a tax deductible basis c) after tax contributions may be made to an IRA by the taxpayer d) the IRA must be closed and the entire amount withdrawn immediately C) after tax contributions of up to $6,000 may be made to an IRA by the taxpayer participating in his company's pension plan. even though you decide to participate in your company's pension plan, you can still make contributions to your own personal IRA. but you cannot take a deduction for the contribution on your tax return. the IRA contribution would have to be made "after tax"

steve owns a sub-chapter s corp and is one of the major shareholders in the corporation. the company has had a good year and has realized capital gains which will be distributed to all shareholders. how will these distributions be reported by the shareholders when they file their tax returns

a) ordinary income b) earned income c) shareholder capital gains d) dividend income C) when a sub chapter s corporatoin has realized capital gains, those gains are distributed to the shareholder as shareholder capital gains. the s corp does not pay taxes, and gains are passed through to shareholders

the yield that a saver earns on a bank certificate of deposit and the annualized percentage rate that an auto dealer earns on a car loan are both examples of which types of rate of return

a) risk free return b) expected return c) internal rate of return d) holding period return D) the holding period return measures the return on an investment while the investment was held. the length of time held can vary and is not known upon purchase. here, the length of time that the CD is outstanding and the length of time that the auto loan is outstanding are not specified, but if we are looking for the overall return while either was outstanding, we are looking for the holding period return

which of the following most accurately describes how stock dividends are treated for tax purposes

a) stock dividends are taxed as ordinary income in the year received b) stock dividends are taxed as capital gains in the year received c) stock dividends result in an adjusted cost basis for the investor, who will then owe ordinary income tax in the year the stock is sold d) stock dividends result in an adjusted cost basis for the investor, who will then have capital gains/losses in the year the stock is sold D) an investor who receives a stock dividend will adjust their cost basis and will have capital gains/losses associated with their cost basis and the current market price in the year that the stock is sold

which of the following communications would subject an IAR to the investment advisor advertising rules

a) talking with an existing customer over the phone about the customer's current portfolio holdings b) speaking on a radio program about the securities market c) answering a question as a guest speaker on a panel about industry trends d) meeting with a prospective client and offering the firm's securities related investment advisory services D) offering investment advisory services to prospective clients falls under the definition of advertising. however, one on one communications with existing customers are excluded from the definition of an advertisement with the caveat that they dont involve new advisory services. also excluded are extemporaneous, live, and oral communications, either broadcast or one on one

which of the following should not be a major consideration by an investment advisor giving advice in accordance with the regulations of the prudent investor act

a) the advisor should consider how inflation may affect investments held in the customer's account prior to purchasing such investments b) the advisor should consider the fees collected and the amount of time remaining in the contract held between the client and the advisor when making investment decisions and creating investment strategies for the client c) the advisor should consider the overall market conditions and state of the economy when advice is being rendered d) the advisor should consider the tax implications of certain investment recommendations and strategies when dealing with clients B) the amount of time until the contract between the advisor and the client expires should not be a major consideration. advice should be relative to the investment objectives of the client and should take into consideration inflation, taxation, and the overall state of the economy. when acting in a fiduciary capacity, the IA should have the client's best interest in mind at all times, not just within the time frame of the contract

a client calls their agent and is inquiring about an interest in an oil and gas program. the client is interested in purchasing limited partnership interests in the venture. the client has called to ask the agent if these limited partnership interests would be considered securities under the USA. which of the following is the best answer to the client's question

a) the agent should inform the client that since this would be a limited partnership interest, these would not be considered securities b) the agent should inform the client that limited partnership interests or participation in an oil, gas, or mining title or lease or in payments out of production under such a title or lease would fall within the definition of a security c) the agent should inform the client that limited partnership interests are normally considered securities, but that oil and gas programs are exempt from this definition d) the agent should inform the client that all limited partnership interests and general partnership interests are considered securities, regardless of the type of arrangement or the business in which the partnership functions B) limited partnership interests in oil, gas, or mining endeavors would fall within the USA definition of a security. limited partnership interests are not always considered securities, but the USA specifically includes oil, gas, and mining endeavors as securities. general partnership interests are not typically considered securities

if an investor is willing to bear market risk, what is the best investment strategy to exploit their acceptance of market risk

a) the best risk management technique in this situation would be to eliminate the unsystematic risk from their portfolio b) the best risk management technique would be to only invest in stocks with a beta of 1.0 or less c) the best risk management technique would be to buy insurance policies that would cover all of the investor's losses d) the best risk management technique would be to invest in treasury bonds in an emergency fund as an aside to their normal portfolio A) if an investor is willing to accept certain amounts of risk in their portfolio, the best investment strategies are those that take advantage of that acceptance of risk while minimizing all other types of manageable risk. if a person was not opposed to accepting systematic or market risk, then you would want to exploit that but at the same time, eliminate as much unsystematic risk as possible

all of the following would be factors that would be used to determine if a common stock was classified as a value stock except

a) the current ratio of the common stock b) the stock's current P/E ratio c) the price of the stock vs the sales of the company d) the stock's price to book value A) value investors focus on value stocks which are undervalued companies with low p/e ratios, low p/b ratios, and good price/sales reports. the current ratio is generally not considered when looking at value stock indicators

a husband and wife sell their home. the sales price is $900,000. they bought the home for $300,000 25 years ago. if the couple file their federal income tax returns as a married couple filing jointly the tax treatment of this transaction is:

a) the entire gain is tax exempt b) the entire gain is fully taxable as a long term capital gain c) part of the gain ($500,000) is tax exempt and part of the gain ($100,000) is taxable as a long term gain d) part of the gain ($250,000) is tax exempt and part of the gain ($650,000) is taxable as a long term capital gain C) under the federal income tax rules, the first $250,000 of the gain is tax exempt for a single filer and the first $500,000 of the gain is tax exempt for a married couple filing jointly. the balance of the gain is taxable as a long term capital gain (usually at the 15% rate)

qualified plan fiduciaries, responsible for the investment choices of a qualified plan, would find which of the following in the investment policy statement of the plan

a) the investment manager's compensation arrangement b) the specific asset allocations required among asset classes to minimize the risk of large losses c) the goals, objectives, and responsibilities of the plan participants d) the tax treatment of the plan C) an investment policy statement for a plan fiduciary would contain the participants' or clients' investment goals and objectives. though an investment policy statement would include the recommended allocations among asset classes as to minimize risk of large losses, it would not include required asset allocations

an investment's performance is best measured by

a) the investment's yield b) the investment's total return c) the investment's benchmark return d) the investment's capital appreciation B) the best measure of an investment's performance is the sum of income and capital appreciation, known as total return

which of the following is true of revenue bonds

a) they are issued and paid for by the US treasury department b) they are commonly paid for with property taxes levied at the state and local levels c) they are commonly paid for by money coming in from user charges d) they are always considered risky investments C) revenue bonds are a form of municipal debt. these are paid for by the revenues collected from users of the facilities. a good example of a municipal revenue bond would be a toll road or toll bridge. the facility is authorized, the bonds are issued, and the road or bridge is created. the tolls collected from users go towards paying for the debt service and maintenance of the facility. though these are a form of municipal debt, they are not paid for with property taxes like general obligation bonds. revenue bonds can range in risk level from very safe to very risky

which of the following is correct regarding registered bond certificates?

a) they pay interest annually b) coupons are physically attached to the bonds c) ownership of the bond is transferable only upon proper endorsement d) principal payments are sent to a clearing house and then directed to the registered owner of the bond C) the only correct statement is ownership of the bond, in certificate form, is transferable only upon proper endorsement. all of the other statements are false