Kaplan Final 2
NAV is computed by all the following except - interest payments made on debt securities held in fund's portfolio - a drop in value of equity securities held in the fund's portfolio - capital gains distribution - a greater value of shares being redeemed than purchased
- a greater value of shares being redeemed than purchased. Purchases and redemptions are made at the NAV.
An individual works for an accounting firm that does not have a retirement fund. She is paid $18,000 per year. During her spare time, she is a commercial artist and earned $16,000 doing this work last year. What is the basis for her contribution under a Keogh plan (HR-10)? $18,000.00 $34,000.00 $0.00 $16,000.00
16k. Her Keogh plan contributions must be self-employed income
This is the performance of your portfolio over the previous 4 years: Year 1 - 10% Year 2 - 45% Year 3 + 20% Year 4 + 35% In order for the portfolio to be equal to the starting investment, the return in Year 5 must be nearest to 33%. 0%. 20%. 25%.
25%. In Year 1, you lose 10%. Your portfolio is now worth $1,000 x (1 - 0.1) = $1,000 x 0.9 = $900. In Year 2, you lose 45%. Your portfolio is now worth $900 x (1 - 0.45) = $900 x 0.55 = $495. In Year 3, you gain 20%. Your portfolio is now worth $495 x (1 + 0.2) = $495 x 1.2 = $594. In Year 4, you gain 35%. Your portfolio is now worth $594 x (1 + 0.35) = $594 x 1.35 = $801.9. $801.9 x (1 + y) = $1,000. Solving this equation for "y" gives: y = ($1,000 ÷ $801.9) - 1 = 0.247 = 24.7%.
A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclosing which of the following fees? Markups and markdowns Account closing fees Commissions Advisory fees
Account closing fees It is very common for a broker-dealer to charge a fee for processing the closing of an account. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: 1. commissions; 2. markups and markdowns; and 3. advisory fees for those firms that are also registered as investment advisers.
Client invests 10k with expected after tax return of 8%. Funds are to be used for daughter's college in 12 years. Which of the following is needed to determine whether the investment is likely to satisfy the client's goal? expected cost of college consumer price index present value client's marginal federal income tax bracket
Expected cost of college. To determine whether the investment will satisfy the goal the IAR needs to know the amount needed to pay for college.
An investment adviser has recommended funds sponsored by the GEMCO Fund group for many years. One of his clients who has been in several GEMCO Funds for over 10 years sends the IA a referral suggesting that the IA put his friend into the same GEMCO Funds as he owns. Under what circumstances would this be the appropriate action to take? GEMCO Funds are suitable for the referred client. The IA discloses that GEMCO Funds provides the firm with soft-dollar compensation.
GEMCO Funds are suitable for the referred client. When determining what securities to recommend to any client, new or existing, the most important thing is suitability.
If an agent fails to inform a client that a company whose security he is selling is changing the investment managers of its employee's pension plan, under the Uniform Securities Act, this omission constitutes a misdemeanor a criminal violation punishable by up to three years in prison a civil violation punishable by a fine up to $5,000 no violation
No violation occurs because the Uniform Securities Act requires the disclosure of only material facts. Material facts are those that could influence the price of a security. Changing investment managers on a pension plan would not affect the price of a stock and is not material to the investment decision.
Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle? Cyclical rotation Tactical portfolio management Segment rotation Strategic portfolio management
Segment rotation. Aka as sector rotation
Alex Alexander is planning on registering as an agent for a broker-dealer. Which of the following would be the least likely requirement for a successful application? Filing an application for registration Paying the filing fees Taking and passing an examination Submitting fingerprints
Submitting fingerprints Fingerprints are not a specific requirement of the Uniform Securities Act.
Under which of the following circumstances would a premature distribution from a traditional IRA be exempt from the premature distribution penalty? A distribution taken at age 55 if the owner is retired When the distribution is paid in equal annual amounts over the owner's life When the account is fully funded with nondeductible contributions A distribution taken to satisfy the terms of a court-ordered property settlemen
When the distribution is paid in equal annual amounts over the owner's life. A distribution from an IRA taken in equal annual amounts over the owner's life is not subject to the 10% premature distribution penalty even if started before age 59½. This is one of the exceptions that apply to IRAs. The exception for qualified domestic relations orders (QDROs) and for retirement at age 55 apply to employer-sponsored plans but not to IRAs.
Martin holds both the CPA and the CFP designations. Within the previous year, if he has provided portfolio advice to approximately 40 clients, is Martin required to register as an investment adviser? No, because he falls under the de minimis exemption having relatively few clients. No, because he is a CPA. Yes, because he provides investment advice on a more than incidental basis. Yes, because he could receive commission income from investment clients.
Yes, because he provides investment advice on a more than incidental basis. Although Martin is an accountant, he provides investment advice on a more than incidental basis (typically regarded as more than 10 client contacts per year). Nothing indicates that Martin will be executing commissionable trades; only providing advice.
All of the following statements regarding scheduled premium variable life insurance are correct EXCEPT - better than anticipated results in the separate account could lead to a reduction in annual premium - premiums are determined based on age and sex of the insured - the policyowner has the right to change the selection of subaccounts once selected - the policyowner may change payment modes
better than anticipated results in the separate account could lead to a reduction in annual premium Scheduled (fixed) premium variable life premiums are fixed. It is universal life that has flexible premiums.
Insurance agent uses capital needs analysis to help determine the correct amount of life insurance needed by their clients. Which of the following would not be a part of the analysis market volatility life expectancy future earnings the inflation rate
market volatility. There is no way of knowing how the market will perform.
An investor purchased 100 shares of GRA stock at $100 per share in a margin account. Two years later, the GRA was sold for $120 per share. If the investor's account was charged $700 in margin interest, it would be proper to state that this is an example of positive margin. negative margin. a speculative investment. a long-term capital gain of $1,300.
positive margin. Positive margin means that, after taking into consideration the interest paid on the borrowed money in a margin account, a specific transaction was profitable (negative margin is the reverse). In this case, the sale resulted in a gain of $2,000 which is $1,300 more than the interest cost.
The capital asset pricing model (CAPM) is an investment theory that serves as a model for measuring the correlation between a security and the overall market pricing securities based on their unsystematic risk pricing securities based on their total risk pricing securities based on their systematic risk
pricing securities based on their systematic risk Under the CAPM, securities are priced based on their systematic risk only, because this risk cannot be eliminated through diversification. The expected return of a security or portfolio is calculated by adding the rate on a risk-free security to a risk premium multiplied by the asset's systematic risk.
Owners of private activity municipal bonds might find themselves receiving less interest than with a similar GO bond. taking an extraordinarily high risk. in violation of MSRB rules if proper disclosures are not made. subject to the alternative minimum tax
subject to the alternative minimum tax The interest on private activity municipal bonds, used for things like airports, student housing, etc., is exempt from federal taxation, but is considered a preference item for the AMT.
News reports indicate that the wheat crop scheduled to be harvested in 3 months will be much larger than normal. To hedge, a wheat farmer would most likely take a short position in wheat futures. grow corn instead. sell wheat stocks short. take a long position in wheat futures
take a short position in wheat futures. A bumper crop means lower prices for the producers (farmers). The appropriate protection is a short hedge - selling wheat futures. Think of it this way - if you thought a stock's price was going to decline, you would sell that stock short. Here, believing that wheat prices will decline, you take a short position in that commodity futures contract. There is no such thing as wheat stock and the wheat has already been planted; it is too late to switch crops.
The term used to describe a customer initiated order that includes all of the details except time and price is unsolicited limit solicited discretionary
unsolicited When the order to buy or sell is initiated by the customer, it is considered to be an unsolicited order. Discretionary orders leave the decision as to what security, how much, and buy or sell up to the designated agent. Limit orders carry a specified price and time.
Inverse ETFs are suitable primarily for investors who follow a passive investment strategy. wishing to leverage their income. who are bullish on the market's future. with a very short time horizon.
with a very short time horizon. Inverse and leveraged ETFs are structured in such a manner that makes holding them for more than a few days or a week becomes unattractive. They are for bearish investors, which is why they are often referred to as short funds. They are purchased for short-term capital gains; there is no income. The passive strategy is for the long-term, not the short-term
A review of an agent's client's account indicates daily trading with rapid portfolio turnover. Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this would NOT be considered excessive trading activity (churning) if - the client has approved each trade - the client's account shows a profit - each security purchased is suitable for the client - the client's investment objective is quick return, the client has the financial resources necessary for such activity, and the agent uses a sophisticated technical program designed to cut losses and take profits quickly
- the client's investment objective is quick return, the client has the financial resources necessary for such activity, and the agent uses a sophisticated technical program designed to cut losses and take profits quickly The Statement of Policy determines whether the trading is excessive by evaluating the client's investment objectives, financial resources, and the character of the client's account. While such trading activity is not suitable for everyone, there are some clients for whom such activity would be suitable. Having client approval for each trade does not necessarily eliminate the requirement to only make suitable recommendations, nor does it excuse excessive trading. A security may be a suitable purchase for a client, but not be suitable for rapid trading. To be sure, there is a greater likelihood of a churning case when the client has lost money, but there have been many cases where even when a profit has been made, churning has been the verdict
Under the Uniform Securities Act, which of the following may have to qualify as an investment adviser representative? An agent who offers incidental advice on securities as part of his sales commissions An individual who renders fee-based advice on precious metals An employee, although highly skilled in evaluating securities, solely performs administrative or clerical functions for an investment adviser A solicitor for an investment advisory firm who is paid a fee for his services
A solicitor for an investment advisory firm who is paid a fee for his services If the goal is obtaining clients for the investment adviser, a solicitor is generally considered an investment adviser representative under the Uniform Securities Act. Although the term, solicitor, has been largely replaced in the federal law with the term, promoter, we expect you'll still see frequent usage of solicitor on the state (NASAA) exams. An employee who performs clerical or administrative functions only is not an investment adviser representative. Precious metals are not securities, and a person advising on them is not considered an IAR. An agent is a representative of a broker-dealer.
Which of the follow is not a feature of ADRs? A. They are not subject to exchange rate or currency risk B. ADRs are traded on exchanges and the OTC markets C. Information regarding the foreign company is easily attainable D. ADRs are denominated in and pay dividends in U.S. dollars
A. They are not subject to exchange rate or currency risk. THEY ARE.
In which of the following cases is a 3rd-party trading authorization acceptable? A. The spouse of a client sends an email to the investment adviser saying that the client has given authorization to the spouse to trade in the account. B. The trades will be made through a broker-dealer under common control with the investment adviser. C. A client's secretary presents a card signed by the client stating that the secretary can trade in the account while the client is on a business trip. D. An investment adviser makes a hospital visit to a client who was critically injured. While there, the client gives oral instructions to permit her daughter to trade in the account.
C. A client's secretary presents a card signed by the client stating that the secretary can trade in the account while the client is on a business trip. Third-party trading authorization must be in writing; oral authority is never acceptable. If the email came from the client directly instead of the spouse, it would be acceptable.
Canadian Government is looking to create their own digital coin that will allow them to regulate digital assets safely and securely. What is the name of this development stablecoin? Bitcoin Ethereum CanadaCoin Central Bank Digital Currency
Central Bank Digital Currency
A professional tennis player comes to you seeking advice on setting up a trust. She is interested in giving to charity and also wants discretion as to when income is distributed to the beneficiaries, her parents. Which trust do you advise she use? Complex trust Charitable remainder trust Simple trust Charitable lead trust
Complex trust Only a complex trust allows the two features that she requires. Simple trusts may not make charitable contributions, and they provide no discretion on income distribution. The two types of charitable trusts mentioned provide no ongoing discretion as to when income is distributed or who the beneficiaries are.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following? I. They must be renewed on an annual basis. II. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. III. They must prohibit assignment of the contract without the client's consent. I, II and III II and III I and III I and II
II. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. III. They must prohibit assignment of the contract without the client's consent. There is no requirement that advisory contracts be renewed on an annual basis. Contracts can be written for any length agreed upon. Advisory contracts must describe the amount of any prepaid fee that will be returned to the client if the contract is terminated and must prohibit assignment without the client's consent.
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? She will also receive 20% more shares because preferred stock has a priority claim ahead of common. More than likely, the price of the preferred stock will rise. If there is an antidilution clause, her conversion privilege will permit her to acquire 20% more shares than before the stock dividend. There will be no effect.
If there is an antidilution clause, her conversion privilege will permit her to acquire 20% more shares than before the stock dividend. 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.
A deceased client's trust account has over 90% of its value invested in a single common stock whose recent performance has been outstanding, resulting in a very large unrealized capital gain at the time of death. What action would most likely be taken by the investment adviser handling this account? Selling all of that stock in order to rebalance the trust's assets Exchanging a portion of that stock for a suitable security held in the adviser's trading account Liquidating a portion of that stock to take advantage of the tax savings offered by the stepped-up basis at death Continuing to hold that stock position if it is felt that it meets the objectives of the trust
Liquidating a portion of that stock to take advantage of the tax savings offered by the stepped-up basis at death. Under current tax law, a beneficiary inherits assets at their fair market value as of the time of death. This is known as a stepped-up basis (probably because these assets are generally at a higher price than when originally purchased). In this question, we are told that there is a large unrealized gain. Therefore, with a portfolio that is overconcentrated in 1 security, it would make sense to diversify while, at the same time, avoiding or minimizing capital gains taxes.
Under the Uniform Securities Act, which of the following statements regarding the consent to service of process is NOT true? Only applicants whose principal office is in another state need to file a consent to service of process. Investment advisers and investment adviser representatives must file a consent to service of process to become registered. A consent to service of process does not need to be supplied each time a registrant's registration is renewed. A consent to service of process makes legal process served on the Administrator as legally binding as process served on the registrant personally.
Only applicants whose principal office is in another state need to file a consent to service of process. All applicants for registration must file a consent to service of process regardless of where their principal office is located. A consent to service of process grants legal authority for the Administrator to receive legal notices on behalf of the registrant and applies to all securities professionals. The document is part of the initial registration and, once filed, does not have to be renewed.
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? The new spouse is entitled to more benefits than the ex-spouse. The new spouse is entitled to splitting the benefits with the ex-spouse. She will be entitled to the same Social Security benefits as the ex-spouse after 10 years of marriage. She is entitled to the same Social Security benefits as the ex-spouse.
She is entitled to the same Social Security benefits as the ex-spouse. 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, that 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 wealthy individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed? The original value plus any appreciation is taxed as part of the grantor's estate. No tax is due if the grantor should die during the term of the trust. The original value plus any appreciation passes to the beneficiaries but is subject to gift tax. The original value plus any appreciation passes to the beneficiaries and is taxed as ordinary income.
The original value plus any appreciation is taxed as part of the grantor's estate. One of the risks in setting up a GRAT is that if the grantor dies during the term of the trust (usually 3-10 years), the assets put in the GRAT, plus any appreciation, are included in her estate.
A federal covered registered investment adviser who receives compensation for advice and whose business is primarily as an investment adviser may describe its business as investment counsel if - it receives SEC approval to use the definition - a substantial part of his business is providing investment supervisory services - it maintains its registration by filing an updating amendment to its Form ADV annually - it maintains custody of customer funds and/or securities
a substantial part of his business is providing investment supervisory services The Investment Advisers Act of 1940 prohibits the use of the term "investment counsel," unless the principal business of the person is as an investment adviser and a substantial part of the business is providing investment supervisory services (i.e., continuous advice for individual client portfolios).
One of the primary differences between trading on listed exchanges and trading in the over-the-counter market is that only on the exchanges are prices determined by the FINRA 5% markup policy through a negotiation process by an auction process by the exchange itself
by the auction process One of the chief characteristics of exchange markets is the auction process for determining the price of a security. In the OTC markets, prices are determined by negotiation. The stock exchanges do not set the price, and although FINRA's markup policy is used to determine the charges to customers, that is separate from determining the security's price.
Form ADV-E must be completed by IA that have
custody of client funds and that are subject to annual surprise examination. Then the IA gives this form to the independent public accountant that, in compliance with the Investment Advisers Act of 1940 or applicable state law, examines client funds and securities in the custody of the investment adviser.
A federal covered investment adviser may enter into a contract with a client that provides for performance-based compensation under all of the following conditions EXCEPT - the formula used to calculate compensation includes realized capital losses and unrealized depreciation - compensation is based on gains, less losses, for a period of no less than 1 year - disclosure that the performance compensation may create an incentive for the adviser to take greater risks - the client must meet certain minimum financial standards
disclosure that the performance compensation may create an incentive for the adviser to take greater risks Please note: State-registered investment advisers must make this "incentive" disclosure so if the question asked about them, there would be no exception. Because these types of compensation agreements may only be entered into with clients meeting minimum financial standards, the SEC assumes that clients understand the increased risks they are being exposed to.
There are many different legal ways to structure a new business entity. One of these is the general partnership. Among the benefits of using this structure would be limited liability ease of formation substantial capital can be raised with little effort and low cost the 50% dividends received exclusion
ease of formation. Compared with a corporation, it is generally easier to form (and dissolve) a partnership. General partners have full liability and there is no 50% dividends received exclusion for partnerships; that only applies to corporations. C corporations are the entity for raising a lot of capital.
A publicly traded corporation offers its employees an opportunity to purchase shares of the company's common stock directly from the issuer. A specific employee of the company is designated to process any orders for that stock. Under the USA, the employee - may receive commissions without registration - must register as an agent of the issuer - need not register as an agent of the issuer under any circumstances - must register as an agent only if he will receive commissions or remuneration, either directly or indirectly related to the volume of sales
must register as an agent only if he will receive commissions or remuneration, either directly or indirectly related to the volume of sales Under the USA, an individual is an agent when effecting transactions with an issuer's existing employees if commissions or other remuneration related to the sale are paid. Therefore, there are cases where the employee would have to register as an agent. When the individual is paid a straight salary for this work, no registration is required.
Which of the following forms of the efficient market hypothesis claims that technical analysis works? Strong None of these Semi-strong Weak
none of these. The efficient market hypothesis is in direct contradiction to technical analysis because the efficient market hypothesis is founded on the notion that all historical price and volume data, which is used by technical analysts, is already accounted for in the current stock price. The weak form claims that fundamental analysis works and the semi-strong form claims that inside information works. True believers in EMH claim that none of these can outperform random selection.
An individual is deciding between a flexible premium variable life contract and a scheduled premium variable life contract. If she is concerned about maintaining a minimum death benefit for estate liquidity needs, she should choose the scheduled premium policy because the contract is issued with a minimum guaranteed face amount the scheduled premium policy because earnings do not affect the contract's face amount
the scheduled premium policy because the contract is issued with a minimum guaranteed face amount A scheduled premium variable life contract is issued with a guaranteed minimum death benefit. If the individual is concerned about having the minimum guarantee, you should recommend the scheduled contract.
