Missed Q-Bank Question Terms -Series 65
Increases in which of the following indicators are regarded as predictors of the level of business activity?
Building permits
All of the following statements regarding technical analysis are correct except A) technical analysts rely on charts to predict the future prices of stocks. B) technical analysts attempt to predict the future movement of stock prices based on past trends. C) technical analysts rely heavily on financial ratios in their analysis of stocks. D) technical analysts use terms such as trendline, support, and resistance in analyzing stocks.
C) technical analysts rely heavily on financial ratios in their analysis of stocks.
An investor purchases shares of ABC stock at $50 per share. One year later, ABC is selling for $54 per share and, at the end of the 2nd year, the price is $52 per share. ABC has paid dividends of $2 per year. Upon liquidation, the investor would have earned a return of A) $2 per share B) $4 per share C) $6 per share D) $8 per share
C) $6 per share The investor paid $50 and sold it for $52 for a $2 per share gain. During the 2-year holding period, $4 in dividends were paid. That is a total return of $6 per share.
An inverted yield curve results in part by A) declining interest rates B) investors buying short-term bonds and selling long-term bonds C) investors buying long-term bonds and selling short-term bonds D) rising interest rates
C) investors buying long-term bonds and selling short-term bonds
Asset-based sales charges will generally be lowest when holding which of the following mutual fund share classes?
Class A shares
What can you tell about these investment companies from the information below? NAV ASK Company A 12.34 12.85 Company B 15.45 14.90
Company A can be either open-end or closed-end; Company B must be closed-end.
One of your advisory clients indicates that he would like to sell forward contracts in soybeans. It would be wise to warn the client that he will be facing the following risks: I. Liquidity II. Creditworthiness of the buyer III. Lack of assurance that the delivery price will remain stable IV. The location for the delivery may change
I and II
Which of the following would be a common use of a stop order? I. To protect the profit on a long position II. To prevent loss in a short position III. To buy at a specific price guaranteed by a specialist IV. To lock in a price with the specialist
I and II
The registration of an investment adviser would automatically register which of the following as investment adviser representatives? I. Directors II. Officers III. Partners
I, II, and III
A client is trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are equal and your client is in a 28% marginal income tax bracket, which bond do you tell the client to purchase and why? A) The municipal bond because its equivalent taxable yield is 6.3% B) The corporate bond because the after-tax yield is 4.5% C) The municipal bond because its equivalent taxable yield is 6.6% D) The corporate bond because the after-tax yield is 6.25%
If we compute the tax-equivalent yield of the muni, we see that it is 6.6%, which is a higher return than the 6.25% on the corporate bond. The formula to get this starts by taking the investor's tax bracket and subtracting that from 100%. 100% − 28% = 72%. We then divide the muni coupon of 4.75% by the 72% and the result rounds off to 6.6%.
Which type of risk is a mortgage-backed security most likely to experience?
Market risk
Which of the following statements is most accurate regarding the net present value (NPV) and internal rate of return (IRR) on a bond?
NPV assumes the cash flows can be reinvested at market interest rates.
A profitable company reports net income of $10 million. A cash dividend of $7 million is declared. From an accounting standpoint, the other $3 million will be credited to which balance sheet account?
Retained earnings
George owns XYZ stock. Based on recent analyst projections and George's own research, he believes XYZ's price will remain flat over the next few months. Accordingly, which strategy would George most likely employ?
Sell a call option
If a client who holds a convertible preferred stock believes the company may go bankrupt within the next 3 years, what would you advise the client to do with the stock?
Sell the security.
Which type of individual account allows for investments held in that account to go straight to a named beneficiary outside of probate?
TOD account
Which of the following types of life insurance has premiums that increase each time the policy is renewed, and no cash value buildup?
Term
A client is considering the purchase of American depositary receipts (ADRs). The client is looking to further diversify her portfolio. Which of the following is not a feature of this type of investment vehicle?
They are not subject to exchange rate, or currency, risk.
A state-registered investment adviser suddenly incurs a liability that materially affects its net worth, causing it to drop below the required minimum. Which of the following statements is TRUE?
The investment adviser must notify the Administrator by the close of business on the following business day.
Which of the following investment vehicles provides for redemption by the issuer?
Unit investment trust (UIT)
When a broker-dealer acts in the capacity of a principal in a trade, the firm has acted
as a contra party to the trade
Your client maintains a small cash account at the firm. One typical broker-dealer fee that would not be charged to this client is
margin interest on the debit balance
Under the Securities Exchange Act of 1934, the SEC may suspend all trading on an exchange
only with prior notification to the president of the United States
FinCEN Form 112, the Currency Transaction Report, is filed with
the Department of the Treasury
The primary responsibility for supervising the activities of an investment adviser representative who is affiliated with a federal covered investment adviser lies with
the investment adviser the IAR represents
All of the following statements regarding broker-dealers are true except
they employ only registered investment adviser representatives
A fundamental analyst researching a stock is concerned with all of the following EXCEPT
volume of shares traded
Inverse ETFs are suitable primarily for investors
with a very short time horizon.
An investor sells ten 5% bonds at a profit and buys another 10 bonds with a 5¼% coupon rate. The investor's yearly return will increase by A) $2.50 per bond B) $1.00 per bond C) $2.00 per bond D) $1.50 per bond
$2.50 per bond The first bonds are 5% and pay $50 per year per bond. The new bonds are 5¼% and pay $52.50 per year per bond. 5% coupon rate × $1,000 face value = $50 per year per bond; 5¼% coupon rate × $1,000 face value = $52.50 per year per bond.
If a call option with an exercise price of $50 is purchased for $300, the maximum amount the investor can lose is
$300
If a businessowner's goal is to establish an entity that features ease in raising capital, which of these entities is the most appropriate?
A limited liability company (LLC)
Which of the following regarding the registration of investment advisers and their representatives is TRUE?
ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly.
A customer purchases stock for $40 per share and holds it for 1 year, selling it for $50 per share exactly 12 months after the date of purchase. Four quarterly qualifying dividends of $.50 were paid during the year. If the customer's tax bracket is 30%, what is the after-tax rate of return?
21.75% The customer's return on the stock includes the $10 per share short-term capital gain ($50 − $40) plus the $2 qualifying dividend (quarterly dividend of $0.50 × 4). Remember, an asset must be held for more than 12 months for the gain to be long-term. After-tax rate of return is found by computing the total after-tax earnings. Short-term gains are taxed at the same rate as ordinary income, and qualifying dividends are taxed at a maximum rate of 15% (except for very high income earners—not tested). The tax on the $10 gain is $3 ($10 × 30%), and the tax on the $2 qualifying dividend is $0.30 ($2 × 15%). The investor's total return is the $12 total minus the $3.30 in taxes, or $8.70; $8.70 divided by the original investment of $40 results in an after-tax return of 21.75%.
If a customer is concerned about interest rate risk, which of the following securities is least appropriate?
25-year municipal bonds
An investment adviser representative has a client who prefers the safety of securities guaranteed by the U.S. Government, yet is concerned about volatility due to uncertainties in the future direction of interest rates. Which of the following recommendations would best address these concerns?
8% Treasury bond maturing in 2036
If the current risk-free rate is 4%, and the expected return from the market is 10%, what return should we expect from a security that has a beta of .9?
9.4% Required return = 4% + ([10% - 4%] × .9) = 4% + (6% x .9) = 4% + 5.4% = 9.4%.
Which of the following fee arrangements is legal under the Investment Advisers Act of 1940?
Adviser A charges an annual fee of 0.05% of the value of the client's account, due on the first day of the client's fiscal year.
If a retiree is paid an annual amount equal to 30% of the average of his last 3 years' salary, which of the following retirement plans offers this type of payment?
Defined benefit pension
Your client has $10,000 to invest today and expects to earn an after-tax return of 8% to send his daughter to 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
Which of the following factors would be considered by an investor who uses fundamental analysis to value a company's stock? I. The company's financial condition, as revealed by its income statement and balance sheet II. General economic conditions, such as employment levels and changes in interest rates III. Charts showing past movements in stock prices and trading volumes
I and II
A federal covered investment adviser registered with the SEC that has offices in 5 states must do which of the following? I. Pay state filing fees if required by the Administrator II. Notify the Administrator within 1 business day if net worth falls below the required minimum III. Notice file in any of those states where required by the Administrator IV. Become licensed as a broker-dealer
I and III
Which of the following is TRUE of GNMA securities? I. Interest is subject to federal income tax. II. Interest is exempt from federal income tax. III. They are backed by farm mortgages. IV. They are backed by residential mortgages.
I and IV
The Uniform Securities Act authorizes the state Administrator to require I. either oral or written qualification examinations of investment adviser representatives and officers of investment adviser partnerships or corporations II. officers of investment advisers to pass a qualification examination III. an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in the state IV. investment adviser representatives to pass a qualification examination
I, II, III, and IV
Which of the following is (are) unethical business practices of investment advisers? I. Charging a client an unreasonable advisory fee II. Guaranteeing a client that a specific result will be achieved as a result of advice that will be rendered III. Recommending an investment to a client without reasonable grounds to believe the investment is suitable for that client IV. Continuing to exercise discretionary investment authority under an oral agreement with the client
I, II, III, and IV
One of the prohibited practices under the Uniform Securities Act is market manipulation. Which of the following are examples of a broker-dealer engaging in that practice? Arbitrage Churning Matched orders Wash trades
III and IV
Which of the following practices is prohibited under the Uniform Securities Act? A) Actively trading a security in which an unusually high trading volume has occurred B) Failing to inform the firm's principal of frequent oral customer complaints C) Offering services that an agent cannot realistically perform because of his broker-dealer's limitations D) Altering the customer's order prior to execution at the request of a customer, which subsequently results in a substantial loss
Offering services that an agent cannot realistically perform because of his broker-dealer's limitations
A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client?
Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis
All of the following positions expose a customer to unlimited risk EXCEPT
Short 2 XYZ uncovered puts
Which of the following statements regarding investment risk is not correct?
Systematic risk may be reduced or eliminated by effective portfolio diversification.
An investor purchases a Treasury note and the confirmation shows a price of $102.21. Rounded to the nearest cent, the investor's cost, excluding commissions, is
Treasury notes are quoted in 32nds where each 32nd equals $.3125. The 102 in the quote equals $1,020 and the 21/32 is an additional $6.56 bringing the total to $1,026.56.
As interest rates rise, the opportunity cost of holding cash
increases.
On October 15, 2008, the Dow Jones Industrial Average lost 733 points, the largest single point drop in its history. After the markets closed on Tuesday, October 14th, ABC Manufacturing Company released its 3rd quarter operating results with earnings that surpassed all estimates. However, by the close of the market on October 15th, the price of the stock was down 15 points. This is an example of A) opportunity cost B) systematic risk C) business risk D) beta
B. Systematic risk (market risk) is the danger that a specific stock's price will be driven by factors largely independent of its issuer such as a severe market plunge.
If a natural person files an initial application for state registration as an investment adviser representative on October 1, the registration will most likely expire
December 31 of that year
Which of the following statements about balance sheets are TRUE? I. Balance sheets provide a snapshot of a company's financial position on a given date. II. Balance sheets represent the relationship between a company's assets, liabilities, and stockholders' equity. III. Balance sheets provide a record of a company's earnings over a given period.
I and II
Which of the following would be permitted to contribute to an IRA? I. An individual whose sole income consists of dividends and capital gains II. A divorced mother whose sole income is alimony and child support under the terms of a divorce agreement signed on October 31, 2018 III. A self-employed attorney who has a Keogh plan IV. A corporate officer covered by 401(k)
I, II, III, and IV
Under SEC Release 1A-1092, which of the following has (have) met the test of providing advice or analysis concerning securities? I. A stockbroker calls a client and recommends the purchase of a certain stock. II. A lawyer recommends against purchasing shares of a mutual fund in favor of another investment. III. A publisher of an investment newsletter provides general information and recommendations concerning specific securities. A) I only B) I and III C) I and II D) I, II, and III
I, II, and III
Which of the following are regulated under the Securities Exchange Act of 1934? I. New issues II. Broker-dealers III. Transfer agents
II and III
A bond with a par value of $1,000 and a nominal yield of 6% paid semiannually is currently selling for $1,300. The bond matures in 25 years and is callable in 15 years at $1,080. In the computation of the bond's yield to call, which of these would be a factor? A) 50 payment periods B) Future value of $1,300 C) Present value of $1,080 D) Interest payments of $30
Interest payments of $30
Which of the following risks would be associated with long-term, AAA-rated bonds? A) Ability of the issuing company to pay interest and principal B) Unstable interest payments C) Purchasing power risk D) Marketability
Purchasing power risk
Jon, an agent with Johnson-Bayer Securities, was reacting to peer pressure to use email as a prospecting tool. He decided to highlight the exciting new process for drug delivery that was covered in the new offering prospectus when explaining why he felt the issuer found the next "aspirin." He summed up the email by stating potential investors needed to act quickly to get in on the ground floor. His decision to do so fell into the category of which of the following?
Unethical business practice
A broker-dealer acting as a principal in a trade would
add a markup to the offering price when selling shares to a client
An investment adviser would be least likely to gather information about a new client
from social media.
An investor is long stock in a cash account and does not expect the price to change in the immediate future. His best strategy to generate income may be to
sell a call
A management investment company owns portfolio securities with a current market value of $100 million. The company owes $10 million for securities purchased but not yet paid for and accrued management fees of $5 million. If there are 2,611,437 shares outstanding and the current asking price of the shares is $36.38 per share, it would be correct to state that this investment company is
selling at a premium.
The management style that is most similar to buy and hold is
strategic management
When reviewing a corporation's financial statements, shareholders' equity is computed by
subtracting total liabilities from total assets.
A technical analyst (chartist) with a long position in a particular stock would most likely enter a sell stop order below that stock's A) 200-day moving average B) resistance level C) support level D) previous high
support level
Net asset value per share for a mutual fund can be expected to decrease if
the fund has made dividend distributions to shareholders
The following table shows the individual weightings and probable returns, [E(Rx)], for the three stocks in an investor's portfolio: StockWeightE(Rx) V 0.40 12% M 0.35 8% S 0.25 5% what is the probable return of this portfolio?
9.05% Multiplying the weight of each asset by its expected return, then summing, produces: Probable return = 0.40(12) + 0.35(8) + 0.25(5) =8.85%.
Your customer, age 60, is retired and living at home with a fully paid-off mortgage. Her portfolio contains growth stocks and high-quality bonds, and she is a longtime investor and comfortable with moderate risk. Her objective is a moderate level of current income to supplement her corporate pension plan distributions and the earnings from her IRA. Which of the following mutual funds is the most suitable for this customer?
ABC Equity Income Fund
The Affray Compassionate Finance Company (ACFC) is offering $100 million of 150-day commercial paper for sale in State L. The paper is available in minimum denominations of $100,000 and has been rated AA by a leading rating organization. Who of the following would be required to register as an agent in State L in order to legally sell this security in the state? A) An investment adviser who recommends this security to clients. B) Because this security is exempt from registration, offers and sales can be made without registration as an agent. C) An agent of a broker-dealer registered in the state. D) An employee of the Affray Compassionate Finance Company who receives a 1% commission on sales.
An agent of a broker-dealer registered in the state.
NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that it is unethical for an investment adviser to I. lend money to an investment adviser representative registered with the firm II. lend money to a bank that is a client of the advisory firm III. earn a fee that is based on a sliding scale depending on the amount of assets under management IV. borrow money from a mortgage broker who is an advisory client of the firm
II and IV.
Which of the following best describes a global mutual fund?
The portfolio consists of securities of companies domiciled throughout the world, including the United States.
Which of the following bonds is most likely to exhibit the greatest volatility due to interest rate changes? A bond with
a low coupon and a long maturity.
One of the benefits of owning a home is the tax treatment of a sale of a primary residence. Under current IRS regulations,
a married couple is permitted to exclude the first $500,000 of gain.
A client of a broker-dealer calls his agent and submits an order to purchase 1,000 shares of a Chilean silver mining company. As the order ticket is being prepared, the agent notices that this is a nonexempt unregistered stock. The agent should
continue to process the order because this is an exempt transaction
All of the following appear on a corporation's balance sheet as fixed assets EXCEPT
inventory
When a nonspouse inherits an IRA, the beneficiary can choose from all of the following options except
keeping the money in the deceased's IRA
As compared to value investors, growth investors tend to
ook for companies whose sales, earnings, or market share are increasing at an above-average rate
A term used to describe the results of subtracting a corporation's liabilities from its assets is
owners' equity.
All of the following would flow through as a loss to limited partners except
principal repayment on partnership debt.
In order to comply with the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following is NOT required to open a margin account for a trust?
A completed margin suitability form
Which of the following is NOT true regarding the Securities Exchange Act of 1934? A) The act bars the use of arbitrage by broker-dealers. B) The act prohibits the simultaneous purchase and sale of a security to create the appearance of trading. C) The act proscribes the use of wash trades. D) The act prohibits the spread of false rumors to induce others to trade.
A) The act bars the use of arbitrage by broker-dealers.
If information filed with the Administrator by a broker-dealer as part of its registration changes in a material way, the registrant must
amend or update the information promptly regardless of the renewal date
A bond analyst is plotting a yield curve and notices that short-term maturities have higher yields than intermediate and long-term maturities. This is an example of
an inverted yield curve
Nonsecurities derivatives include futures and forwards. Among the differences between futures and forwards is that futures contracts
are rarely exercised while forwards generally are.
A client owns an investment-grade bond that has a coupon of 7% and is priced to yield 5.4%. If similarly rated bonds are being issued today with coupons of 5%, it would be expected that the client's bond
has a positive net present value
Which of the following statements is correct in relation to the efficient frontier? A) It represents the maximum return for a given level of risk. B) It identifies the required rate of return on a particular stock. C) It implies an inefficiency in stock valuations. D) It allows an investor to create a risk-free portfolio.
It implies an inefficiency in stock valuations.
To protect against possible inflation, your clients purchase some TIPS with a 2.5% coupon. If, over the next 6 years, the annual inflation rate is 6%, the principal value of each TIPS will be closest to A) $1,426 B) $1,161 C) $1,150 D) $1,360
The principal of a TIPS is adjusted every 6 months for the inflation rate. With an inflation rate of 6%, that means a 3% adjustment, twice per year. With the simple calculator provided at the test center, you would take the initial $1,000 and multiply that times 103% and continue to do that 12 times (there are 12 semiannual periods in 6 years). See the LEM for a shortcut that will always work. $1,161
Which of the following is NOT considered a derivative? A) Futures contract B) Unit investment trust C) Call option D) Warrant
Unit investment trust All of the other choices "derive" their value from some underlying asset. A UIT is an investment company, and its value is based on its own assets.
Mrs. Beech, age 52, as the sole survivor of her mother, recently inherited, among other assets, an IRA. After receiving a distribution of the account's assets, she dutifully rolled over 100% of the account value into a new rollover IRA. As a result, Mrs. Beech
will have to declare the entire IRA value as ordinary income
Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client if the investment adviser has insufficient net worth or is not appropriately bonded Administrator has not issued a rule prohibiting custody investment adviser does not also have discretionary authority over the account investment adviser has notified the Administrator that custody is maintained A) II, III and IV only B) II only C) II and IV D) I and III
II, III and IV only
Jefferson, Adams, and Washington (JAW) is a pension consulting firm whose only office is on Constitution Avenue in Washington, D.C. JAW has only one advisory client—a U.S. government employees pension fund with assets of $4 billion. What are this firm's registration requirements?
It may choose to register with either the D.C. Administrator or the SEC.
Which of the following statements regarding the Sharpe ratio is most accurate?
It measures the portfolio's return over and above the risk-free rate divided by the standard deviation of the portfolio's returns.
One of your clients buys 300 shares of RIF common stock in March at $25 per share. Three months later, the client purchases 200 shares of the RIF at $30 per share. One month later, RIF pays a dividend of $1 per share. Then, 5 months later, another purchase of the RIF is made—this time 400 shares at $35 per share. If the client were to sell all the RIF at $30 per share, what is the client's capital gain or loss?
The investor's total cost is $27,500 for the 900 shares purchased. The proceeds of the sale are $27,000 (900 × $30). That results in a capital loss of $500. The cash dividend has nothing to do with capital gain or loss.
A new client wants your recommendation on available investment options. You prepare a client profile, which reveals that the investor is 66 years of age, has a low risk tolerance, and is in a low tax bracket. The investor's primary objectives are safety and income. Of the following, the most suitable choice would be A) large-cap common stock B) a municipal bond mutual fund investing solely in AAA- and AA-rated bonds C) insured bank certificates of deposit D) a growth and income mutual fund
insured bank certificates of deposit
Perpetual Pecuniary Rewards, (PPR), is an investment adviser registered in several states. PPR is affliliated with Perpetual Rewarding Investments (PRI), a broker-dealer registered with the SEC and the same states as PPR. Through that affiliation, clients of PPR can enter into a wrap program with an annual fee between 1% and 1.75%, depending on the account's assets. When opening a new wrap account, PPR must provide the client with a written disclosure statement containing at least the information
required by Appendix 1 of Form ADV Part 2A,
Doug runs a sole proprietorship IA and is also a registered agent with Pelf Securities, Inc., a registered broker-dealer. Doug charges his clients an hourly fee for advice, and when they wish to purchase recommended securities, they may do so through Pelf Securities if they have an account there. In those circumstances, Doug earns a commission on the securities transaction in addition to the hourly fee he earned while making that recommendation. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers,
this would be permitted if the compensation were disclosed to the client
Twenty-five individuals have formed an investment company. They have heard wonderful things about you as an investment adviser and ask if you would be interested in managing their portfolio. You reply that you would be interested but will only take the account if you can structure a compensation arrangement that calls for you to receive a base fee plus 18% of the profits to the extent that the account's performance exceeds a standard benchmark. Under the Uniform Securities Act, this type of agreement is allowable if
the investment company has net worth of at least in excess of $2.1 million or will place at least $1 million in assets under management with the IA
Becky Biggins has an executive position with a large corporation that covers her under its defined benefit pension plan. This year, Becky's salary will top $435,000. Becky has no dependents and wishes to maximize funds that she can accumulate for her retirement. Becky could (select 2) I. not open a traditional IRA II. open a traditional IRA but would not be able to deduct her contributions III. open a Roth IRA IV. not open a Roth IRA
II and III Anyone with earned income can open a traditional IRA. Deductibility of contributions may be disallowed if the individual is covered under a corporate plan and has earnings in excess of a certain level. Becky's salary exceeds the maximum permitted for a single person so her contributions would be made with after-tax dollars. In the case of a Roth, nothing is deductible, so it doesn't matter if you are covered at work. However, Becky's salary is far in excess of the maximum permitted for a single person to contribute to a Roth IRA.
