S66 Exam Set
Your customer has a Coverdell Education Savings Account for each of 4 preteen daughters, Using the 2012 contribution limits, what is the maximum amount of pretax contributions that he can make to each ESA? A) $2,000. B) $500. C) $0. D) $8,000.
$0 EXPLANATION: Pretax contributions cannot be made to Coverdell ESAs. The customer is allowed to make a $2,000 after-tax contribution annually for each student until their 18th birthday.
A complex trust has the following income for the year: $1,500 in taxable interest, $2,000 in dividends (reinvested in the stock), and $3,000 in tax-exempt interest. In addition, the portfolio realized $3,500 in capital gains that were reinvested in the corpus. What is the distributable net income (DNI) for the trust? A) $4,500. B) $6,500. C) $10,000. D) $1,500.
$6,500 EXPLANATION: All investment income, regardless of source, will be considered DNI and will be included in the taxable income calculation to the trust unless distributed. Reinvested capital gains are not part of a trust's DNI.
Which of the following statements concerning universal life insurance are CORRECT? I. Universal life has flexible premiums. II. Universal life is based on the assumption that level annual premiums are to be paid throughout the insured's life. III. The death benefit can fluctuate, but never below the guaranteed minimum face amount. IV. Cash values can fluctuate and may even fall to zero. A) III and IV. B) II and III. C) I and II. D) I and IV.
- I and IV EXPLANATION: Universal life features flexible premiums that add to the cash value account although there are no guarantees and the cash value can disappear if insufficient premiums are paid. There is no guaranteed minimum death benefit as there is with fixed (scheduled) premium variable life. The assumption that level annual premiums are to be paid throughout the insured's life is associated only with ordinary whole life and scheduled premium variable life policies.
The Administrator, with proper notice, may examine the financial records of which of the following persons registered in his state? I. Agents. II. Broker/dealers. III. Investment Advisers. A) I and III. B) I and II. C) II and III. D) I, II and III.
- II and III EXPLANATION: Only broker/dealers and investment advisers are required to maintain financial records. Agents must maintain sales records but there are no financial inspections of agents or investment adviser representatives as there are with broker/dealers and advisers.
A form of business organization that offers flow-through of income and loss while providing the owner(s) with limited liability is: I. a sole proprietorship. II. an LLC. III. a C corporation. IV. an S corporation. A) I and III. B) II and III. C) II and IV.
- II and IV EXPLANATION: Only an LLC or an S corporation allows for direct participation in the income or losses of the business while offering limited liability. The sole proprietorship has flow-through, but unlimited liability. The C corporation limits liability, but has no flow-through.
Under the Securities Exchange Act of 1934, which of the following is TRUE regarding the jurisdiction of the SEC over a person who violates the rules of the Municipal Securities Rulemaking Board? A) The SEC has the authority to investigate such violations unless the person is a financial institution. B) The SEC has the authority to investigate such violations only if the person is a financial institution. C) Only the MSRB has the authority to investigate violations of its rules. D) The SEC has the authority to investigate such violations even if the person is a financial institution.
- The SEC has the authority to investigate such violations unless the person is a financial institution. EXPLANATION: The SEC is charged with administering the federal securities laws, under which the Municipal Securities Rulemaking Board (MSRB) exists. So the SEC has jurisdiction over the MSRB. However, financial institutions come under the jurisdiction of banking regulatory authorities.
An investor purchases 100 shares of DEF common stock at a price of $40 per share. The investor sells the shares for $42 per share exactly 4 months later. The annualized rate of return is closest to: A) 5%. B) 2%. C) 20%. D) 15%.
15% EXPLANATION: The approximate annualized return is calculated by taking the holding period return and multiplying it by the annualization factor. In this case, the investor profited by $2 on an investment of $40, or a 5% return. However, this was earned in a 4-month period, 1/3 of a year. Therefore, the 5% is multiplied by 3, resulting in an annualized rate of 15%.
Using the following information, compute the real rate of return for an investor holding the ABC Corporation's 20-year bond: Coupon rate 5%, paid semi-annually Rating Aa Maturity date December 1, 2016 CPI 2% Par value $1,000 Purchase price 90 Call date December 1, 2013 Call price 101. A) 3.56%. B) 5.00%. C) 4.50%. D) 2.50%.
3.56%. EXPLANATION: The real rate of return is the actual return (income received divided by the purchase price) less the inflation rate as measured by the CPI. In this example, the bond pays $50 per year on an investment of $900. That is an actual return of 5.56%. Subtracting the CPI of 2% gives us an inflation-adjusted, or real, rate of return of 3.56%.
Which of the following statements relating to trusts is CORRECT? A) A simple trust is required to distribute all of its income in the year earned. B) A simple trust may distribute principal during the year. C) A complex trust may only distribute principal during the year in which the trust terminates. D) A complex trust is required to distribute all of its income in the year earned.
A simple trust is required to distribute all of its income in the year earned. EXPLANATION: A simple trust is one that is required to distribute all accounting income in the year earned, has no charitable beneficiaries, and does not distribute principal in the current year. A complex trust is one that is allowed to accumulate income, has a charitable beneficiary, or distributes principal. All trusts are complex in their final year because all principal must be distributed when the trust terminates.
Under the Uniform Securities Act, which of the following would NOT be considered an exempt transaction? A) An agent sells Canadian treasury bonds to an individual client. B) A bank liquidates the securities pledged as collateral for a loan that has gone into default. C) The sale of LMNO common stock, listed in the Pink Sheets, to an insurance company. D) The sale of an unregistered nonexempt security to an individual client at that client's request.
An agent sells Canadian treasury bonds to an individual client. EXPLANATION: Even though the bonds are an exempt security, the sale to an individual client is not an exempt transaction. Sales to institutions, or sales by fiduciaries, or unsolicited transactions are all exempt.
Which of the following would fall under the USA's definition of exempt transaction? A) An issuer sells a new issue to a broker/dealer B) A real estate partnership sells interests to the public with no commission charge C) An investment adviser purchases securities from the issuer D) An agent accepts an order from a client after having sent a research report dealing with that security.
An issuer sells a new issue to a broker/dealer EXPLANATION: Transactions between issuers and broker/dealers (but not investment advisers) are exempt transactions. As long as the sale is to the public, regardless of commissions charged (or not charged), the transaction is nonexempt. Don't be lured into thinking that accepting an order from a client is unsolicited. That's not true in this case because it is as the result of the research report.
Under the Uniform Securities Act, which of the following statements is TRUE regarding the Administrator's power to deny or revoke an exemption? A) The Administrator may not revoke the exemption of securities issued by a nonprofit corporation. B) The revocation may apply to a period prior to the date on which the revocation order was issued. C) In a proceeding to revoke an exemption, it is assumed that the exemption applies and the Administrator must prove that it does not apply. D) An order revoking an exemption may be issued without prior notice to the persons affected.
An order revoking an exemption may be issued without prior notice to the persons affected. EXPLANATION: An order revoking an exemption, sometimes referred to as a summary order, may be made effective without prior notice. The injured party may request a hearing in writing, which must be granted within 15 business days of receipt of the request. No denials or revocations may be made on a retroactive basis. The Administrator does have the power to revoke the exemption granted to securities issued by nonprofit entities. In any proceeding, the burden of proving an exemption is on the person claiming it, not the Administrator.
When making a customer profile, one of the documents created is a balance sheet. Among other items, your client's balance sheet would include: A) assets. B) salary or wages. C) interest expense. D) accumulated depreciation.
Assets EXPLANATION: A balance sheet, whether for an individual, a family, or a business, is a listing of assets and liabilities. Interest expense and salary go on the income statement. Accumulated depreciation is a balance sheet item, but only for a business.
A federal covered adviser has offices in every state. One of its IARs splits his time between the NYC and NJ offices and has 10 non-institutional clients in CT and 8 in PA. Where must the IAR register? A. With the SEC B. In NY and NJ only C. In NY, NJ, CT, and PA D. In all 50 states
In NY and NJ only EXPLANATION: Because the IAR is employed by a federal covered adviser, he is only required to register in a state in which he has an office (NY and NJ). If he has no office in a state, no registration is required in the state regardless of how many clients he has there.
A method of valuing an investment, particularly debt securities, by calculating what future cash returns will be worth at the time they are received, based on estimates of future inflation and interest rates is known as A) dividend discount model B) yield to maturity C) net present value D) discounted cash flow
Discounted cash flow EXPLANATION: This is the basic definition of discounted cash flow, a useful tool in determining the value of debt securities.
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: A) limited liability. B) ease of formation. C) substantial capital can be raised with little effort and low cost. D) taxation at a lower rate than a corporation.
Ease of formation EXPLANATION: Compared to a corporation, it is generally easier to form (and dissolve) a partnership. General partners have full liability and there is no tax - it is passed on to the partners, to be taxed at a rate that might exceed the corporate tax rate. Corporations are the entity for raising a lot of capital.
Registering as a federal covered investment adviser generally requires the filing of a number of different forms. Which of the following forms would describe the form of business entity under which the IA is operating? A) Form ADV Part 2A. B) Form ADV Part 1A. C) Form ADV Appendix 1. D) Form ADV Schedule E.
Form ADV Part 1A. EXPLANATION: The Form ADV Part 1A contains the details of most interest to the authorities with whom the IA is registering, including the type of business formation. The Form ADV Part 2A may be used to satisfy the IA's brochure delivery requirement and, as such, contains most of the consumer-related information.
ABC Securities is a broker/dealer registered with the SEC and domiciled in Missouri. ABC Securities would not be defined as a broker/dealer in Nebraska under the Uniform Securities Act if it had no offices in Nebraska and: I. its only clients were insurance companies. II. it had contact with fewer than 6 Nebraska residents in any 12-month period. III. its only solicitation of Nebraska residents was through radio advertisements originating in Missouri but received in Nebraska. IV. it occasionally engaged in firm commitment underwriting with issuers based in Nebraska. A) II and III. B) I and II. C) III and IV. D) I and IV.
I and IV EXPLANATION: A broker/dealer with no office in the state is not defined as a broker/dealer in that state if its only business is with institutions, other broker/dealers, and issuers when engaged in underwriting their securities. There is no de minimis exemption, and any solicitation of individuals into the state, whether in person or by radio, television, or any publication, requires registration in the state.
Which of the following describe differences between variable and universal variable life insurance? I. Variable life insurance has a minimum guaranteed death benefit, whereas universal variable life insurance does not. II. Universal variable life insurance typically provides a higher death benefit than variable life insurance. III. Variable life insurance provides no inflation protection for the death benefit, whereas universal variable life insurance does. IV. Variable life insurance requires scheduled premium payments, whereas universal variable life insurance permits flexible premium payments. A) I and IV. B) I and II. C) II and III. D) III and IV.
I and IV EXPLANATION: Variable life insurance provides a minimum guaranteed death benefit because some of the premium goes into the general account and some goes into a separate account. With universal variable life insurance, the entire premium goes into a separate account, so that no guaranteed death benefit is provided, beyond a very small amount designed to meet funeral expenses. Variable life has a scheduled premium payment for the life of the contract. Universal variable life is far more flexible, though there are minimum payments that must be made. Both provide inflation protection for the death benefit.
Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and its investment manager. Among those requirements is that: I. no contract may be terminated with more than 60 days notice in writing. II. the initial contract is for a maximum of 1 year and then may be renewed on either an annual or biannual basis. III. unless a specific exemption applies, the fund may not engage in margin trading. IV. the contract must be in writing. A) II and IV. B) II and III. C) I and III. D) I and IV.
I and IV. EXPLANATION: Contracts between funds and their advisers may not be terminated with more than 60 days notice and these contracts must be in writing. The initial contract is for a 2-year period and then renewed on an annual basis. Whether the fund can trade on margin is not a function of the management contract.
Mary Baker operates an investment advisory company. Eight years ago, she was the subject of an SEC investigation involving improper actions between her customers and herself. Under the Investment Advisers Act of 1940, Mary's obligation to her clients is to: I. disclose to prospective clients that she was the subject of a proceeding and the proceeding's outcome. II. make disclosures regarding the case only if the prospect becomes a client. III. disclose all details of both her actions and the outcome of any proceedings. A) I and III. B) I, II and III. C) II only. D) I only.
I only EXPLANATION: If an adviser has been the subject of a material criminal, civil, or regulatory action within the past ten years, that fact must be disclosed to all clients and prospective clients. Disclosure must be made at least 48 hours before signing any contract, or it may be made immediately before signing, provided that the contract gives a 5-day cancellation clause with no penalty. The adviser is not required to give the details of her actions, only the outcome of any proceedings resulting from said actions.
Several entrepreneurs form an S corporation. Under which of the following circumstances will the entrepreneurs risk losing their tax benefits? I. 150 new investors buy into the corporation during the year. II. 1 new member is a nonresident alien. III. 50% of the corporation's income is derived from passive investments in limited partnerships. IV. The corporation issues several classes of stock. A) I, II and III. B) I and II. C) I only. D) I, II, III and IV.
I, II, III and IV. EXPLANATION: S corporations must not have more than 100 stockholders and each stockholder must be a citizen or resident of the United States. The corporation can only have one class of stock, and no more than 25% of the corporation's income can come from passive activities. If you were not sure of this last fact, a useful test-taking technique is recognizing that all of the other choices are correct and there is no way to select them without this one.
If a federal covered adviser changes its fee: I. The investment adviser must file an amended ADV Part 2 with the state Administrator II. The investment adviser must file an amended ADV Part 2 with the SEC III. The new fee must be reflected in the Brochure IV. All existing clients must be advised A) I, II, and III only B) I, II, and IV only C) II, III, and IV only D) I, II, III, and IV
I, II, III, and IV EXPLANATION: All of the statements listed are correct concerning the actions a federal covered adviser is required to take if the fees charged to clients are changed.
Under the Investment Advisers Act of 1940, which of the following statements are TRUE? I. Part 2 of Form ADV may be used to satisfy the brochure requirement. II. Advisers who have custody of clients' securities or require prepaid fees in excess of $1,200, 6 months or more in advance are required to provide certified balance sheets to their clients. III. Advisers with $110 million or more in assets under management must be SEC registered and are exempt from state registration. IV. It is misleading and prohibited for an adviser to use RIA or R.I.A. after his name. A) I, II, III and IV. B) III and IV. C) II, III and IV. D) I, III and IV.
I, III and IV EXPLANATION: For advisers covered under federal law, the balance sheet is only required when demanding, or accepting substantial prepayments, but not for custody. RIA is not a legal designation and may not be used. The same is true for an investment adviser representative using the initials, IAR. If you are a CPA, CFP, CLU, etc. or have an MBA, PhD., you may use them. ADV Part 2 may be used to meet the brochure requirement under the Investment Advisers Act.
Under the Investment Advisers Act of 1940, which of the following statements is TRUE regarding jurisdiction for offenses? I. Generally, federal courts have no jurisdiction if a civil lawsuit based on the Advisers Act is filed in a state court. II. If the SEC wished to obtain an injunction or seek a civil penalty against an adviser, it would file a case in the federal court having jurisdiction over the place where the violation occurred. III. An adviser that wished to appeal an SEC order would file a motion in the US Court of Appeals. A) I and II. B) I, II and III. C) II and III. D) I and III.
II and III EXPLANATION: Jurisdiction for violations of the Advisers Act lies with the federal courts. Federal courts have concurrent jurisdiction with any state court in which a case involving a violation of the Advisers Act is filed. Persons who wish to appeal SEC orders must do so in the US Court of Appeals serving the district in which the original case was tried.
Which of the following best describes that which secures a debenture issued by an industrial corporation? A) The assets of the issuing company. B) The assets of a company other than the issuing company. C) The mortgages and real estate of the issuing company. D) The securities of the issuing company.
The assets of the issuing company EXPLANATION: Debentures are general obligations of the issuing company. They are actually backed by the assets of the company. Prior claims to those specific assets by secured debt issues take precedence over the debentures.
Under the Securities Act of 1933, which of the following is (are) exempt from registration requirements? I. Stocks and bonds issued by insurance companies. II. Fixed annuities and other fixed insurance contracts. III. Securities issued by foreign governments. A) III only. B) II only. C) I only. D) II and III.
II only EXPLANATION: Under the Securities Act of 1933, securities issued by insurance companies and foreign governments and securities listed on certain exchanges, which are exempt under the Uniform Securities Act, are not exempt under the Securities Act of 1933. There are differences between the two laws that must be understood. Under the Securities Act of 1933, insurance company stocks and bonds are not exempt, but fixed insurance contracts are exempt.
Which of the following transactions are exempt? I. XYZ Corp., a local manufacturing firm, sells its common stock to several local individual accredited investors on an infrequent or isolated basis. II. Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation's 5-year fixed income securities, rated AAA by Standard & Poor's, on a regular basis to selected members of his large retail client base. III. Joe Smith, an agent with ABC Securities, Inc., sells XYZ Corporation's securities to a high-net worth client on an unsolicited basis. IV. Alexander Wimpton had his sizable portfolio of stocks and bonds sold by the administrator of his estate upon his death. A) I and IV. B) I and II. C) III and IV. D) II and III.
III and IV EXPLANATION: Unsolicited secondary market transactions and those made by an estate's executor are exempt transactions; the net worth of the client is immaterial. While the AAA bonds may be an exempt security, soliciting regular transactions (unless with institutional buyers) is not an exempt transaction. XYZ Corp., a local manufacturing firm, is an issuer of the common stock. Had it been a non-issuer transaction on an isolated basis, the transaction would have been exempt and the accredited investor status of the clients is meaningless here.
The NASAA Statement of Policy on Dishonest and Unethical Business Practices of Broker/Dealers and Agents includes prohibitions against certain practices designed to manipulate market prices of securities. Activities that would fall within the spectrum of the prohibitions would be I. Churning customer accounts. I I. Guaranteeing customers against loss. III. Wash trades. IV. Entering matched buy and sell orders to attract attention to the security. A) II and III. B) I and II. C) III and IV. D) I, II, III and IV.
III and IV EXPLANATION: Wash trades and matched orders are two of the most common forms of market manipulation cited by NASAA in their investigations. Churning and guaranteeing customers against loss, although prohibited practices, are not considered to be market manipulation.
Your firm, which is located in State Y, has been hired to evaluate the investment manager of a pension plan in State Z and make recommendations as to whether to keep the manager or hire a new one. Under the Uniform Securities Act, does your firm meet the definition of an investment adviser? A) It does, because a fee is being charged for your services as a consultant. B) It does not, because you are not making investment decisions on the portfolios. C) It does, because you are advising the pension plan owner and not the participants. D) It does not, because in this situation your firm is excluded from the definition of an investment adviser.
It does not, because in this situation your firm is excluded from the definition of an investment adviser. EXPLANATION: Advisers with no place of business in a state and whose clients are only pension plans are excluded from the definition of an investment adviser under the Uniform Securities Act.
A wealthy individual has established a trust and named you as the trustee. If you wish to establish an account that permits the trust to engage in margin transactions, which of the following statements regarding margin trading is TRUE? A) It is permitted if provided for in the underlying documentation. B) It is permitted if the fiduciary shares in the profits or losses. C) It is not permitted. D) It is permitted if the fiduciary observes the prudent investor rule.
It is permitted if provided for in the underlying documentation. EXPLANATION: Margin trading in a trust account is permitted only if it is specifically provided for in the trust agreement.
Which of the following statements is TRUE regarding the Consent to Service of Process? A) It must be renewed every year. B) It is used for receiving and processing noncriminal complaints. C) Filing is optional. D) None of the above
It is used for receiving and processing noncriminal complaints. EXPLANATION: The Consent to Service of Process appoints the state Administrator to serve as the applicant's attorney for the purpose of receiving and processing noncriminal complaints. It is required of all registrants when they file for registration in a state.
Which of the following statements is TRUE of an investment adviser that maintains custody of client funds or securities? A) It must initiate Form ADV-E. B) It must complete Form ADV-W. C) It must arrange for an independent public account to audit these assets on a regular basis at least every three years. D) Choices (a) and (c) are both correct.
It must initiate Form ADV-E. EXPLANATION: All registered investment advisers who have custody of client securities or funds must have an independent public accountant to conduct surprise audits of these assets at least once every calendar year. The adviser also must initiate Form ADV-E and give it to the accountant, who then submits it to the regulators with a copy of the audit report attached. Form ADV-W must be filed by advisers that want to withdraw their registration or register with a different regulator.
Mandy is an employee of the Indiana Toll Authority. Her boss, a high ranking official with the municipality, asks her to help sell the municipality's revenue bonds to some institutional clients as well as a few retail investors. How is this situation viewed by the USA? A) Mandy avoids meeting the definition of an agent if she sells the securities only to institutional investors. B) Mandy meets the definition of an agent if she sells the securities to any retail investors. C) Mandy meets the definition of an agent since she is selling the municipal securities to individual retail investors. D) Mandy does not meet the definition of an agent under any circumstances.
Mandy does not meet the definition of an agent under any circumstances. EXPLANATION: Under the Uniform Securities Act, an agent is any individual (other than a broker-dealer) who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. Excluded from the definition is an individual who represents an issuer in effecting transactions in certain exempt securities or who represents an issuer in exempt transactions. Since Mandy is representing an issuer and selling a certain type of exempt security (securities issued by municipalities), she would not meet the definition of agent under any circumstances (whether selling to institutional and/or retail investors).
Which of the following situations would NOT require an adviser to provide customers with an annual audited balance sheet? A) Having custody of client assets B) Receiving substantial prepayment of advisory fees C) Having full discretionary power over the client's account D) None of the above
None of the above EXPLANATION: Investment advisers who have custody of client assets, or who receive substantial prepayment of advisory fees, or who have full discretion over client accounts, are required to provide an audited annual balance sheet to their clients.
Under the Uniform Securities Act, an employee of a municipal issuer selling securities to the public is considered: A) An agent of the issuer and is subject to registration B) An agent of the issuer and is not subject to registration C) An agent of a broker-dealer D) Not an agent
Not an agent EXPLANATION: A person representing a municipal issuer is not considered an agent and would not be subject to registration. If the securities were not exempt, the employee would be subject to registration.
Which of the following is not related to the variability of a portfolio's returns? A) Security selection. B) Market timing. C) Asset allocation. D) Total return.
Total return. EXPLANATION: Total return is a measurement of the investor's return on the portfolio. It has nothing to do with market variability, which is a more complicated way of stating market risk.
Which of the following attributes of common stock best describes why internal rate of return (IRR) is not generally used to determine the return on common stock? A) Uneven cash flows, no maturity date and price. B) Uneven cash flows. C) Common stock does not have a net present value. D) Uneven cash flows and no maturity.
Uneven cash flows, no maturity date and price. EXPLANATION: Internal rate of return (IRR) best measures investments with a known price and maturity. The internal rate of return is the discount rate that makes the future value of an investment equal to its present value. The yield to maturity on a bond is actually its internal rate of return.
Under the Uniform Securities Act, each of the following statements regarding a sale, an offer, or an offer and sale is true EXCEPT: A) any security given or delivered, with or as a bonus for any purchase of securities, is considered to have been offered and sold for value. B) every sale or offer of a warrant or stock right to purchase or subscribe to another security, is considered to include an offer of the other security. C) a bona fide pledge is considered an offer and sale. D) a purported gift of assessable stock is considered to involve an offer and sale.
a bona fide pledge is considered an offer and sale. EXPLANATION: The term "sale" does not include a bona fide pledge. It does, however, include securities given as a bonus with a purchase and gifts of assessable stock because the owner of the stock may be called on to produce additional money. Sales of rights or warrants are considered sales of the underlying security.
Under the Uniform Securities Act, when an IAR acting in the capacity of trustee of a family trust executes a transaction on behalf of the trust, it is A) an exempt security B) a nonexempt transaction C) an exempt transaction D) a violation of the trustee's fiduciary responsibility
a nonexempt transaction EXPLANATION: Among the list of exempt transactions is those made by fiduciaries, including trustees in bankruptcy, but not other trustees. Therefore, this is a nonexempt transaction. The fact that this is an IAR who is the trustee has no bearing on the question.
An agency cross transaction can be described as: A) a transaction where a person acts as both an investment adviser and broker/dealer in the same transaction. B) a sale of securities between different agencies of the federal government. C) a sale of a security owned by a broker/dealer to the general public. D) a transaction between an issuer and a broker/dealer.
a transaction where a person acts as both an investment adviser and broker/dealer in the same transaction. EXPLANATION: An agency cross transaction occurs when an investment adviser acts as both adviser and broker/dealer and requires prior written approval from the client and special reporting requirements. The adviser cannot recommend the transaction to both parties, only one side or the other.
An investment adviser renews its registration with the SEC by filing: A) an annual audited balance sheet. B) an annual updating amendment. C) Forms ADV Part 1 and Part 2. D) a certificate of good standing along with the renewal fee.
an annual updating amendment EXPLANATION: Investment advisers renew their registration with the SEC by filing an annual updating amendment within 90 days (including weekends and holidays) of the end of their fiscal year. An important part of the annual updating amendment is the computation of assets under management (AUM) which confirms the adviser's continued eligibility for SEC registration.
All of the following are exempt transactions EXCEPT a(n): A) client, on his own initiative, requesting a transaction in a security that is not registered in the state. B) pledgee liquidating securities that were put up as collateral for a loan that has now gone into default. C) administrator of an estate selling securities to liquidate the estate's assets. D) certified financial planner selling NYSE-listed securities to numerous high net worth individual clients.
certified financial planner selling NYSE-listed securities to numerous high net worth individual clients. EXPLANATION: A certified financial planner selling NYSE-listed securities to numerous individual clients, regardless of their net worth, might be engaged in a nonexempt transaction, not an exempt transaction. This would not be true if the financial planner's clients were all financial institutions rather than individuals. Transactions by an administrator and an executor are exempt transactions, as are unsolicited nonissuer transactions. When securities that have been pledged as collateral for a loan, if that loan goes into default, the liquidation of that collateral is an exempt transaction.
An investment adviser (IA) is deemed to be maintaining custody under the USA when: A) client securities are held at the investment adviser's principal office. B) client funds are kept by a broker/dealer affiliated with the investment adviser. C) the adviser maintains a net worth of not less than $35,000 or has a surety bond in that amount. D) the adviser has been granted discretion over the account.
client securities are held at the investment adviser's principal office. EXPLANATION: Possession of a client's securities is considered custody. Although an IA must maintain a minimum net worth of $35,000 (or a surety bond in that amount) if custody is maintained, the mere fact that the IA has that level of net worth does not mean that custody is involved. The USA considers that funds and securities held at an affiliated broker/dealer are not under the custody of the IA.
All of the following are exempt transactions EXCEPT: A) unsolicited, nonissuer transactions. B) commercial paper with a maturity of no longer than 270 days. C) the sale of securities to a closed-end investment company. D) isolated, nonissuer transactions.
commercial paper with a maturity of no longer than 270 days. EXPLANATION: This question deals with transactions. While all of the items listed are exempt, commercial paper is an exempt security, not an exempt transaction.
One of the respects in which the USA treats investment adviser representatives differently than investment advisers is that IARs: A) employed by federal covered advisers must register in each state in which they maintain a place of business whereas the IA registers only with the SEC. B) may be permitted to share in the profits and losses in a client's account whereas IAs never can. C) exercising discretion in client's account may be required to post a surety bond whereas IAs generally do not require bonding. D) are always individuals whereas no individual can register as an IA.
employed by federal covered advisers must register in each state in which they maintain a place of business whereas the IA registers only with the SEC. EXPLANATION: Investment adviser representatives employed by federal covered investment advisers must register as IARs in each state in which they have a place of business. Federal covered advisers register only with the SEC, not with any states. There are a number of individually registered IAs, and neither IAs nor IARs are permitted to share in profits and losses in customer accounts. Both IAs and IARs may be required to post surety bonds if they exercise discretion in client accounts.
Rule 501 of the Securities Act of 1933 creates a category of person known as an accredited investor. Included in that definition would be all of the following EXCEPT: A) pension plans. B) banks. C) insurance companies. D) investment adviser representatives.
investment adviser representatives. EXPLANATION: Although the individual IAR might personally qualify as an accredited investor, the rule does not offer a blanket inclusion to those securities professionals.
Under the Investment Advisers Act of 1940, an investment adviser that operates in only one state has no private funds as clients, and restricts advice only to securities not listed on a national stock exchange: A) must file as an associate under the act. B) is exempt from both state and federal registration. C) must register under the act. D) is exempt from registration with the SEC under the act.
is exempt from registration with the SEC under the act. EXPLANATION: While not excluded from the definition of investment adviser, some advisers are exempt from the requirement to register with the SEC. These include investment advisers whose clients are all residents of the state in which the adviser maintains its principal office and that confine their advice to securities not listed with a national exchange or that enjoy unlisted trading privileges on a national exchange; investment advisers whose clients are limited to insurance companies; and as long as none of their clients are private funds.
When an analyst subtracts the inventory from a company's current assets and divides the remainder by the current liabilities, the result is the: A) quick ratio. B) working capital. C) current ratio. D) net worth.
quick ratio EXPLANATION: The quick ratio, sometimes called the acid-test ratio, is computed by taking a company's current assets minus the inventory and then dividing that by the current liabilities.
Form 8-K must be filed by: A) registered foreign issuers. B) registered broker/dealers. C) ADRs. D) registered domestic issuers.
registered domestic issuers. EXPLANATION: Form 8-K filings are required for domestic issuers, registered under the Act of 1933, to report newsworthy events to the SEC. Foreign Issuers, ADRs, as well as broker/dealers, are exempt from having to file.
Associated Wealth Managers (AWM) is registered with the SEC as a registered investment adviser. As a consequence, if there have been any material changes, AWM must A) send a copy of its brochure to all clients within 90 days of the end of its fiscal year B) send a copy of its brochure within 7 days of receiving a request from a client C) send a copy of its brochure to all clients within 60 days of the end of its fiscal year D) send a copy of its brochure to all clients within 120 days of the end of its fiscal year
send a copy of its brochure to all clients within 120 days of the end of its fiscal year EXPLANATION: Whether a state or federal covered investment advisers, a copy of the IA's brochure, assuming there have been material changes, must be sent to all clients no later than 120 days after the close of the IA's fiscal year.
Under the Uniform Securities Act, all of the following securities are exempt from registration EXCEPT: A) stock issued by a local manufacturer. B) bank stocks. C) public utility stocks. D) bonds issued by the German government.
stock issued by a local manufacturer. EXPLANATION: Corporate stock sold publicly in the state is not exempt from registration. Commercial bank stocks, public utility securities, and foreign government debt (of countries with which the U.S. has diplomatic relations) are all exempt securities. A bank holding company's stock must be registered unless exempt, for instance, by virtue of listing on the NYSE or other regulated exchange
In portfolio theory, the alpha of a security or a portfolio is: A) the portfolio's average return in excess of the risk-free rate divided by the standard deviation in returns of the portfolio. B) a measure of the variance in returns of a portfolio divided by its average return. C) the risk of the portfolio associated with the macroeconomic factors that affect all risky assets. D) the difference in the expected return of the portfolio, given the portfolio's beta, and the actual return the portfolio achieved.
the difference in the expected return of the portfolio, given the portfolio's beta, and the actual return the portfolio achieved. EXPLANATION: Alpha is the difference in the expected return of the portfolio, given the portfolio's beta and the actual return the portfolio achieved. The higher the alpha, the better the portfolio has done in achieving excess or abnormal returns. The risk of the portfolio associated with the macroeconomic factors that affect all risky assets is systematic risk. The portfolio's average return in excess of the risk-free rate divided by the standard deviation in returns of the portfolio is the Sharpe ratio or measure. The measure of the variance in returns of a portfolio around its average return is the standard deviation.
Under SEC rules, Form 8-K must be filed: A) within ten business days of the event. B) within four business days of the event. C) promptly. D) within 15 business days of the event.
within four business days of the event. EXPLANATION: Form 8-K is used to report newsworthy events to the SEC. The reporting time limit is four business days.