S66 - PP Final #1 & Kaplan #1

Which ratio is the BEST measure of a company's solvency? a. Current ratio b. Quick ratio c. Debt/Equity ratio d. P

????

A non-working spouse is entitled to social security benefits equal to _____ of the amount earned by the working spouse.

A non-working spouse is entitled to social security benefits equal to 50% of the amount earned by the working spouse. The taking of the benefit does NOT reduce the benefit that will be paid to the working spouse at retirement.

Buying on one exchange and selling on another is the perfectly acceptable market practice known as __________.

ARBITRAGE

Which of the following concerning money purchase plans are TRUE? I. All employees must contribute to the plan II. Voluntary employee contributions are optional III. Employer contributions are required IV. Employer contributions are optional

II & III A money purchase pension plans are defined contribution plans established by the employer, thereby making the contributions mandatory. Employee participation by making voluntary contributions to the plan is optional. Employees who contribute to the plan usually contribute a percentage of their income.

If a bond is selling at a discount, it has a ________ Net Present Value.

POSITIVE

The cost basis to the recipient of inherited securities is ___________.

THE FAIR MARKET VALUE AT THE DATE OF THE OWNERS DEATH

When can advisers charge performance fees?

When the client is considerd a "wealthy investor," - ie, those with either $1.1 mil AUM or $2.2 mil of Net Worth.

Is the trustee allowed to delegate investment and management functions to an agent without the approval of the beneficiaries?

YES. Trustees must act in the best interests of the beneficiaries of the trust and must conform to the "Prudent Man" rule. The trustee IS permitted to delegate investment and management functions as he or she sees fit - there is no requirement for beneficiary approval.

A Totten Trust opened in a deposit-taking institution is MOST similar to a: a. joint account b. TOD account c. LLC account d. Individual account

b. TOD account

Section 529 Plans are established by: a. the IRS b. the SEC c. the State d. FINRA

c. the State

When two people of similar incomes get married and end up paying more taxes as a couple than as two single individuals, this is commonly referred to as the ___________ _________.

marriage penalty

Under NASAA rules for State-registered advisers, transactions must be recorded in customer account records no later than:

10 business days following the end of the quarter in which the transaction was effected. NOTE : this is very different from the requirement of Federal securities law that applies to broker-dealers and Federal covered advisers.

According to the Investment Advisers Act of 1940, the Brochure, if revised, MUST be sent to customers ________.

Annually

Any change in the ownership of an investment advisory firm organized as a ______________, no matter how small, requires notification to ALL clients within a reasonable amount of time. Conversely, any investment advisor formed as a __________ does NOT need to inform clients of departures of key personnel.

Any change in the ownership of an investment advisory firm organized as a PARTNERSHIP, no matter how small, requires notification to ALL clients within a reasonable period of time. Conversely, any investment advisor formed as a CORPORATION does NOT need to inform clients of departures of key employees.

Under the Uniform Securities Act, an investment adviser may be formed as which of the following? I. Corporation II. Partnership III. Association IV. Broker-Dealer

I, II, & III IAs and BDs can be formed as any legal operating entity, such as a corporation, partnership, sole partnership, association, etc.

Which of the following are defined as securities under the Uniform Securities Act? I. REIT certificates II. Preorganization subscription agreements III. Shares of Treasury Stock IV. Voting-trust certificates issues by a corporation undergoing a reorganization

I, II, III, and IV

Investment Advisers who have discretion over $____________ of customer assets must file a Form 13__.

Investment Advisers who have discretion over $100,000,000 of customer assets must file a form 13F.

An Investment Adviser is set up as a sole proprietorship. The owner has hired an Investment Adviser Rep to market the firm to potential clients. The most important consideration in the firm's Business Continuity and Succession Plan would be:

Making provision for the IAR to contact clients to get their permission to assign advisory contracts to a 3rd party in the event that the owner dies or is unexpectedly unavailable. Concerning business continuity.... Sole proprietorships are terminated as legal entities at the death of the owner. The IA must have a succession plan that immediately addresses this issue if the sole proprietor becomes unavailable.

Structured products _______ (are/are not) standardized). Structured products _______ (do/do not) have a fixed maturity date.

Structured products are NOT standardized but they DO have a fixed maturity date.

IARs for Federal Covered Advisers ONLY have to register in states which ___________.

The IAR has a place of business. As long as an IAR with a covered adviser does not maintain a place of business in a state, there is NO numerical limit of the number of clients he can have and still be EXEMPT from registration in that state.

Which of the following securities is eligible for a Section 1031 exchange? a. Listed stocks b. RELPs c. Annuities d. Direct Participation Programs

b. RELPS Section 1031 of the Internal Revenue Code deals with like-kind exchanges of real property (as called real estate) which includes land and generally anything built on or attached to it. RELPs also qualify. The benefit is that no taxes are paid on gains until the last sale of the property. In simply terms, it permits tax-deferral of gains when real estate is exchanged for other real estate.

An investor's securities portfolio has depreciated by $6,000 this year. How much of the loss can the investor deduct on this year's tax return? A. 0 B. $2,000 C. $3,000 D. $6,000

A. 0 An investor cannot deduct depreciation of an asset that is currently held as a capital loss. To recognize the loss for tax purposes, he must first sell those securities. Investors can only deduct $3,000 of net realized capital losses per year.

A pooled investment with a share price generally different from its Net Asset Value per share is most likely a. An index fund b. An open-ended fund c. A closed-ended fund d. An exchange-traded fund

Closed-ended share prices can differ significantly from their NAVs. Open-ended fund shares are purchased and redeemed based on their NAVs. Market forces keep ETFs prices close to their NAVs because arbitrageurs can profit by trading when there are differences.

How to calculate common stockholder's equity:

Common at par + Capital in Excess of Par + Retained Earnings (reduced by any buy backs of that company's stock for its Treasury).

Contributions to a 529 Plans _______ (are/are not) tax deductible. Contributions to a Coverdell ESA ______ (are/are not) tax deductible.

Contributions to 529 Plans AND Coverdell ESAs are BOTH NON TAX DEDUCTIBLE.

If appreciated securities are inherited, the tax basis to the beneficiary is: A. cost of the securities B. fair market value at the date of death C. fair market value 6 months after death if values have fallen D. either Choice B or C above

D. Eiter choice B or C

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 the zero.

I & IV Universal life has flexible premiums and cash values can fluctuate and may even fall to zero.

Under the Investment Advisers Act of 1940, which of the following are included in the Form ADV Part 1 filed with the SEC? I. A list of the officers of the advisory firm II. A list of the shareholders of the advisory firm III. The States in which the advisory firm is registered

I, II, & III The Form ADV Part 1 filed with the SEC includes the OFFICERS of the firm, the STATES in which the firm is registered, and if the firm is a PARTNERSHIP, a SCHEDULE of the partners' NAMES - if the firm is a STOCK COMPANY, a SCHEDULE of the SHAREHOLDERS.

Which of the following 2 business forms provide a "flow-through" tax benefit and unlimited liability to owners? I. C Corporation II. S Corporation III. General Partnership IV. Sole Proprietorship

III. & IV. General Partnerships and Sole Proprietorships provide a "flow-through" tax benefit and unlimited liability to owners.

A securities issue that will only be sold in one state by an issuer that is headquartered in that state qualifies for an ____________ exemption.

INTRASTATE exemption

An investment adviser's research department is going to issue a report, changing its recommendation from "Buy" to "Hold" on XYZZ stock. The analyst that prepared the report wants to sell his XYZZ holding that he has in his personal account. When can he sell his holding?

Until the research report is released, the analyst that prepared it is treated as an "insider" and cannot trade that stock. Once the report is published, an INVESTMENT ADVISER analyst can sell the stock IMMEDIATELY; a BROKER-DEALER analyst must wait FIVE DAYS.

If the current risk-free rate is 5%, and the expected return on the market is 10%, what return can be expected from a security that has a beta of 1.5? a. 12.5% b. 10% c. 11.5% d. 15%

a. 12.5% The expected return = 5% + 1.5(10% - 5%) = 12.5%

Which of the following strategies is permitted in a Roth IRA? a. Conversion of a Traditional IRA into a Roth IRA b. Conversion of a Roth IRA into a Traditional IRA c. Conversion of a qualified retirement plan into a Roth IRA d. Conversion of a Roth IRA into a qualified retirement plan

a. Conversion of a Traditional IRA into a Roth IRA This is done as a "rollover" and, if the contributions previously made into the IRA were tax deductible, then tax must NOW be paid on these amounts (although no penalty tax is imposed). The benefit of converting to a Roth IRA is that all distributions are not taxable, AND distributions do not have to commence at age 72 (as compared to a Traditional IRA where distributions are taxable & distributions must commence at 72).

At the beginning of the year, a portfolio has a value of $400,000. 6 months later, the portfolio is valued at $420,000. The annual percentage return on the portfolio is: a. 5% b. 10% c. 15% d. 20%

b. 10% The portfolio has grown 5% over six months, an annualized rate of return is 2 times 5% or a 10% annual rate of return.

Which of the following is a method for determining the internal rate of return to an investor based on cash flow in and out of the portfolio? a. Discounted cash flow b. Dollar-weighted return c. Dollar cost averaging d. Time-weighted return

b. Dollar-weighted return

The appropriate index that could be used to benchmark a portfolio of mid cap stocks is the: a. Standard and Poor's 100 Index b. Standard and Poor's 400 Index c. Standard and Poor's 500 Index d. Russell 2000 Index

b. Standard and Poor's 400 Index The S&P 100 is the basis for the OEX option traded on the CBOE - this is a large cap index. The S&P 400 Index consists only of mid-cap stocks.

Obtaining all of the following complies with the regulations regarding customer identification programs (CIPs) EXCEPT: a. name b. a PO Box, instead of a physical address, if it is the primary mailing address c. date of birth d. taxpayer identification number

b. a PO Box, instead of a physical address, if it is the primary mailing address A PO BOX is NEVER acceptable without a physical address.

All of the following are needed to determine tax filing status EXCEPT: a. Marital status on the last day of the year b. Whether the filer has a dependent child c. Residency of the filer d. Cost of home upkeep

c. Residency of the filer is NOT required to determine tax filing status. Cost of home upkeep comes in when determining whether ptp should file as Head of Household - to file as HoH, the person must be unmarried at year-end, must pay for at leasy 1/2 of annual housing expenses, and the home must be the principal home of the person's child.

Which of the following are exempt from registration under the Uniform Securities Act? I. Preferred stock issued by ZXZ Corporation, whose common stock is traded on the NYSE II. Common stock issued by a national bank III. Equipment trust certificates issued by a railroad company regulated by a state or federal agency IV. A debenture traded OTC, issued by a corporation whose common stock trades on the NYSE

I, II, III & IV All securities listed are exempt from registration under the USA. Preferred stock issued by a NYSE-listed corporation is a federal convered security. The same is true for any debenture issued by a NYSE-listed company. Issuers of Equiptment Trust Certificates (railroads) are regulated by other agencies, and issuers of bank securities (commercial banks) are regulated by the Federal Reserve and Office of the Comptroller of Currency; their securities are exempt from registration by the states.

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.

I, II, III, and IV S corporations must not have more than 100 stockholders, and each stockholder must be a citizen or resident of the US. The corporation can only have ONE class of stock, and no more than 25% of the corporation's income can come from passive activities.

One of your clients is discussing various options for funding his IRA. Current tax law would permit investing in which of the following vehicles? I. Collectible stamps issues by the US Postal Service II. Gold or Silver coins minted by the US Treasury Department III. Fixed Annuities IV. REITs

II, III, IV Gold or Silver coins, Fixed Annuities, and REITs are all acceptable investments for this IRA. In general, investments in collectibles are not permitted in IRAs. The one major exception is US gold and silver coins minted by the US Treasury Department.

In a money purchase retirement plan, EMPLOYER contributions are ____________ (mandatory/voluntary), and EMPLOYEES _______ (can/cannot) make matching contributions.

In a money purchase retirement plan, EMPLOYER contributions are MANDATORY, and EMPLOYEES CANNOT make matching contributions. In a money purchase retirement plan, which is a qualified plan under ERISA, the employer sets up the plan and contributes a fixed percentage of each employee's income annually, capped at 25% (up to 61k max). Regardless of whether the employer is profitable or not, it must make the annual contribution - and this is deductible to the employer.

Which of the following offers the opportunity to realize a capital gain rather than ordinary income? a. Stock dividends b. Deferred annuities c. Cash dividends d. Section 529 plans

a. Stock dividends Stock dividends, unlike cash dividends, are not taxable in the year of receipt. Instead, they reduce the owner's cost basis and, when sold at a price above cost basis, are treated as capital gain rather than ordinary income.

An agent accepts an unsolicited telephone order from a new customer to buy 200 shares of a listed common stock. The salesman has the order executed and then forwards the new account form, with the executed order ticket, to the manager. Under the Uniform Securities Act, which statement is TRUE? a. The agent's actions are prohibited since the account must be approved by the manager prior to opening b. The agent's actions are prohibited since the customer must open a new account in person c. The agent's actions are allowed as long as the manager approves of the first trade d. The agent acted properly

a. The agent's actions are prohibited since the account must be approved by the manager prior to opening The procedure to open a new account is to have the manager approve the opening of the new account PRIOR to the first trade.

To open a new account for a non-revokable trust, which statement is TRUE? a. The tax identification number of the TRUST must be obtained b. The tax identification of the TRUSTEE must be obtained c. The tax identification number of the trust BENEFICIARY must be obtained d. There is no requirement to obtain a tax identification number when opening a trust account

a. The tax identification number of the TRUST must be obtained. Non-revokable trusts are legal entities under the Internal Revenue Code, thus they have their own tax identification numbers.

A Statement of Investment Policy prepared for distribution to a client that purchases asset allocation services covers all of the following EXCEPT: a. compensation of the investment manager for providing either active or passive portfolio management b. customer investment objectives, financial needs, and financial goals c. guidelines regarding investments that are permitted and those that are prohibited d. guidelines regarding investment diversification or concentration

a. compensation of the investment manager for providing either active or passive portfolio management The Statement of Investment Policy documents the asset allocation plan that has been created for the client - the portfolio goals, expected returns, investment strategies, asset allocation plan, acceptable levels of risk, and acceptable investment types. The investment manager's compensation has nothing to do with this document.

Funds expended from a Coverdell ESA to pay for qualified education expenses are: a. tax-free b. tax-deferred c. taxable as ordinary income d. taxable as capital gains

a. tax-free Contributions to a Coverdell ESA are not deductible. Earnings build in the account without tax. Distributions from the account used to pay for qualifies education expenses are tax-free.

Which of the following would be least likely to be organized as a limited partnership? a. A hedge fund b. An index ETF c. A private equity fund d. A venture capital fund

b. An index ETF ETFs are rarely organized as a limited partnership, while the other choices almost always are

Robert is an agent registered in the State of New York, with most of his clients living in the Buffalo area. He has a client who has inherited stock of a Canadian bank listed on the Toronto Stock Exchange and the client wishes to sell these securities to his relatives in Toronto. Which statement is TRUE about this transaction under the provisions of the Uniform Securities Act? a. There is no requirement for the securities involved to be registered in the State because they are being sold to a relative b. There is no requirement for the securities involved to be registered in the State because the transaction is exempt c. There is no requirement for the securities involved to be registered in the State because the securities are exempt d. The securities must be registered in the State

b. There is no requirement for the securities involved to be registered in the State because the transaction is exempt. Non-issuer transactions in securities that are US exchange-listed or NASDAQ listed are exempt from State registration because the IPO of that security was either registered in that State already or a notice filing was made in the State. Secondary trades of securities listed on the Toronto Stock Exchange are given a similar exemption.

When computing standard deviation of returns against the mean, the measure used for the mean is: a. geometric mean b. arithmetic mean c. weighted-average mean d. moving average mean

b. arithmetic mean

Dividends paid by a corporation that are reinvested in the purchase of additional shares are: a. not taxable until the shares are sold b. taxable at capital gains rates c. deposited directly to the owner's banks account d. taxable at ordinary income rates

b. taxable at capital gains rates Cash dividends paid by corporations, WHETHER REINVESTED OR NOT, are taxable at a preferential rate of 15%. the 15% rate applies to individuals who are beneath the maximum tax bracket of 37%; for those in the maximum tax bracket, the rate increases to 20%.

Money purchase retirement plans limit the maximum annual contribution in 2022 to: a. $20,500 b. $5,000 plus an extra $1,000 catch-up contribution for individuals age 50 or older c. 25% of income, capped at a maximum of $61,000 d. $2,000 per year per individual

c. 25% of income, capped at a maximum of $61,000 Money purchase retirement plans are established by the employer and require mandatory annual employer contributions. These contributions can be subject to a vesting schedule, which is also the case for defined contribution and defined benefit plans. Unlike Keogh plans, where an annual contribution is not required, money purchase plans MUST be funded annually at the percentage formula established in the plan. There are no employee contributions made to this type of plan.

All of the following must be disclosed by an investment advisor EXCEPT: a. The president of the investment advisor was found liable in a civil action involving unsuitable advice in a state where the advisor does not have an office b. A senior officer of the firm was convicted of a felony 6 years ago c. An investment adviser representative in the firm was fined $1,000 by FINRA for making unsuitable recommendations d. A senior officer's suspension from the securities industry

c. An investment advisor representative in the firm was fined $1,000 by FINRA for making unsuitable recommendations Legal and disciplinary action successfully brought against an investment adviser must be disclosed, as well as disciplinary actions that resulted in A FINE IN EXCESS OF $2,500. Convictions for a misdemeanor or felony INVOLVING SECURITIES OR MONEY within the past ten years must be disclosed.

Among the reasons why deferred variable annuities might not be a suitable investment for seniors are all of the following EXCEPT: a. Surrender charges b. Potential capital fluctuation c. Potential inflation protection d. Improper subaccount selection

c. Potential inflation protection Variable annuities do offer potential inflation protection due to their participation in the equity market. The tradeoff is potential capital fluctuation, particularly if the portfolio selected is too aggressive. In addition, they typically carry high surrender charges.

A private equity fund would MOST likely be structured as: a. an ETF b. an open-ended investment company c. a limited partnership d. a unit investment trust

c. a limited partnership Private equity investments, including hedge funds, are typically structured as limited partnerships.

Under the Uniform Securities Act, if an agent withdraws his or her registration, the withdrawal becomes effective: a. immediately b. after 10 days c. after 30 days d. only when the Administrator so allows

c. after 30 days If an agent withdraws his or her registration, the withdrawal does not become effective for 30 days unless the Administrator allows an earlier date for withdrawal. Similarly, when a registration application is filed with the Administrator, it does not become effective for 30 days, unless the Administrator allows an earlier date.

The "Brochure Rule" applies to: a. oral advisory contracts only b. written advisory contracts only c. both of the above d. none of the above

c. both of the above The SEC states that the "Brochure Rule" applies to BOTH oral and written advisory contracts. Note that this DOES conflict with the Investment Adviser's Act of 1940, which requires that advisory contracts be in writing; but this is a later rule, written by someone that wanted the broadest interpretation possible.

The principal benefit of establishing a living trust is: a. tax deferred build-up of earnings in the trust b. elimination of estate taxes upon death of the grantor of the trust c. removal of assets held in the trust from the decedent's estate, avoiding probate d. increasing investment returns because asset selection is based on the "Prudent Man" rule

c. removal of assets held in the trust from the decedent's estate, avoiding probate

In a qualified plan, if the employer makes all the contributions, the employee's cost basis is: a. one-half of the contributions made b. the increase in value only c. zero d. the value of the contributions

c. zero Because the employee has not made any contributions, the cost basis is zero. In any qualified plan, if all of the contributions are in pre-tax dollars, the cost basis is zero no matter who contributes the money.

Duration is: a. identical to a bond's maturity b. equivalent to the yield to maturity c. a deviation of a bond's returns from its average returns d. a measure of a bond's volatility with respect to changes in interest rates

d. duration is a measure of a bond's volatility with respect to changes in interest rates

For any one year, what is the maximum amount that parents can contribute to a 529 Plan for a child without incurring gift tax liability in 2022? a. $10,000 b. $16,000 c. $32,000 d. $160,000

d. $160,000 Donors contributing to a 529 Plan can make a 1-time lump sum contribution to a 529 Plan equal to 5 years of contributions based on the annual gift tax exclusion of $16,000. Using the 5-year rule, each parent may contribute 5 times the annual maximum ($16,000 x 5 = $80,000). A couple could double that amount to $160,000 without incurring gift tax consequences.

The State Administrator is empowered to require the filing of advertising and sales literature relating to offers of which of the following? a. US Government securities b. Municipal securities c. Agency security d. Equity securities

d. Equity securities The Administrator can require filing of advertising and sales literature unless the security involved is exempt; or the security is offered in an exempt transaction; or the security involved is a federal covered security.

Which of the following statements under the Investment Company Act of 1940 is TRUE? a. Mutual funds furnish financial reports to shareholders at least annually b. Investment companies are prohibited from owning more than 5% of another company's shares c. Mutual funds must file semiannual reports with the SEC d. Holding companies are not included in the definition of an investment company

d. Holding companies are NOT included in the definition of an investment company - this is TRUE The limit of investment in another investment company's shares is 3%, not 5% - and Section 30(d) of the act requires SEMIANNUAL reports from the fund to its shareholders and an ANNUAL filing with the SEC.

COVERDELL savings accounts permit a donor to make: a. Tax-deductible contributions for a beneficiary to pay for higher education expenses only b. Non tax-deductible contributions for a beneficiary to pay for higher education expenses only c. Tax-deductible contributions for a beneficiary to pay for education expenses at all levels d. Non tax-deductible contributions for a beneficiary to pay for education expenses at all levels

d. NON tax-DEDUCTIBLE contributions for a beneficiary to pay for education expenses of ALL LEVELS Coverdell ESAs permit the donation of $2,000 per beneficiary per year to pay for all levels of education. Contributions are non-deductible, but the account grows tax-deferred, and distributions to pay for qualified education expenses are tax-free. Also note that these accounts are not available to high-earners.

All of the following are advantages of starting a business using a general partnership structure EXCEPT: a. Ease of formation b. No limit on the number of owners c. Flow-through taxation d. No limit on the liability of owners

d. No limit on the liability of owners I dont really understand this question at all... do general partnerships have limited liability or not??? wtf

An adviser is creating a financial plan for retirement using a capital needs approach. Which type of insurance policy would be recommended as part of the plan? A. Term life B. Whole Life C. Universal Life D. Variable Life

d. Variable life

Duration is: a. the deviation of a bond's returns from its average returns b. equivalent to the Yield to Maturity c. identical to a bond's maturity d. a measure of a bond's volatility with respect to a change in interest rates

d. a measure of a bond's volatility with respect to a change in interest rates The higher the duration, the greater the change in a bond's price with respect to interest rate changes.

The unethical business practice of purchasing and selling a security for the purpose of creating an appearance of market activity is known as: a. spinning b. front running c. arbitrage d. matched orders

d. matched orders

All of the following orders must be retained as a record by broker-dealers EXCEPT: a. executed orders b. unexecuted orders c. canceled orders d. subscription orders

d. subscription orders A subscription order arises from a rights offering, where a corporation is attempting to raise additional funds from its existing shareholders by offering them subscription rights to new shares at a discount from the current market price. These orders happen directly between the issuer and the shareholder, so there is no broker-dealer record of these.