Series 65 2.0

Difference between regressive and progressive taxes?

Regressive: fixed at same rates (cigarette, sales) Progressive: changes (income, estate)

When inflation is on the rise, interest rates often ______.

Rise

Custody of third party check: SEC? States?

SEC: never is custody States: if you don't return within 72 hours

What is a Zero-coupon Treasury bond?

STRIPS, Zero-coupon bonds created from U.S. Treasury securities. (Only through financial institutions and gov. securities brokers/dealers) sold at a discount from par (as it's "zero-coupon")

Which BD needs to register? 1. A broker-dealer with a place of business in the state that effects transactions exclusively with broker-dealers registered in other states. 2. A broker-dealer with no place of business in the state that deals exclusively with broker-dealers with offices in that state.

1. If a broker-dealer has an office in the state, it must register with the state, regardless of what types of clientele it serves.

In a variable life insurance policy, a minimum death benefit is guaranteed, but no _____ value is guaranteed.

Cash

What is the total return on a bond that cost an investor $950, was sold for $1,000, and paid $50 in interest payments?

10.53%. (total divs+capt gains) / POP (AKA Cost)

If a federally covered IA, the brochure must be given to the client at least ______ days before the end of the fiscal year and only if there are any ______ changes. If an inaccuracy is found, brochure must be updated and distributed ______.

120, material, promptly.

A Bene owner must file a _____ w/n _____ days once they become a bene owner. Must tell exchange, SEC, and the issuer.

13D, 10

If your IA is a pension consultant, you can register with the SEC if you have how much in AUM?

200 mil AUM

Recording keeping: Federal IA State IA BDs

5 years 5 years 3 years (all first two at principal office)

USA: statute of limitations is ____ years for criminal offences.

5 years. Comes with and/or $5K or 3 years in prison. Civil: is 2 years from discovery or 3 years from date of action, whichever happens first.

Which of the following is (are) exempt from the registration requirements of the Uniform Securities Act? 1.Securities issued by a nonprofit organization. 2.Securities guaranteed or issued by a federal savings and loan. 3. T-bills. 4. Unit investment trusts registered with the SEC. A) I, II, III and IV. B) I, II and III. C) II, III and IV. D) I only.

A Securities issued by nonprofit organizations, federal savings and loans, and the U.S. government (i.e., Treasury bills, Treasury bonds) are exempt from the registration requirements of the Uniform Securities Act. Unit investment trusts that are registered under the Investment Company Act of 1940, are federal covered securities and, therefore, are exempt.

The Administrator may require which of the following from a federal covered adviser? copy of the IA's Form ADV. filing of the IA's advertising in the state. a listing of the IA's fee schedule. a filing fee. A) I and IV. B) I and II. C) II and III. D) I, II, III and IV.

A. Even though the Administrator has limited jurisdiction over federal covered advisers, they can require filing of a copy of the information filed by that IA with the SEC (the Form ADV) as well as a filing fee.

Margin acct: The account may be opened ​but the customer ​must complete and ​sign the margin account agreements promptly before/after the initial trade in the margin account​.

After

Margin accounts: what is the hypothecation agreement?

Allows the firm to pledge the securities held on margin to a lending institution. Required.

A corporation has issued a 4% $60 par convertible stock with a conversion price of $20. With the preferred stock selling at $66 per share, an investor holding 100 shares of this stock would benefit by converting if the price of the common stock was A) above $18.20 per share B) above $22 per share C) above $20 per share D) below $22 per share

B 3 preferred stock to 1 common (conversion price) CMV of preferred / 3 = ideal converting price

A federal covered investment adviser employs the services of a third-party solicitor. The Investment Advisers Act of 1940 would require the solicitor to deliver: a copy of the IA's brochure. a copy of the solicitor's brochure. a copy of the solicitor's script. a copy of the IA's Form ADV Part 1. A) I, II and IV. B) I and II. C) I and III. D) II and IV.

B. Third-party solicitors must provide a copy of the investment adviser's brochure (Form ADV Part 2A), as well as a copy of the solicitor's brochure. The solicitor's script must be approved by the IA, and only the SEC receives a copy of the Form ADV Part 1.

Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle? A) Cyclical rotation B) Strategic portfolio management C) Segment rotation D) Tactical portfolio management

C. AKA sector rotation

The Coverdell/529 has contribution limits set by federal law; each state sets its own Coverdell/529 limit.

Coverdell, 529

Margin accounts: difference between credit agreement, hypthecation agreement, and loan consent?

Credit agreement: securities held as collateral for the loan. Required. Hypothecation agreement: allows firm to pledge securities held on margin to a lending institution. mandatory. Loan consent: allows firm to lend the securities held on margin to other BDs. optional

When does a customer have to receive the OCC Options Disclosure Document? A) Within 15 days of account approval B) Within 5 business days of the first options trade C) With the confirmation of his first options transaction D) At or prior to the time the account is approved for options trading

D

USA: if less than 5 clients in state, no need to register.

False, even if one client for USA

Can you sell your preemptive rights?

In the market, yes. Directly to the issuer for cash? no

An income statement contains what?

Income and expenses. Not assets and liabilities.

IA Brochure: just wrap fees that you don't sponsor?

Just Part 2A

IA Brochure: just wrap fees you sponsor?

Just Part 2A Appendix 1

Cost basis method for withdrawals: life insurance vs annuity:

Life Insurance: FIFO Annuity: LIFO

Is the gift of stock dividend considered a sale?

No

USA: Agent, can you lend money to your client if they are a mortgage broker?

No (they just put borrower/lender together) but you can lend to companies who are in the business of loaning.

Does the amount of the commission have to be disclosed before the trade occurs?

No, only upon trade confirmation.

USA: are you an agent if you effect a transaction in an exempt security?

No, unless you are in a sales capacity for the BD

Is the gift of nonassessable stock considered a sale?

No. Nonassessable stock is how stocks are today.

USA: Admin can only revoke a security of its federally covered status if its a __________ or ______ _____ plan, and can also revoke any exempt ________.

Non profit, employee benefit, transactions.

Treble Damages: SEC vs USA:

Only provided for SEC.

What does it mean if someone is enjoined?

They are the subject of an injunction. Admin is going through the court for cease and desist to try to get to them to appear in court.

BDs are exempt from registration if they have no office in the state AND what?

They either 1. Deal exclusively with other firms/benefit plan over 1 million or 2. Have a place of business in another state and do business with a client from their state who is currently in the state they are exempt from for 30 days

Are commodities considered a hedge against inflation?

Yes

Can the admin establish net capital requirements for BDs?

Yes

Duration is inversely related to changes in market and coupon interest rates. True?

Yes

Short-term interest rates are more volatile than long-term rates, and long-term bond prices react more than short-term bond prices given a change in interest rates. Should you know this?

Yes

USA: Admin in IL wants to investigate a BD registered in IL, but the principal office is in MO. Can the Admin go in?

Yes, no prior notice needed, no need to have permission from Admin of MO

USA: can a B/D charge a fee for a client who wants a stock certificate, mailing charges?

Yes. Both Ethical. But must be disclosed.

Does a stop order require prior notice?

Yes. If its lifted, its vacated.

Difference between administrator and executor for death cases?

administrator: when you die intestate (no will) executor: you have a will

Under the NASAA's record keeping rules, if state registered IA has custody because it advises a pooled investment vehicle, they must keep ____ financial statements and evidence that these were mailed no longer than ____ days after the end of the fiscal year.

audited, 120

Social Media Policy: should it be committed to writing and communicated firmwide OR be left up to the manager of each branch office

committed to writing and communicated firmwide.

USA: If registered via qualification or coordination, Admin can request a new registered security to be placed in _____ if it has been issued in the past ____ years, if issued to a promoter at a different offering price, or issued to another person for something other than ____.

escrow, 3, cash

Difference between trendlines and moving average?

trendline: line showing the trend of a stock history moving average: Modifies the fluctuations of stock prices to smooth out the trend line

Record keeping years for BDs (per the USA?) Record keeping years for IAs (per the NASAA?)

3, 5

T Bill issue are in what increments? ex 4 weeks

4, 13, 26, 52

What is the total return on a 1-year, newly issued (365 days to maturity) zero-coupon bond priced at 950?

5.26%

Updating the Form ADV is required w/n _____ of the end of the ____ fiscal year

90, advisers (90 days after fiscal year)

An investment adviser renews its registration with the SEC by filing: A) an annual updating amendment. B) an annual audited balance sheet. C) a certificate of good standing along with the renewal fee. D) ADV Part 1

A

An 8% corporate bond is offered on a 8.25 basis. Which of the following statements are TRUE? Nominal yield is higher than YTM. Current yield is higher than nominal yield. Nominal yield is lower than YTM. Current yield is lower than nominal yield. A) II and III. B) I and III. C) I and IV. D) II and IV.

A A bond offered on an 8.25 basis is the same as at a YTM of 8.25%. Because the yield quoted is higher than the 8% coupon, the bond is trading at discount to par. For discount bonds, the nominal yield is lower than both the current yield and the yield to maturity.

Margin accounts: what is the credit agreement?

Allows the firm to use the client's securities as collateral for the margin loan. Required

What is a derivative?

An investment vehicle based on the value of a another security's value. Ex. futures, forwards, and options.

When investing in a foreign bond fund, a customer will profit if: the U.S. dollar strengthens. the U.S. dollar weakens. foreign currencies strengthen. foreign currencies weaken. A) I and III. B) II and III. C) I and IV. D) II and IV.

B. Since the fund is purchasing bonds denominated in foreign currencies, a weakening of the U.S. dollar or strengthening of foreign currencies will be beneficial.

Which of the following statements is correct in relation to the efficient frontier? A) It identifies the required rate of return on a particular stock. B) It represents the maximum return for a given level of risk. C) It allows an investor to create a risk-free portfolio. D) It implies an inefficiency in stock valuations.

B. The purpose of the efficient frontier is to plot the most efficient portfolios. An efficient portfolio is one that offers: the most return for a given amount of risk; or the least risk for a given amount of return.

Which of the following securities are the most interest-rate sensitive? Utility stocks Growth stocks Preferred stocks Common stocks A) II and IV B) I and III C) III and IV D) I and II

B. Utility and preferred stocks are the most interest-rate sensitive. Utility stocks are interest-rate sensitive because they are highly leveraged. Preferred stocks are interest-rate sensitive because they have a set dividend and fluctuate in price like bonds when interest rates change.

An investment adviser is analyzing 4 bonds of similar quality for a client. Bond A has a coupon of 6%, matures in 12 years, and is currently priced at 50. Bond B has a coupon of 8%, matures in 9 years, and is currently priced at 50. Bond C has a coupon of 4%, matures in 18 years, and is priced at 45. Bond D has a coupon of 12%, matures in 6 years, and is priced at 50. Based on NPV, which of these bonds represents the better value? A) Bond D B) Bond C C) Bond B D) Bond A

B. Bond C Use Rule of 72

A _______ _____ shows a company's assets, liabilities, and stockholders' equity on a specific date. The financial statement that reflects a company's operating activities and earnings over a period of time is the _______ ______.

Balance sheet, income statement

A bond selling for $20 above par would be quoted: A) 120 B) 1,200.00 C) 102 D) 1,020.00

C

A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened? C) Margin D) Options

D

If the risk and return profiles of all the possible risky portfolios were plotted on a graph, those portfolios that would be the most attractive to investors would lie on A) the capital market line B) the security market line C) the y-axis D) the efficient frontier

D An efficient portfolio is one that offers the most return for a given amount of risk, or the least risk for a given amount of return. The collection of efficient portfolios is called the efficient set or efficient frontier. This efficient frontier is plotted as a curve.

An individual walks into the office of a broker-dealer wishing to open a new account. Which of the following information would NOT be required on the new account form? A) Name of employer B) Physical address C) Citizenship D) Marital status

D.

An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients after being told by the _____.

IA (Not the Admin)

In what circumstance can you split commissions with another agent?

If you are both registered with the same BD

Generally speaking, those bonds with the highest coupons have the shortest duration, therefore, are the least subject to ______ ____ risk. STRIPS, which are zero-coupon bonds, are the most volatile since they have the longest _______.

Interest rate, duration

How to calculate Debt-to-Equity Ratio (Debt-to-total capitalization ratio)

Long term debt / net worth + long term debt

Are commodity futures contracts securities?

No

Does a cease and desist order require notice?

No

Is discretion required for timing or price?

No

What can an Admin do when doing a Summary Order? Does it require prior notice?

No prior notice. They can postpone/suspend: registration of a security or security professional They can deny a security or transaction of its exemption status. They most be notified afterwards, and they can appeal within 15 days.

Is each IAR responsible for enforcing the Code of Ethics?

No, just CCO.

Are hardship withdrawals in IRAs permitted without early withdrawal penalty?

No, there will still be a penalty.

Closed-end companies: can partial shares be bought and sold?

No. Full shares only.

If you split commissions, doe it have to be disclosed to the client?

Only if it increases the transaction cost for the client

Calculation for expected return?

Risk free rate + (beta x (market return - risk free rate)

What is a sell-stop order?

Sell stops are entered below the market. They are used to turn an order into a market order if the current market value falls below the stop level.

If you have a Roth 401K with your employer, how are their contributions handled?

They go in on a pretax basis into a Traditional 401K.

Top down versus bottom up analysis of the economy

Top down starts with big picture and then goes to companies, Bottom up starts with companies and then looks at the big picture.

Administrators have the authority to conduct an on-site examination of a registered investment adviser even if there is no place of business maintained in the Administrator's state. T/F?

True

Front running is the prohibited practice of placing an order to benefit from news not yet released or orders that will impact the market. T/F?

True

The Administrator may require an announcement of the application for registration in one or more newspapers in the state. T/F?

True

Under the USA, one who gives advice solely for municipal securities is NOT excluded from the definition of an IA. T/F?

True

Advance/Decline Line

Uses daily market closes to determine a bullish or bearish trend. measures the number of stocks that have advanced versus the number of stocks that have declined, is an indicator of the breadth of the market's advance or decline.

What is a nonissuer transaction?

When the proceeds of the sale do not go to the entity that originally offered the securities to the public.

Under the USA, must all third party solicitors be registered?

Yes

Do shareholders of S corps have to be residents of the US?

Yes (but not for C Corp)

Taxation of GNMA and Freddie Mae

federal, state, and local

Form 8-K is used to report newsworthy events to the SEC. The reporting time limit is _____ business days.

four

What is Discounted Cash Flow?

interest payments plus return of principal for bonds.

Incentive Stock Option: In order for an ISO to qualify for favorable tax treatment, the shares acquired cannot be sold sooner than _____ year(s) after exercise as long as that is at least _____year(s) after granting of the option.

one, two

Calculate: Dividend Payout Ratio

Annual div per common share / EPS (Measures the proportion of earnings paid to stockholders as divs)

Thomas Smith, a registered agent of XYZ Broker-Dealer, believed that his client's security was overvalued. If Smith exaggerated the amount by which the security was overpriced to protect the client from a downturn in the price of the security, each of the following statements is true EXCEPT: A) Smith engaged in fraud in connection with the sale of a security. B) Smith provided investment advice while acting in a sales capacity, which is a prohibited practice. C) Smith made an untrue statement in connection with the sale of a security. D) Smith acted in a dishonest and unethical manner.

B Smith acted in a dishonest and unethical manner, made an untrue statement in connection with the sale of a security, and engaged in fraud in connection with the sale of a security. The advice to sell the securities was good investment advice, but the sales method was fraudulent.

A client with a sizeable estate would probably find it most efficient to pay estate taxes with A) proceeds from the liquidation of a tax-deferred retirement plan B) proceeds from the liquidation of a diversified portfolio C) proceeds from a life insurance policy D) cash

C

A review of a corporation's financial statements reveals the following information: Net assets - $50 million Net revenues - $20 million Cost of goods sold - $14 million Depreciation - $1 million Interest - $1 million Long-term debt - $20 million Using the information, the gross margin for the year was A) 53% B) 20% C) 30% D) 25%

C

Which of the following mutual fund share classes generally has a 1% CDSC that is eliminated once the shares have been held more than 1 year? A) Class 1% B) Class A C) Class C D) Class B

C shares

The James Henry Company (JHC), an SEC-registered securities broker-dealer with offices in Chicago and Los Angeles, limits its clientele to banks and trust companies. JHC makes a sale of US government securities to the Wall Street Bank located in New York City. Which of the following statements is (are) TRUE under the Uniform Securities Act? 1. The security itself is exempt from registration. 2. The transaction is exempt. 3. The broker-dealer is not required to be registered in the state of New York. A) II only B) I and II C) I only D) I, II and III

D.

What is time-weighted return?

Determines Internal Rate of Return by evaluating the portfolio mangers without the influence of subsequent investor deposits or withdrawals.

What is dollar-weighted return?

Determines Internal Rate of Return with the influence of subsequent investor deposits or withdrawals.

IA's: The advertisement may not make offers of free service. T/F?

False, as long as no strings attached.

Difference between future and forward contracts?

Forward: No secondary market, between one buyer and one seller only. Future: Secondary market, price specified today

what is a federally covered security?

Investment companies, securities on exchanges, and private placements, an offering in a security exempt from registration under the Securities Act of 1933, and a security that has a federally imposed exemption from state securities registration.

Does a final order require notice?

Yes (must also have the opportunity for a hearing and access to fact-based conclusion of the law)

Can an agent be registered under more than one B/D?

Yes, although some states have restrictions.

What is naked call writing?

writing a call without covering with shares that you do NOT own.

Transactions between issuers and broker-dealers (but not investment advisers) are exempt transactions. Should you know this?

yes

According to the Uniform Securities Act, which of the following would be considered exempt transactions? 1. The sale of a unlisted corporate bond by an executor of an estate. 2. The gift of 100 shares of a NYSE-listed stock from a father to his minor child. 3. Preorganization certificates subscribed to by 14 institutional investors during a 12-month period for which no payment has been made. 4. An unsolicited order from an individual client to purchase a nonexempt, unregistered security A) I and IV. B) III and IV. C) II and III. D) I and II.

A. Fiduciary transactions and unsolicited orders, regardless of the security being purchased or sold, are always exempt transactions under the USA. Preorganization certificates are limited to a maximum of 10 subscribers, whether individuals or institutions. A gift of securities is not a sale, so no transaction has taken place.

One popular method of determining the value of certain securities is discounted cash flow. Using the DCF with the current discount rate at 3%, which of the following would be expected to have the highest market value? A) Bay Area Rapid Transit Authority 4% revenue bond maturing in 15 years B) XYZ Corporation mortgage bond maturing in 10 years with a coupon of 4.5% C) U.S. Treasury bond maturing in 20 years with a 4% coupon D) ABC Corporation debenture maturing in 25 years with a 5% coupon

D. The current discount rate represents market interest rates. At 3%, each of these bonds should sell at a premium (their coupon rates are higher than 3%). When a bond is paying interest at a rate higher than the current market rate, the longer the investor will be receiving that higher rate, the higher the premium. Therefore, the 5% bond with 25 years to maturity will have the highest present value using the DCF.

According to the USA, under what circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent? A) The employee is not paid any commission or salary. B) The transaction is exempt. C) The securities are federal covered securities. D) Under no circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent.

D. It is unlawful for a person to transact business on behalf of a broker-dealer unless that person is registered as an agent in the state. Only individuals selling on behalf of the issuer may qualify to be exempt from registration as an agent.

You are an investment adviser representative with the firm of Total Wealth Management Associates, an investment adviser registered in four states. One of your clients approaches you seeking advice on saving for college expenses for his 13-year-old child. In determining the proper course of action, this is an example of a client giving you A) a recommendation B) an investment policy statement C) a capital need D) an investment constraint

D. Will need money soon.

The SEC has jurisdiction over banks and savings and loans regarding their securities activities. T/F?

False. Banking authorities, such as the Federal Reserve Board, the Federal Deposit Insurance Corporation, and others, regulate banks and savings and loans.

Margin accounts: what is loan consent?

Gives the firm permission to lend the securities held on margin to other BDs. Not mandatory.

Precious metals include: Industrial metals include:

Gold silver, platinum. Lead, aluminum, nickel, and copper.

Employee contributions to a 401(k) plan are subject to: Social Security taxes. federal unemployment taxes. federal income tax withholding. state income tax withholding. Pick 2.

1 and 2. Employee contributions are excluded from taxable income at the time of contributions, which exempts them from income tax, but not from payroll taxes.

An agent is registered in State X but not in State Y. The agent sells a resident of State X a new State Y municipal revenue bond. If the bond is not registered for sale in State X, which of the following statements is TRUE? A) The sale was legal because the bond is not required to be registered for sale in State X. B) The sale was legal because the sale took place in State X to a resident of that state. C) The sale was illegal because the bond is not registered for sale in State X. D) The sale was illegal because municipal revenue bonds are not exempt securities.

A. Any municipal bond is considered an exempt security under the Uniform Securities Act. Therefore, the sale of an exempt unregistered security by a properly registered agent is perfectly legal.

Which of the following firms in the business of rendering investment advice for compensation would be considered a federal covered adviser? A) JKL Pension Consultants, a management firm providing services to employee benefit plans, and currently has $179 million under management. B) DEF Fund managers, a corporation managing an unregistered hedge fund with $10 million in assets. C) GHI Consultants, a sole proprietorship, managing $82 million belonging to high net worth individuals. D) ABC Money Managers, a partnership with $115 million under management.

D It makes no difference what the structure of the adviser is. As long as the assets under management are $110 million or more, SEC registration is required. If the investment company is registered under the Investment Company Act of 1940, the adviser must be registered regardless of size. The Hedge Fund is an unregistered fund so the rule does not apply to it. Pension consultants are not eligible for SEC registration until their AUM reaches $200 million.

A Bond analyst will frequently use the discounted cash flow method to determine which of the following? A) The bonds coupon rate B) The bond's maturity C) The bond's rating D) The bond's NPV

D The DCF is used to determine a reasonable valuation of a bond based on its net present value (NPV). In doing the computation to find the NPV, the known factors are the coupon rate and maturity date. The NPV is the unknown we are solving for.

Short selling: In a short sale, an investor borrows stock, most commonly from the broker-dealer, to sell at the market. The investor is hoping that the price of the stock will decline. If she is correct, she will have the broker-dealer ______ the stock at the current market price and replace the borrowed stock. The difference between the sale price and the purchase price represents the investor's profit. Of course, if the price of the stock rises, the replacement cost will be higher than the sale price, resulting in a loss.

purchase