Series 65 #3
An investment adviser is conducting the initial meeting with a new advisory client. Which of the following is least necessary when gathering information necessary to fulfill the engagement? A) Determining which securities to purchase for the client's investment portfolio B) Collecting personal financial information C) Inquiring about the number of dependents D) Inquiring about the age or dates of birth of dependents
A) Determining which securities to purchase for the client's investment portfolio Before making any investment recommendations, the IAR must obtain basic information about the client. Only after evaluating the needs and objectives can the IAR begin to create an investment plan.
Under Rule 144, which of the following sales are subject to volume limitations? Control person selling registered stock held for one year Control person selling restricted stock held for two year Nonaffiliate selling registered stock held for one year Nonaffiliate selling restricted stock held for two year A) I and II B) III and IV C) I and III D) II and IV
A) I and II Control persons are always subject to volume limitations.
Under the NASAA Model Custody Rule, an investment adviser is considered to have custody of client assets if which of these are true? -The adviser inadvertently receives a check from a client for a purchase that is made payable to the investment adviser and does not return the check within 24 hours. -The adviser inadvertently receives a check from a client for a purchase that is made payable to a third party and does not forward the check within 3 business days. -The adviser inadvertently receives stock certificates from a client and does not forward them within 3 business days. -The adviser inadvertently receives stock certificates from a client and does not return them within 3 business days. A) II and IV B) II and III C) I and IV D) I, II, and IV
A) II and IV key word for stock cert is it has to be returned within 3 days
From the following 4 portfolios, choose the 1 that would generally be considered to be the most diversified. A) STU common stock, beta 0.95, correlation to the S&P 500, +0.84, VWX common stock, beta 0.90, correlation to the S&P 500, +0.07; YZA common stock, beta 0.88, correlation to the S&P 500, −0.45 B) DCB common stock, beta 1.00, correlation to the S&P 500, +0.75; HGF common stock, beta 0.10, correlation to the S&P 500, +0.25; KJI common stock, beta −0.50, correlation to the S&P 500 +0.50 C) ABC common stock, beta 1.20, correlation to the S&P 500, +0.82; DEF common stock, beta 0.90, correlation to the S&P 500, +0.91; GHI common stock; beta +0.65, correlation to the S&P 500, +0.06 D) JKL common stock, beta 1.50, correlation to the S&P 500, +0.77; MNO common stock, beta 1.00, correlation to the S&P 500, +0.93, PQR common stock, beta 0.50, correlation to the S&P 500, +0.34
A) STU common stock, beta 0.95, correlation to the S&P 500, +0.84, VWX common stock, beta 0.90, correlation to the S&P 500, +0.07; YZA common stock, beta 0.88, correlation to the S&P 500, −0.45 Most analysts would agree that the greatest portfolio diversification occurs when there are some holdings with a negative correlation. Beta measures volatility, so varying those positions will offer some protection against volatility. However, including securities that move in opposite directions will provide protection against general market declines.
Which of the following offers the opportunity to realize a capital gain rather than ordinary income? A) Stock dividends B) Section 529 plans C) Cash dividends D) Deferred annuities
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 that cost basis, are treated as a capital gain rather than ordinary income.
Under the Uniform Securities Act, which of the following statements regarding private placements is true? A) The security that is the subject of the private placement need not be registered. B) A prospectus must be provided before the offering. C) Being an exempt transaction, the antifraud provisions do not apply. D) The offering must be made to fewer than 15 noninstitutional persons.
A) The security that is the subject of the private placement need not be registered.
A client is meeting with you to discuss the best way to invest today to meet the goal of funding their child's college expenses. The least important information needed to determine the amount to deposit is A) parent's salary B) age of the child C) expected inflation rate D) current college costs
A) parent's salary
Regarding the treatment of estates by the IRS, it would not be correct to state any of the following except A) the maximum tax rate on estates is the same as that on gifts. B) income received by the estate is reported on Form 1040. C) a deceased person may reduce the value of the estate by taking advantage of the annual gift tax exclusion. D) estates may be valued either at date of death or 9 months later using the alternative valuation option.
A) the maximum tax rate on estates is the same as that on gifts. The maximum tax rate on estates and gifts is 40% (the number is not tested; only that the rates are the same). The alternative valuation date is 6 months after death; nine months after death is when the tax is due. Dead people can't make gifts and any income received by the estate before it is liquidated is reported on Form 1041.
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) An order revoking an exemption may be issued without prior notice to the persons affected. C) The revocation may apply to a period prior to the date on which the revocation order was issued. D) In a proceeding to revoke an exemption, it is assumed that the exemption applies and the Administrator must prove that it does not apply.
B) An order revoking an exemption may be issued without prior notice to the persons affected.
Which of the following would be agents under the terms of the Uniform Securities Act? -A sales representative of a licensed broker-dealer who sells securities traded in the secondary markets to the general public -An assistant to the president of a broker-dealer who, for administrative purposes, accepts orders on behalf of senior partners -A subsidiary of a major commercial bank registered as a broker-dealer that sells securities to the public -An issuer of nonexempt securities that are registered in the state and sold to the general public A) II and IV B) I and II C) I and IV D) II and III
B) I and II
A QDRO is a judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant. The QDRO must contain certain specific information as stated in whose regulations? A) ERISA B) IRS C) NASAA D) DOL
B) IRS
A bond analyst is plotting a yield curve and notices that short-term maturities have higher yields than intermediate and long-term maturities. This is an example of A) an algorithmic yield curve. B) an inverted yield curve. C) a normal yield curve. D) a positive yield curve.
B) an inverted yield curve. An inverted, or negative, yield curve is one that results when debt with short-term maturities has higher yields than those with maturities that are longer. A positive, or normal, yield curve results when the yields increase as maturities do.
Under provisions of the Investment Advisers Act of 1940, investment advisers that maintain custody of client securities are required to do all of the following except A) keep copies of all confirmations sent to clients. B) send an itemized statement to clients at least monthly. C) arrange for a surprise audit by an independent public accounting firm at least annually and subsequently file a report of the examination with the SEC. D) maintain a separate ledger for each client, showing all purchases and sales.
B) send an itemized statement to clients at least monthly. its quarterly not monthly
Joan, who has a PhD in economics, has been employed as an agent by Gibraltar Securities for the past 15 years. Missing academic life, she resigns from the broker-dealer and accepts a position as an economics professor at a state university. Which, if any, party is required to notify the state securities Administrator of this change? A) No party, because Joan's termination is voluntary and not for cause B) Only Joan C) Both Joan and the firm D) Only the securities firm
C) Both Joan and the firm
An elderly widow with no independent income wishes to invest the proceeds from her recently deceased husband's life insurance. Which of the following would be the most suitable recommendation? A) Municipal bonds B) Oil and gas exploration program that you know is going to strike C) High-grade corporate bond mutual fund D) Call options
C) High-grade corporate bond mutual fund This customer needs income. Of the answers provided, the bond fund would be the most suitable because it would provide income while maintaining relative safety. While the municipal bonds are probably safer, the benefits of their tax-free income would probably be lost on a client with no independent income.
John is a client of Greater Growth Opportunities, Inc. (GGOI), a state-registered investment adviser. Which of the following constitutes John giving GGOI authority to trade his account? John tells his adviser representative over the telephone to buy 200 shares of a certain security and when to make the purchase. John tells his adviser representative to be on the lookout for securities that seem likely to fit his investment objectives. John gives his adviser representative a written discretionary authorization form to buy or sell securities for his account as she sees fit. A) III only B) II only C) I and III D) I, II, and III
C) I and III
Which of the following best describe the balance sheet formula? -Assets minus liabilities equals net worth. -Sales minus expenses equals operating income. -Liabilities plus equity equals assets. -Dividends plus retained earnings equals net income. A) I and IV B) II and III C) I and III D) II and IV
C) I and III A balance sheet basically lists what is owned (assets) and what is owed (liabilities). The difference between these two is the net worth or equity. Sales, expenses, and dividends are all found on the income statement.
Which of the following must register with a state Administrator? Investment adviser representatives of federal covered advisers who have natural person clients and have a place of business in the state A person who only provides impersonal investment advice through newspaper columns, magazine articles, or financial publications of general and regular circulation An investment adviser registered in a different state and who has no place of business in the state but has had fewer than six individual advisory clients in this state during the previous 12 months A person who is an officer of a federal covered investment adviser and does not function as an investment adviser representative A) II and III B) II only C) I only D) I, II, III, and IV
C) I only
Under the Uniform Securities Act, which of the following negates a client's right to a civil suit for damages? The advice that is the subject of the suit was given more than three years ago. The client has died. The client willingly signed a statement waiving the adviser's compliance with the provision of the act on which the suit is based. A) II and III B) I, II, and III C) I only D) I and II
C) I only The death of the adviser or the client does not remove a cause of action for civil liability; it is the estate of the deceased client who is the plaintiff. (basically just because someone died doesn't mean it's over, the deceased clients estate can do things)
Which of the following statements is most accurate regarding the net present value (NPV) and internal rate of return (IRR) on a bond? A) NPV assumes that cash flows can be reinvested at the bond's IRR. B) IRR assumes the cash flows are reinvested at market interest rates. C) NPV assumes the cash flows can be reinvested at market interest rates. D) IRR assumes the cash flows are reinvested annually.
C) NPV assumes the cash flows can be reinvested at market interest rates.
Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144? A) Stock acquired by a corporate affiliate in a private placement B) Unregistered stock acquired by a corporate affiliate in a stock option program C) Stock acquired on the NYSE by a corporate affiliate D) Unregistered stock acquired by a nonaffiliate under an investment letter
C) Stock acquired on the NYSE by a corporate affiliate The holding period rule applies only to unregistered stock, which may or may not be control stock. Unregistered stock results from either private placements or the exercise of a corporate stock option. Because this question asked which securities were not subject to the Rule 144 holding period, only stock acquired on the NYSE by a corporate affiliate is the correct answer. However, the affiliated person is subject to volume restrictions.
A client is interested in purchasing a REIT and asks you what the differences are between a listed REIT and an unlisted REIT. You could respond that all of the following are differences except A) regulatory oversight. B) liquidity. C) fees and expenses. D) suitability requirements.
C) fees and expenses. The internal operating costs of a REIT, such as management fees and administrative expenses, have nothing to do with where units of the REIT are traded. One of the major risks inherent in an unlisted REIT is lack of liquidity. As a result, there is a greater stringency when it comes to suitability, and this leads to stronger oversight by the regulators.
A customer asks an agent for a valuation of his securities portfolio. Because the agent does not want to cause the customer to panic and sell his shares at a loss, the agent inflates the value of the stock. Under the Uniform Securities Act, this action is A) permitted because the agent was not recommending a transaction B) not permitted because the agent must not attempt to influence the market value of a security C) not permitted because the agent must not deceive the customer by misstating a material fact D) permitted because the agent determined that selling the securities was not suitable
C) not permitted because the agent must not deceive the customer by misstating a material fact
The portfolio of a client of an investment adviser began the year with a market value of $1.2 million. Sixty percent of the portfolio was in equities, thirty percent in bonds, and the remainder in cash. It was a good year for equities and, at the end of the year, the total value of the account was $1.5 million. This resulted in the portfolio manager liquidating approximately $100,000 of stock and placing the money into bonds. Given this information, it is most likely that this manager's investment style is A) rebalancing. B) contrarian. C) strategic asset management. D) tactical asset management.
C) strategic asset management. strategic is closer to buy and hold, in the question it states to change things at the end of the year, which tactical is way more frequent than that
If a client wishes to purchase a life insurance policy that doesn't invest in the market, but allows the holder to pay additional premium if desired, the recommendation is A) term life. B) index annuity. C) universal life. D) variable life.
C) universal life. Universal life (not universal variable life) does not invest in the market through a separate account. That is only true of life insurance policies using the word "variable." These policies are frequently overfunded (premium over the required amount is paid-in by the policyowner). Term life cannot be overfunded and annuities of any type are not life insurance policies.
Based on the following information, which stock is most likely to appeal to a growth investor? A) P/E ratio of 8:1 B) Book value of $22 per share, current market value of $17 per share C) Dividend payout ratio of 65% D) Dividend yield of 0.3%
D) Dividend yield of 0.3%
ABC Manufacturing Company is in the business of making high-quality machine tools. Which of the following would be included in ABC's cash flow from financing activities? A) The sale of XYZ Lathe Manufacturing bonds B) The purchase of a new computer-driven lathe C) The purchase of a new building to store inventory D) Payment of cash dividends
D) Payment of cash dividends All financing activities deal with the flow of cash to or from the business owners. The other choices are part of cash flow from investing activities
If an investor wanted to verify a company's working capital, she would do so by reviewing their A) footnotes B) income statement C) cash flow statement D) balance sheet
D) balance sheet Working capital, current assets minus current liabilities, is determined from numbers found on the balance sheet.
When an investor owns a convertible security where, upon conversion, the account value would remain the same, it is considered that the convertible and the common are selling at A) equivalent value. B) the nominal yield. C) the arbitrage level. D) parity.
D) parity. parity means equal
A client owning shares of a closed-end investment company entering an order to liquidate the position would receive a price based on A) the next computed net asset value per share. B) the previous net asset value per share. C) the offering price computed after the order is received. D) supply and demand for the shares.
D) supply and demand for the shares.
It would be correct to state that an inverse ETF A) moves in tandem with the index being tracked. B) is suitable for sophisticated investors with a long time horizon. C) is a form of private equity fund. D) utilizes derivatives to achieve its objectives.
D) utilizes derivatives to achieve its objectives.
