Series 65

An investor who uses dollar cost averaging to purchase a mutual fund would A) invest the same amount of money each month B) invest in a bond fund during a falling market and a stock fund during a rising market C) purchase the same number of shares each month D) allocate assets equally among cash, stocks, and bonds

A - invest same amount of money each month

One of your clients is 10 years away from retirement and is trying to decide what would be a suitable investment for this year's IRA contribution. You would probably NOT recommend A) leveraged ETFs B) broad market ETFs C) target date mutual funds D) conservative growth mutual funds

A -Leveraged ETF's

What is the term used to describe a person on the floor of a stock exchange who stands ready to buy or sell shares of specified stocks? A) Floor broker B) Specialist C) Arbitrageur D) Member

B

Obtaining all of the following complies with the regulations regarding customer identification programs (CIPs) EXCEPT A) taxpayer identification number B) a PO Box, instead of a physical address, if it is the primary mailing address C) name D) date of birth

B - PO Box is never acceptable without a physical address

When reviewing potential securities to select for an investor's portfolio, a technical analyst would be most likely to evaluate A) the price-to-book ratio B) the daily trading volume C) the price-to-earnings ratio D) the management tenure

B - Technical analysis charts price and volume over time

Which of the following is a motivation for creating structured products? Structured products A) improve profits for broker-dealers. B) improve market completeness. C) are less expensive for investors to buy and trade. D) reduce costs to issuers.

B - structured products are created to meet a specific need for which there is nothing available in the current market. Investors pay fees to access structured products in addition to transaction costs.

According to the Uniform Securities Act, which of the following would not be an unlawful activity for an investment adviser? A) Entering into an investment advisory contract that does not mention the compensation arrangements B) Taking custody of a customer's securities or funds without notifying the Administrator, even though the Administrator has no rule that prohibits such custody C) Notifying clients within a reasonable amount of time of the departure of a minority partner of the firm D) Entering into an investment advisory contract that provides specifically for compensation based on a share of capital appreciation of the customer's funds

C

Among the differences between an investment in a limited partnership offering and in a corporation is that A) only corporations issue securities. B) limited partners take a more active role in the management of the enterprise than do stockholders of a corporation. C) limited partnership offerings do not pay dividends; corporations do. D) only corporations are organized to run a business.

C

A stop order can be used to do all of the following EXCEPT A) protect a short position B) protect a long position C) give the broker-dealer discretion regarding time and price D) become a market order once the security trades at or through the stop price

C - read the damn question

A state-registered investment adviser offers wrap fee programs to certain clients. Which of the following statements about wrap fee arrangements is NOT true? A) Information on Appendix 1 of Form ADV Part 2A must also be contained in client disclosure documents. B) Nonmaterial changes to wrap fee programs must be disclosed to the Administrator within 90 days of fiscal year end. C) Material changes to wrap fee programs must be filed promptly with the Administrator. D) Because this investment adviser offers wrap fee programs, it must make certain annual disclosures to the SEC.

D

If your client's entire investment portfolio consists of his company's employee stock ownership plan and stock in the company acquired under the executive stock option program, the client's portfolio is most exposed to A) inflation risk B) business risk C) interest rate risk D) market risk

B

If a federal covered investment adviser intends to pay a third party solicitor to solicit clients for investment advisory services, which of the following must be TRUE? 1. The solicitor must be a registered investment adviser representative with the state. 2. The registered investment adviser must be properly registered as an investment adviser under the Investment Advisers Act of 1940. 3. There must be a separate written agreement between the solicitor and the registered investment adviser. 4. The agreement between the solicitor and the registered investment adviser is contained as part of the investment adviser's brochure. A) I and IV B) II and IV C) I and III D) II and III

2 and 3

A business organized as which of the following pays federal income tax on its income? A) Sole proprietorship B) S corporation C) LLC D) Partnership

A

An employer-sponsored retirement plan that pays a specific benefit to participants at their normal retirement age is A) a defined benefit plan B) a defined contribution plan C) a section 401(k) plan D) a supplemental employee retirement plan

A

Sally is registered as an agent with ABC Securities Co., a major brokerage house with offices in most states. ABC has recently introduced a fee-based asset management program and has asked Sally to devote one hour per day soliciting her existing clients for this program. Under the USA, Sally would A) be required to obtain registration as a registered investment adviser representative B) be required to obtain registration as a registered investment adviser C) only be permitted to solicit those clients who currently have discretionary accounts with ABC D) not be required to obtain any additional licensing beyond her agent's registration

A

GEMCO Securities, Inc., a broker-dealer registered in the state, has over 10,000 clients ranging from small individual accounts to substantial institutions. GEMCO has determined that the most efficient way to maintain contact with its clients is through electronic communications. Under the USA, these emails must be retained by the broker-dealer for a minimum of A) 3 years B) 8 years C) 5 years D) 2 years

A - 3 years. For investment advisors it is 5 years minimum

When a stock has a beta of less than 1, this indicates that A) it will, on average, give a return below that of the market B) it will, on average, give a return in excess of that of a stock with a beta of greater than 1 C) it will have a high level of systematic risk D) it will have a high level of unsystematic risk

A - Because the "market" has a beta of 1.0, any stock with a lower beta will generally not have price movement equal to the market

Partners with the United States in the creation of Brady bonds were the International Monetary Fund (IMF) the Import/Export Bank the United Nations the World Bank A) I and IV B) I and II C) II and III D) III and IV

A - IMF and World Bank

The term "derivative" would NOT apply to which of the following? A) REITs B) Warrants C) Forwards D) Futures

A - REITs are not based on the value of something other than their own assets.

Wealth Creation Advisers (WCA) is a federal covered investment adviser specializing in consulting to pension plans. WCA's principal office is located in State L. The governor of State L is running for re-election. If WCA were to make a $350 contribution to the campaign, under the SEC's pay-to-play rule, A) WCA would be prohibited from receiving compensation for advisory services rendered to any agency of State L for 2 years B) WCA could be subject to disciplinary action C) WCA's contribution is within the de minimis limitation because their principal office is located in State L D) WCA would be prohibited from rendering any advisory services to any agency of State L for 2 years

A - cannot receive comp for 2 years after making a political contribution

Which of the following securities trade on regulated stock exchanges with their prices being determined by supply and demand? Closed-end investment companies Exchange-traded funds Face amount certificate companies Mutual funds A) I and II B) II and III C) III and IV D) I and III

A - closed end and ETF

Under the Securities Act of 1933, the term "person" would NOT refer to which of the following? A) A deceased individual B) An unincorporated amateur athletic club C) A nonprofit, charitable corporation D) A subdivision of a government

A - deceased, mentally incompetent, and minors are not considered "people"

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

A - fine must be in excess of 2500 to disclose

An investor purchases 100 shares of RIF common stock. In the year following the purchase, the RIF shares appreciated by 12% and paid a 2% dividend. If inflation, as measured by the CPI, was at a 4% rate, the investor's total return on the RIF shares is closest to A) 14% B) 12% C) 8% D) 10%

A - questions is asking for total return which equals (appreciation + dividend). inflation adjusted return would be 10%

Which of the following describes unsystematic risk? A) It is specific to an investment and can be diversified away. B) It is specific to an investment and cannot be diversified away. C) It is related to market forces and cannot be diversified away. D) It is related to market forces and can be diversified away

A - unsystematic can be diversified away and is specific to an investment not the whole market

A 75 year-old client's $500,000 portfolio is 40/60 equity/debt. Six months later, the portfolio balance is $480,000 of which $180,000 is equity. If the investment adviser recommends semiannual rebalancing, the client will A) sell $12,000 of the equity and use the proceeds to purchase $12,000 of debt. B) sell $12,000 of the debt and use the proceeds to purchase $12,000 of equity. C) purchase $12,000 of debt and $8,000 of equity to return to the original $500,000. D) stay put because selling now would realize a loss.

B

In defining an investment adviser under SEC Release 1A-1092, which of the following would meet the business standard? A person who advertises himself as an investment adviser A person who provides securities-related advice on a frequent or regular basis A person who receives separate or additional compensation for securities-related advice A) I and II B) I, II, and III C) II and III D) III only

B

What is the appropriate procedure to follow when a customer fails to sign the form provided by the investment adviser stating that he has received a copy of the investment adviser's brochure? A) Don't do anything with the account until the customer's signature acknowledging receipt of the brochure is received. B) Proceed with the account, but make a supervisory person aware of this. C) Only unsolicited orders may be accepted until the signed receipt is received. D) Proceed with the account; the signature is not required.

B

An IAR is doing some research on a company. When viewing the corporation's financial statements, prepaid expenses would most likely be found A) as an expense on the income statement. B) as a current asset on the balance sheet. C) as a current liability on the balance sheet. D) as a fixed asset on the balance sheet.

B - Prepaid expenses, such as rent, insurance, and postage, are considered current assets

There are various ways in which an investment adviser may be compensated for services rendered. All of the following would be permitted under the Uniform Securities Act EXCEPT A) 1% of the average annual assets B) hourly fees C) 1% of the increase in account value over the next quarter D) 0.25% of the asset per quarter

C

Ian is a technical analyst who believes the market, as represented by the S&P 500 Index, is overbought. Over the next several months, there is a 12% correction. Which of the following strategies would have been successful for Ian? A) Buy call options on the S&P 500 Index B) Sell futures contracts on the S&P 500 Index C) Sell put options on the S&P 500 Index D) Buy futures contracts on the S&P 500 Index

B - Selling a futures contract is taking a short position.

A customer has a financial commitment of $200,000 that will come due in 2 years. In the interim, the customer wishes to invest the $200,000 to maximize income and have the money available for the obligation in 2 years. You should recommend investments in A) preferred stock purchased in a private placement B) municipal bonds purchased at par with 20-year maturities C) government securities with two year maturities D) large-cap stocks

C

A day order is entered to buy 500 LMN at 24.35. By the close, the firm has 100 shares at 24.25 and 200 at 24.35. If the remainder is unfilled, what is the outcome? A) The customer may demand that the firm deliver the remaining shares at 24.35. B) The customer may reject the incomplete order unless the remainder can be filled within 3 business days. C) The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close. D) The customer may reject the incomplete order unless the broker-dealer can guarantee filling the remainder by the end of the day.

C

An agent has a client who calls in with the following instructions: "Please place a sell stop order at $33 for my 100 shares of ABC common stock." A week later, the agent receives inside information that ABC's upcoming earnings report will be disastrous. Three days after that, the report is released and the stock plunges, falling to $33. Can the client's stop order be executed? A) No, because the agent was in possession of material inside information B) No, because the order isn't triggered until the price falls below $33 C) Yes, because the order was received prior to the agent receiving the information D) Yes, but only if the execution price is higher than $33

C

An individual is a participant in the 401(k) plan offered by her employer. If she were to invest $400 per month into a large-cap growth fund, she would be A) following a constant ratio plan B) using a tactical asset allocation style C) dollar cost averaging D) matching her employer's contribution

C

It would be CORRECT to state that when an investor has a shorter time horizon, A) the exposure to inflation risk is increased B) the greater the duration C) the need for liquidity is more important D) the risk level is raised

C

Jake Aaron is registered as an agent with ABC Securities, a broker-dealer registered with the SEC doing business in 34 states. In addition, Aaron has his own investment advisory business, Jake's Money Advisers, and is registered with the SEC. To comply with all appropriate regulations, which of the following would have to be stated on the business card for Jake's Money Advisers? Jake Aaron, RIA Jake's Money Advisers, RIA Jake's Money Advisers, registered investment adviser Securities offered through ABC Securities A) II and IV B) I, III, and IV C) III and IV D) I and III

C

KPT, Inc., is preparing to report its net income for the past year. An increase in which of the following causes a decrease in the reported net income? Tax rate Cash dividend Interest charged on bank loans A) II only B) I only C) I and III D) I and II

C

Malcolm Munger, CLU®, is an insurance agent catering to highly successful business executives. During a routine servicing call, one of those clients asks Malcolm if he knows anyone who is sharp enough to handle his $50 million investment portfolio. Malcolm refers the client to Superb Asset Managers Company (SAMCO), an investment adviser doing business in this state. The CEO of SAMCO meets with Malcolm's client and an advisory contract is signed. To show their appreciation, Malcolm receives a $500 finder's fee from Superb Asset Management Company (SAMCO). Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, A) The finder's fee would be disallowed if the IA did not have an insurance license B) No disclosure is necessary unless it will result in the IA's fee being higher than it would have been without the finder's fee C) SAMCO must disclose the existence and circumstances of the finder's fee to the client D) SAMCO must make sure that Malcolm discloses the fee to his client

C

Nite Capital Group is a registered broker-dealer whose primary business model is providing quotations for OTC stocks in which they position trade. Nite would be known as A) an investment company B) a secondary market C) a market maker D) a specialist

C

Tim, Jim, and Kim are equal partners in TJK Investment Advisers, a general partnership. Tim decides to sever his relationship with the other partners and work for a different firm. When, if at all, must the clients of TJK be notified of Tim's departure? A) It is not necessary to notify TJK's clients of Tim's departure, because the advisory will continue to serve its clients as before. B) TJK must notify its clients of Tim's departure within 30 days of Tim's severance from the firm. C) TJK must notify its clients of Tim's departure within a reasonable period after his severance from the firm. D) TJK must notify its clients of Tim's departure within 15 days of Tim's severance from the firm.

C

Under modern portfolio theory (MPT), all portfolios that can be constructed from a given set of stocks is referred to as A) the correlation coefficient B) the efficient set C) the feasible set D) the capital market line

C

Under the Uniform Securities Act, a broker-dealer is defined as any person who A) is registered with the SEC B) sells securities C) is in the business of effecting securities transactions for its own account or for the accounts of others D) buys securities

C

When a broker-dealer registers with the state Administrator, which of the following persons are automatically registered as agents of the broker-dealer in the state? A) Agents registered in another state who are employed by the broker-dealer B) Those persons employed at the broker-dealer prior to its registration in the state C) Any agent who is a partner, officer, or director, or a person occupying a similar status or performing similar functions D) Persons employed by the broker-dealer who are residents of the state but employed in a state other than that of the Administrator

C

When an investor notices that a bond's coupon yield is lower than its current yield, that is an indication that the bond A) is in danger of going into default B) is selling at a premium C) is selling at a discount D) is probably rated investment grade

C

When it comes to computing market returns, it is TRUE to state that A) the median is always lower than the average B) the mode is always higher than the mean C) the geometric mean could never be greater than the arithmetic mean D) the median is always higher than the geometric mean

C

Which of the following statements concerning equity securities is not correct? A) Preferred stock is an equity security with an intermediate claim (between the bondholders and the common stockholders) on a firm's assets and earnings. B) Equity securities provide a residual claim, after payment of all obligations to fixed-income claims, on the income and assets of a corporation. C) Equity securities represent a lending interest in a corporation. D) Common stock is an equity security representing an ownership interest in a corporation.

C

Which of the following statements is NOT true? A broker-dealer must be a firm or corporation (legal person) as opposed to a natural person (human being). An investment adviser must be a firm or a corporation as opposed to a natural person. An investment adviser representative (IAR) cannot, under any circumstances, be employed by a registered broker-dealer. A) I and III B) II and III C) I, II, and III D) I and II

C

Which of the following statements regarding convertible debentures is TRUE? A) The issuer has the right to convert the debentures during the time period specified in the indenture. B) The issuer pays a higher rate of interest, compared with a comparable nonconvertible debenture. C) When compared with similar nonconvertible debentures, convertible debentures are issued with a lower coupon rate. D) The debenture holders receive a variable rate of interest.

C

Which of the following statements regarding warrants is TRUE? A) Warrants are safer than corporate bonds. B) Warrants' terms are generally shorter than rights' terms. C) Warrants are often issued with other securities to make the offering more attractive. D) Warrants give the holder a perpetual interest in the issuer's stock.

C

Which of the following would be least likely to be organized as a limited partnership? A) A venture capital fund B) A hedge fund C) An index ETF D) A private equity fund

C

Which of the following would have the effect of reducing a taxpayer's taxable income? Net capital loss Traditional IRA contribution Public purpose municipal bond interest Earnings in a deferred variable annuity A) III and IV B) II and III C) I and II D) I and IV

C

Who is obligated for the payment of taxes in an UTMA account? A) Donor B) Parent C) Child D) Custodian

C

XYZ Corporation common stock has a market price of $45 per share and earnings per share of $3 when XYZ announces a 3-for-1 split. After the split, the price-to-earnings ratio of XYZ stock will be A) 45 B) 5 C) 15 D) 3

C

Which of the following is (are) not exempt from registration as an investment adviser representative in the state in which they conduct business? A Certified Financial Planner who, while affiliated with a broker-dealer and an investment adviser, prepares comprehensive financial plans and whose only compensation is commissions generated from the purchase of recommended securities. An insurance agent affiliated with the company's advisory division, who prepares comprehensive financial plans and receives compensation only on insurance products purchased by his clients A broker-dealer with extensive business in the state A mutual fund company with offices and clients in the state A) I, II, III, and IV B) I only C) I and II D) III and IV

C -

If the current risk-free rate is 5%, and the expected return from the market is 10%, what return should we expect from a security that has a beta of 1.5? A) 10% B) 11.5% C) 12.5% D) 15%

C (10-5) x 1.5 + 5 = 12.5

Your client in the 25% federal income tax bracket lives in a state where his earnings place him in the 6% bracket for state income tax purposes. If he were to purchase a 4% bond issued by a political subdivision of another state, his total tax-equivalent yield would be A) slightly more than 5.33% B) 4% C) slightly less than 5.33% D) approximately 12.90%

C - 4.0% divided by 0.75 (100% minus the 25% tax bracket) or 5.33%, federal tax is tax free

A major stockholder of XYZ Corporation makes frequent purchases and sales of this stock on the open market to give the impression that it is actively traded. This unethical practice is best described as A) pegging B) positioning C) wash trades D) front running

C - A wash trade occurs when there is no real change in beneficial ownership. Purchases and sales are offset, but the volume of trading creates the illusion of substantial interest in the stock.

Investment risk may broadly be categorized as either unsystematic or systematic risk; both types of risk together constitute total, or absolute, risk. Total risk is measured by A) opportunity cost. B) beta coefficient. C) standard deviation D) correlation coefficient.

C - Beta only measures systematic risk, SD Measures both systematic and unsystematic

The Investment Advisers Act of 1940 requires delivery of a brochure containing information about the adviser's background and business practices in all of the following situations EXCEPT when the service provided is an individual supervisory service when the client is an investment company when the contract is for an impersonal advisory service requiring payment of less than $500 when the client is an individual with a net worth of more than $1 million A) I and II B) I, III, and IV C) II and III D) II, III, and IV

C - II and III

A form of business structure that exposes all personal assets of the owner to creditors is A) the C corporation B) the LLC C) the limited partnerships D) the sole proprietorship

D

Regarding performance-based fees charged by ​covered ​investment advisers, all of the following statements are correct EXCEPT A) to determine performance, the results of the client's investment portfolio must be compared against an appropriate index or benchmark B) performance-based fees may be charged against the assets of a closed-end investment company listed on the NYSE C) it must be disclosed that performance-based fees may motivate the investment adviser to assume greater investment risk than would apply with other compensation methods D) performance-based fees are generally prohibited

C - The SEC assumes that any investor meeting the qualifications is aware of the greater risk entailed, so no disclosure is necessary.

The portfolio manager of a bond fund believes that interest rates are going to increase in the near future. As such, it would be wise for that manager to A) increase the equity portion of the portfolio. B) shift into higher-rated bonds. C) shorten the average duration of the portfolio. D) lengthen the average duration of the portfolio.

C - Those bonds with the longest duration have the most sensitivity to that risk, while short-term maturities are only slightly affected

Investors looking to minimize the effects of taxation on their investments would probably receive the least benefit from A) an S&P 500 index fund B) an apartment building C) a corporate bond D) a growth stock

C - interest received from corporate bonds is ordinary income tax

The formula for computing the combined equity in a mixed margin account is A) debit balance in the long account, plus the credit balance in the short account, minus the current market value of the long and short positions B) current market value of the long positions, minus the credit balance in the short account, minus the debit balance in the long account, plus the current market value of the short positions C) current market value of the long positions, plus the credit balance in the short account, minus the current market value of the short positions, minus the debit balance in the long account D) credit balance in the short account, minus the current market value of the long positions, plus the current market value of the short positions, minus the debit balance in the long account

C - subtracting what you owe from what you own

A banner on a broker-dealer's website is considered A) entanglement B) interactive content C) adoption D) static content

D

A bond's duration is A) expressed as a percentage B) identical to its maturity for an interest-bearing bond C) an indication of a bond's yield that ignores its price volatility D) longer for a 10-year bond with a 5% coupon than it is for a 10-year bond with a 10% coupon

D

A bond, preferred stock, or debenture exchangeable at the option of the holder (for common stock of the issuing corporation) is A) a synthetic security B) a nondilutive stock C) a collateral-backed equity security D) a convertible security

D

A principal benefit gained by investing in physical real estate is A) low liquidity. B) low leverage. C) low volatility. D) cash flow.

D

An ADR is used to A) finance foreign trade in which U.S. citizens are engaged B) facilitate trading in U.S. securities in foreign markets by U.S. citizens living abroad C) reduce currency risk when investing in foreign securities D) facilitate trading in foreign securities in U.S. markets by U.S. citizens living in the United States

D

If an investment adviser tells a client that a stock has doubled in the past year and, even though past performance is no assurance of future results, he is sure it will double, this statement is A) prohibited because the investment is not suitable for the client B) permissible due to the disclaimer of future performance C) permissible if the adviser has performed due diligence on the stock D) prohibited as a likely exaggeration

D

If an investor wished to compute the mean return of her portfolio, she is going to A) compute using straight-line averaging B) compute the standard deviation C) find the median D) find the arithmetic mean

D

In the securities industry, the term "discretionary" refers to an A) order that specifies size, security, or action but leaves the choice of time or price up to the agent B) account in which a person has power of attorney over an incompetent individual's account C) account in which someone has been given custodial power over another individual's account D) account in which the agent has the power to decide which securities to buy or sell without customer authorization for those specific trades

D

Which of the following is the most suitable investment for the IRAs of a young couple with a combined annual income of $80,000? A) Options on large-cap common stock B) Partnership interests in an oil and gas drilling program C) Initial public offerings of small companies D) Shares of a growth fund

D

Which of the following pieces of customer information must an agent attempt to obtain when opening a new account? Emergency contact person Financial condition Investment objective Education A) I and IV B) I and II C) II and IV D) II and III

D

Which of the following statements about 401(k) plans are CORRECT? 401(k) plans are a type of defined benefit retirement plan. An employee's elective deferrals are made with pre-tax dollars. Earnings on the contributions to a 401(k) accumulate on a tax-deferred basis. A) I, II, and III B) I and III C) I and II D) II and III

D

Which of the following statements regarding the growth style of investing is correct? A) Growth managers look for a high-dividend yield and often take a contrarian approach. B) Growth managers believe that, although a firm's earnings are depressed now, the earnings will rise in the future as they revert to the historical range. C) Growth managers focus on the numerator in the P/E ratio, desiring a low stock price relative to earnings or book value of assets. D) Growth managers focus on the denominator in the P/E ratio, searching for firms and industries where high expected earnings growth will drive the stock price up even higher.

D

Which of the following types of business organizations do not protect owners' personal assets from losses incurred by the business? General partnership Sole proprietorship S corporation C corporation A) III and IV B) I only C) II and III D) I and II

D

Which of the following statements are TRUE? Systematic risk can be diversified away. Systematic risk cannot be diversified away. Unsystematic risk can be diversified away. Unsystematic risk cannot be diversified away. A) II and IV B) I and IV C) I and III D) II and III

D - systematic risk relates to the market and cannot be diversified, unsystematic relates to individuals and can be diversified

A 64-year-old woman wishes to withdraw funds from her nonqualified single premium deferred variable annuity purchased a number of years ago. The withdrawal would be A) subject to the required minimum distribution rules B) subject to a 10% penalty unless annuitized C) taxed as capital gain D) taxed as ordinary income

D - taxed as ordinary income once cost basis is used

If the current risk-free rate is 5%, and the expected return from the market is 10%, what return should we expect from a security that has a beta of 1.5? A) 10% B) 15% C) 11.5% D) 12.5%

D - ((10-5) x 1.5 ) + 5

A client approaches the IAR handling the advisory account with a request to find a preferred stock that will offer a 6% income return. The IAR suggests a stock paying a $.28 quarterly dividend. That stock will meet the income objective if it has a current market price of A) $11.91 B) $4.67 C) $6.72 D) $18.67

D - .28 x 4 = 1.12% then 1.12 / .06 = 18.67

An analyst has been charting previous 9 year's returns for a stock and displays the following results: 5%, 5%, 8%, −3%, 10%, 12%, 5%, 17% and 22%. If you were asked the mode of these returns, you would reply A) 10% B) 9% C) 8% D) 5%

D - 5%

What is the total return on a 1-year, newly issued (365 days to maturity) zero-coupon bond priced at 950? A) The return cannot be determined without knowing current interest rates B) 5.26% plus the implied coupon rate C) 5.00% D) 5.26%

D - 50 / 950: 50 is the capital appreciation of the bond purchased at a discount instead of 1000

Which of the following investment advisers would be required to register with the state? A) An IA who expects to have $132 million in AUM within 120 days B) An IA who is under contract to manage a registered investment company C) An IA whose annual updating amendment showed a drop in AUM from $141 million to $99 million D) An IA whose annual updating amendment showed a drop in AUM from $109 million to $87 million

D - No IA can remain registered with the SEC with AUM under 90 mil

John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments? A) His annuity payments are tax free. B) His annuity payments are all taxable as ordinary income. C) His annuity payments are partly taxable as capital gain and partly taxable as ordinary income. D) His annuity payments are partly taxable and partly tax-free return of capital.

D - No annuity payment is ever treated as a distribution of capital gains.

A federal covered investment adviser is one who has $110 million or more in assets under management manages an investment company registered under the Investment Company Act of 1940 limits his advice to securities listed on the NYSE is affiliated with a federally chartered bank A) II and III B) I, II, III and IV C) I and II D) I and III

I and II

With regard to a broker-dealer's use of social media, static content would be considered as a planned communication to a target audience that is generally not altered communication that does not provide for interaction with the author once published content used to engage in real-time interactive communications with a target audience a blog that gives readers the opportunity to post comments A) II and III B) I and IV C) I and II D) III and IV

I and II

Advisers that manage $110 million or more in customer assets are required to do which of the following? Register with the Securities Exchange Commission File notice with FINRA Post a bond in an amount specified by the appropriate regulatory body File notice with the state in which their principal office is located if notice filing is required by the Administrator A) II and IV B) II and III C) I and IV D) I and III

I and IV

The Uniform Securities Act authorizes the state Administrator to require either oral or written qualification examinations of investment adviser representatives and officers of investment adviser partnerships or corporations officers of investment advisers to pass a qualification examination an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in the state investment adviser representatives to pass a qualification examination A) I and II B) I, II, III, and IV C) III and IV D) I only

I,II,III,IV

Under the Uniform Securities Act, when may an investment adviser legally have custody of money or securities belonging to a client? When the adviser has a net worth of at least $25,000 When the Administrator has not prohibited custodial arrangements When the adviser does not have discretionary authority over the account When the adviser has notified the Administrator that he has custody

II and IV

It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients? Age Life stage Retirement savings Tax status A) I and IV B) I and II C) II and III D) III and IV

Life stage and retirement savings

Because of the changes made in the SECURE Act, minimum distributions from a traditional IRA must begin A) a year after the owner turns 59½ B) by April 1, the year after the owner turns 72 C) as soon as the owner turns 72 D) once the owner retires

B

A stop order can be used to do all of the following EXCEPT A) give the broker-dealer discretion regarding time and price B) protect a long position C) become a market order once the security trades at or through the stop price D) protect a short position

A

As defined in the Uniform Securities Act, the term "offer to sell" would include A) the sale of U.S. Treasury bills. B) a gift of nonassessable stock. C) a gift of warrants. D) the attempt to sell gold coins.

C - warrants, rights, and convertibles are offers to sell

One of the portions of the USA PATRIOT Act of 2001 that affects the opening of an account for a new customer is A) the Transportation Security Administration (TSA) B) the customer identification program C) the "know-your-customer rule" D) the requirement to obtain suitability information

B

Unless done under a specific exemption described in the law, it would generally be prohibited for an investment adviser to A) charge fees based on performance B) charge fees in advance of services performed C) charge commissions D) have discretion over a client's assets

A

A common stockholder's rights include all of the following EXCEPT A) the right to determine the par value of the stock B) the receipt of dividends, if declared by the board of directors C) electing the board of directors D) preemptive rights

A

A country decides to nationalize its sugar industry. This is an example of A) political risk. B) business risk. C) sovereign risk. D) financial risk.

A

Among the provisions of the Investment Company Act of 1940 designed to protect the interests of investors is the provision that A) any change in fundamental investment policy must be approved by stockholders B) communications with the public must be approved by FINRA before its use C) for diversification purposes, an investment company may own up to 10% of the shares of another investment company D) selection of company investments must be approved by SEC

A

An investor is long stock in a cash account and does not expect the price to change in the immediate future. His best strategy to generate income may be to: A) sell a call. B) buy a put. C) buy a call. D) sell a put.

A

Disregarding any potential redemption or CDSC fees, an investor tendering shares of an open-end investment company for redemption will receive A) the next computed net asset value B) the next computed net asset value plus a portion of the sales load C) the last computed net asset value D) the next computed public offering price

A

The common stock of companies within which industry sector would be most adversely affected by an increase in the general level of interest rates? A) The utilities industry B) The food industry C) The clothing industry D) The electronics industry

A

When using the process of registration by coordination under the Uniform Securities Act, issuers shall simultaneously submit to the state, the documents filed with the SEC under A) the Securities Act of 1933 B) the National Securities Markets Improvement Act (NSMIA) C) the Securities Exchange Act of 1934 D) the Investment Company Act of 1940

A

Which of the following are disadvantages of index investing relative to active portfolio management? Indexed portfolios have higher transaction costs. Indexed portfolios have lower management fees. Indexed portfolios restrict the universe of potential investments. Indexed portfolios may not represent optimal performance for a specific investor. A) III and IV B) II and IV C) II, III, and IV D) I and III

A

Which of the following is the beneficial owner of securities in an UTMA account? A) The minor B) The guardian C) The custodian D) The donor

A

Which of the following statements about equity securities is NOT true? A) Preferred stock is an equity security while common stock is a hybrid. B) Common stock is less sensitive to interest rate risk than preferred stock. C) Preferred stock is usually nonvoting. D) Preferred stock pays a fixed dividend.

A

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT A) markups and markdowns on trades done as a principal B) the cost of overnight delivery services C) safekeeping of customer funds and securities D) interest on debit balances in margin accounts

A - There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

A client who purchased a variable life insurance policy 15 months ago has suffered a stroke. In addition, he has developed adult onset diabetes. When receiving treatment for the stroke, he was diagnosed with lung cancer. He has decided to convert his variable policy to a whole life policy. Which of the following statements is CORRECT? He will not be able to convert to a whole life insurance policy because his health has deteriorated to such a severe level. The new policy will bear the same issue date and age as the original policy. The face amount must remain the same. The premium will be rated because his health has taken a marked turn for the worse. A) II and III B) I, II, III, and IV C) II, III, and IV D) I and IV

A - Variable life insurance offers a unique conversion policy. Anytime during the first 24 months after policy issue, the policy may be exchanged for a whole life policy (or some similar form of permanent insurance if the company doesn't offer whole life) using the age and medical condition at issue, regardless of the insured's current health. However, the face amount cannot be changed from its original amount.

A margin account could be opened for which of the following? A) IRA B) Partnership C) Coverdell ESA D) UTMA account

B

An investor may expect to receive dividends from A) a warrant B) an ADR C) a put option D) a call option

B

Broker-dealer A wants to promote and reward teamwork. The firm plans to pay out a small percentage of the firm's profits to the clerical staff as a bonus for their hard work. Under NASAA rules, is this permitted? A) Yes, if the entire clerical staff is registered as agents for the firm. B) Yes, no registration is necessary. C) Yes, if all of the agents agree to it. D) No, this cannot be done.

B

One type of alternative investment considered to be a pooled investment vehicle is the reverse ETF. Inverse exchange-traded funds (ETFs), also known as reverse or short funds, are managed to A) be used only by professional traders and market makers B) perform contrary to a benchmark market index such as the S&P 500 C) be profitable only when interest rates are rising D) outperform a benchmark market index such as the S&P 500

B

The primary defining characteristic of an equity security is A) it pays dividends, usually quarterly. B) it represents ownership in a corporation. C) voting rights. D) the ability to keep pace with inflation

B

When deciding on the suitability of a particular investment, that client's need for liquidity is A) only significant if the individual is planning on retirement B) an important consideration when determining the suitability of an investment C) only important if the client has no other liquid investments D) not a significant consideration

B

Which of the following activities would NOT be a violation of the ethical standards to be followed by investment advisers and their representatives? A) Rewarding one of your college fraternity brothers with a cash gift for each client he refers to you B) Recommending an estate-planning attorney to clients who have inquired about ways to potentially reduce their estate tax liability C) Lending money to a client to pay her income tax bill and avoid penalties D) Preparing trust documents for clients using forms you acquired on the Internet

B

Among the advantages of including preferred stock in an investor's portfolio are dividends must be paid before any distribution to common stockholders a rate of return that is likely to keep pace with inflation the opportunity for increased income if the issuer's profits increase a fixed rate of return that is likely higher than that for a debt security offered by the same issuer A) II and III B) I and IV C) I and II D) III and IV

B -

A bond with a par value of $1,000 and a coupon rate of 8% paid semiannually, is currently selling for $1,150. The bond is callable in 10 years at $1,100. In the computation of the bond's yield to call, which of these would be a factor? A) Future value of $1,150 B) 60 payment periods C) Interest payments of $40 D) Present value of $1,100

C

A company using debt obligations to finance business expansion is indicative of what type of investment risk? A) Purchasing power risk B) Reinvestment rate risk C) Credit or default risk D) Market risk

C

The Uniform Securities Act authorizes the state Administrator to require either oral or written qualification examinations of investment adviser representatives and officers of investment adviser partnerships or corporations officers of investment advisers to pass a qualification examination an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in the state investment adviser representatives to pass a qualification examination A) I only B) I and II C) I, II, III, and IV D) III and IV

C

The portfolio manager of a bond fund believes that interest rates are going to increase in the near future. As such, it would be wise for that manager to A) shift into higher-rated bonds. B) lengthen the average duration of the portfolio. C) shorten the average duration of the portfolio. D) increase the equity portion of the portfolio.

C

The total return on a bond that cost an investor $950, was sold for $1,000, and paid $50 in interest payments is nearest to A) The return cannot be determined from the information supplied B) 5.26% C) 10.53% D) 10.00%

C

Which of the following statements about dividends on common stock is NOT true? A) Dividends represent a pro rata distribution of corporate profits to shareholders B) Only those who are owners of the stock on the record date will receive dividends C) Corporations are contractually obligated to pay dividends to their shareholders each year D) Dividends may be paid in cash, property, or stock

C

FNK Corporation reported earnings of $2.47 per share last year on its stock, currently trading at $9.42 per share. Dividends paid out during the year totalled $0.93 per share. FNK's dividend payout ratio is closest to A) 27% B) 38% C) 67% D) 10%

C - (0.03/2.47)

Under the Uniform Securities Act, which of the following must register with the state securities Administrator? A) Investment advisers without an office in the state whose clients are exclusively insurance companies B) Investment advisers to an investment company registered under the Investment Company Act of 1940 C) Investment advisers with a place of business in the state and less than $100 million in assets under management D) Investment advisers who have $100 million or more under management

C - Investment advisers with a place of business in the state must register with the state securities administrator unless they are a federal covered adviser. 110 mil qualifies for auto registration with SEC 100 mil - 110 can choose between federal and state

Louis owns an investment that is an unmanaged portfolio in which the money manager initially selects the securities to be included in the portfolio and then holds those securities until they mature or the investment portfolio terminates. This statement best describes which type of investment? A) Open-end investment company B) Closed-end investment company C) Unit investment trust D) Hedge fund

C - Unit Investment Trust

All of the following actions must be completed prior to customers entering their first option trade EXCEPT A) delivery of the options disclosure document (ODD) B) approval by a designated options supervisor C) receipt of a completed options agreement D) completion of the new account form

C - agreement must be signed and returned to the investor within 15 days of account approval

An agent is employed by a broker-dealer that sets a high minimum net worth requirement for clients to open margin accounts. In an effort to ensure that a client qualifies, the agent adds $100,000 to the value of the client's assets. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, this would be A) prohibited only if this is done without the client's written consent B) prohibited because margin trading is not suitable for this client C) permitted because margin trading can lead to greater client profits D) prohibited because the agent is entering fictitious information on the client account form

D

An agent is licensed to sell variable annuities. An insurance company, whose products are available through the agent's broker-dealer, is offering an all-expense paid trip to Panama City Beach to any individual who places at least $1 million of clients' money into one of the company's deferred variable annuities. In order to recommend this company's products to clients, A) the agent shall offer the client a rebate of a portion of the commission earned B) consent of the insurance company is required C) disclosure of the risks inherent in variable annuities shall be made D) the agent shall disclose the potential conflict of interest

D

An inverted yield curve results in part by A) investors buying short-term bonds and selling long-term bonds B) rising interest rates C) declining interest rates D) investors buying long-term bonds and selling short-term bonds

D

An investor has just received an inheritance of $100,000 and has decided to use the money to buy a new home. Because it will take time to decide where to buy, it is expected that the purchase will not be made for another 6-9 months. If this investor placed the money into a broad market index ETF, the primary risk taken would be A) unsystematic risk B) business risk C) interest rate risk D) market risk

D

If a husband makes a gift of $100,000 to his wife, a U.S. citizen, how much of the gift is subject to gift taxes? A) $90,000.00 B) $100,000.00 C) $50,000.00 D) $0.00

D

One of the components of a cash flow statement is cash flow from investing activities. Included would be A) cash proceeds from issuing stocks or bonds. B) cash receipts (money coming in) from items such as interest and dividends. C) payments to retire bonds and the payment of dividends. D) transactions and events involving the purchase and sale of land, buildings, and equipment.

D

One of the features of convertible preferred stock is that A) the owner has the opportunity to convert the stock into the issuer's bonds B) the holder is able to select the conversion price C) the dividend is paid ahead of all other securities D) the owner has the opportunity to participate in the growth of the company

D

All of the following are exempt from registration requirements with the SEC under the Investment Advisers Act of 1940 as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 EXCEPT A) investment advisers whose only clients are insurance companies B) an adviser with 50 clients, none of whom is a private fund, all within one state, that furnishes no advice on exchange-listed securities C) someone who gave investment advice to 11 private funds throughout the Midwest last year and has total assets under management of $120 million D) investment advisers with $110 million or more in assets under management

D - 110 mil or more in AUM are subject to registration with the SEC

An investor reading the open-end investment company section of today's The Wall Street Journal sees that Bull in the Teashop Fund has a NAV of $10.65 and an offering price of $11.15. He knows that he would have received which of the following if his redemption order had been received by the fund prior to yesterday's market close? A) $10.65 B) $11.15, less redemption fee, if any C) $10.65, less commission D) $10.65, less redemption fee, if any

D - An investor redeeming his shares will receive the NAV less any redemption fee that may be described in the prospectus. Investors redeeming through the fund are not charged a commission.

Sales made under the provisions of Rule 506(b) of Regulation D must be reported on A) Form 506. B) Form U4. C) Form 13F. D) Form D.

D - Form D is filed with the SEC no later than 15 days after first sale of securities offering

Which of the following statements represents an advantage of a municipal general obligation bond over a revenue bond? A) A GO bond issuer is required to conduct a feasibility study. B) Only a facility's users pay for a GO bond. C) A GO bond is not charged against the municipality's borrowing limits. D) A GO bond generally involves less risk to the investor.

D - Go Bonds are less risky because they are backed by taxes instead of revenue

If an investor received a lump-sum distribution from a 401(k) plan when he left his job, he may roll over his account into an IRA within 60 days transfer his account without taking possession of the money keep the funds and pay ordinary income tax invest in a tax-exempt municipal bond fund to avoid paying tax A) I and II B) III and IV C) II and IV D) I and III

D - I and III

A firm declares a $3.00 cash dividend to its shareholders. The firm has issued dividends of only $.07 per share for each of the last 15 quarters, and market analysts had anticipated a similar dividend this quarter. In an efficient market, one would expect A) no price change before or after the announcement. B) a price decrease after the announcement. C) a price increase before the announcement. D) a price change upon the announcement.

D - in an efficient market all public info is used, because this isn't made public until declaration you don't expect the price to change until the info is dropped

A significant increase in the importing of goods into the United States would likely have what effect on the strength of the U.S. dollar? A) No effect B) Strengthen C) Fluctuation both ways D) Weaken

D - large increase in imports means money is leaving the US which results in a negative trade balance.

Under ERISA, all of the following retirement plans must set standards for vesting, eligibility, and funding EXCEPT A) profit-sharing plans B) Keogh plans C) corporate pension plans D) deferred compensation plans

D - not qualified plans and therefore may not discriminate

Which of the following usually does NOT pay interest semiannually? A) Public utility bonds B) Treasury bonds C) Treasury notes D) GNMA

D - pay principal and interest monthly

All of the following industry violations would probably constitute fraud EXCEPT A) omitting material facts in the offer/sale of securities B) inaccurate market quotations C) misrepresentation of the status of a client's account D) charging unreasonable commissions

D - prohibited but not considered fraudulent

If a customer of your firm receives stock from the estate of her mother, the stock's cost basis in the hands of the customer is A) the original cost of the stock adjusted for any estate taxes paid B) the market value at date of distribution to the customer C) the market value at date of death D) the original cost of the stock

C

Under the NSMIA, the term "federal covered adviser" includes a person registered with the SEC under the Investment Advisers Act of 1940 registered as an investment adviser in two or more states excluded from the definition of investment adviser under the Investment Advisers Act of 1940 required to register with the state Administrator A) I and III B) II and IV C) I and IV D) II and III

A

Which of the following would be included in the Uniform Securities Act's definition of a "sale"? A) Transfers, for value, of unit trusts to a nontaxable organization B) Sale of a large fixed annuity contract to a taxable institution C) Conveying, for value, precious metals to a jewelry distributor D) Donation of interests in rights, warrants, or options on a nonexempt security

A

A client of an investment adviser representative of a federal covered investment adviser wishes to place a favorable comment on the investment adviser's website. This action A) might be considered entanglement. B) would be considered a testimonial and require that disclosure be made of any compensation received by the client. C) should be happily accepted by the investment adviser. D) would need to be reviewed by the SEC.

B

When the market interest rate is 8%, which of the following equally-rated bonds will have the potential for the greatest relative price volatility to changes in interest rates? A) 12% coupon bond with 12 years to maturity B) 8% coupon bond with 12 years to maturity C) 12% coupon bond with 6 years to maturity D) 8% coupon bond with 6 years to maturity

B - lowest coupon and longest maturity are the most volatile

When a bond's NPV is zero, it is usually an indication that A) the bond is highly rated. B) the market is highly efficient. C) the bond is a zero-coupon bond. D) the bond is mispriced.

B - no difference between present value and market value = efficient market

An account where a securities professional may invest the client's money, without consulting the client about the amount or type of security for the trades that are placed for the account, is known as A) a discretionary account B) a margin account C) an advisory account D) a wrap account

A

An investment adviser representative prepares a detailed portfolio restructuring for a new client. The client is not impressed with the recommendation, and at least to the IAR, it appears that the rejection is more due to a lack of understanding than a valid dislike. What should be the first step taken by the IAR? A) Attempt to educate the client as to what this portfolio is trying to accomplish for the client while at the same time recognizing that the final decision is clearly in the hands of the client. B) Prepare a new set of recommendations that will hopefully be received more favorably by the client. C) Suggest that if the client will not follow the IAR's recommendations, it would be best to engage the services of another firm. D) Go ahead with the recommendation anyway because the client's lack of understanding should not stand in the way of potentially superior results.

A

An investor is long stock in a cash account and does not expect the price to change in the immediate future. His best strategy to generate income may be to: A) sell a call. B) sell a put. C) buy a call. D) buy a put.

A

Annuity companies offer a variety of purchase options to owners. Which of the following definitions regarding these annuity options is NOT true? A) An accumulation annuity allows the investor to accumulate funds in a separate account prior to investment in an annuity. B) A single premium deferred annuity is a lump sum investment, with payment of benefits deferred until the annuitant elects to receive them. C) A periodic payment deferred annuity allows a person to make periodic payments over time; the contract holder can invest money on a monthly, quarterly, or annual basis. D) An immediate annuity allows an investor to deposit a lump sum with the insurance company; payout of the annuitant's benefits starts immediately (usually within 60 days).

A

As a result of an SEC hearing, an investment adviser's penalty is $5,000 and a 50-day suspension. If the IA wishes to appeal this verdict, a request for review must be filed with A) the U.S. Court of Appeals within 60 days of the order B) the SEC within 45 days of the order C) the U.S. Court of Appeals within 45 days of the order D) the Administrator within 60 days of the order

A

Becky Biggins has an executive position with a large corporation that covers her under its defined benefit pension plan. This year, Becky's salary will top $435,000. Becky has no dependents and wishes to maximize funds that she can accumulate for her retirement. Becky could not open a traditional IRA open a traditional IRA but would not be able to deduct her contributions open a Roth IRA not open a Roth IRA A) II and IV B) I and IV C) I and III D) II and III

A

Expected return is A) an estimate of probable returns an investment may yield B) the difference between an investment's present value and its cost C) the one discount rate that equates the future value of an investment with its net present value D) the worth of future income discounted to reflect what that income is worth today

A

If an investment adviser is registered in another state and has no place of business within an Administrator's state, the adviser is exempt from registration under the Uniform Securities Act if A) the adviser has no more than 5 clients who are residents of the state during the preceding 12 months B) the adviser has no more than 14 customers within the state during the year C) most of the adviser's clients are accredited investors D) most of the adviser's customers are municipalities

A

In the banking industry, the term POD refers to an account similar to the TOD designation used by broker-dealers. An old, but sometimes still used term to describe this kind of account, is A) Totten trust B) demand deposit account (DDA) C) revocable trust D) passbook savings account

A

LMN Manufacturing Company, listed on the NYSE, is an SEC reporting company. Each of the following would require the filing of a Form 8-K EXCEPT A) relocation of wholly owned subsidiary B) acquisition of a major asset C) a change in top management D) a change in external CPA firm engaged to perform the annual audit

A

Net income A) represents the amount of money remaining after all expenses including taxes B) reflects the operating profits of a firm only C) must be paid out in dividends D) is paid out in cash to stockholders in addition to any declared dividends

A

Relatively high portfolio volatility is most tolerable to investors with A) a long-term time horizon B) a diversified portfolio C) an intermediate-term time horizon D) a short-term time horizon

A

The NASAA Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents contains an extensive list of prohibited practices, but concludes with the statement that the list is not inclusive. This means that even practices not specifically enumerated will be prohibited if they are in violation of the standards of ethical behavior. One such circumstance that may arise is an agent making an initial sale of shares of an open-end investment company in a quantity just below a breakpoint published in the fund's prospectus. In this case, the agent A) would violate those ethical standards by failing to disclose that adding a small amount to the purchase would save a significant amount of sales charge B) must explain the procedure for taking advantage of rights of accumulation on future purchases C) recognized the limitations of the client's ability to invest any further sum of money D) has violated the suitability standards by failing to explain the risks inherent in making an investment below a breakpoint

A

The NASAA Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents contains an extensive list of prohibited practices, but concludes with the statement that the list is not inclusive. This means that even practices not specifically enumerated will be prohibited if they are in violation of the standards of ethical behavior. One such circumstance that may arise is an agent making an initial sale of shares of an open-end investment company in a quantity just below a breakpoint published in the fund's prospectus. In this case, the agent A) would violate those ethical standards by failing to disclose that adding a small amount to the purchase would save a significant amount of sales charge B) recognized the limitations of the client's ability to invest any further sum of money C) has violated the suitability standards by failing to explain the risks inherent in making an investment below a breakpoint D) must explain the procedure for taking advantage of rights of accumulation on future purchases

A

Those investors wishing to examine a document that would probably give them the most information about a corporation's current and planned operations would seek out A) the annual report B) the balance sheet C) the investor's brochure D) the Form 10-K

A

To calculate the amount to be received on redemption of open-end investment company shares, which of the following would be used? A) The NAV, minus the redemption fee B) The offering price, plus the redemption fee C) The NAV, plus the redemption fee D) The offering price, minus the redemption fee

A

To reflect a more accurate picture of economic results, gross domestic product is adjusted A) for inflation B) to include bank reserves C) to match foreign GDP D) downward by the balance of payments

A

When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed? A) As capital gains based on LIFO accounting B) As ordinary income based on an exclusion ratio C) As capital gains based on an exclusion ratio D) As ordinary income based on LIFO accounting

B - once the annuity is annuitized the tax is ordinary income based on an exclusion rate

An investor can choose between 4 portfolios with the following expected returns and standard deviations. Expected Return Standard Deviation I.8%20% II.6%21% III.8%21% IV.7%23% Based on modern portfolio theory (MPT), which portfolio should the investor choose? A) III B) I C) IV D) II

B - portfolio 1, MPT says always choose the highest return with the lowest SD

A client, who is a famous tennis player, offers to record a testimonial for a covered investment adviser. The recording will be used in a television commercial. Under the SEC's Marketing Rule for Investment Advisers, the firm may A) go ahead with the recording but only if it is an endorsement rather than a testimonial. B) use the testimonial provided disclosure is made that the athlete is a client and the extent of any compensation paid. C) use the testimonial, provided the athlete receives no compensation. D) have to file the testimonial with the SEC.

B

A man is planning to start his own glass-sculpturing business. He wants to be able to deduct his anticipated losses for the first 2 years. He anticipates that the enterprise will borrow money from lenders and is willing to personally guarantee the debt. He also wants to attract other investors but does not want to give up control of the day-to-day business decisions. What business form do you recommend? A) S corporation B) Limited partnership C) General partnership D) C corporation

B

An agent making a sales presentation to a client about a mutual fund's historical returns is required to explain to the client the difference between the fund's A) current yield and real return. B) current yield and total return. C) current yield and holding period return. D) total return and risk-adjusted return.

B

An individual seeking capital and possible guidance with a start-up would most likely seek funding from A) a unit investment trust. B) a venture capital fund. C) a hedge fund. D) an open-end investment company.

B

An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks? Loss of principal Price volatility of preferred stock is closely related to interest rates Preferred stock cannot be traded as readily as bonds If the stock is callable, the client's income can be suddenly lowered A) III and IV B) I, II, and IV C) I and II D) I, II, III, and IV

B

An investor's required rate of return is 6%. If the internal rate of return of the investment offered is 5.75%, then the NPV is A) between 5.75% and 6% B) negative C) positive D) zero

B

Corporate long-term debt securities that are issued on the general credit of the issuer and are NOT otherwise secured are called A) prior lien bonds B) debentures C) preferred stock D) general obligation bonds

B

Except as limited by the Securities Exchange Act of 1934, the state securities Administrator may require, by rule or order, that broker-dealers make or maintain which of the following records? Account ledgers Correspondence Papers and memoranda Blotters and books A) III and IV B) I, II, III, and IV C) II and III D) I and II

B

In which of the following retirement plans would there be mandatory withdrawal requirements once you are past age 72? A) An annuity, but you are still working B) A traditional IRA C) A qualified plan while you are still working for that employer D) A Roth IRA

B

MidWest Advisory Services has $175 million in assets under management and has offices in 10 Midwest states. Regarding recordkeeping requirements, MidWest must meet those of A) the state with the most stringent financial requirements B) the SEC C) the state in which its principal office is located D) each state in which it has a place of business

B

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relationship between an adviser and a client. As far as the topic of compensation is concerned, which of the following must be disclosed? Transaction-based compensation, such as commissions on recommended securities 12b-1 trails on no-load mutual funds in the client's portfolio Expenses reimbursed by third-party sources Compensation-sharing arrangements between the investment adviser and its representatives A) I, II, III, and IV B) I ,II, and III C) III and IV D) I and III

B

Present value is a computation that is frequently used to determine the amount of a deposit needed now to meet a future need, such as a college education. If an investor uses an expected return of 8% but the actual return over the period is 10%, the future value will be A) lower than anticipated B) higher than anticipated C) too varying to tell D) the same as anticipated

B

The STU Corporation has issued common stock, preferred stock, promissory notes, and mortgage bonds. Should STU enter bankruptcy proceedings, the order of payment against claims would be A) the mortgage bonds, the preferred stock the common stock, and the promissory notes. B) the mortgage bonds, the promissory notes, the preferred stock, and the common stock. C) the promissory notes, the mortgage bonds, the preferred stock, and the common stock. D) the preferred stock, the common stock, the mortgage bonds, and the promissory notes.

B

The Seeking Alpha Growth Fund directs a sizable portion of its portfolio executions to your broker-dealer. If the firm has this fund on its highly recommended list, this would be A) allowed without restriction B) a conflict of interest that would have to be disclosed C) prohibited only if selling shares and executions for the portfolio by the member takes place on the same business day D) allowed only when the investment company uses more than 1 broker-dealer to sell its shares

B

This morning's financial section of your newspaper has an article discussing several significant material facts relating to a stock held in the portfolio of several of your clients. You would be able to share these facts with your clients A) only if the customer did not work for the issuer and did not know this information B) with or without the issuer's permission C) only if the statement without this fact would make your previous statements misleading D) under no circumstances until the clients have had a chance to read the article themselves

B

Under the Uniform Securities Act, a state securities Administrator who believes that a registered investment adviser representative is about to violate a provision of the act would initially A) withdraw the investment adviser representative's license B) issue a cease and desist order C) seek a court injunction to prevent the pending violation D) issue an order that permanently bars the investment adviser representative from conducting business in the state

B

Which of the following best describes a 12b-1 fee? A) A fee imposed against a mutual fund company for violating SEC rules B) A fee charged by some mutual funds to cover sales and distribution expenses C) A fee charged to all mutual funds to cover the expense of FINRA regulation D) A fee charged by some mutual funds to redeem shares that have been held less than one year

B

Which of the following debt instruments does not make periodic interest payments? A) T-bonds B) T-bills C) TIPS D) T-notes

B

Which of the following expressions describes the current yield of a bond? A) Yield to maturity divided by par value B) Annual interest payment divided by current market price C) Annual interest payment divided by par value D) Yield to maturity divided by current market price

B

Which of the following individuals may NOT open a joint account? A) Business colleagues B) Parent and a minor C) Three sisters D) Two spouses

B

Which of the following is a multi-option strategy? A) Short call B) Straddle C) Protective put D) Long call

B

Which of the following situations would most likely cause an individual's application for a disability income insurance policy to be denied? A) Type 2 diabetes B) Working in a hazardous occupation C) Being over 50 years of age D) BMI over 26

B

Which of the following statements about systematic and unsystematic risk is most accurate? A) Systematic risk can be eliminated through diversification. B) Total risk equals market risk plus company-specific risk. C) The unsystematic risk for a specific firm is similar to the unsystematic risk for other firms in the same industry. D) As an investor increases the number of stocks in a portfolio, the unsystematic risk will remain constant.

B

Which of the following statements regarding modern portfolio theory is NOT correct? A) The optimal portfolio offers the highest return for a given level of risk. B) The optimal portfolio will always lie above the efficient frontier. C) The optimal portfolio for an investor depends upon the investor's ability to assume risk. D) The optimal portfolio has the lowest risk for a given level of return.

B

The long party to a put option contract has A) the right to buy the underlying asset. B) the right to sell the underlying asset. C) the obligation to sell the underlying asset. D) the obligation to buy the underlying asset.

B - the long party is the owner meaning they own the stock.

If the dollar weakens, which of the following statements is TRUE? A) The dollar buys more foreign currency. B) An increase in U.S. interest rates might strengthen the dollar. C) Foreign securities denominated in their domestic currency decrease in value to the U.S. investor. D) U.S. exports become less competitive.

B - when interest rates rise foreign investors invest in dollar denominated securities which increases the demand and value of the dollar

With regard to ERISA and a qualified retirement plan, which of the following would NOT constitute a conflict of interest between the plan and a fiduciary? A) A fiduciary participates in a transaction on the plan's behalf that involves a party with interests adverse to those of the plan, to ensure favorable terms for the plan. B) The fiduciary receives fees for acting as a trustee to the plan. C) A fiduciary sells a real estate investment to the plan at the current market rate. D) A fiduciary offers reduced commissions to the plan for transactions that are executed through his employing financial institution.

B - A fiduciary may receive compensation from the plan's sponsor for acting as a trustee, if fees are reasonable and consistent with duties performed. When one is acting as a fiduciary for a retirement plan, no self-dealing is permitted. That means no buying from or selling to the plan.

All of the following statements regarding a closed-end investment company whose shares are listed on the NYSE are true except A) it is a type of management company B) it may redeem its own shares C) it differs from a mutual fund D) it sells at the market price based on supply and demand

B - Closed end may not redeem its own shares on secondary markets

An investment adviser has legal access to a broker-dealer's confidential research document and uses the information to support a recommendation to a client. The investment is successful. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, the adviser A) must notify the client that the recommendation was based on the broker-dealer's research document B) need not disclose the source of the information C) must provide the client with a copy of the research document D) must share the commission with the broker-dealer that prepared the research document

B - If an adviser provides its clients with reports or recommendations prepared by a third party without disclosure of the source, the adviser has acted unethically. There is, however, an exception to this rule, which happens to apply here. If the adviser uses third-party reports as a basis for its own recommendation or as a support to its own recommendation to its client, it does not have to disclose this information.

Under industry rules, customers who wish to trade options must receive a copy of the options disclosure document (ODD) A) within 15 days of account approval B) at or before account approval C) at or before the mailing of the next monthly statement D) at or before the ma

B - It is the options account agreement that must be signed and returned to the broker-dealer within 15 days of account approval.

Which of the following statements is NOT true? A) Mutual funds may be used as collateral in a margin account if they have been owned for more than 30 days. B) Open-end investment companies must have a minimum of $1 million in assets to have a public offering. C) Mutual fund shares may not be purchased on margin because their shares are always public offerings of new shares. D) The sale of open-end investment company shares is a continuous public offering and must be accompanied by a prospectus.

B - Open end investment companies must have minimum in assets of 100,000

All of the following statements are consistent with the Uniform Securities Act EXCEPT A) state Administrators may require federal covered investment companies to file documents with the Administrator using a procedure known as notice filing B) state Administrators do not require consent to service of process to be submitted with notice filings for covered securities C) any security may be registered with the state by the procedure known as registration by qualification D) a security for which a registration statement is filed under the Securities Act of 1933 may simultaneously register with the state by the procedure known as registration by coordination

B - The Administrator will require the filing of a consent to service of process with any securities registration.

A commodities speculator purchases a 1,000-bushel wheat futures contract for 75 cents per bushel. At expiration, the settlement price is 85 cents per bushel. This individual A) must make delivery of the wheat B) has a $100 gain C) effectively hedged the long wheat position D) has a $100 loss

B - The individual bought at 75 cents and sold at 85 cents, making 10 cents per bushel. Multiply 10 cents ($.10) by 1,000 bushels and the gain is $100.

Strategic Capital Asset Managers (SCAM) is an investment adviser registered with the SEC. Registration as an investment adviser representative would be required of an employee who A) supervises the activities of clerical staff who file individual clients' transaction reports B) provides recommendations on securities to the firm's bank clients C) cleans the office on weekends D) presents seminars on the benefits of whole life insurance

B - Unless subject to an exemption, any employee of an investment adviser (SEC or state-registered) who makes recommendations of securities, regardless of the client, must register as an IAR

Investors who buy shares in state-specific municipal bond funds may be subject to A) no taxation B) capital gains tax C) federal income tax D) out-of-state property tax

B - interest is federally tax free and subject to state tax other than the state its issued in. Subject to cap gains tax when sold above basis

If a natural person files an initial application for state registration as an investment adviser representative on October 1, the registration will most likely expire A) the registration does not expire until the person resigns, retires, or is expelled by the Administrator B) on the anniversary date of the following year C) December 31 of that year D) on a date set by the Administrator of that state

C

A disadvantage of a defined benefit pension plan to the employee is that A) the risk of fund performance is borne by the employer. B) the individual is guaranteed a payout at the time of her retirement by her employer. C) at retirement, the employee may not be earning as much as when she was at her peak earning power. D) the funds are an integral part of the retirement planning process.

C

A fundamental analyst would be most interested in which of the following? A) Resistance and support levels B) A 200-day moving average C) A P/E analysis of the stocks included in the Dow Jones Industrial Average D) The outstanding short interest in the market

C

A newlywed couple in their 20s with a combined annual income of $46,000 recently opened individual IRA accounts with you and deposited $100 into each to get the accounts started. One month later, you receive a call from them telling you they have received a six-figure inheritance and are now able to fully fund those IRAs. The most suitable recommendation for the couple is to A) invest the funds in an aggressive stock fund. B) immediately purchase two lump-sum variable annuities to secure their retirement future. C) invest $5,900 into a stock index fund in each IRA account and place the remaining funds in a money market account until their new financial situation can be evaluated. D) pay off all outstanding debts and invest the rest in municipal bonds.

C

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 purchase of a new building to store inventory B) The purchase of a new computer-driven lathe C) Payment of cash dividends D) The sale of XYZ Lathe Manufacturing bonds

C

All of the following are exempt from registration requirements with the SEC under the Investment Advisers Act of 1940 as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 EXCEPT A) someone who gave investment advice to 11 private funds throughout the Midwest last year and has total assets under management of $120 million B) an adviser with 50 clients, none of whom is a private fund, all within one state, that furnishes no advice on exchange-listed securities C) investment advisers with $110 million or more in assets under management D) investment advisers whose only clients are insurance companies

C

An investor has a majority of his portfolio in an ETF that mirrors the S&P 500. If the investor decided to liquidate that position and reinvest the proceeds into a single NYSE-listed common stock, it would most likely lead to an increase to the investor's A) liquidity risk B) interest rate risk C) business risk D) purchasing power risk

C

An investor has been comparing several different mutual funds with the same objectives. When making the decision as to which fund to purchase, which of the following factors would be the most important? A) The date of the annual shareholders meeting B) The exchange on which the fund is listed C) The fund manager's tenure D) The net asset value per share

C

Areas of concern for protecting customer data would include agents recommending securities that are unsuitable for the customer a vendor misusing, or inadequately protecting, confidential customer information a retail customer loaning money to the agent handling the account a vendor possibly failing adequately to protect confidential customer information after its relationship with the firm is terminated A) I and III B) II and III C) II and IV D) I and IV

C

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, or a summary of the changes, within 7 days of receiving a request from a client B) send a copy of its brochure, or a summary of the changes, to all clients within 60 days of the end of its fiscal year C) send a copy of its brochure, or a summary of the changes, to all clients within 120 days of the end of its fiscal year D) send a copy of its brochure, or a summary of the changes, to all clients within 90 days of the end of its fiscal year

C

Expansions in the business cycle are characterized by A) higher consumer debt, rising inventories B) increasing college enrollments and enlistment in military service C) increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values D) increase in want ads in newspapers, decrease in nonfarm jobs

C

If a client has realized a capital gain from the sale of a municipal bond, to reduce tax liability, the capital gain can be offset against a capital loss in GOs equity securities corporate bonds REITs A) I and II B) II and III C) I, II, III, and IV D) I only

C

One of the distinguishing characteristics of an investment adviser is that of fiduciary responsibility to clients. That responsibility specifically requires the IA to A) be sure that all recommendations to clients are suitable B) disclose all potential conflicts of interest C) always place the client's interest ahead of its own D) charge fees that are reasonable under the circumstances of the account

C

With regard to the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, proscribed actions would include I accepting an order from a third party after written trading authorization has been received II forwarding a written complaint from a customer to the appropriate supervisory person III offering to repurchase a security at its original cost if it does not increase in value IV borrowing money from a client who was the agent's college roommate A) I and II B) I, II, and IV C) III and IV D) II and IV

C

One of your clients has a margin account. There is a drop in the value of the stock owned in the account, and additional funds are required based on the terms of the firm's margin agreement. This would be known as A) a Regulation T call B) a margin call C) a house call D) a sellout

C - When additional funds are required, it is known as a house or maintenance call. If based on the firm's stricter requirement, it is a house call; if based on the requirement of the SRO, it is a maintenance call. The initial or Regulation T call (the margin call) occurs at the time of the purchase. If any call for funds is not met, then there will be a sellout. Remember the three important margin terms: Margin call: Set by the Federal Reserve Board under Regulation T. This is the initial 50% deposit required when purchasing securities on margin. Minimum maintenance: Set by the SROs. This is the minimum equity that must be maintained in a margin account. Should the equity fall below the minimum required, a maintenance call (sometimes called maintenance margin) will go out demanding an immediate deposit of enough equity to bring the account above the required level. House maintenance: Set by the individual broker-dealer firm. As a cushion, and to reduce the possible sellout caused by failure to meet a maintenance call, most firms set a minimum equity level above the SRO minimum. Falling below this amount triggers a house call.

In the investment industry, the term spread has many different meanings. When used in a discussion about bonds, which of the following would be most appropriate? A) Inverse spread B) Debit spread C) Credit spread D) Calendar spread

C - credit spread, Wider spreads generally indicate a concern about the economy (investors are seeking the safety of the Treasury issue) while narrow spreads generally indicate economic optimism

In May, an investor purchased a futures contract to purchase 5,000 bushels of wheat at $4.30 per bushel for December delivery. On settlement date, the spot price of wheat is $4.20 per bushel. For the investor, this A) represents a loss of $50 B) contract should be left to expire C) represents a loss of $500 D) represents a successful hedge

C - loss of 10 cents per bushel on 5000 bushels

One of your clients purchases a European-style put option on a stock. The premium is $3 and the exercise price is $35. If the price of the underlying asset is $40 on the exercise date, the client has A) made $500. B) lost $200. C) lost $300. D) made $200.

C - max loss on a put is premium paid of 300

When, as per the Sharpe ratio, a stock exhibits superior performance, it implies A) a high beta. B) a low beta. C) a positive alpha. D) a negative alpha.

C - the higher the sharpe ratio the higher the risk adjusted return

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) utilizes derivatives to achieve its objectives. D) is a form of private equity fund.

C - used only for short term investments

An investor wishes to be able to obtain the right, but not the obligation, to purchase 100 shares of KAPCO common stock at $50 per share for the next 6 months. KAPCO is currently selling for $52 per share. This investor's wishes could be met by A) the purchase of a forward contract B) the sale of a put option C) the purchase of a pre-emptive right D) the purchase of a call option

D

Due to an inheritance, one of your clients now owns a large position in LMN stock. She is concerned that the stock may decline in the coming months while she is deciding what to do with the investment. What type of investment strategy could she employ to protect the stock from substantial downside risk? A) Write call options on LMN stock B) Purchase call options on LMN stock C) Diversify into an index fund D) Purchase put options on LMN stock

D

If a pharmaceutical manufacturer's stock declines because the federal Food and Drug Administration has doubled the period of time required for clinical trials before any new drug may be released for public sale, this is an example of A) business risk B) inflation risk C) beta risk D) regulatory risk

D

If a pharmaceutical manufacturer's stock declines because the federal Food and Drug Administration has doubled the period of time required for clinical trials before any new drug may be released for public sale, this is an example of A) inflation risk B) beta risk C) business risk D) regulatory risk

D

Lisa Brownard is considering investing in gold. She owns a portfolio of stocks, bonds, and money market securities. Relative to her existing portfolio, the primary benefit of the gold investment is most likely A) gold values are tied to cyclical industries. B) the investment horizon is longer than that of stocks and bonds, balancing the duration of the portfolio. C) gold is a renewable resource so Brownard can profit from the investment for many years. D) low correlation between traditional asset returns and gold.

D

One reason for including commodities in an investment portfolio is because they have a high correlation to A) the U.S. dollar. B) the stock market. C) the bond market. D) the inflation rate.

D

The Uniform Securities Act requires all of the following to be registered as agents of a broker-dealer EXCEPT A) an associated person of a broker-dealer whose primary function is to take orders from the public B) a senior partner of a broker-dealer who actively manages the firm's day-to-day operations C) an employee of a broker-dealer who only trades securities for the firm's proprietary account D) a silent partner who has contributed most of the capital of the broker-dealer but takes no part in the firm's activities

D

Under the USA, a private placement is considered an exempt transaction when directed to no more than 10 noninstitutional persons to no more than 15 noninstitutional persons in 9 consecutive months in 12 consecutive months A) I and III B) II and IV C) II and III D) I and IV

D

Under the Uniform Securities Act, when may an investment adviser legally have custody of money or securities belonging to a client? When the adviser has a net worth of at least $25,000 When the Administrator has not prohibited custodial arrangements When the adviser does not have discretionary authority over the account When the adviser has notified the Administrator that he has custody A) I and IV B) II and III C) I and III D) II and IV

D

Which of the following transactions are prohibited? Borrowing money or securities from a high-net-worth customer Selling speculative or hot issues to a retired couple of modest means on a fixed income Failing to follow a customer's orders to prevent investment in a security not adequately covered by well-known securities analysts Backdating confirmations for the benefit of the client's tax reporting A) I, II, and III B) I and II C) II and III D) I, II, III, and IV

D

Which of the following usually does NOT pay interest semiannually? A) Public utility bonds B) Treasury notes C) Treasury bonds D) GNMA

D

Broker-dealers and investment advisers must keep all of the following records EXCEPT A) memoranda B) account books C) electronic correspondence D) records of incoming and outgoing telephone calls

D - does not need to keep phone calls unless specified by administrator

Among investor objectives is preservation of capital. Which of the following would be most appropriate for inclusion in the portfolio of this kind of investor? A) International funds B) U.S. Treasury bonds C) Blue-chip stocks D) A money market fund

D - MMF provide the best preservation of capital

The Conference Board releases information about the economy on a monthly basis. Included are a number of different indicators. Economic indicators can be leading, lagging, or coincidental, which indicates the timing of their changes relative to how the economy as a whole changes. Which of the following is a lagging economic indicator? A) Manufacturers' new orders for consumer goods B) Nonagricultural employment C) Building permits (housing starts) D) Prime interest rate

D - Nonagricultural is coincidental and Building & Manufacturers orders are leading

As a result of an SEC hearing, an investment adviser's penalty is $5,000 and a 50-day suspension. If the IA wishes to appeal this verdict, a request for review must be filed with A) the Administrator within 60 days of the order B) the SEC within 45 days of the order C) the U.S. Court of Appeals within 45 days of the order D) the U.S. Court of Appeals within 60 days of the order

D - Under both federal and state laws, appeals must be filed within 60 days of the order.

If a woman owns 9% of the common shares of XYZ, and her spouse owns 2% and wishes to sell his shares, he: is considered an affiliate. is not considered an affiliate. must file a Form 144 to sell. does not have to file a Form 144 to sell. A) II and III B) I and IV C) II and IV D) I and III

D - affiliate is more than 10% and must file form 144

It has been a great year at Capital Funding, Inc., an SEC-registered broker-dealer that is also registered in 22 states. The company decides to share its good fortune with employees by paying a year-end bonus equal to 31% of annual salary. In order for clerical personnel to receive this bonus, A) they must be licensed as agents B) the bonus must be sales related C) they must be licensed as investment adviser representatives D) they must be employees of the broker-dealer

D - can get a bonus as long is it is not related to performance of specific sales activity

A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the security's 5-year term, the inflation rate is 4%. What is the amount of the final semiannual interest check? A) $17.50 B) $21.33 C) $42.66 D) $35.00

B - 21.33 - Because the principal increases with the inflation rate, at the end of the 5-year term, it has grown to $1,219 ($1,000 × 102% ten times). Therefore, the final interest check is for $1,219 × 1.75% (remember that it is a semiannual check).

Agent A with Firm Y and Agent B with Firm Z conduct a joint seminar. They agree to share the commissions on any resulting business. Under the Uniform Securities Act, which of the following statements regarding sharing commissions is CORRECT? A) In this instance, sharing of commissions could only be done with the approval of both firms. B) Only an agent who makes a sale is eligible to earn a commission. C) Sharing of commissions by agents of two unrelated firms is prohibited. D) Sharing commissions that are a result of a joint seminar is never permitted.

C

Which of the following does NOT benefit both the employee and the employer? A) A SEP IRA B) A defined benefit plan C) A traditional IRA D) A SERP

C

The donor to a 529 plan has decided to move the existing plan to one offered by another state. Which of the following statements is NOT true? A) Unless a change of beneficiary is involved, only one rollover is permitted in a 12 month period. B) If there is a distribution of the assets, the rollover must be completed within 60 days. C) This may be done, but only if the entire account is rolled over. D) Even though these plans are generally under state control, the rollover rules are federal law.

C - Partial rollovers are permitted

If during a given year a company has net income of $1 million and pays out dividends of $800,000, its retained earnings will A) increase by $1 million B) decrease by $1 million C) increase by $200,000 D) decrease by $200,000

C - Retained earnings represent the net income a company has retained and not paid out in dividends

Which of the following is the best example of an exaggerated claim that may NOT be used in investment adviser advertising? A) Saying that every one of the firm's securities analysts has earned the CFA designation B) Reporting actual portfolio returns of 15% in the prior year, accompanied by a disclaimer that past performance does not indicate future performance C) Saying that the firm practices asset allocation principles when it generally designs portfolios consisting of equity, debt, and other investment classes D) Saying that the firm has $300 million under management when it manages only $50 million

D

As an incentive to encourage clients to invest in a particular stock recommended by the broker-dealer, clients are told that anytime within 6 months after the purchase date, they may sell the stock back to the firm at original cost plus interest at the state's legal rate. This would be A) an offer that could only be made to accredited investors B) a violation of the antifraud provisions of the Uniform Securities Act C) a right of rescission D) a prohibited guarantee against loss

D - Offering to buy back a stock at its original cost, even without paying interest, is a prohibited guarantee against loss. Rescission is only when there was something improper about the sale.

Which of the following statements regarding an agent's registration is most accurate? A) If the broker-dealer with which that agent is registered should have its registration revoked, the agent's license will be held by the Administrator and the agent will be required to register with an active broker-dealer within 30 days. B) Registration of a broker-dealer in a specific state automatically registers all the firm's agents in that state as well. C) Revocation of the registration of that agent's broker-dealer will result in cancellation of that agent's effective registration. D) If the broker-dealer with which that agent is registered should have its registration revoked, the agent may continue to do business only with existing clients and may not acquire any new ones until registered with an active broker-dealer.

C - The registration of an agent is not effective during any period when he is not associated with a particular broker-dealer registered under the Uniform Securities Act.

An investment adviser is required to disclose to a client the amount of compensation received from which of the following third parties? Compensation on the client's transactions executed through a broker-dealer Compensation received from an issuer of a security recommended to the client Compensation received from any nonsecurities products recommended to the client A) I only B) I and II C) II only D) I, II, and III

D - I, II , III

It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients? Age Life stage Retirement savings Tax status A) III and IV B) I and II C) I and IV D) II and III

D - Life Stage and Retirement Savings

Under ERISA, a pension portfolio manager may engage in writing covered options A) only during declining markets B) under any circumstances C) at no time; writing options is too high a risk D) only if it fits with the objectives of the plan

D - can write covered calls cannot write uncovered calls

The Uniform Securities Act contains a number of security exemptions. The Act empowers the Administrator to revoke the exemption for which of the following? Any security listed or approved for listing upon notice of issuance on the Nasdaq Stock Market; any other security of the same issuer which is of senior or substantially equal rank; any security called for by subscription rights or warrants so listed or approved; or any warrant or right to purchase or subscribe to any of the foregoing Any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association Any investment contract issued in connection with an employees' stock purchase, savings, pension, profit-sharing, or similar benefit plan if the Administrator is notified in writing 30 days before the inception of the plan Any security issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state A) I and IV B) II and III C) I and II D) III and IV Explanation Under the USA, the Administrator can revoke any transaction exemption, except those involving federal covered securities. When it comes to revoking a security's exemption, the only 2 where the Administrator has to power to do so are those issued by nonprofit organizations and in connection with an employee benefit plan.

II and III

All of the following practices violate NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents EXCEPT A) conducting securities transactions, with clients, that are not reflected on the books of the broker-dealer and without the knowledge and supervision of the employing broker-dealer B) recommending the purchase of a security to a majority of the clients solely on the basis of the issuer's properly published press release regarding a likely increase in earnings per a new product branding strategy C) hypothecating customer securities held in margin accounts D) effecting a transaction with no change in beneficial ownership

C

A fundamental analyst would be most interested in which of the following? A) A P/E analysis of the stocks included in the Dow Jones Industrial Average B) Resistance and support levels C) The outstanding short interest in the market D) A 200-day moving average

A

A high-risk investment strategy is the short sale of stock. Each of the following is a method of offering some degree of protection EXCEPT A) buying a put on the short stock. B) entering a buy stop order for the short stock. C) buying a call on the short stock. D) selling a put on the short stock.

A

A portfolio manager who is engaging in rebalancing on a semiannual basis is most likely using which portfolio management style? A) Strategic asset allocation B) Tactical asset allocation C) Buy and hold D) Active asset allocation

A

A registered investment company whose capitalization may include preferred stock and/or bonds is A) the closed-end management investment company. B) the unit investment trust. C) the open-end management investment company. D) the face-amount certificate company.

A

Aaron Jones, a client of XYZ Financial Services, has suspected the possible churning of his account over the past several years but has taken no action. He consults his attorney who informs him that any lawsuit for recovery of damages under the USA must be started within A) 3 years of occurrence or 2 years of discovery, whichever occurs first B) 1 year of occurrence C) 2 years of occurrence D) 2 years of occurrence or 3 years of discovery, whichever occurs last

A

An investment adviser representative is discussing various investment strategies with a prospective client. When discussing the "buy and hold" strategy, it would be correct to state that a characteristic of this strategy is it A) has low expenses. B) better aligns with the risk tolerance of the investor. C) outperforms most equity indexes. D) is favored by market timers.

A

Which of the following types of business organizations do not protect owners' personal assets from losses incurred by the business? General partnership Sole proprietorship S corporation C corporation A) I and II B) III and IV C) I only D) II and III

A

Which of the following would likely be stressed in a socially responsible fund? A) Ethical and moral investing B) Higher-than-average returns C) Avoidance of foreign securities D) Lower than average expenses

A

While reviewing nationwide industrial production figures, an analyst notices that inventories have been rising. From that information, one would gather that the economy is most likely in which phase of the business cycle? A) Contraction B) Recovery C) Expansion D) Peak

A

A benefit of waiting until the age of 70 to claim Social Security benefits is that A) Medicare benefits are increased. B) benefits are increased by 8% for each year from the full retirement age. C) a higher percentage of the monthly benefit is exempt from income taxes. D) the income tax rate is reduced once the claimant reaches 70. Explanation If an individual delays taking Social Security until age 70, the benefit is increased by 8% for each year from the full retirement age. If full retirement age is 66, four years at 8% means the payout is 132% of the base amount. Medicare (Part A) goes into effect at 65 and income tax rates do not change at 70.

B

A technical analyst is least likely to consider which of the following when selecting securities? A) Trend lines B) Corporate earnings C) Advance/decline line D) Short interest ratio

B

If an agent feels that his secretary is underpaid and decides to split his commissions on an 80%/20% basis, this practice is A) a violation under all circumstances B) permitted if the secretary is also registered as an agent C) a violation in certain states D) permitted if the secretary is also registered as an agent and the appropriate supervisory person agrees to the arrangement

B

In a rising market, which of the following is least volatile? A) A stock with an alpha of 2.0 B) A stock with a beta of 0.5 C) A stock with an alpha of 0.5 D) A stock with a beta of 2.0

B

Which of the following statements concerning international investing is correct? A) The addition of foreign securities to a portfolio may result in increased portfolio risk due to the different movements of foreign markets and U.S. markets. B) Information is not as readily available on foreign investments as on domestic ones. C) The rates of return on foreign securities are generally less than those available from U.S. markets. D) Foreign markets are usually mature and offer no growth advantages.

B

Your client in the 25% federal income tax bracket lives in a state where his earnings place him in the 6% bracket for state income tax purposes. If he were to purchase a 4% bond issued by a political subdivision of another state, his total tax-equivalent yield would be A) 4% B) slightly less than 5.33% C) slightly more than 5.33% D) approximately 12.90%

B

Under the Uniform Securities Act, if the Administrator does not deny an application for registration and no disciplinary proceeding is underway in regard to it, how many days after filing the application as an investment adviser representative does registration generally become effective? A) 5 B) 30 C) 7 D) 10

B - 30 days

Which of the following is considered the most accurate method of measuring GDP? A) As a function of GNP B) Constant dollars C) Actual dollars D) Eurodollars

B - Constant is adjusted for inflation

A strategy used by bond investors to mitigate interest rate risk that involves buying bonds with short-term, intermediate-term, and long-term maturities is called A) bulleting B) barbelling C) laddering D) diversifying

C

If a call option with an exercise price of $50 is purchased for $300, the maximum amount the investor can lose is A) $4,700 B) $5,000 C) $300 D) unlimited

C

Which of the following meets the USA's definition of a broker-dealer? A) A savings and loan association B) A bank C) A person who effects transactions for the accounts of others D) A trust company

C

Which of the following would probably be an acceptable hedge clause under SEC interpretations? A) "Kapco Advisers shall not be liable for any loss or depreciation in the value of the account unless it shall have failed to act in good faith or with reasonable care." B) "It is understood that we will expend our best efforts in the supervision of the portfolio, but we assume no responsibility for action taken or omitted in good faith if negligence, willful or reckless misconduct, or violation of applicable law is not involved." C) A clause that limits the investment adviser's liability for losses caused by conditions and events beyond its control, such as war, strikes, natural disasters, new government restrictions, market fluctuations, or communications disruptions D) A hedge clause that seeks to limit liability to acts done in bad faith or pursuant to willful misconduct but also explicitly provides that rights under state or federal law cannot be relinquished

C

One of your clients asks about a Coverdell Education Savings Account for college savings. To avoid income taxation and penalties, your advice is that these funds must be used before the student reaches age A) 32. B) 25. C) 30. D) 24.

C - Coverdell ESA's need to be liquidated by 30 to avoid penalty and ordinary income tax

A client profile is not complete without a family income statement. A typical one would include dividends credit card debt autos mortgage interest A) III and IV B) II and III C) I and IV D) I and II

C - I and IV

The yield to maturity of a bond represents the bond's A) net present value (NPV). B) annualized rate of return. C) internal rate of return (IRR). D) real rate of return.

C - IRR

A client of an investment adviser representative of a federal covered investment adviser wishes to place a favorable comment on the investment adviser's website. This action A) might be considered entanglement. B) should be happily accepted by the investment adviser. C) would need to be reviewed by the SEC. D) would be considered a testimonial and require that disclosure be made of any compensation received by the client.

D

A federal covered registered investment adviser who receives compensation for advice and whose business is primarily as an investment adviser may describe its business as investment counsel if A) it maintains its registration by filing an updating amendment to its Form ADV annually B) it receives SEC approval to use the definition C) it maintains custody of customer funds and/or securities D) a substantial part of his business is providing investment supervisory services

D

Under the Uniform Securities Act, which of the following investment advisers with no place of business in the state must register with the state as an investment adviser? A) An adviser rendering advice to employee benefit plans with at least $1 million in assets B) An adviser managing more than $110 million in assets C) An adviser rendering advice solely to broker-dealers D) An adviser rendering advice to no more than 10 individual clients within a 12-month period

D

What would be the time horizon for a 65-year-old client who has just retired? A) It depends on the individual's available assets. B) It depends on the individual's insurance company's actuarial tables. C) None, because 65 is the age for retirement. D) It depends on the individual's life expectancy.

D

Which of the following actions by an investment adviser representative would be an unethical practice under the Uniform Securities Act? A) Recommending securities that result in negative returns in the customer's account B) Splitting compensation with a sales assistant who is registered as an IAR with the same firm C) Failing to enter a sell order for a security when its price is falling, when the representative has discretionary authority D) Indicating, in an advisory contract that, in order to maximize account performance, it will sometimes be necessary to waive compliance with certain provisions of the Uniform Securities Act or of the Investment Advisers Act of 1940

D

Which of the following statements describes the federal funds rate? A) Charge on loans to depositary institutions by the New York FRB B) Base rate on corporate loans at large U.S. money center commercial banks C) Charge on loans to brokers on stock exchange collateral D) Rate charged on reserves traded among commercial banks for overnight use in amounts of $1 million or more

D

Which type of individual account allows for investments held in that account to go straight to a named beneficiary outside of probate? A) Testamentary account B) Advisory account C) Account titled JTWROS D) TOD account

D

If an agent thought that a technology stock was undervalued and actively solicited purchase order from all of her customers, the agent A) committed an unethical sales practice because the firm has not recommended this technology stock B) did not violate the Uniform Securities Act if all material facts were disclosed C) did not commit a violation if all clients were accurately informed of the price of the stock D) committed an unethical business practice

D - Agents must always determine suitability before soliciting purchases or sales

An agent of a registered broker-dealer contacts a retail client about an exciting investment opportunity. He tells the client that he has a draft of the sales literature describing the issue, but he cannot send it out because it has not yet been approved by the Administrator. The client begs the agent to send the document anyway, and not wanting to disappoint a good client, the agent complies with the request. Once the issue is effective, the client makes a substantial purchase based on the information in the previously received sales piece. In this case, the agent has A) violated the provisions of the Uniform Securities Act B) properly served the client C) incurred possible criminal liability D) accepted an offer of rescission from the client

A

An investor is considering purchasing an equity exchange-traded fund (ETF) to further diversify his portfolio. All of the following are reasons for him to purchase this investment EXCEPT A) ETFs offer tax benefits similar to a limited partnership. B) shares may be purchased and sold throughout the day. C) lower taxable distributions than most mutual funds. D) lower annual expenses than those of mutual funds.

A

The weak form of the efficient market hypothesis A) implies that technical analysis is not worthwhile. B) implies that fundamental analysis is not worthwhile. C) reinforces the value of technical analysis. D) implies that inside traders cannot earn superior risk-adjusted returns.

A

When reviewing a corporation's financial statements, shareholders' equity is computed by A) subtracting total liabilities from total assets. B) multiplying the current market price per share times the number of outstanding shares. C) subtracting current liabilities from current assets. D) adding together retained earnings, preferred and common stock, and long-term debts.

A

The Investment Advisers Act of 1940 would consider each of the following investment advisers to be exempt from registration EXCEPT A) an adviser whose only clients are banks B) an adviser whose only clients are insurance companies C) an adviser who maintains an office in only one state, advises only residents of that state (none of whom is a private fund), and gives advice relating solely to securities not traded on any national exchange D) an adviser whose only clients are venture capital funds

A - Advising only banks does not qualify for exemption

An IAR is viewing the balance sheet of a corporation. Included in the computation of the company's working capital are all of the following EXCEPT A) convertible bonds it has issued B) marketable securities of other companies C) accounts receivable D) cash

A - Working capital is current assets - current liabilities. Convertible bonds are long term liabilities

A commodities speculator purchases a 1,000 bushel wheat futures contract at 50 cents per bushel. At expiration, the settlement price is 45 cents per bushel. This individual A) has a $50 gain B) has a $50 loss C) must make delivery of the wheat D) ​effectively hedged the long wheat position

B - Has a 50 dollar loss

Money market instruments are: A) intermediate debt B) short-term debt C) long-term equity D) long-term debt

B

Tammy has a strong feeling about a particular investment's future performance. She is constantly seeking information to validate her belief that this investment will greatly appreciate. However, she is dismissing any information which is contradictory to this stance. This is an example of which of the following? A) Anchoring effect B) Confirmation bias C) Prospect theory D) Herd theory

B

The longest initial maturity for U.S. T-bills is: A) 39 weeks. B) 52 weeks. C) 13 weeks. D) 2 years

B

The risk of not being able to convert an investment into cash at a time when cash is needed is what type of risk? A) Legislative B) Liquidity C) Reinvestment D) Market

B

Under the Uniform Securities Act, which of the following is included in the definition of an investment adviser? A) Antiques dealer who receives a fee for advising customers as to the value of antiques and rare coins B) A broker-dealer who receives a flat fee for analyzing a customer's investment objectives and recommending a portfolio of securities C) Bank that offers investment counseling to its high-net-worth customers D) Publisher that receives a yearly subscription fee for a newsletter that provides nonspecific investment advice

B

One of your clients has named you as the trustee for a trust he has established. The beneficiary of the trust approaches you with a request for a disbursement that is contrary to the provisions of the trust document. In accordance with the provisions of the Uniform Prudent Investor Act, you should A) contact the grantor B) follow the terms of the trust C) follow the wishes of the beneficiary D) do nothing

B - Always follow terms of the trust

From your meetings with Avery, you realize there is a tendency to follow the actions of a larger group of people when making financial decisions. It makes no difference if those actions are rational or not. Choose the behavioral finance theory that explains Avery's behavior. A) Overconfidence B) Herding C) Anchoring D) Confirmation bias

B - Herding

If a resident of New York City purchases an Albany, New York, general obligation bond that yields $600 of interest during the course of the year, how is the interest taxed? A) It is subject to federal income tax at ordinary rates. B) It is not subject to federal income tax. C) It is subject to state income tax at ordinary rates. D) Taxation is deferred until the bond matures.

B - Interest from municipal bonds is exempt from federal income tax. While municipal bond interest is usually taxed at the state level, most states have an internal rule that exempts interest on their state and local municipal bonds.

An investment adviser should develop an investment policy based on the needs and objectives of the client. When the client is a business entity structured as a general partnership, the investment policy would have to consider A) the number of limited partners B) the mean requirement of the wealthiest and the poorest partner C) the objectives of all the partners on a collective basis D) the liability of the general partner

C

Disregarding any potential redemption or CDSC fees, an investor tendering shares of an open-end investment company for redemption will receive A) the next computed public offering price B) the last computed net asset value C) the next computed net asset value D) the next computed net asset value plus a portion of the sales load

C

IRAs and Keogh plans are similar in the following ways except A) there is a 50% tax penalty for insufficient distributions B) deferral of taxes C) identical amounts of contributions are allowed D) distributions without penalty can begin as early as age 59½

C

One year ago, ABC Widgets, Inc., funded an expansion to its manufacturing facilities by issuing a 20-year first mortgage bond. The bond is secured by the new building and land and is callable at par 15 years after the issue date. The bond was issued with a 5.5% coupon and is currently rated Aa. If the current market price of the bond is 105, A) the yield to call is higher than the current yield. B) the nominal yield is lower than the current yield. C) the yield to call is lower than the yield to maturity. D) the yield to maturity is higher than the current yield.

C

Which of the following statements about dividends on common stock is NOT true? A) Only those who are owners of the stock on the record date will receive dividends B) Dividends may be paid in cash, property, or stock C) Corporations are contractually obligated to pay dividends to their shareholders each year D) Dividends represent a pro rata distribution of corporate profits to shareholders

C

A free trade agreement is entered into between Country A and Country B. As time goes on, the value of Country A's currency decreases while that of Country B increases. The effect of this will likely be that A) the free trade agreement will be abrogated B) Country A's imports from Country B will increase C) Country A's exports to Country B will decrease D) Country B's imports from Country A will increase

D

A securities market investment theory that attempts to derive the expected return on an asset based upon the asset's systematic risk is A) the random walk theory. B) the Monte Carlo simulation. C) the efficient market hypothesis (EMH). D) the capital asset pricing model (CAPM).

D

Which of the following securities are federal covered and exempt from state registration? Bonds of an issuer whose common stock is listed on the NYSE Bonds of an issuer whose common stock is listed on the NYSE American LLC (formerly known as the American Stock Exchange [AMEX]) Stock traded on Nasdaq Registered investment company securities A) III and IV B) I and II C) I, II, and IV D) I, II, III, and IV

D - I, II, III, IV