Series 65 Exam Missed Questions
The SROs have instituted maintenance margin levels for those situations where the equity in a client's margin accounts is reduced to a dangerous level. Currently, those levels are A) 25% for a long account. B) 25% for a short account. C) 50% for a long account. D) 30% for a long account.
A) 25% for a long account. The current minimum maintenance levels set by the SROs is 25% equity in a long margin account and 30% equity in a short margin account. The initial margin requirement under Reg. T is 50% for both long and short accounts.
If a retiree is paid an annual amount equal to 30% of the average of his last 3 years' salary, which of the following retirement plans offers this type of payment? A) Defined benefit pension B) Profit-sharing C) Deferred compensation D) Money purchase pension
A) Defined benefit pension A retirement plan that establishes the retiree's payout in advance is a defined benefit plan. Profit sharing and money purchase pension plans are defined contribution plans
Which of the following is NOT registered with the SEC under the Investment Company Act of 1940? A) Exchange-traded notes B) Open-end investment companies C) Exchange-traded funds D) Unit investment trusts
A) Exchange-traded notes Exchange-traded notes (ETNs) register as debt securities under the Securities Act of 1933.
Which of the following statements regarding registration of investment advisers is true under the Investment Advisers Act of 1940? If any material information filed in the registration becomes inaccurate, an amendment must be filed promptly. If any nonmaterial information filed on Form ADV changes, an amendment must be filed within 90 days of the end of the fiscal year. Material information requires a prompt amendment, but nonmaterial changes do not require amendment.
A) I and II The SEC requires prompt amendment of any material information changes on Form ADV (e.g., names, location, control, custody, organization) and also requires nonmaterial amendments within 90 days of the end of the adviser's fiscal year
Which of the following statements regarding ADRs are true? The securities are vehicles used to facilitate U.S. trading of foreign securities. Dividends are received in the foreign currency. Holders have foreign currency risk. The receipts are issued by a foreign branch of a domestic bank. A) I and III B) I, III, and IV C) I, II, and III D) II and IV
A) I and III ADRs are vehicles that facilitate U.S. trading of foreign securities. They are issued in English in the United States by domestic banks. Dividends are declared in the foreign currency but are payable to holders in U.S. dollars, which means that ADR holders are subject to foreign currency risk.
Which of the following are regulated under the Securities Exchange Act of 1934? Broker-dealers Investment advisers Pension plans OTC markets A) I and IV B) I and II C) II and III D) III and IV
A) I and IV The Securities Exchange Act of 1934 regulates broker-dealers and the securities marketplaces (exchanges and OTC). Investment advisers are regulated under the Investment Advisers Act of 1940 (and, to a certain extent, the Investment Company Act of 1940), whereas pension plans in the private sector are regulated under ERISA.
Under the Securities Act of 1933, exempt transactions include which of these? Private transactions not involving the issuer or a broker-dealer Issuer transactions that do not involve a public offering Sales or offers limited to accredited investors A) I, II, and III B) I and III C) I and II D) I only
A) I, II, and III If offerings are not made to the public, registration can generally be avoided. The purpose of the Securities Act of 1933 was to protect the public in a new issue. The private offering exemption is used when the offering is made to 35 or fewer nonaccredited purchasers within a 12-month period and no general solicitation (advertising) is used (506(b)). In addition to private offerings, offers and sales limited to accredited investors are also exempt, but they may have public solicitation, (506(c)).
Which of the following is a characteristic of the passive investment style? A) Rebalancing B) Tactical management C) High portfolio turnover D) Income rather than growth objective
A) Rebalancing Because the passive (strategic) style of investing does not involve frequent trading (as does the tactical or active style), periodically the portfolio will be rebalanced to insure that the asset mix is at the desired level. This style may be used for either income or growth objectives
Included in the Uniform Securities Act's definition of broker-dealer would be A) a broker-dealer with a place of business in the state whose only clients are insurance companies. B) issuers of securities. C) savings institutions. D) individuals who are registered as agents.
A) a broker-dealer with a place of business in the state whose only clients are insurance companies. When the firm has a place of business in the state, regardless of its clientele, it is a broker-dealer. Exclusions from the definition include agents, issuers, and most financial institutions, such as banks and savings institutions. Also excluded are broker-dealers with no place of business in the state who only deal with institutional clients, such as banks and insurance companies
A) a fiscal year. B) an alternative year. C) an accounting year. D) a nine-month year.
A) a fiscal year. Fiscal-year accounting is the term used to describe whenever an entity ends its accounting year on a date other than December 31.
Under the Uniform Securities Act, all of the following are exempt from registration except A) common stock only sold intrastate. B) airplane equipment trust certificates. C) airport authority bonds. D) securities issued by a 501(c)(3) nonprofit religious organization.
A) common stock only sold intrastate Local companies that issue common stock sold only within the state must register their securities with the state Administrator. Airport authority bonds, airplane equipment trust certificates, and securities issued by religious organizations are exempt from registration with the state Administrator.
Under ERISA, a fiduciary must act in all of the following ways except A) confining investments to only those most likely to achieve growth B) in accordance with the governing plan documents unless they are not consistent with ERISA C) solely in the interest of plan participants and beneficiaries D) with care, skill, prudence, and caution under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character
A) confining investments to only those most likely to achieve growth Under ERISA, a fiduciary is not limited to confining investments to only those most likely to achieve growth. The fiduciary is required to diversify investments so as to minimize the risk of losses, unless doing so is clearly not prudent under the circumstances.
Investment companies must send financial reports to shareholders A) semiannually. B) quarterly. C) monthly. D) annually.
A) semiannually. Investment company financial reports must be sent twice a year and must include a portfolio list, an income statement, a statement of compensation paid to the board of directors and the advisory board, and a statement of the total dollar amount of securities bought and sold during the period. One of these reports must be the audited annual report.
Which of the following statements relating to termination of registration of a securities professional registered under the USA is true? A) An Administrator may revoke the registration of a securities professional who is declared mentally incompetent. B) A registration, once in effect, may never be voluntarily withdrawn. C) An Administrator may cancel the registration of a securities professional if mailings addressed to that registrant are returned with the notification "no forwarding address." D) An Administrator may deny a registration of a securities professional based solely on a lack of experience.
An Administrator may cancel the registration of a securities professional if mailings addressed to that registrant are returned with the notification "no forwarding address." Cancellation of a registration will generally result when mail is returned without a forwarding address. A person may request a withdrawal of a registration. Withdrawals become effective after 30 days if there are no revocation or denial proceedings in process. An Administrator may not deny a registration solely on the basis of an individual's lack of experience. An Administrator does not revoke the registration of a person who is declared mentally incompetent but cancels such registration; this is a nonpunitive administrative action.
Which of the following must register as an agent when representing a broker-dealer? A) A partner of a broker-dealer who has no securities sales functions B) An employee who accepts unsolicited orders from institutional clients C) An individual who represents an underwriter only in transactions between an issuer and the underwriter D) The telephone switchboard operator who directs orders to the appropriate extension
B) An employee who accepts unsolicited orders from institutional clients An employee of a broker-dealer who accepts orders must register as an agent. The fact that it is unsolicited and/or from an institution (making them exempt transactions) has no bearing on the requirement for the individual to register as an agent. A partner of a broker-dealer with no securities sales functions and an individual who represents an underwriter only in transactions between an issuer and the underwriter need not register. Individuals whose function is strictly clerical do not register as agents.
Which of the following would be prohibited practices under state securities law? Soliciting orders for exempt securities Making recommendations on the basis of nonpublished analysts' reports Failing to inform a client of unusually high commissions because the client does not complain Failing to obtain prior written authorization for orders from a third party A) I, II, and III B) III and IV C) I and III D) I and II
B) III and IV Failing to inform a client of unusually high commissions and not obtaining prior written approval for orders from a third party are prohibited practices. Soliciting orders for a security that is exempt from registration is a normal business practice. An agent may use the nonpublished reports of the firm's securities analysts as a basis for recommendations, provided the nonpublished reports do not contain inside information.
Which of the following retirement plans is not legally required to establish vesting, funding, and eligibility requirements? A) Profit-sharing plan B) Payroll deduction plan C) Defined benefit pension plan D) Keogh plan
B) Payroll deduction plan A payroll deduction plan is a retirement plan not subject to eligibility, vesting, or funding standards as required by ERISA plans. A payroll deduction plan is a nonqualified retirement plan. Profit-sharing, pension, and Keogh plans must have established standards.
An investment adviser registered in 4 states would be permitted to enter into an advisory contract with all of the following prospective clients except A) a charitable foundation. B) a registered investment company. C) a university endowment fund. D) a single parent.
B) a registered investment company. This is a bit sneaky. In order for an investment adviser to enter into an advisory contract with an investment company, the adviser must be SEC registered (federal covered). Federal covered investment advisers are never registered in any states
A registered investment company whose portfolio consists of equity securities and does not change in response to market conditions is probably A) a closed-end investment company. B) a unit investment trust. C) an ETN. D) a passively managed mutual fund.
B) a unit investment trust. Unit investment trusts are registered investment companies with a fixed portfolio. That is, at the time of organization, the portfolio is purchased and, because there is no ongoing management company, there are basically no changes made.
ABC Advisers changes its name to XYZ Advisers and also changes its location. Under the Investment Advisers Act of 1940, it must A) notify the Administrator. B) amend Form ADV promptly. C) notify FINRA within seven days. D) amend Form ADV in advance.
B) amend Form ADV promptly If information on certain parts of Form ADV becomes out of date, a federal covered adviser must file a prompt amendment with the SEC (a state-registered adviser would have to do the same with the Administrator under the USA). Information requiring immediate amendment includes name, address, telephone number, organization type changes (corporation, sole proprietorship, and partnership), degree of control over clients' funds, sources of funding, management organization, or any information relating to disclosure to clients. If any other information on the form changes (nonmaterial information), the SEC requires the form to be amended within 90 days of the end of the adviser's fiscal year.
John purchased stock of a company in the business of manufacturing yachts. Two years ago his securities had lost most of their value as a result of a congressionally imposed luxury tax on purchases of more than $30,000. John's investment in the yacht-building business suffered a loss due to A) regulatory risk B) legislative risk C) volatility D) business risk
B) legislative risk John's investment in the yacht-building business suffered a loss as a result of legislative risk. In other words, the rules of the game (i.e., tax treatment) changed after John purchased the security as a result of legislative action.
A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to immediately A) notify the Administrator. B) reply to the client in writing. C) notify NASAA. D) freeze the client's account.
B) reply to the client in writing. When a broker-dealer receives a written complaint from a customer, it must document that complaint and begin an investigation as to the complaint's merits. Part of that procedure would be sending a written acknowledgment to the client that the complaint has been received.
Federal covered investment advisers must comply with the SEC's Model Marketing Rule for Investment Advisers. That rule includes A) a prohibition against showing the adviser's past performance. B) requiring a written agreement between an investment adviser and a promoter who receives more than $1,000 over a 12-month period for endorsing the services of the adviser. C) a requirement that a copy of all advertisements be sent to the SEC at the time they are disseminated to the public. D) a prohibition against reduced-fee introductory offers.
B) requiring a written agreement between an investment adviser and a promoter who receives more than $1,000 over a 12-month period for endorsing the services of the adviser. SEC-registered investment advisers must comply with the SEC Model Marketing Rule for investment advisers. This SEC rule incorporated significant amendments to the Investment Advisers Act of 1940. Among the requirements of the rule is that an adviser who compensates a nonaffiliated third-party promoter for endorsing the services of the IA must have a written agreement with that promoter if the compensation will exceed $1,000 over a 12-month period.
In terms of being considered compensation for determining the allowable contribution to an IRA, receipt of which of the following would be included? A) Child support B) Taxable interest income C) Alimony received as part of a divorce decree signed in 2018 D) Deferred compensation
C) Alimony received as part of a divorce decree signed in 2018 For divorce decrees entered into before January 1,2019, court-ordered alimony is taxable to the payee (and tax deductible to the payor). Therefore, receiving it is considered compensation for purposes of an IRA contribution. Please note: Effective January 1, 2019, there are changes to the tax treatment of alimony for all divorce agreements entered on and after that date (no changes to those already in existence).
Chuck is a registered investment adviser and a highly respected investment analyst. He has prepared a research report that is highly bullish on Monolith Industries, Inc., common stock. The report has not been released because it is still under review by the compliance department of Chuck's firm. Chuck has been asked to participate in a radio interview show in which he will be asked questions about this stock. Which of the following statements best describes how Chuck may communicate about this stock to others? A) Chuck may recommend this security to existing clients but not to prospective clients. B) Chuck may recommend this security without restriction. C) Chuck may not discuss this security because his report has not yet become available for public distribution. D) Chuck may recommend this security following disclosure of any position he or his firm holds in Monolith Industries, Inc.
C) Chuck may not discuss this security because his report has not yet become available for public distribution. Because the information in Chuck's research report will not be available for public distribution until after approval by the compliance department, he may not discuss the security with clients or prospects until the report is cleared. There are court cases where the SEC has prevailed, claiming use of internal research prior to public distribution is using inside information.
When a member of the board of directors of a publicly traded company resigns due to a disagreement over an operational matter, A) FINRA must be notified promptly. B) the administrator must be notified no later than the close of the business day following the event. C) Form 8-K must be filed with the SEC within four business days of the event. D) Form 10-K must be filed with the SEC within four business days of the event.
C) Form 8-K must be filed with the SEC within four business days of the event. Form 8-K is used to report significant events of importance to investors. Examples would be the resignation of a member of the board because of an operational dispute, liquidation of a significant asset, filing for bankruptcy, or a change in management control. When any of these occur, Form 8-K must be filed with the SEC no later than four business days after the event. Form 10-K is the company's annual filing, and that is due—depending on the size of the company—60 to 90 days after the end of the fiscal year.
Under the Uniform Securities Act, when do persons providing investment advice not have to register as investment advisers if they have no place of business in the state? They limit their clientele to individuals who meet the accredited investor standards. They deal only with institutional investors. They have five or fewer noninstitutional clients in the state during any 12-month period. They deal only with other registered investment advisers. A) I, II, III, and IV B) II only C) II, III, and IV D) III and IV only
C) II, III, and IV If a person offering advice on securities has no place of business in a state and deals only with institutional investors or other investment advisers, registration is not required. Also, if a person has no place of business in a state and has five or fewer noninstitutional clients in the state during any rolling 12-month period, they are not deemed to be investment advisers in that state under the USA. Please note that Choice I specifies individuals who are accredited investors. Although institutional accredited investors would qualify the adviser for the exemption, individuals do not.
Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144? A) Stock acquired by a corporate affiliate in a private placement B) Unregistered stock acquired by a corporate affiliate in a stock option program C) Stock acquired on the NYSE by a corporate affiliate D) Unregistered stock acquired by a nonaffiliate under an investment letter
C) Stock acquired on the NYSE by a corporate affiliate The holding period rule applies only to unregistered stock, which may or may not be control stock. Unregistered stock results from either private placements or the exercise of a corporate stock option. Because this question asked which securities were not subject to the Rule 144 holding period, only stock acquired on the NYSE by a corporate affiliate is the correct answer. However, the affiliated person is subject to volume restrictions.
Which of the following investments gives the investor the least exposure to reinvestment risk? A) Preferred stock in a growth company B) Treasury notes C) Treasury STRIPS/zero-coupon bonds D) Common stock in an electric utility
C) Treasury STRIPS/zero-coupon bonds Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) are zero-coupon bonds paying no interest. Thus, there is no income to reinvest during the holding period and therefore no reinvestment risk.
Which of the following attributes of common stock best describes why internal rate of return (IRR) is not generally used to determine the return on common stock? A) Uneven cash flows and no maturity B) Uneven cash flows C) Uneven cash flows, no maturity date and price D) No net present value
C) Uneven cash flows, no maturity date and price Internal rate of return (IRR) best measures investments with a known price and maturity. The internal rate of return is the discount rate that makes the future value of an investment equal to its present value. The yield to maturity on a bond is actually its internal rate of return.
If the Smiths want to open a joint account at AAA Securities Corporation and have their securities transferred to their three daughters upon the death of the last surviving account holder, their agent should recommend that the Smiths open A) individual accounts in the name of each daughter. B) a joint tenancy account with right of survivorship. C) a joint tenancy account with right of survivorship and execute a transfer on death (TOD) registration form. D) a tenants in common account.
C) a joint tenancy account with right of survivorship and execute a transfer on death (TOD) registration form. The agent should recommend that the Smiths open a joint account with right of survivorship and complete a transfer of death registration form. The joint tenancy account gives the Smiths joint ownership in the securities in the account. The surviving joint tenant immediately becomes the owner of the whole property upon the death of the other joint tenant (right of survivorship). The transfer upon death registration identifies the beneficiaries to receive the securities upon the death of the last joint tenant. The TOD provision is available on individual accounts and joint accounts opened as JTWROS and TBE. It is not available for TIC (tenants in common) accounts.
U.S. Treasury bonds are generally subject to all of the following risks except A) purchasing power risk. B) reinvestment risk. C) liquidity risk. D) inflation risk.
C) liquidity risk. The market for U.S. Treasury bonds is highly liquid. As safe and as liquid as they are, they, like all fixed-income investments, are subject to purchasing power (also known as inflation) risk and reinvestment risk
An investor who is long XYZ stock would consider going long an XYZ call to A) obtain income from the premium. B) protect against a decrease in the market price of XYZ stock. C) protect against an increase in the market price of XYZ stock. D) hedge the long position.
C) protect against an increase in the market price of XYZ stock. Going long a call means that you have bought it. Only sellers of options generate income. If you wish to hedge your long stock position, you buy a put, not a call. That leaves us with two choices that are polar opposites. Good test-taking skills teach us that, in almost all cases, when we see that, one of those must be the right answer. Buying a call is bullish. Forget the first part (you are long the stock). You would buy a call so that, if the price of the stock went up, you could exercise at the lower strike price of your call option.
A complex trust has the following income for the year: $1,500 in taxable interest, $2,000 in dividends (reinvested in the stock), and $3,000 in tax-exempt interest. In addition, the portfolio realized $3,500 in capital gains that were reinvested in the corpus. What is the distributable net income (DNI) for the trust? A) $1,500 B) $10,000 C) $4,500 D) $6,500
D) $6,500 All investment income, regardless of source, will be considered DNI and will be included in the taxable income calculation to the trust unless distributed. That portion of the DNI representing tax-exempt interest maintains its tax-free status. Reinvested capital gains are not part of a trust's DNI. The computation is: $1,500 in taxable interest + $2,000 in dividends (reinvestment means nothing here) + $3,000 in tax-exempt interest. This is a total of $6,500 of DNI. When distributed, only $3,500 will be taxable.
Corporate debt securities (such as commercial paper) are exempt from registration under the Securities Act of 1933 if their maturities do not exceed how many days? A) 365 days B) 30 days C) 90 days D) 270 days
D) 270 days Corporate debt securities (such as commercial paper) with maturities of 270 days or less are exempt from registration; longer maturities would subject them to the act's registration and disclosure requirements.
ABD Corporation's income statement reports net sales of $100 million; cost of goods sold, $60 million; administrative costs, $20 million; and interest on debt, $5 million. Based on this information, ABD's gross margin is A) 35% B) 15% C) 20% D) 40%
D) 40% Gross margin, sometimes referred to as gross profit on the exam, is computed by subtracting the cost of goods sold (COGS) from the net sales (or revenues) and dividing the remainder by the net sales. In this case, the computation is $100 million minus $60 million, which equals $40 million, and then dividing that by the $100 million resulting in a gross margin (or margin of profit) of 40%. Administrative costs and interest are not included in COGS.
If having discretion over $100 million or more in 13(f) securities, which of the following would be exempt from filing Form 13F? A) A trustee B) An investment adviser that manages mutual fund assets C) A natural person who exercises investment discretion over the account of any other natural person or entity D) A natural person who exercises investment discretion over her own account
D) A natural person who exercises investment discretion over her own account An institutional investment manager is also a natural person or an entity that exercises investment discretion over the account of any other natural person or entity. For example, an investment adviser that manages private accounts, mutual fund assets, or pension plan assets is an institutional investment manager; so is the trust department of a bank. A trustee is an institutional investment manager, but a natural person who exercises investment discretion over her own account is not an institutional investment manager.
Under the Uniform Securities Act, which of the following is a prohibited action? A) An investment adviser representative being registered as an agent of a broker-dealer having no affiliation with the investment adviser B) Agency cross transactions C) Disclosing the amount of commission on the confirmation when the broker-dealer is acting in an agency capacity D) An investment adviser selling securities as a principal to an advisory client without receiving consent of the client prior to the completion of the trade
D) An investment adviser selling securities as a principal to an advisory client without receiving consent of the client prior to the completion of the trade The USA prohibits an investment adviser from acting as principal or agent in a transaction with an advisory client without approval prior to completion (settlement) of the trade. There is nothing wrong with agency cross transactions, as long as disclosure is made and the trade is recommended to only one of the parties by the adviser. Any time a broker-dealer acts in an agency capacity, the amount of the commission must be disclosed on the trade confirmation, and there is no prohibition against an individual being an IAR of an investment adviser and an agent of a totally unrelated broker-dealer.
If an individual leaves her current employer and takes a new job, which of the following cannot be done with the assets in her 401(k) plan? A) Roll them over into a traditional IRA. B) Keep them in the plan. C) Roll them over into the new employer's 401(k) plan. D) Roll them over into a variable life insurance policy.
D) Roll them over into a variable life insurance policy. Qualified distributions from a 401(k) plan cannot be rolled over into a a life insurance policy, variable or not.
Which of the following investment vehicles provides for redemption by the issuer? A) Exchange-traded fund (ETF) B) Face-amount certificate (FAC) C) Closed-end fund (CEF) D) Unit investment trust (UIT)
D) Unit investment trust (UIT) A UIT typically issues redeemable securities (or units), like a mutual fund, which means that the UIT will buy back an investor's units, at the investor's request, at their approximate net asset value. ETFs and CEFs are traded in the secondary markets, and investors sell their shares in the marketplace rather than redeeming them through the issuer. Face-amount certificates are not redeemable—the investor's funds are returned when the debt is paid off.
The document that gives the Administrator the right to process complaints against a registrant is known as A) a writ of habeas corpus. B) a durable power of attorney. C) an injunction. D) a consent to service of process.
D) a consent to service of process. The consent to service of process gives the Administrator the right to process legal complaints against the applicant.
First Fidelity Building and Loan Association, organized in State A and authorized to do business in State B, has an offering of common stock being made in State B. In order for an individual selling the offering to be excluded from the definition of agent in State B, the individual A) would have to be employed by First Fidelity. B) would have to be employed by a broker-dealer registered in this state. C) would have to be employed by a broker-dealer registered in the other state. D) cannot sell without being an agent.
D) cannot sell without being an agent. Included in the USA's list of exempt securities are those issued by any building and loan or similar association organized under the laws of any state and authorized to do business in this state. However, they are not included in the short list of exempt securities under which individuals selling on behalf of the issuer are excluded from the definition of an agent. Had this been a bank, savings institution, or trust company, then, as long as the individual was an employee of the institution, no registration would be necessary
Active Technicians (AT), a state-registered investment adviser serving primarily retail accounts, would be in compliance if it A) sent a brochure within 150 days of the end of AT's fiscal year. B) sent a copy of Form ADV, Part 1A and Part 1B within 120 days of the end of AT's fiscal year. C) filed a brochure with the Administrator, noting that it was available to clients upon request. D) did not send an annual brochure to its clients if there was no material change from the previous year.
D) did not send an annual brochure to its clients if there was no material change from the previous year The NASAA Model Rule dealing with brochures states that investment advisers do not have to deliver a summary of material changes or a brochure to clients if no material changes have taken place since the last summary and brochure delivery. If a brochure or summary of material changes is required, the delivery date is 120 days after the end of the adviser's fiscal year, not 150 days. If the adviser wishes to use Form ADV, it should use Parts 2A and 2B.
Your client calls you after reading a story in the business section of his local newspaper. It seems that the article focused on changes to the core CPI, and the client wants to know how that is different from the normal CPI. You should explain that it is A) the figure used to determine annual increases, if any, to Social Security benefits. B) the Consumer Price Index, excluding housing and automobiles. C) the total of the leading indicators, excluding stock prices. D) the Consumer Price Index, excluding energy and food prices.
D) the Consumer Price Index, excluding energy and food prices. Because of their high volatility, economists exclude energy and food prices from core inflation figures. Social Security adjustments (and many others as well) are based upon the CPI itself, not the core.
Margin regulations are determined by the Board of Governors of the Federal Reserve System. The authority for them to do so is found in A) the Federal Reserve Act of 1913 B) the Securities Act of 1933 C) the Maloney Act of 1938 D) the Securities Exchange Act of 1934
D) the Securities Exchange Act of 1934 The Securities Exchange Act of 1934 contains the authorization for the Fed to regulate the use of credit in the securities business.
. During a discussion with a prospect, one of its investment adviser representatives seeks to allay the individual's concerns by informing her that once the firm delivers its brochure and receives the client's payment, there is a three-day period during which the client may cancel the contract and receive a refund of that fee. In this case, A) there is no violation because the 5-day penalty-free withdrawal feature is only found in state law and does not apply to SEC-registered advisers. B) there is no violation because firms and their representatives can always make their rules more stringent than the regulators' rules. C) the investment adviser representative is in violation because the brochure must be delivered at least 48 hours before signing the contract. D) the investment adviser representative is in violation because the time period is 5 days.
D) the investment adviser representative is in violation because the time period is 5 days. The agent has committed an unethical business practice because the NASAA Model Rule dealing with advisers' brochures requires a five-day penalty-free period when the brochure is not delivered at least 48 hours prior to entering into the contract. The firm and its agents cannot impose house rules that take away the client's rights.
Inverse ETFs are suitable primarily for investors A) who are bullish on the market's future. B) who follow a passive investment strategy. C) wishing to leverage their income. D) with a very short time horizon.
D) with a very short time horizon. Inverse and leveraged ETFs are structured in such a manner that makes holding them for more than a few days or a week become unattractive. They are for bearish investors, which is why they are often referred to as short funds. They are purchased for short-term capital gains; there is no income. The passive strategy is for the long term, not the short term.
Fundamental analysts give significant credence to financial ratios. Which of the following tends to give an indication of the profitability of the enterprise? A) Current ratio B) Debt-to-equity ratio C) Sales-to-earnings ratio D) Price-to-earnings ratio
Of the four choices given, the sales-to-earnings ratio is the only one not discussed in the License Exam Manual. Why not? Because we know there will always be a question or two on the real exam that was not covered in our material. It is important that students use good test-taking skills to correctly answer those questions. It would seem logical that a question about profitability would relate to earnings. That would reduce the choices to two from four. The price-to-earnings (P/E) ratio reveals the relationship between the market price of the company's stock and its earnings, but it doesn't tell us anything about the degree of profitability of the enterprise. If we know that the P/E ratio compares the price to the earnings, then it makes sense that the sales-to-earnings ratio compares the net sales of the business with its earnings. Companies with a higher percentage of earnings from each dollar of sales are more profitable. For example, Company A and Company B both reported $100 million in net sales for the year. The net income (earnings) of Company A was $20 million and Company B was $8 million. We can see that each dollar of sales generated $0.20 of profit for Company A and only $0.08 of profit for Company B. Or, we could say that it takes $5 of Company A sales to generate $1 of profit ($100 ÷ 20) while it takes $12.50 of Company B sales ($100 ÷ 8) to earn that same $1 of profit.
Those persons meeting the Uniform Securities Act's definition of a broker-dealer in a state must, unless otherwise exempted, register in that state. Which of the following is correct regarding the initial registration and expiration of the registration of a broker-dealer? A) The effective date of an initial registration is at noon on the 30th day after receipt of a completed application; expiration, unless renewed, is each December 31st. B) The effective date of an initial registration is at noon on the 30th day after receipt of a completed application; expiration, unless renewed, is on the anniversary date of the initial registration. C) The effective date of an initial registration is when ordered by the Administrator, and the same is true of the expiration date. D) The effective date of an initial registration is when ordered by the Administrator, and the expiration, unless renewed, is each December 31st.
The effective date of an initial registration is at noon on the 30th day after receipt of a completed application; expiration, unless renewed, is each December 31st. Under the USA, it states, "If no denial order is in effect and no proceeding is pending under section 204, registration becomes effective at noon of the thirtieth day after an application is filed." Further, it states, "Every registration or notice filing under this section expires December 31st unless renewed
