Series 65: Part 4

Risk aversion means that if two assets have identical expected returns, a risk averse individual will choose the asset with the A. lower risk level B. higher standard deviation C. shorter payback period D. higher expected return

A

A basic difference between a Section 457 plan established on behalf of a governmental entity and one established by a private tax-exempt organization is that A. a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants B. a tax-exempt plan participant does not have to include plan distributions in his or her taxable income C. a governmental plan cannot make a distribution before the participant attains age 70 1/2 D. a tax-exempt plan's distributions are not eligible for a favorable lump-sum 10-year averaging treatment

A

A client has an account where, upon death, she desires that her only son will receive 50% of account value and her 4 daughters will receive 12.5% each. The easiest way to accomplish this would be to title the account A. TOD B. JWTROS C. tenants in common D. in trust for the children

A

A client order is received with the following instructions: Buy stop 100 shares ABC at 34, limit 34.20. After the order is submitted, trades occur at 33, 33.90, 34.10, 33.85, 34.05, and 34.25. More than likely, the client paid A. 33.85 B. 34.05 C. 34.10 D. 34.25

A

A conservative client's portfolio is designed to have a 60/40 ratio of debt to equity securities. The initial investment was $250,000. One year later, the value of the portfolio is $260,000 with $90,000 of that represented by the equity portion. If the portfolio is rebalanced annually, the would require A. selling $14,000 of debt and buying $14,000 of equity B. selling $14,000 of equity and buying $14,000 of debt C. selling $6,000 of debt and buying $4,000 of equity D. buying $10,000 of equity and selling $10,000 of debt

A

A retirement plan that allows the employee to make pretax contributions (within certain limits), provides for tax deferral of earnings, and is available for employees of public school systems and certain tax-exempt organizations is A. a 403(b) plan B. a 401(k) plan C. a SEP IRA D. a payroll deduction plan

A

A sell stop order I. protects profit in the long position II. protects profit in the short position III. limits loss in the long position IV. limits loss in the short position A. I and III B. II and III C. I and IV D. II and IV

A

An individual's net worth is A. the difference between the individual's assets and the individual's liabilities B. best determined by examining the individual's personal income C. largely irrelevant in identifying the individual's investment objectives D. another term for discretionary income

A

Estate tax is reported on Form A. 706 B. 709 C. 1091 D. 1041

A

Exchange listed securities I. listed securities II. unlisted securities III. prices determined by auction IV. prices determined by negotiation A. I and III B. I and IV C. II and III D. II and IV

A

For a sole proprietorship, owner computes the earnings of the business on the A. Schedule C of Form 1040 B. Schedule C of Form 1065 C. Schedule K-1 of Form 1065 D. Schedule K-1 of Form 1040

A

In a margin account, if equity falls below the minimum required, what will occur to demand an immediate deposit of enough equity to bring the account above the required level A. maintenance call B. house call C. margin call

A

Marginal tax rate is A. the rate you pay on each additional dollar you receive as income B. the overall rate of tax you pay on your total taxable income

A

Simply adding more securities to a portfolio does not necessarily reduce portfolio volatility. For example, if the beta of a portfolio was 1.1, adding which of the following stocks would most likely increase the overall portfolio volatility? A. Stock A, beta 1.5 B. Stock B, beta 1.1 C. Stock C, beta 1.0 D. Stock D, beta 0.7

A

Trusts are considered... A. legal persons and may be subject to taxation B. not legal persons but may be subject to taxation C. legal persons and not subject to taxation D. not legal persons and not subject to taxation

A

Which of the following best describes the steps of the asset allocation process? A. Determine the objectives and constraints; create the IPS, determine the asset allocation, allocate capital, monitor, and evaluate B. Determine the objectives and constraints; determine the asset allocation, allocate capital, create the IPS, monitor, and evaluate C. Determine the objectives and constraints; perform asset allocation, create the IPS, monitor, and rebalance D. Determine the objectives and constraints; determine capital market expectations, create the IPS, perform asset allocation, monitor, and evaluate

A

Which of the following business structures is most appropriate for retaining money in the business? A. C corp. B. Sole proprietorship C. LLC D. S corp.

A

Which of the following is a price-weighted average? A. Dow Jones Industrial Average B. MSCI EAFE C. Russell 2000 D. S&P 500

A

Which of the following objectives would NOT be met by an employer's use of a nonqualified retirement plan? A. the employer desires current tax savings B. the employer desires an alternative to the qualified plan because of the complexity of legislative changes C. the employer needs to bring executive retirement benefits up to desired levels by adding a second tier of benefits on top of the qualified plan D. the employer desires a plan in which benefits may legally discriminate in favor of highly compensated employees

A

Which of the following statements is correct regarding a portfolio manager employing a tactical style? A. the commission expense will likely be higher than one employing a passive style B. the portfolio will be rebalanced more often that would be the case with a passive style C. the manager is looking to create a positive beta D. the portfolio will contain a high percentage of index ETFs

A

Who of the following will NOT incur a penalty on an IRA withdrawal? A. a man who has just become totally disabled B. a woman who turned 59 a month before the withdrawal C. a woman, age 50, who decides on early retirement D. a man in his early 40s who uses the money to buy a second home

A

A bond with an 8% coupon has a nominal return of 8%. If inflation is 3%, what is the inflation-adjusted return of the bond investment? A. 3% B. 5% C. 8% D. 11%

B

A socially responsible mutual fund would probably invest in companies A. generating high returns B. acting with high ethics and morality C. located in a single geographic area D. with a major presence on social media

B

An 83-year-old widower explains to you that he is risk averse and wishes to find an investment that will provide him with preservation of capital. Which of the following might you recommend? A. an index fund B. bank-insured CDs C. long-term US government bonds D. preferred stock

B

An investor purchases 100 shares of DERP common stock at $50 per share and elects to have all cash dividends reinvested through the DRIP being offered by DERP. After holding the stock for 5 years, the investor has reinvested $1,200 and acquired 20 additional shares. If the market price of DERP is $55 per share and the investor liquidates the position, the tax consequence will be A. a loss of $700 B. a gain of $400 C. a gain of $600 D. a gain of $1,600

B

An investor who would like to increase current income from investments and, at the same time, pay taxes on that income at less than his marginal tax rate, would probably find which of the following to be most suitable? A. US Treasury Bonds B. Public utility stock C. Growth stock D. Money market mutual fund

B

Bruno and Gabrielle have been married for 56 years. Bruno passes away in 2019 and leaves his entire estate of $10 million to his wife. During his lifetime, Bruno had used $2.2 million of his lifetime gift exclusion. Upon Gabrielle's death 2 years later, the estate is worth $22.2 million. The gross taxable estate is A. $0 B. $1.6 million C. $2 million D. $11 million

B

For valuation purposes, mutual funds FMV is A. POP B. NAV C. POP-NAV D. NAV-POP

B

Grandma Abigail died at age 82 with a traditional IRA valued at $100,000. Her daughter Betsy, 53 years old, was the sole beneficiary. Betsy's choices would include A. rolling over this IRA to her own IRA B. taking distributions spread out over a 5-year period C. taking the cash by December 31st and paying the 10% tax penalty because she is under 59 1/2 D. leave the IRA in the name of the deceased and continue with the RMDs

B

If 3 individuals have a tenants in common account with a firm and one individual dies, then A. the account must be liquidated and the proceeds split evenly among the 2 survivors and the decedent's estate B. the 2 survivors continue as cotenants with the deceased cotenant C. probate is avoided on the estate of the deceased contenant D. the account is converted to joint with rights of survivorship

B

If the dividend qualifies (typically from a US corporation, including stock mutual funds), the tax rate is generally a maximum of A. 10% B. 15% C. 20% D. 25%

B

Market makers, acting in a dealer (principal) capacity do what for their inventory? A. sell at bid price and buy at ask price B. sell at ask price and buy at bid price

B

SEP IRAs A. are used primarily by large corporations B. are used primarily by small businesses C. are set up by nonemployees D. cannot be set up by self-employed persons

B

Sam Jones has been a successful businessman and is concerned that his youngest daughter will not be able to live within her means. To protect this from happening, Jones places a large sum of money into a trust for the benefit of the daughter. Because Jones knows he won't live forever, he arranges for the Fourth Fidelity Bank and Trust Company to have control over the assets. Which of the following statements is NOT true? A. Sam Jones is the grantor B. Sam Jones is the trustee C. Fidelity Bank and Trust Company is the trustee D. Sam Jones's daughter is the beneficiary

B

The dangers of using stop orders is that: I. sell stops can accelerate a bullish market II. sell stops can accelerate a bearish market III. buy stops can accelerate a bullish market IV. buy stops can accelerate a bearish market A. I and III B. II and III C. I and IV D. II and IV

B

Three friends plan to start a new business. It is anticipated it will be several years before the business turns a profit. Which of the following types of business organization would be best if they wish to limit their liability while, at the same time, being able to receive favorable tax treatment for the expected losses? A. C corp. B. S corp. C. General partnership D. Sole proprietorship

B

When do withdrawals begin for a traditional IRA? A. April 15st of the year turning 70 1/2 B. April 1st of the year following 70 1/2 C. Apirl 15th of the year following 70 1/2 D. March 15th of the year following 70 1/2

B

When you borrow cash value from your life insurance policy, the funds received are A. taxable B. non-taxable

B

Which margin account agreement gives the firm permission to use the client's margin securities as collateral for the margin loan and pledge securities held on margin to a lending institution A. credit agreement B. hypothecation agreement C. loan consent

B

Which of the following are possible sources of taxable income to an individual? I. owning a sole proprietorship II. being a shareholder in a subchapter S corp III. owning stocks and bonds IV. proceeds paid on a life insurance policy A. I and II B. I, II, and III C. I, II, III, and IV D. II and III

B

A client has invested $25,000 in after-tax dollars in an IRA currently worth $75,000. If the client were to withdraw all $75,000 what is the tax consequence? A. $0 B. $25,000 ordinary income rate C. $50,000 ordinary income rate D. $75,000 ordinary income rate

C

A dark pool would most likely be used by A. a market manipulator B. a high-frequency trader C. an institution D. a retail investor

C

A limit order refers to A. lower in both buy and sell order B. higher in both buy and sell order C. lower in buy and higher in sell order D. higher in buy and lower and in sell order

C

A new account is opened for joint tenants with rights of survivorship. All of the following statements are true EXCEPT: A. orders may be given by either party B. mail can be sent to either party with the permission of the other party C. checks can be drawn in the name of either party D. in the event of death, the decedent's interest in the account goes to the other party

C

According to modern portfolio theory, the optimal portfolio is one that A. lies above the efficient frontier B. lies below the efficient frontier C. lies on the efficient frontier D. provides the lowest return for the highest risk

C

Which of the following are ineligible investments for an IRA? I. Collectibles II. American Eagles III. Whole & Term Life Insurance IV. Short sales of stock & margin account trading A. II and IV B. I, II, III C. I, III, IV D. I, II, III, IV

C

Among the requirements for accumulated earnings in a Roth IRA to be withdrawn free of tax is A. the owner of the account is at least 70 1/2 B. the money is withdrawn for a first-time purchase of vacation home C. the initial deposit to a Roth IRA was made at least 5 years ago D. the owner's spouse is declared disabled

C

An investor has a portfolio diversified among many different asset classes. If there was an immediate need for cash, which of the following would probably be the most liquid? A. cash value from a universal life insurance policy B. CDL Common Stock Mutual Fund C. QRS Money Market Mutual Fund D. XYZ International Stock Mutual Fund

C

An investor in debt securities might elect to use any one of the following techniques to limit interest rate risk EXCEPT A. barbells B. bullets C. increasing the duration D. laddering

C

An investor looking for an open-end investment company with an objective of providing current income to its shareholders, would most likely choose A. common stock fund B. growth fund C. income fund D. venture capital fund

C

At withdrawal from a NQ account: I. cost base is taxed II. cost base is not taxed III. earnings are taxed IV. earnings are not taxed A. I and III B. I and IV C. II and III D. II and IV

C

Defined Contribution Plan includes all of the following EXCEPT A. money-purchase pension plans B. profit sharing plans C. payroll deduction plans D. 401(k) plans

C

For which of the following types of clients would the suitability requirements be somewhat more relaxed? A. a guardian for an orphan B. a charity C. a foundation D. an executor

C

In designing an investment portfolio for a new client, one of the first things to do is determine the client's A. home address B. Social Security and tax ID number C. risk tolerance D. beneficiary

C

Most new businesses operate at a loss the first year or so. If several of your clients were forming a group to fund a start-up enterprise but wished to limit their liability and, at the same time, be able to receive favorable tax treatment for the expected losses, you would suggest forming which of the following? A. C corporation B. General partnership C. LLC D. Sole proprietorship

C

On the sale of primary residence, what profit amount is excluded from capital gains taxation? A. $200,000 for single; $500,000 for couple B. $200,00 for single; $550,000 for couple C. $250,000 for single; $500,000 for couple D. $250,000 for single; $550,000 for couple

C

One member of a married couple in their 30s earns an annual salary of $45,000 while the other earns $2,000 annual from a home-based business. If they file a joint tax return, their maximum IRA contribution for the year is A. $6,000 B. $7,000 C. $12,000 D. $14,000

C

Regardless of fluctuations in the market price, as long as a dividend is paid, investors participating in a DRIP will ____________ shares in their account at the end than the beginning A. always have less B. always have the same C. always have more

C

SIMPLE plans include all of the following features EXCEPT: A. business with 100 or fewer employees B. employees who earn $5,000 or more in the preceding calendar year C. businesses that have at least 1 more other retirement plan in place D. an inexpensive retirement plan for small business employees

C

Securities that may be purchased on margin/used as collateral: I. Exchange-listed stocks and bonds II. Stock rights and options III. Stocks traded on the Nasdaq Market IV. Warrants traded on the Nasdaq A. I, II, III B. I, II, III, IV C. I, III, IV D. II, III, IV

C

TIPS are taxed as ordinary income on what levels? I. Local II. State III. Federal A. I,II B. II,III C. III D. I,II,III

C

The KAPCO Income Fund has a current public offering price of $10.50 and a NAV per share of $10.00. During the past 12 months, the fund has made four quarterly distributions from net investment income of $1.5 and one distribution from capital gains in the amount of $.25. The fund's current yield would be? A. 1.1% B. 1.5% C. 5.7% D. 6.0%

C

The after-tax return of an investment that yields 10% for an investor in the 25% tax bracket is: A. 40% B. 2.5% C. 7.5% D. 13.33%

C

When an agent with a broker dealer opens a new options account for a client, in which order must the following actions take place? I. obtain approval from a qualified supervisor II. obtain essential facts from the customer III. obtain a signed options agreement IV. enter the initial order A. I,II,III,IV B. I,II,IV,III C. II,I,IV,III D. II,I,III,IV

C

When it comes to reinvestment on cost basis, when the investor sells the asset A. cost basis increases and income is still taxed B. cost basis remains and income is still taxed C. cost basis increases and income is not taxed again D. cost basis remains and income is not taxed again

C

When performing a life insurance needs analysis, all of the following would be evaluated EXCEPT A. projected future earnings B. mortgage amortization schedule C. stock market volatility D. anticipated inflation rate

C

When viewing several of your client's trade confirmations, you notice that a recent purchase was made of ABC stock where there was no commission indicated while a sale took place of DEF stock in which the commission listed was $55. From this information you could determine that I. ABC was purchased in an agency transaction II. ABC was purchased in a principal transaction III. DEF was sold in an agency transaction IV. DEF was sold in a principal transaction A. I and III B. I and IV C. II and III D. II and IV

C

Which of the following may participate in a Keogh Plan? I. Self-employed doctor II. Analyst who makes money giving speeches outside regular working hours III. Individual with a full time job who also has income from freelancing IV. Corporate executive who receives $5,000 in stock options from his corporation A. I only B. I and II C. I, II, and III D. I, II, III, and IV

C

Which of the following types of orders does not restrict the price at which an order is executed? A. Limit B. Stop C. Market D. Stop Limit

C

Who is NOT defined as 'prohibited persons' according to the IRS? (people who can't benefit from real estate held in an IRA or qualified plan) A. spouse B. ancestors (parents and grandparents) C. siblings D. descendants (children, grandchildren, etc.)

C

With the margin requirements under the FRB's Regulation T, a purchase of $12,000 of stock will result in a margin call of A. $3,000 B. $4,000 C. $6,000 D. $8,000

C

A broker-dealer quotes a stock 42 and a half. The difference between these two numbers is known as A. the broker's commission B. the dealer's markup C. the profit margin D. the spread

D

A buy stop order I. protects profit in the long position II. protects profit in the short position III. limits loss in the long position IV. limits loss in the short position A. I and III B. II and III C. I and IV D. II and IV

D

A common stock purchased for $20 with an annual dividend of $1 is sold after one year for $24. What is the total return? A. $1 B. $3 C. $4 D. $5

D

A living will is used to: A. avoid the cost and time of probate B. eliminate, or at least reduce, estate taxes C. ensure that the author's assets are properly distributed after death D. express the author's end-of-life wishes

D

A married couple is 55 and 57 years old. The older of the two plans to retire at 62 and the younger at 65, and both are healthy. What is the most appropriate estimate of the time horizon for their retirement portfolio? A. 5 years B. 7 years C. 8 years D. More than 20 years

D

ABC common stock's most recently quarterly dividend was $.36/share. ABC expects to keep the dividend payments at that level. If ABC common stock has a current market value of $32/share, what is the current yield? A. 3.2% B. 1.1% C. 4.2% D. 4.5%

D

As much as 50% of Social Security benefits start becoming taxable once base income exceeds A. $25,000 for single; $34,000 for couple B. $32,000 for single; $44,000 for couple C. $34,000 for single; $44,000 for couple D. $25,000 for single; $32,000 for couple

D

Characteristics of a Roth IRA include: I. before-tax contributions II. after-tax contributions III. tax-deferred withdraws IV. tax-free withdraws A. I and III B. II and III C. I and IV D. II and IV

D

Followers of the efficient market hypothesis believe that A. following the business cycle is the best way to maximize returns B. concentration rather than diversification will produce superior returns C. by following the pundits on TV, you'll wind up rich D. an efficient market is one that produces random results

D

Identify the index that reflects the broadest coverage of the US stock markets A. S&P 500 B. NYSE Index C. Dow Jones Industrial Average D. Wilshire 5000

D

If ABC Fund pays regular dividends, offers a high degree of safety of principal, and appeals especially to investors in the higher tax brackets, ABC is A. an aggressive growth fund B. a corporate bond fund C. a money market fund D. a municipal bond fund

D

If a trust or estate has income, what form must it be reported on? A. Form 706 B. Form 709 C. Form 1091 D. Form 1041

D

If you want to evaluate the performance of a portfolio manager, you would calculate the portfolio's A. dollar-weighted return B. holding period return C. portfolio return D. time-weighted return

D

In most cases, the tax filing status that results in the highest income tax is A. head of household B. married filing jointly C. qualifying widower with a dependent child D. single

D

Several investors open an account in joint tenancy. For suitability purposes, financial information is required on which of the following investors? A. the majority of the investors B. the largest investor only C. only the one authorized to trade the account D. all of the investors

D

Under current tax law, which of the following would NOT be a factor in determining an individual's federal income liability? A. age B. citizenship C. filing status D. sex

D

What is the interest rate banks charge broker-dealers on money they borrow to lend to margin account customers? A. prime rate B. federal funds rate C. call loan D. broker call loan rate

D

Which of the following statements regarding a bond ladder strategy is CORRECT? A. a bond ladder strategy involves the purchase of very long-term and very-short term bonds B. a laddered portfolio of bonds will provide lower yields than a portfolio consisting entirely of short-term bonds C. a bond ladder strategy is generally more aggressive than a bond barbell strategy D. a bond ladder strategy is a relatively easy way to immunize a portfolio against interest rate risk

D

A debt security (other than tax-free municipal issues) is always taxed at what rates?

ordinary income rates