Series 65 - Pt 2
In order to make a quantitative evaluation using the present value computation, which of the following is NOT needed? A) Account value at the beginning of the period B) Anticipated rate of return of the portfolio C) Account value at the end of the period D) Time period involved
A - we don't have beginning value when we are looking for the NPV
A portfolio manager with a growth style would probably diversify by A) attempting to build a portfolio with a very high correlation B) devoting a portion of the portfolio to securities with a negative correlation C) placing a portion of the portfolio into high-yield bonds D) concentrating in stocks in one or two industries
B
A significant difference between opening an account for a trust and an account for an estate is A) the standard of prudent investing applies to trusts, but not to executors B) the trust account will generally be active for a much longer period of time C) banks can be named as trustees for a trust, but not as an executor D) only the estate has beneficiaries
B
When discussing the suitability of investing in direct participation programs, particular attention should be focused on which risks? Legislative Liquidity Market Purchasing power A) I and IV B) I and II C) II and III D) III and IV
B
Which of the following would offer your client check-writing privileges and FDIC insurance coverage? A) Negotiable CD B) DDA C) Government securities money market fund D) GIC
B - DDA is demand deposit account like a checking account, that offers check writing and FDIC. money market offers check writing but no coverage and CD offers coverage but no check writing
Plymouth Standard's common stock has an average return of 12%; its returns fall within a range of -2% to +26% approximately 68% of the time. Which one of the following numbers is closest to the standard deviation of returns of Plymouth Standard's stock? A) 8% B) 14% C) 28% D) 19%
B - Difference between the average return and each side of the range : 26-12 and -2+12
Which of the following risks would most likely be minimized through portfolio diversification? A) Purchasing power risk B) Credit risk C) Interest rate risk D) Market risk
B - Only unsystematic risks can be diversified
Which of the following clients of a federal covered investment adviser are NOT exempt from the delivery requirements of the brochure rule? A) A closed-end investment company traded on the New York Stock Exchange B) An employee benefit plan with assets of at least $5 million C) An individual investor purchasing the IA's newsletter with an annual subscription price of $410 D) An open-end investment company with less than $25 million in assets
B - The only exemptions from the IA brochure rule are registered investment companies (both open and closed-end) and impersonal advice costing less than $500 per year.
A technical analyst who has been charting the common stock of Kloud Information Storage Systems (KISS) would most likely sell KISS stock short when the market price of the stock is A) above the resistance level. B) just below the resistance level. C) below the support level. D) just above the support level.
C
Historically, common stock has been shown to protect against A) business risk B) systematic risk C) inflation risk D) market risk
C
Looking at the balance sheet, a corporation builds its capital structure with all of the following except A) capital stock. B) long-term debt. C) cash. D) retained earnings.
C
Early in the year, an investor purchased 100 shares of KAP common stock at a price of $60 per share. Just prior to the end of the year, after receiving three quarterly dividends of $1, the investor liquidated all of the KAP at a price of $59 per share. If the Consumer Price Index (CPI) increased by 3%, the investor's total return over the holding period was A) .33% B) 5% C) 3.33% D) 2%
C -
A U.S. Treasury bond's price has moved from 96.18 to 96.22. An investor's account holding 10 of these bonds would show an increase of A) $1.25 B) $.40 C) $12.50 D) $4.00
C - U.S. Treasury bonds are quoted in 32nds, where the difference between 96.22 and 96.18 represents an increase of 4/32nds per bond. That is one-eighth, or $1.25, times 10 bonds, or $12.50
If a client prefers owning an investment company whose portfolio consists primarily of companies that have a history of paying regular dividends, rather than companies reinvesting their earnings for the purpose of generating capital appreciation, what type of mutual fund would you recommend? A) A growth fund B) An index fund C) A government bond fund D) An income fund
D
NASAA's Model Rule on Business Continuity and Succession Planning requires that each investment adviser establishes a plan that provides for each of the following EXCEPT A) assignment of duties to qualified persons in the event of unavailability of key personnel B) minimizing service disruptions and client harm C) office relocation in the event of a temporary loss of a place of business D) assurance of continued profitability
D
With regard to an SEC-registered investment adviser employing the services of a promoter to solicit on its behalf, it would be correct to state that A) cash referral fees may be paid pursuant to a written or oral agreement to which the investment adviser is a party. B) referral fees may be paid only if the promoter is also registered with the SEC. C) delivery of the solicitor's brochure must take place within five days after the entry into the advisory contract. D) the investment adviser may not compensate a solicitor who is subject to a statutory disqualification.
D
An investment adviser wishes to advertise a proprietary charting system used to time the market. In order to be in compliance with the Investment Advisers Act of 1940 A) the advertisement must be filed with the appropriate SRO within 10 business days of first use B) authorship of the system must be prominently disclosed C) results obtained by using the system must be shown using a time period of no less than 12 months D) a statement reflecting the limitations and difficulties of using the system must be included in the ad
D - An advertisement describing a charting system or any type of formula must always state that there are limitations and difficulties to using said system
One would not normally place convertible bonds in the portfolio of an investor A) seeking to maximize current income B) who is bullish on the future for a specific issuer's common stock C) seeking a position senior to that of common stock D) seeking capital gains
A
Which of the following classes of mutual fund shares would be appropriate for an investor who doesn't mind paying some sales charges on a purchase, but wants to minimize operating expenses over a long-term holding period? A) Class A shares B) No-load shares C) Class B shares D) Class C shares
A - Class A shares have a front end charge and typically have smaller operating expenses
Daphna works for Automated Asset Allocators (AAA), an investment adviser having offices in States D, E, and F and registered with the SEC. Daphna spends most of her time in an office in State D, but, once every other week, she goes to the branch in State E. Daphna would be exempt from registration as an IAR in which of the following states? A) State F, where she has 227 retail clients B) Daphna would have to register in all three states C) State E, where she has no retail clients D) States E and F
A - only register where you have a place of business
A life insurance policy with benefits tied to the performance of a separate account that allows the policyholder to skip premium payments is called A) a universal life insurance policy B) a flexible premium variable life insurance policy C) a scheduled premium variable life insurance policy D) a fixed premium variable life insurance policy
B
Under the provisions of the Uniform Securities Act, which of the following statements about unsolicited orders is TRUE? A) If the order ticket is appropriately marked, the Administrator may not challenge a broker-dealer's assertion that the order was unsolicited. B) An unsolicited order from a noninstitutional client for an unregistered, nonexempt security is considered a transaction exempt from the registration and advertising filing requirements of the act. C) A client may not purchase, at his own initiative, securities trading in the secondary market if the agent is otherwise prohibited from soliciting the order. D) Under certain conditions, an Administrator may prohibit a broker-dealer registered in the state from accepting any unsolicited orders.
B
One of your customers purchased a TIPS bond three years ago. The bond's nominal yield is 4% and inflation has averaged 6% over the holding period. The interest payment at the end of the three years would be closest to A) $33.78 B) $23.88 C) $47.76 D) $23.60
B - ((.06 x 1000) + 1000) X .02 = 23.06 and pick the next highest number
Once reaching the age of 72, required minimum distributions must be taken for retired individuals who were participants in all of the following EXCEPT A) SEP IRAs B) traditional IRAs C) Roth IRAs D) Keogh plans
C
What is the tax equivalent yield of a 7% municipal bond to an investor in the 35% federal income tax bracket? A) 4.55% B) 9.45% C) 10.77% D) 20%
C - (7 / (100-35))
The head of marketing for a regional broker-dealer spots an article in the local newspaper that is an excellent presentation of an investment strategy the firm recommends. If the firm posts a link to the article on its website, it would be known as A) endorsement. B) entanglement. C) adoption. D) plagiarizing.
C - Adoption is the use of content or a link that is solely the creation of someone else Entanglement would be when your firm had a part in creating it
The Uniform Securities Act provides for civil penalties in the event of illegal activities of broker-dealers and their agents. Under the act, a purchaser would NOT be entitled to claim: A) court costs B) interest at the state's legal rate less any income received on the security C) the original consideration paid for the security or the current market value, whichever is greater D) attorney's fees
C - In the event of a civil judgment, the purchaser is able to claim for a return of the original investment
In which of the following instances would an investment adviser representative be exempt from the anti-fraud rules of the Uniform Securities Act? A) Since the IAR understands how nervous a particular client is, he never admits a loss in the account to that client. B) The IAR is also an agent of a broker-dealer and, in that capacity, makes a recommendation to a nonadvisory client. C) The IAR makes a presentation at a seminar where the only topic discussed is fixed annuities. D) In an effort to avoid possible conflicts of interest, the IAR only does personal trades through an account set up with a fictitious name.
C - fixed annuities are not securities and therefore are exempt
To assist broker-dealers with compliance, NASAA prepared a fee disclosure template. Based on the template, all of the following broker-dealer charges would be disclosed except A) fees for issuance of stock certificates. B) account transfer fees. C) brokerage commissions. D) account maintenance fees.
C - not included in the disclosure template are commisons / markups and markdowns, and advisory fees
While reviewing the financial statements of the ABC Corporation, you notice that the company has $5 million in cash on hand and $6 million in inventory. If the current assets total $15 million, the total assets are $22 million, and the current liabilities are $6 million, the quick asset ratio is A) 2.33:1 B) 3.0:1 C) 1.5:1 D) 2.66:1
C - quick assets (not including inventory) / current liabilities
With regard to the NASAA Model Brochure Rule Requirements for Investment Advisers, which of the following are not exempt from the delivery requirements of that rule? A) An adviser whose only clients are closed-end investment companies B) An adviser whose only clients are exchange-traded funds C) An adviser who only provides impersonal advisory services at an annual charge of less than $500 D) An adviser who deals with qualified clients only
D
The weak form of the efficient market hypothesis A) implies that technical analysis is not worthwhile. B) implies that inside traders cannot earn superior risk-adjusted returns. C) implies that fundamental analysis is not worthwhile. D) reinforces the value of technical analysis.
A
When comparing futures and forwards, it would be correct to state that A) futures are more commonly used by speculators than forwards B) forwards are more likely to be closed out prior to expiration C) forwards are exchange-listed, while futures are not D) futures are considered securities, while forwards are not
A
Your client has a long position in a security that has had considerable appreciation since the date of purchase. The client is concerned that speculation that the company's CEO may retire could have negative implications for the stock. Wishing to protect those unrealized gains, which of the following orders would be appropriate? A) Buy limit B) Sell stop C) Buy stop D) Sell limit
B
In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the release, which of the following would be included in the definition? Commercial banks offering comprehensive financial planning for their high net worth clients Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's royalties into investment-grade bonds or large-cap stocks as market conditions dictate Persons being compensated for assisting employee benefit plan administrators in selecting investment managers for the plan's assets Lawyers who prepare trust agreements for clients with large securities holdings, with a goal of minimizing estate taxes A) II and IV B) I and II C) II and III D) I and IV
C
Initial and renewal contracts between investment advisers and their clients must be in writing when the contract is under the jurisdiction of the Securities Exchange Act of 1934 the Investment Company Act of 1940 the Investment Advisers Act of 1940 the Uniform Securities Act A) I, II, and III B) II, III, and IV C) II and IV D) I and III
C
On the basis of IRS guidelines, which of the following is most likely eligible to contribute to a Keogh plan? A) While employed full time for a major department store, a clerk who won $10,000 playing the state lottery B) A doctor who has formed a professional corporation with three other physicians C) A public school teacher who gets paid during her summer vacation to give motivational speeches to training directors at major brokerage firms D) The CEO of a listed corporation who receives a large bonus after an outstanding year
C - Keogh plans are for self employed individuals
Individuals who pass the Series 65 exam will be able to tell prospects that A) they passed a 130-question examination in order to qualify as an IAR B) this indicates the regulatory bodies consider them qualified to manage money C) by passing the exam, they are now registered as investment adviser representatives with the SEC D) their investments will be offered protection by the anti-fraud statutes of the Uniform Securities Act
A
As specified in the Dodd-Frank Act of 2010, which of the following would NOT qualify for the private fund exemption? A) An investment adviser who limits its advisory services to private funds with less than $150 million in assets under management in the United States B) An investment adviser who limits its advisory services to insurance companies C) A non-U.S. based investment adviser with no place of business in the United States and less than $25 million in assets under management belonging to U.S. clients D) An investment adviser who limits its advisory services to venture capital funds
B - The Dodd-Frank Act tells us that we're referring to federal law. Although investment advisers dealing solely with insurance companies are exempt from registration, that is not the private fund exemption the question is asking about.
Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and its investment manager. Among those requirements is that A) unless a specific exemption applies, the fund may not engage in margin trading B) the initial contract is for a maximum of one year and then may be renewed on either an annual or biannual basis C) no contract may be terminated with more than 60 days' written notice D) the contract should be in writing
C - Contracts between funds and their advisers may not be terminated with more than 60 days' written notice, and these contracts must—not should—be in writing. The initial contract is for a two-year period and then renewed on an annual basis.
Irving Wilson works for Wall Street Limited (WSL), a registered investment adviser. He limits his advice exclusively to equity securities listed on the NYSE. Under the Uniform Securities Act, Irving A) would need registration as a federal covered IAR B) is not covered by the anti-fraud rules, as these are federal covered securities C) must register as an IAR D) need not register as an IAR
C
Yields from highest to lowest for discount bonds
1. YTC 2. YTM 3. CY 4. Nominal
When a fundamental analyst views a corporation's balance sheet, it reveals the issuer's A) dividend payout ratio B) owner's equity C) profitability D) productivity
B
Yields from highest to lowest for premium bonda
1. Nominal 2. CY 3. YTM 4. YTC
An investor concerned about liquidity would be least likely to invest in A) ADRs B) common stock listed on the New York Stock Exchange C) stock subject to Rule 144 D) cumulative preferred stock
C - stock subject to rule 144 cannot be sold immediately
During your initial interview with a potential advisory client, you obtain the following information: He is 58, she is 56, and they both plan to continue working until she reaches 65 and is eligible for Medicare. As you begin to develop a plan for this couple, you would probably project their time horizon as A) approximately 30 years B) 9 years C) 7 years D) 16 years
A
An investor purchases one ABC October 50 call at 3 and one ABC October 50 put at 2. This position is A) an iron condor. B) a spread. C) a straddle. D) a combination.
C
When a market maker publishes a quote, what prices will be shown? Bid Market Offer Spread A) III and IV B) I and II C) II and IV D) I and III
D
What is the current yield on ABC common stock selling for $60 per share with a semiannual dividend of $.75 per share? A) 2.50% B) 7.50% C) 5% D) 1.25%
A - (0.75 x 2) / 60
Current market interest rates are 6%. Using the discounted cash flow method of valuation, you would expect to arrive at the highest valuation for which of the following? A) 10% coupon maturing in 10 years B) 5% coupon maturing in 20 years C) 7% coupon maturing in 9 years D) Zero-coupon bond maturing in 11 years
A - The larger the coupon the larger the cash flow
All of the following would decrease the U.S. balance of payments deficit EXCEPT A) a decrease in dividend payments by U.S. companies to foreign investors B) a decrease in purchases of U.S. securities by foreign investors C) an increase in exports of domestic goods from the U.S. D) a decrease in imports of foreign goods into the U.S.
B - Anything that will bring foreign money to the U.S. will decrease the balance of payments.
Popular strategies used by bond investors to mitigate the effects of changes in interest rates would include any of the following EXCEPT A) the laddering strategy B) the barbell strategy C) the bullet strategy D) the strategy of lengthening the maturities of their holdings
D
Which of the following is most commonly used when the author wants to express end-of-life wishes? A) A testamentary trust B) A living trust C) A living will D) A revocable trust
C
The issuance of new common stock will affect which of the following balance sheet items? Total assets Current liabilities Retained earnings Net worth A) II and III B) II and IV C) I and III D) I and IV
D
Fiscal policy, as implemented by Congress and the administration, would entail all of the following EXCEPT A) changing the discount rate B) increasing military spending C) running a budget deficit D) changing tax rates
A - the FRB changes the discount rate and is a part of monetary policy
With regard to nonqualified stock options (NSO) and incentive stock options (ISO), which of the following statements is incorrect? A) AMT is only an issue for those exercising ISOs. B) Capital gain treatment is only available with NSOs. C) Board of director approval is required for both NSOs and ISOs. D) A tax deduction for the employer is generally only available with NSOs
B - It is only the ISO where the employee can possibly receive capital gain treatment
One form of commodity investing is the purchase of precious metals. An investor in precious metals would be least likey to purchase A) palladium. B) molybdenum. C) platinum. D) gold.
B - Only 4 precious metals: gold, silver, platinum, and palladium
Each of the following would be exempt from the definition of an agent under the Uniform Securities Act EXCEPT A) Florence, an employee of the First Fidelity Trust Company, who buys and sells securities to meet the needs of her trust clients B) Katrina, the administrator of the Widget Spinners Corporation pension plan, who is paid for making investment decisions for the portfolio C) Violet, an employee of the Widget Spinners Corporation, who is paid a commission on sales of the company stock to fellow employees D) Beatrice, who was appointed by the other members of her investment club to make the portfolio decisions for the next quarter
C
A corporation with a 6%, $25 par cumulative preferred paid $.50 to preferred stockholders last year. This year, the company wants to pay common dividends. How much must it pay each preferred share? A) $0.50 B) $1.50 C) $11.50 D) $2.50
D
A support level is the price range at which a technical analyst would expect the A) supply of a stock to increase substantially B) demand for a stock to remain constant C) demand for a stock to decrease substantially D) demand for a stock to increase substantially
D
An investor has returns of 4%, 5%, and 9% over a three-year period. What is the investor's arithmetic mean? A) 5% B) 6% C) 7% D) 18%
B
The term alternative investment would least likely apply to A) leveraged ETFs B) inverse ETFs C) closed-end funds (CEFs) D) exchange-traded notes (ETNs)
C - all other options are alternatives
Which of the following is a prohibited action under the Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers? A) Claiming that advisory fees are negotiable, but maintaining a fixed fee schedule B) Depositing securities or cash with the Administrator in lieu of a required surety bond C) Notifying the Administrator that the adviser intends to maintain custody of customer securities D) Determining the price and time of execution of customer orders without written discretionary authority
A
An investor is concerned that interest rates will be volatile over the next few years. Which of the following would eliminate interest rate risk? A) Insured bank CDs B) Cumulative preferred stock C) TIPS D) Zero-coupon bonds
A - cannot be traded therefore is not subject to interest rate risk
An investment adviser representative is required to make disclosure to the client when the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale transactions recommended to a specific client are inconsistent with those for other clients with objectives that are similar to that particular client transactions recommended to the client are inconsistent with those for the IAR's own account A) I, II, and III B) II and IV C) II, III, and IV D) I and III
B
Under which of the following asset allocation programs is it most likely that commission expense will have a significant impact on portfolio performance? A) Buy and hold B) Strategic C) Tactical D) Rebalancing
C
Which of the following is the primary advantage to the employer who offers a nonqualified plan when compared to one that offers a qualified plan? A) The nonqualified plan allows for an immediate employer deduction for contributions. B) The qualified plan is permitted to discriminate in favor of key employees. C) The nonqualified plan is permitted to discriminate in favor of highly compensated employees. D) The qualified plan costs less to administer than the nonqualified plan.
C -
In which of the following cases does exercise not involve the issuer of the underlying asset? A) A warrant B) A convertible bond C) An option D) A right
D - When an option is exercised, the seller (writer) of the option is the one who must deliver (call) or purchase (put). In all of the other choices, the issuer is the one who delivers the stock.
LMN, Inc., is preparing to report its net income for the past year. An increase in which of the following would NOT cause a decrease in the reported net income? A) Allowance for bad debts B) Year-end bonuses to employees C) Corporate income tax rate D) Cash dividends
D - cash dividends are paid out of a companys net income so there will be no effect
In order to come under the SEC's requirement to file a Form 13F, an institutional manager must have discretion over A) an equity portfolio of at least $100 million in 13(f) securities B) more than 10% of the outstanding voting securities of a reporting company C) an equity portfolio of at least $100 million D) an equity portfolio of at least $50 million in 13(f) securitie
A
Which of the following forms of joint ownership is most often used for real estate? A) Joint tenants with right of survivorship B) Totten trust C) Tenancy by the entirety D) Tenants in common
C
You have a client who is interested in a preferred stock whose dividends are guaranteed. What is likely the reason for using that term? A) Someone other than the issuer has guaranteed the payment of those dividends. B) The issuer has a AAA rating that is tantamount to dividend payments being a sure thing. C) A previous IAR has improperly used that term in an effort to make a sale. D) As a fixed income security, the dividends are guaranteed to never increase.
A
Listed options are also known as standardized options. Which of the following choices is not one of the standardized terms of a listed option? A) The exercise price B) The premium C) The underlying asset D) The expiration date
B - supply and demand sets the premium
You are trying to explain to an advisory client that the U.S. economy goes through somewhat repeatable phases over a period of time. Which of these terms does NOT describe one of those business cycles? A) Expansion B) Inflation C) Contraction D) Peak
B
A client with a bearish outlook on a particular stock would be able to benefit from taking which of the following actions? A) Buying the stock on margin B) Entering a market order to sell C) Selling the stock short D) Entering a sell limit order
C
Ways in which a Section 529 plan differs from a Coverdell ESA include tax-free distributions when the funds are used for qualifying educational expenses. higher contribution limits no earnings limitations contributions that may be made by someone other than a parent or legal guardian A) II and IV B) I and II C) II and III D) I and IV
C
It would be reasonable to expect an increase in exports from the U.S. if the dollar strengthened against the euro yen strengthened against the dollar Swiss franc weakened against the dollar dollar weakened against the British pound A) I and II B) III and IV C) II and IV D) I and III
C
As defined in the Uniform Securities Act (USA), which of the following would be considered an exempt transaction? A) A sale of U.S. Treasury bonds to a retail investor B) A sale of stock by an administrator of an estate C) A purchase of bonds by a trustee of an irrevocable trust D) A purchase of stock by an accredited investor under Rule 506(b)
B
One of the purposes of filing the annual updating amendment to the Form ADV Part 1A is to A) verify that the investment adviser still qualifies for SEC registration B) provide updated information on those associated persons who are in charge of giving investment advice C) disclose the amount and location of securities or funds of clients that are being held by the adviser or a qualified custodian D) ensure that full disclosure has been made in the adviser's brochure
A - In order to maintain SEC registration, an investment adviser must maintain assets under management of no less than $90 million. The annual updating amendment is used to disclose this information.
An investor purchased a 2x leveraged ETF at a price of $100 per share. On the first day, the index was up 10%. On the next day, it was down 10%. The investor's share value is now A) $96. B) $99. C) $101. D) $100.
A - On the first day, the value increased by twice the 10% the ETF gained (20% × 100 = 20). That makes the share value $120. On the second day, the value decreased by twice the 10% the ETF lost, (20% × 120 = 24). That makes the current value $96.
KAPCO, Inc. has 100,000,000 shares of $1 par common stock outstanding. If the current market price of the KAPCO common stock is $33 per share, KAPCO would be considered a A) mid-cap stock B) small-cap stock C) micro-cap stock D) large-cap stock
A - mid cap is 2-10 billion, above 10 is large cap, below 2 is small
If the executor of an estate containing a substantial stock portfolio is of the opinion that the economy is about to enter a down cycle, estate taxes could be reduced by A) using the alternative valuation date B) asking for an extension to file the return C) reallocating the assets to less risky securities D) liquidating the portfolio in advance of the market downturn
A - The executor of an estate has the option of valuing the assets either as of the date of death or six months later (the alternative valuation date)
Arguably, determining a client's risk tolerance is the most critical step before making any recommendations. Methods of doing that would include knowing all of the following EXCEPT A) the investment time horizon—short-term or long-term B) the name of other firms where the client has or has had an account C) how much of a loss the client can tolerate emotionally D) the client's prior investment experience
B
One of the major goals of most hedge funds is to A) generate liberal tax write-offs for their investors B) use long and short strategies to provide a stable return in both up and down markets. C) appeal to the sophisticated investor D) generate higher fees for their advisers
B
An investor contacts you somewhat puzzled over the fact that she saw a newspaper listing for the KAPLOW Fund where the net asset value per share was $10.27 and the asking price was $14.14 per share. She wants to know why the difference between the two is so great. You would respond, saying A) there is probably a misprint in the paper and, more than likely, the asking price is $11.22, making the sales charge 8.5% B) the KAPLOW Fund is being investigated by the SEC for being sold with a sales charge in excess of the 8.5% maximum limit C) the KAPLOW Fund is a closed-end company whose selling price is not based upon NAV, as is the case with an open-end fund D) that this is probably an unregistered hedge fund not subject to SEC rules
C
Most states have replaced the Uniform Gifts to Minors Act (UGMA) with the Uniform Transfers to Minors Act (UTMA). One of the major advantages of UTMA is A) reduced fiduciary exposure to the custodian B) better tax benefits C) greater flexibility in the choice of investments D) the beneficiary has access to the account at an earlier age
C
Under the Uniform Securities Act, all of the following persons with no place of business in the state are exempt from registration as an investment adviser EXCEPT A) advisers who deal exclusively with investment companies registered under the Investment Company Act of 1940 B) advisers who deal exclusively with federal covered investment advisers located in the state C) advisers who have conducted business with no more than six clients, other than institutions, in the state within the past 12 months D) advisers who deal exclusively with savings banks located in the state
C
One of the differences between state and federal law involving an investment adviser maintaining custody of customer funds and/or securities relates to the handling of client checks made payable to third parties such as broker-dealers. Which of the following properly expresses that difference? A) Under federal law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within three business days of receipt. B) Under federal law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within 24 hours of receipt. C) Under state law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within three business days of receipt. D) Under state law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within 24 hours of receipt.
C - 3rd party checks are never custody under federal law and 3 days within receipt for state law
An individual has just received an inheritance of $15,000 and has the goals of preservation of capital and income. The client is in a low tax bracket. Which of the following would be the most suitable choice? A) Insured municipal bonds B) Newly issued U.S. Treasury bonds C) Bank-insured CDs D) Public utility stocks
C - when preservation of capital is a goal and a CD is an option pick it
An advisory client is interested in learning more about municipal bonds. It would be correct to state that general obligation bonds are usually, but not always, safer than revenue bonds interest received on municipal bonds is generally free of both federal and state income taxes municipal bonds are usually suitable for investors in higher tax brackets the coupon yield on AAA-rated municipal bonds will generally be slightly higher than that of AAA-rated corporate bonds with a comparable maturity A) II and IV B) I and II C) III and IV D) I and III
D
An investment adviser representative is meeting with a potential advisory client. Among the items of information the IAR needs to obtain in order to develop the proper plan are the prospect's anticipated number of years until retirement location of current bank and brokerage accounts current savings and investments college alma mater A) III and IV B) II and IV C) I and II D) I and III
D
John Jones purchased 100 shares of DEF common stock at a price of $25 per share on August 4, 2020. On December 1, 2021, with the stock selling for $29 per share, he gifted the stock to his daughter. She subsequently sold the stock nine months later for $32 per share. Her tax consequence is A) $300 short-term capital gain B) $300 long-term capital gain C) $700 short-term capital gain D) $700 long-term capital gain
D
Your client notices that the listing for the CDL $100 par common stock in the Wall Street Journal indicates that the current yield of the stock is 4%. If the last trade was at $40 per share, more than likely, CDL is paying quarterly dividends of A) $4.00 B) $1.00 C) $1.60 D) $.40
D - (40 x .4) = 1.6 dividends paid quarterly result in .4 per quarter
As defined in the Uniform Securities Act (USA), the term person would include a limited partnership a political subdivision an unincorporated association the executor of an estate for a deceased individual A) I, II, and III B) II and III C) I and IV D) I, II, III, and IV
D - Not included in USA definiton of a person are a minor, someone who is deceased, and someone deemed mentally incompetent
Which of the following statements regarding an agent's registration is CORRECT? A) Revocation of the registration of an agent's broker-dealer will result in placing that agent's effective registration in suspense. B) Agents may be licensed in a state even if their broker-dealer is not C) Individuals whose only securities activity with a broker-dealer is trading for the firm's proprietary account are not required to register as agents. D) 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 no later than 30 days following the revocation.
A
All of the following statements relating to ADRs are true EXCEPT A) dividends are paid in U.S. dollars B) currency risk is avoided C) the issuer is a domestic bank D) trading takes place on domestic secondary markets
B
A corporation is capitalized with common stock, senior preferred stock, mortgage bonds, and subordinated debentures. Your client, who holds $10,000 of the debentures, is concerned about the future viability of the enterprise. You can inform the client that the debentures have a claim A) ahead of the common stock, the preferred stock, and the bonds B) behind the bonds, the preferred stock, and the common stock C) ahead of the common stock and the preferred, but after the bonds D) ahead of the common stock, but after the preferred and the bonds
C
Which of the following statements regarding REITs are correct? Equity REITs offer possible income and capital appreciation. Investors receive interest and principal payments periodically. In order to receive favorable tax benefits, the REIT must pay out at least 90% of its taxable income in the form of dividends. Interests in REITs offer the benefit of flow through of income or loss. A) II and III B) II and IV C) I and IV D) I and III
D
Gerald has been a client of yours for more than a decade. Over that period, the relationship expanded from a business one to one of a social nature, including attending events with your respective spouses. One afternoon, Gerald's wife calls explaining that she just got off the phone with Gerald. Before hanging up, he asked her to contact you with a sell order in his account. Having had extensive social contact, you recognize her voice and know that their marriage is on strong footing. You should A) explain that you cannot accept an order from anyone other than the account holder without having written trading authorization B) accept the order because you know the wife and understand that this is something that would be fine with Gerald C) email a copy of the trading authorization form and ask her to electronically sign for Gerald and return it so that you can place the order. D) contact your compliance department, explain the relationship, and wait for further instructions
A
Prudent Asset Construction Enterprises (PACE) has offices in states X, Y, and Z. On their last annual updating amendment, they reported AUM of $218 million. In which of the following instances would PACE be receiving a substantial prepayment of fees? A) $1,600, paid one year in advance B) $600, paid six or months in advance C) $1,600, paid at the first of each quarter D) $10,000, paid monthly
A - Federal is 6 or more months in advance of more than 1,200 dollars and state is 6 months in advance
If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio? A) Tangible assets B) Annuities C) Preferred stock D) AAA bonds
A - commodities, real estate, precious metals etc tend to keep up with inflation
Investors seeking current income would benefit from A) buying LEAPS B) buying U.S. Treasury STRIPS C) selling call options D) buying periodic payment variable annuities
C
One of your clients is a widow with three grown children. She wants the assets in her account to go to her children upon her death—50% to her daughter and 25% to each of her sons. She does not want the estate to have to deal with probate on these assets. How should her account be set up? A) Joint tenants with right of survivorship B) Tenants in common C) Transfer on death D) Tenants in the entirety
C
One respect in which advertising by investment advisers differs from that of broker-dealers is that A) investment advisers are not permitted to use the internet, while broker-dealers can. B) investment advisers are permitted to conduct seminars, while broker-dealers cannot. C) investment adviser advertising is regulated by federal law while advertising by broker-dealers is regulated by FINRA. D) investment advisers are permitted to refer to charting systems in their advertisements, while broker-dealers cannot
C
Richard, Tim, Sam, and Fred have a regular golf foursome every weekend. During one of their outings, they decide it is time they did something constructive with their money by opening an account with a brokerage firm. If the account is opened tenants in common, suitability information would be required on A) whichever person has been designated by the group as its spokesman B) only that individual with the authorization to trade the account C) each of the four individuals D) each of the individuals, and if married, their spouses
C
The dividend discount model is A) a method of determining the appropriate relationship between the price of the corporation's common stock and its preferred stock B) the complement of the dividend payout ratio C) an analytical tool used to project the current value of a common stock using projected dividends D) a function of the price to earnings ratio
C
Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser would have to disclose that the firm was acting in a principal capacity when A) engaging in an agency cross transaction B) directing a securities transaction to an affiliated broker-dealer C) selling shares from its proprietary account to an advisory client D) the trade was being executed by an officer or partner of the firm
C
When preparing recommendations for clients, nonfinancial considerations can often be as important, or even more important, than financial ones. For example, clients who want to avoid investing in fossil fuels would be expressing their A) educational background. B) demographics. C) values. D) investment experience.
C
Which of the following actions by an agent would be an unethical practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents? A) Recommending securities that result in major losses in the customer's account B) Telling a customer that the investment being recommended will be sold from the inventory of the broker-dealer and indicating on the trade confirmation that the firm acted in a principal capacity C) Splitting commissions with a customer service representative who is not registered but works for the same firm D) An agent with discretionary authority enters a buy order for a security when its price is rising
C
Which of the following activities might result in a positive yield curve in the bond market? A) Investors buying long-term bonds and selling short-term bonds B) A parallel downward shift in interest rates C) Investors buying short-term bonds and selling long-term bonds D) A parallel upward shift in interest rates
C
Which of the following statements are accurate when describing preferred stock? Owners of convertible preferred stock have an opportunity to participate in the growth of the company. Unlike any other securities the company may issue, the return on preferred stock is fixed. Issuing preferred stock confers certain tax benefits to the company. In general, preferred stock does not have a maturity date. A) II and III B) I and II C) I and IV D) III and IV
C
Both state-registered and federal covered investment advisers have brochure delivery requirements. One significant difference between the two is that A) state-registered advisers must deliver the brochure within 90 days of the end of their fiscal year while covered advisers have 120 days. B) state-registered advisers who do not deliver the brochure at least five days prior to contract signing must offer a 48 hour penalty free withdrawal. C) state-registered advisers who do not deliver the brochure at least 48 hours prior to contract signing must offer a 5-day penalty free withdrawal. D) federal covered advisers are exempt from the brochure delivery requirements to investment company clients while state-registered advisers are not.
C - State-registered investment advisers who do not deliver the brochure at least 48 hours prior to entering the contract must offer a penalty-free withdrawal of five days. There is nothing comparable to that in the federal law. Both have the 120-day delivery requirement, and state-registered investment advisers cannot have investment companies as clients.
To be in compliance with the rules under the Investment Advisers Act of 1940, which two of the following statements are correct regarding a registered investment adviser's relationship with promoters engaged to solicit for advisory business? An individual who is subject to statutory disqualification from registration as an investment adviser representative may be compensated to solicit clients for the adviser when employed by a third-party promoter. If the compensation exceeds a de miminis amount, there must be a written agreement between the investment adviser and the solicitor. While the sales script used may be written by the promoter, making sure that its content is fair and reasonable is the responsibility of the investment adviser. Cash referral fees to promoters hired to solicit may be paid only in the case of impersonal advisory services. A) III and IV B) I and II C) I and IV D) II and III
D
A client's portfolio consists of holdings in long-term U.S. Treasury bonds and Treasury notes. Of least concern to this investor would be A) credit risk B) market risk C) interest rate risk D) purchasing power risk
A
A portfolio manager who follows the value style of investing would most likely focus her attention on A) financial statements B) market capitalization C) 52-week highs and lows D) moving averages
A
An estate-planning technique often recommended for those with large taxable estates is the use of A) an irrevocable life insurance trust (ILIT) B) the alternative valuation date C) the capital needs analysis D) a testamentary trust
A
Under the provisions of Regulation S-P, a person who has an investment advisory contract with a registered investment adviser is known as A) a customer B) a client C) a consumer D) a cohort
A
You have a 45-year-old client wishing to save for retirement. The client does not have a great deal of investment sophistication and inquires about the risks you have exposed him to by placing the majority of his portfolio in listed common stocks. You would respond that one risk he should not concern himself with is A) liquidity risk B) business risk C) systematic risk D) inflation risk
A
Which of the following is required to effectuate annual renewal of the registration of an investment adviser representative affiliated with a federal covered adviser? A) Consent to service of process B) State licensing fee C) Renewal notice to the SEC D) Form U-4
B
A portfolio manager looking to create alpha would most likely use which of the following? A) Strategic asset allocation B) Tactical asset allocation C) Indexing D) Buy and hold
B
A state-registered investment adviser maintaining custody of customer funds and securities discovers that its net worth is $32,000. Which of the following steps would NOT be required? A) Filing a financial report with the Administrator by the close of business on the next business day following notice B) Notifying the Administrator of the deficiency by the close of business on the next business day C) Returning the customer funds and securities within three business days of the discovery D) Reporting to the Administrator the number of client accounts being served by the investment adviser
C
An investor would be entitled to a breakpoint on quantity purchases made together with all of the following accounts EXCEPT A) his wife's personal account B) a custodian account under UTMA for his child C) shares of that fund held in his 401(k) that were purchased with employer-matching funds D) his brother with whom he regularly shares investment ideas
D
In order to comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must offer plan participants at least three different investment alternatives ensure that plan participants are insulated from control over their portfolios allow plan participants to change their investment options no less frequently than quarterly permit immediate vesting of employer contributions. A) II and III B) I and IV C) II and IV D) I and III
D
Which of the following would probably be the best indicator of where the economy is headed? A) Industrial production B) Average prime rate C) Average duration of unemployment D) Permits for construction of new housing units
D
Which of the following statements regarding agent registration under the Uniform Securities Act is TRUE? A) The Administrator may request the agent furnish a statement of assets and liabilities. B) The Administrator may initiate a disciplinary action within two years of an agent's withdrawal of registration. C) If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed as of the original filing date. D) In the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day after the filing of a complete application.
D - Normally, registration of persons becomes effective at noon of the 30th day following filing. If the Administrator requires the filing of amendments, the clock starts over again with the filing of those amendments, not the original filing date.
Which of the following items does NOT fall within the Section 28(e) safe harbor? A) Software used to simplify the investment adviser's preparation of its tax returns B) Proprietary research reports analyzing the performance of a specific industry C) Research reports prepared by a third party other than the broker-dealer D) Software used to analyze client's portfolios
A
An IAR is attempting to develop an investment plan for a client. The IAR decides to use two different mutual funds in an effort to provide appropriate diversification. Of the four pairs given below, which one would offer the most diversification? A) Portfolio 3 and 4, with a correlation coefficient of +.20 B) Portfolio 7 and 8, with a correlation coefficient of -.20 C) Portfolio 5 and 6, with a correlation coefficient of -.05 D) Portfolio 1 and 2, with a correlation coefficient of +.90
B
An index annuity has no cap on gains, but guarantees a minimum return of 3.35% with an 80% participation rate. If the index increases by 15%, what is the rate of return to the investor? A) 2.68% B) 12% C) 15% D) 18.35%
B
An investor indicates that her objective is long-term growth. Income is of secondary importance, and while she is basically quite conservative, she feels her time horizon is long enough to give her a bit more risk tolerance. Which of the following common stock mutual fund selections would probably be most suitable? A) 100% large-cap B) 75% large-cap, 25% small-cap C) 100% small-cap D) 75% small-cap, 25% large-cap
B
In the over-the-counter market, the person who performs the dealer function that a DMM is responsible for on an exchange is A) the floor broker B) the market maker C) the OTC trader D) the broker-dealer
B
John Johnson was convicted five years ago of failure to pay child support—a misdemeanor in his home state. Johnson would now like to register as an IAR in a neighboring state where that crime is considered a felony. Under the Uniform Securities Act, the Administrator of the neighboring state A) will consider Johnson to be statutorily disqualified since in this state, his crime is a felony B) will disregard that conviction when determining Johnson's qualifications for registration C) will consider granting registration to Johnson, but only if he receives heightened supervision D) will determine Johnson's status based upon the extent to which his child support payments are being paid
B
One of the usual practices of the fiduciary handling a qualified retirement plan is providing a written document that sets forth the objectives and constraints on a managed portfolio. This document is called A) the management agreement B) the investment policy statement C) the legal opinion D) the statement of fiduciary responsibility
B
Which of the following bonds would most likely be exposed to the greatest amount of interest rate risk? A) GHI 7s of 2052 B) ABC 5s of 2050 C) DEF 6s of 2051 D) JKL 4s of 2022
B
Which of these forms of business structure carries the greatest personal liability? A) LLC B) Sole proprietorship C) S corporation D) Limited partnership
B
A broker-dealer having no place of business in a state is not required to be registered in that state if the broker-dealer A) is registered in the state where its principal office is located B) is a member of the New York Stock Exchange C) limits its clientele to employee benefit plans with assets of at least $1 million D) is a federal covered broker-dealer
C
Low risk tolerance and high liquidity needs are typical characteristics of which type of institutional investor? A) Foundations B) Defined benefit pension plans C) Banks D) Trusts
C
The discounted rate that equates a bond's cash flow to its current price is known as the bond's A) duration B) coupon rate C) yield to maturity D) current yield
C
What is the term generally given by analysts to the number generated by the addition of a company's annual depreciation expense to its net income? A) Dividend payout ratio B) Book value per share C) Cash flow D) Working capital
C
When an investment adviser representative terminates employment with a federal covered investment adviser and immediately accepts employment performing the same functions with a different federal covered investment adviser in the state where the individual resides A) the investment adviser representative and the employing adviser must notify the Administrator promptly B) the investment adviser representative and each of the federal covered advisers must notify the Administrator promptly C) only the investment adviser representative must notify the Administrator promptly D) only the terminating investment adviser must notify the Administrator.
C
The technical market theory that measures the breadth of the market is A) the support/resistance B) the short interest C) the odd-lot D) the advance/decline
D - The advance/decline theory compares the number of stocks advancing versus those declining, generally on the New York Stock Exchange. Because it uses such a large sample, it is used as an example of the breadth of the market.
