Series 65- Section 2

A joint tenant, a court-appointed conservator, a durable POA can trade in the account of an incapacitated individual. True/False.

True (not a relative in a will.. that's for medical decisions)

A lawyer, accountant & engineer can be a broker-dealer. T/F.

True agents, issuers, and banks cannot be.

As compared to value investors, growth investors tend to look for companies

whose sales, earnings, or market share are increasing at an above-average rate

liabilities + owner's equity

Assets

liabilities + shareholders' equity=

Assets

Current- Things company has that can be turned into cash. Fixed- Buildings, furniture, Land, intangibles (good will, brandname, → takes longer than a year to turn into cash are:

Assets a company has.

Who sets the Discount Rate?

Federal Reserve Board (FED)

What provides fundamental analysts with info needed to access corporation's profitability, liquidity, financial strength (ability of cash flow to meet debt payments) and operating efficiency.

Financial Statements Quarterly & annual financial statements issued to SEC

Which school of economists encourages a government to spend money to move the economy into an expansionary phase?

Keynesian **increased demand

Where we've been, explains PAST inflation or lack of. Ex. average prime rate, unemployment rates, last year's revenue, corporate profits→ reported After is what type of indicator?

Lagging Indicator *looks back & focuses on whether result was achieved

Where the economy is headed, increasing inflation, stock prices, building permits, housing market, customer satisaction are examples of what indicator?

Leading Indicator *looks forward to future events

Current liabilities: accounts payable, wages, tax payable → short-term debt Long-Term liabilities: bonds /company debt (loans-company owes)

Liabilities a company owes

-Policy of the FRB (Federal Reserve Board) -Discount Rate (set by the Fed) -Reserve Requirements (most drastic) -Open-market operations (most frequently used) are characteristics of what policy?

Monetary Policy

The dollar value per share assigned when corporations owners first contributed capital→ no relation to market price. Important role w/ preferred stock.

Par Value

If there is a decrease in unemployment the economic cycle is at it's:

Peak but an increase of unemployment means the business cycle is contracting.

Long-term bond prices react more than short-term bond prices given a change in interest rates. T/F

TRUE

Short-term interest rates are more volatile than long-term rates. T/F

TRUE Ex. the most volatile interest rate is the federal funds rate, which is an overnight rate of interest

Stock market indices: S&P 500, Dow Jones have a variety of uses. Which of the following is least accurate regarding the use of stock market indices?

They are a lagging indicator of an economy's corporate performance. This is FALSE, it's a LEADING INDICATOR of economy.

The issuance of a long-term debt instrument, such as a bond, by a company would have an immediate effect on which of the following balance sheet items?

Total assets Total liabilities Working capital NOT Shareholders Equity

All the pundits are predicting bad times ahead—not only a recession but a period where prices actually fall (deflation). If they are right, the best place for your client would probably be

U.S. Treasury securities

Balance of Payments: 10 yr T Bill US.75 Basis Points Euro .25 Money will go where it can get HIGHEST Return=

US (75%) because interest rates are higher

When US dollar is weak, we buy?

US/American Goods because we can't afford foreign goods. Ex. Ford

This compares maturity, credit ratings, issuer, narrow spread on differing debt instruments:

Yield Spread

A wider yield spread between corporate and government bonds equals:

a recession is expected Safety is: government bonds *investors are more pessimistic

A frequently-used metric by analysts is the yield, or credit spread. Common methods of computing this would be comparing:

bonds of similar quality and different maturities & bonds of different quality and similar maturities *AAA ratings to 20 years& 10 years or **AA & AAA to 10 years

A securities analyst's stock selection method is to begin by looking for superior companies, regardless of their industry sector or the condition of the overall economy. In so doing, this analyst is using what approach? Hint: (micro to macro)

bottom-up approach

A client asks her investment adviser representative what footnotes to the financial statements are for. The best reply would be that footnotes

contain information that doesn't have a place in the main body of the financial statements Ex. method of accounting used, collateral securing debt, pension liabilities and many others.

Liquidity analysis involves examining:

current assets and liabilities from the balance sheet

The economic theory that says economic growth results from lower tax rates and lower government spending is what theory?

supply-side theory

Overnight loans between banks are made at what rate?

the federal funds rate *over $1mill or more (most volatile rate, clan fluctuate drastically due to market conditions)

Imports are Greater than Exports (We're not exporting which means we're not getting foreign $) is known as a:

trade deficit

The owners' equity portion of a corporation's balance sheet would contain all of the following

treasury stock paid-in capital

What provides a snapshot of company's financial position. Identifies assets (owns) & liabilities (owes). The difference between the 2 figures is the corporation's equity or net worth.

Balance sheet

US Government is biggest spender (affects economy), this is known as what policy?

Fiscal Policy

What type of yield curve represent a sign of uncertainty?

Flat Yield Curve

A central bank regulation that sets the minimum amount of reserves that must be held by a commercial bank is a?

Reserve Requirement *Bank must have 3% of deposit on reserve

A low rate of inflation & A high rate of unemployment can be found in what stage of the business cycle?

The Trough **with a lesser demand for goods and services, the inflation rate is low.

A larger money supply:

lowers interest rates, making it less expensive for consumers to borrow.

Bypass trust (or Credit Shelter Trust) focuses on the:

Beneficiaries

What measures a stock's volatility?

Beta

A call option has all of the following characteristics, EXCEPT: A-It may be exchange-traded - YES B- The holder of the option has the right to buy the underlying asset at a fixed price -YES C- The writer of the option has the obligation to sell the underlying asset at a fixed price if exercised against by the holder of the option -YES D- It may only be created with stock as the underlying instrument -No

Beyond equities, options may be written on many other assets. For example, options may be created on indexes, foreign currencies, futures, and interest rates.

A fundamental analyst could use a corporation's balance sheet to determine all of the following metrics, EXCEPT:

CASH FLOW- Income Statement

When comparing a private equity fund to a public one, it would be incorrect to state that the private fund has

stronger governance.

In times of inflation, when it wants to constrict the money supply, the Fed will follow a

tight monetary policy

Focusing on overall market and economy is what approach?

top-down approach

An advantage of a Coverdell Education Savings Account versus a 529 plan is:

A custodian has greater control over the investments

Which of the following is the likely result of persistent deflation?

A decrease in interest rates

A customer executing a short sale anticipates:

A decrease in the market value of a security

Variable annuities have higher fees and expenses than mutual funds. True/False

True (cost of annuity + cost of mutual fund inside annuity)

he amount by which the cost of a country's imports exceeds the value of its exports

trade deficit

A client and his wife purchased their home for $300,000. They have occupied their home for the last 26 years and have made $80,000 of improvements over the years. The home was recently put on the market for $800,000, but eventually sold for $770,000. Upon sale, the taxable capital gains would be how much?

$0 Single filing: $250k profit tax-free Married filing: $500k profit tax-free Profit here: $470,000

An investment adviser representative who recommends a hedge fund to an accredited investor must confirm that the investor meets the financial test. The minimum net worth requirement is:

$1 million or $200k each yr of annual income for last 2 years

A convertible bond is convertible at $25. The bond is currently selling in the market at $960. What should the stock be selling at to be at parity with the bond?

$1,000 Par / $25 convertible = 40:1 conversion ratio $960/ $40= $24 Parity Price

One month ago, a client purchased a convertible debenture, which is convertible at $20. If the underlying common stock is currently trading at $22 per share, what is the parity price of the bond?

$1,100 Par ÷ Conversion Price x current trading price ($1,000 ÷ $20=50 shares x $22= $1100) Since the investor is entitled to 50 shares and the shares are trading at $22 per share, the parity price of the bond is $1,100 (50 shares x $22)

According to the Investment Advisers Act of 1940, when is an investment adviser required to provide a balance sheet to its clients? When the adviser requires the prepayment of a fee that is greater than:

$1,200, six months or more in advance of providing service

Ten years ago a client transferred her 401(k), worth $80,000, into an IRA. Her account has grown to $120,000 and she takes a distribution of $10,000 at age 52. The tax consequences of her actions would be:

$10,000 of taxable ordinary income plus a $1,000 penalty $1,000 penalty= 10% penalty

An investor purchased an 8% bond for $800. During the next year, the investor received the expected interest payments totaling $80. At the end of the period, the bond's market value was $900. What was the investor's total return for the period?

$100 Increase ($900-$800) + $80 [($100+$80/$800]= 22.5%

Form 13F must be filed with the SEC when the market value of equity securities under an adviser's control exceeds:

$100 million (AUM) *Exceeds 100 mill on the last trading day of any month, Form 13F must be filed with the SEC.

A client wants to make a payment in perpetuity of $3,000 per year to a beneficiary. Assuming a 3% annual return, how much principal would your client need to deposit?

$100,000 3000/100,000=3%

A mutual fund's computed NAV on April 24 is $100 per share. On April 25, the portfolio realized gains of $2 per share, and enjoyed $1 per share in unrealized appreciation. What would the NAV be on April 26 assuming an unchanged market?

$101 per share $2 gain no effect, $1 unrealized appreciation consider only!! Only unrealized appreciation & depreciation are a part of the NAV!

In the semi-strong form market efficiency, what information do securities reflect?

Historical prices and public information data reflected in securities prices

Grandpa bought 100 shares of XYZ common stock 10 years ago for $10 per share. The stock split 2 for 1 several years ago and grandpa gave all of the stock to his grandson when the price per share was $20. Three months ago, grandpa passed away and left the grandson another 100 shares of XYZ that had been purchased one month earlier at $25 per share. At the date of death, the XYZ stock had already climbed to $30 per share. If the grandson sells the XYZ stock for $35 per share, the taxable consequences would be

$30 X 200 shares (stock split) = $6,000 $35x$100=3500-3000=$50 $6500

SSS Corporation's total assets amount to $780,000, of which $260,000 represents current assets. Total liabilities equal $370,000, of which $200,000 is considered long-term or other liabilities. What is SSS Corporation's shareholders' equity?

$410,000.00 *Total assets minus total liabilities equals shareholders' equity ($780,000 − $370,000 = $410,000)

A Suspicious Activity Report (SAR) should be filed For transactions of:

$5,000 or more

At the state level, a balance sheet is provided for collecting/soliciting a prepaid fee of greater than:

$500, and also for maintaining custody or discretionary control of clients' assets

A customer buys 200 shares of Giant stock at $63 a share. The client writes 2 call options with a $75 strike price and receives a premium of $4. What is the customer's breakeven point?

$59 $63-$4=$59

In the strong form market efficiency, what information do securities reflect?

Historical prices, public information, and private information

Money Supply Shrinks, % Interest rates?

% Interest rates increase *More expensive to borrow, pricier for a consumer to take out a loan.

An investor maintains a portfolio of debt securities. She is concerned that the FRB may tighten the money supply, leading to an increase in interest rates. To measure the effect that this change will have on the value of her portfolio, which of the following choices will be the BEST in providing her with this information? -Evaluating the credit risk in her portfolio -Analyzing the duration in her portfolio -Analyzing her current yield -Evaluating the business risk in her portfolio

*Analyzing the duration in her portfolio Duration is a measurement of how sensitive a bond's price is to small changes in interest rates. Bonds with longer maturities tend to be more sensitive to interest-rate swings—in other words, the bonds have longer durations. Conversely, bonds with shorter maturities are less sensitive to interest-rate swings—they have shorter durations.

The Department of Labor requires that employer-sponsored plans adhere to the following guidelines:

-A separate account is maintained for each participant -Participants have the right to give instructions to the plan fiduciary -Participants must be able to choose from at least three core investment alternatives *Under Section 404(c) of ERISA, an employee sponsored plan has no maximum limitation as to the number of investment options that are available to the participants

Which of the following choices is NOT a broker-dealer in State B?

-An agent in State A who contacts a client in State B A corporation that sells commercial paper every other week in State B A broker-dealer registered in State A, where its only office is located, which has only insurance companies as clients in State B A bank trust department that buys and sells securities for its customers

Warrants are issued with BONDS:

-As an inducement to make the bonds more marketable -To lower their interest cost on the issue

Schedule 13D is required to be filed with the SEC by any person, or those acting together, who acquire more than 5% of the voting stock of a public corporation. 13 D Must:

-Be filed within 10 days of acquisition of the stock -Be filed with the SEC, the issuer, and the appropriate exchange -Disclose the purchaser's purpose for acquiring the stock

Which TWO of the following statements are TRUE regarding a bond's current yield?

-Current yield does not consider the price appreciation of a discount bond held to maturity or the price depreciation of a premium bond held to maturity -Current yield measures the interest the investor receives in relation to the current market price

Which of the following products is NOT a derivative? -LEAPS -CMOs -Swaps -ETFs

-ETFs An ETF is NOT a derivative, since its value is not based on a specific security, but on the entire portfolio. Investors in ETFs can buy shares in the secondary market.

All of the following statements are true regarding yield curves

-In an ascending curve, short-term rates are lower than long-term rates -In a descending curve, short-term rates are greater than long-term rates -In a flat yield curve, both short-term and long-term rates are equal

ERISA prohibits a fiduciary from engaging in which of the following activities?

-Selling investments to the pension fund like stock or property -Buying investments at prices below current market prices -Borrowing funds for liquidity purposes

All of the following are characteristics of forward contracts:

-The contracts are negotiated off of an exchange -The contracts cannot be offset -The amount and type of the delivered commodity are negotiable -A forward contract is an agreement to buy and sell commodities at a future time and place.

Growth stocks would typically have which TWO of the following characteristics?

1 - High price/earnings ratios 2 - Low dividend-payout ratios

A corporation has filed for bankruptcy. Which of the following securities issued by that corporation has seniority in the liquidation process? A-Common stock B-Debentures C- Equipment Trust Certificate D- Participating preferred stock

1* C- Equipment Trust Certificate = Secured Creditors &Mortgage Bonds are Secured Creditors 2* Debentures= Unsecured holders 3* Preferred 4* Common

The order of liquidation from a corporation:

1* Secured Creditors= Equipment Trust Certificate = &Mortgage Bonds are Secured Creditors 2* Unsecured holders =Debentures 3* Preferred 4* Common

What is an investor's internal rate of return if she invested $1,000 and it has grown to $4,000 in 10 years?

1,000X2=$2,000 $2,000x2= $4,000 72/5

When explaining the differences between a fixed annuity and a variable annuity, an IAR should disclose which of the following information to her client?

1- The insurance company guarantees the return on a fixed annuity. 2- The annuitant assumes the risk in a variable annuity. In a variable annuity, monies are invested in the separate account. Future payments will vary, based on the performance of the subaccounts.

Jack has a substantial amount of cash value built up in his variable life insurance policy. He would like to use some of it for a home renovation project. Which TWO of the following choices would be used to explain to Jack his options for accessing his cash value?

1-If he withdraws some of his cash value, it will be treated as a tax-free return of premiums first, then taxable earnings (FIFO). 2-If he takes a loan against the cash value, it will be tax-free.

According to NASAA's Statement of Policy Regarding Dishonest and Unethical Business Practices, which of the following statements regarding customer accounts is TRUE?

1-Margin agreements must be signed promptly following the first transaction. 2-An agent is allowed to borrow from or lend money to immediate family members. 3-Customers are able to place orders with their broker-dealers over the phone-not required to be written

All of the following choices are maintained for five years by an IA, EXCEPT: 1-Partnership agreements 2-Articles of incorporation 3-A copy of audited financial statements 4-Written complaints 5-A copy of a solicitor's written disclosure documents

1-Partnership agreements 2-Articles of incorporation These are matinee for the LIFE OF BUSINESS/IA FIRM. Also minute books from board meetings, stock certificate books & for at least 3 years after termination of the firm.

A customer invested $25,000. After 20 years the investment is now valued at $100,000. How many years did it take to double in value?

10 years The $25,000 investment doubled twice, from $25,000 to $50,000, then to $100,000, over 20 years, or it doubled every 10 years.

William purchased $10,000 worth of VULC when he was 60 years old. At the age of 98, William dies and leaves the shares of VULC to his grandson James. James learns that the shares are now worth $300,000. According to the IRS, which TWO of the following statements are TRUE regarding the shares of VULC?

1-The cost basis of the shares is $300,000 2-The holding period of the shares for James is long-term INHERITED= COST BASIS AT TIME OF DEATH HOLDING PERIOD ALWAYS LONG-TERM

Which of the following statements about the federal government's fiscal policy is TRUE?

1-The federal government's fiscal policy is its policy for managing taxation, spending, and debts. 2- The federal government's fiscal policy can have a great impact on the securities markets. 3- The federal government finances its deficit spending by selling bonds.

An investment adviser has no place of business in State A. According to the Uniform Securities Act, in which TWO of the following situations is the firm required to register as an investment adviser in State A?

1-The firm only provides advice to accredited investors in State A. -no exemption from registering 2-Over the last 12 months, the firm has provided advice to 10 retail customers who are residents of State A.

An individual owns 100 shares of GHI stock. If GHI announces a 3-for-1 stock split, the individual:

1-Will receive an additional stock certificate for 200 shares 2-Will not see any increase in the value of his investment in GHI stock due to the split *because a stock split creates more shares, thus lowering the market price of the stock

Corrine purchases an equity-indexed annuity contract that guarantees a 4% return with a 10% interest-rate cap. The index to which the funds are tied rises 13% in value this year. What return does Corrine receive?

10%

Pete and Danielle are a married couple in their 20s. They both have jobs that pay well and they have begun to think about investing for retirement. Which of the following portfolio allocations would be most appropriate for them?

10% bonds, 90% stock

A market maker gives a firm quote of 15 - 15.50 for a stock. If the party on the other side decides to buy 800 shares, how many shares is the market maker obligated to sell at 15.50?

100 shares

The trustee for a trust is responsible for reporting income, gains, and losses of the trust to the IRS on Form:

1041

An adviser is asked by her client the following question. "If I invest $50,000 today and it grows at an annual rate of 6%, how long will it take for me to reach $100,000?" The adviser replies:

12 years 72/6 (growth rate) = 12 years

If an investor was looking for an investment that provided a risk-free return, to then compute the risk-adjusted returns for a different investment, he would use the return being offered by:

13-week T-bills

An investor inherits 1,000 shares of the ABC Global Growth Fund when the NAV is $9.50, the bid price is $9.00, and the ask price is $9.15. Two years later, the investor sells all shares when the NAV is $14.25, the bid is $14.50, and the ask is $14.60. What are the tax consequences of this sale?

14,500-9,000=$5,500 *Customers SELL at the BID.

In a full recession, the GDP decreases for how many quarters?

2 Two Consecutive quarters

What's the current ratio of a company that has current assets of $10, fixed assets of $20, current liabilities of $5, long-term liabilities of $5, and shareholders' equity of $20?

2-to-1 (current assets/current liabilities0 10:5=2:1

Net long-term capital gains are taxed as ordinary income at the individual's tax bracket, up to a maximum of:

20%

When a stock splits 5 for 4, by what percentage will the price of the stock be reduced?

20%

An investor initially deposited $10,000 and it has grown to $10,800 over four months. The approximate annualized rate of growth on the funds is:

24% Because 800/10,000= 8% (in 4 months) 1/3 of year 8% X 3 = 24%

An investment adviser determined that XYZ stock has the following potential future returns. There is a 25% chance that in a bull market, XYZ stock will return 20%. In a flat market (50% probability), the return should be 5%. The likelihood of a bear market is 25%, and expected returns would be a loss of 10%. What is the expected return for XYZ stock?

25%X20%= +5% return 50%X5%= +2.5% return 25%x10%= -2.5% loss =5%

The annual percentage returns on ABC over the last 10 years have been: 7, 8, -9, 8, -4, 5, 6, 8, 10, and 12. What is the arithmetic mean?

5.1 Add all #s together divide by number.

A portfolio contains fixed-income instruments and common stock. At the beginning, the value of the portfolio was $240,000. Over the next two years, the portfolio received a total of $20,000 in interest and dividends. At the end of the second year, the portfolio was valued at $280,000. What is the annualized yield on the portfolio?

280,000-240,000+20,000/280,000=60,000 60,000/240,00= 25% / 2 years of investing= 12.5%

An investor buys a two-year U.S. Treasury note that has a 6% coupon. If the note is purchased at par and held to maturity, what is the real rate of return over the holding period, assuming the CPI is 3%?

3% The method used to calculate the note's real rate of return (or inflation adjusted return), is to subtract the rate of inflation as measured by the CPI, from the note's coupon. Therefore, the real rate of return is 3% , 6% coupon - CPI of 3%

An investor in the 35% tax bracket is considering investing in a corporate bond, which has a 6% coupon. In order to earn an amount equal to her after-tax return from the corporate bond, she would need to invest in a tax-free bond that is yielding:

3.9% Because: 100%-35%= 65% x.06 coupon= 3.9 Corporate: multiply

Under the Uniform Securities Act, amendments to an investment adviser's Form ADV must be filed promptly. On August 31, an investment adviser closes one of its branch offices and must therefore file an amendment. What constitutes a prompt filing with the IARD?

30 days notice. Filing the notice by September 30 of the current year

Which of the following bonds would appreciate the most if interest rates fell? A)30-year maturity, selling at a discount B)15-year maturity, selling at a discount C)15-year maturity, selling at a premium D)30-year maturity, selling at a premium

30-year maturity, selling at a discount **longer maturity selling at a discount *longer maturities have greater fluctuations in price

A fundamental analyst reviewing the current ratios of four different companies would consider which of the following to be in the most liquid position? 4:1 or 2:1

4:1 (higher number is more liquid) also signals: stronger business

Which of the following allocations would be the LEAST suitable for an investor with a 30-year time horizon, moderate risk tolerance, and the goal of long-term growth?

50% money-market funds, 50% long-term government bond funds

When trading on margin, clients are required to deposit:

50% of the market value of the security

-High Annual Contribution -Contributions that exceed annual gift are subject to gift taxes - Investors have a list of approved investments by the state. - The plan participant maintains control of how the funds are distributed -Qualified distributions are tax free -Can be used for non-educational expenses Technically no max contribution, subject to gifting limits for individuals $15k per is a:

529 Plan

P/E Ratio= Share price / Earnings per share A corporation has $7,000,000 in income after paying preferred dividends of $500,000. The company has 1,000,000 shares of common stock outstanding. The market price of the stock is $56. What is the price-earnings ratio?

56 shares x 1,000,000 outstanding stock/$7,000,000 (earnings) = 8 times

The first Required Minimum Distribution (RMD) must be taken by April 1 after the IRA owner turns:

72

Mark purchases an equity-indexed annuity contract that guarantees a 5% return with an 80% participation rate and a 12% interest-rate cap. The index to which the funds are tied rises in value by 10% this year. What return does Mark receive?

8% because participation rate 80%xindex value10%=8%

A corporate bond has a 12% nominal yield. To be equivalent, an investor in the 28% tax bracket would need a municipal bond with a yield of:

8.6% 100%-28%= 72% x12% = 8.6%

An investor in the 28% tax bracket buys a 12% corporate bond at par. After taxes, what would be the net yield?

8.64% 100-28%= 72% X12%

Eight years ago, Catherine purchased $10,000 of shares in the Big Blue Marble Global Fund. After reinvestment of dividends and capital gains, her investment is currently valued at $20,000. What is Catherine's annual growth rate for her investment? Hint: Rule of 72

9% 72/8 years=9% annual growth

For non-material changes that are made to the information found in Form ADV, an adviser must file an amended within

90 days of the end of the IA's fiscal year

What risk the possibility that a corporation's business will not do well, causing its stock to drop in value, or even become worthless, if the company declares bankruptcy.

Business risk

XYZ Corporation has just announced that its quarterly earnings will be a bit below market expectations. Which of the following securities issued by XYZ will be most affected by this news?

Common stock

What's used to Pass assets from the second deceased parent to his children?

A Bypass Trust

What trust Must distribute its annual investment earnings?

A Simple Trust

Individual corporation with unlimited liability is:

A Sole Proprietorship

A sole proprietor desires to set up their business as a separate entity, but retain the same flow-through tax treatment with full ownership. Which of the following business entities would be BEST?

A Subchapter S Corporation

Under the Investment Advisers Act of 1940, which of the following entities providing advisory services would be considered an investment adviser?

A bank holding company, which is an investment company *Banks are excluded from definition of IA

This is a court-issued document that provides the legal authority of a court-appointed guardian to act on behalf of another person. The certificate serves as evidence that the listed person is authorized to act as a fiduciary for another person (the account holder) or any unincorporated entity (i.e., business, club, association, or organization).

A certificate of incumbency

When a limited partnership is formed, which of the following documents is filed with the state in which the partnership operates?

A certificate of limited partnership

According to the Uniform Securities Act, which of the following choices would meet the definition of a broker-dealer in State A?

A broker-dealer located in State B that conducts transactions for a customer who has moved to State A *agents & persons are excluded from definition of B-D

A 70-year-old retiree is very risk-averse, but needs to generate investment income. She is not wealthy and is in a low tax bracket. Which of the following investments will BEST meet her needs?

A certificate of deposit

A court has appointed a person to be the guardian for an incompetent individual. To open a guardianship account with a broker-dealer, which of the following court-issued documents is required?

A certificate of incumbency

A growth fund's portfolio manager is analyzing potential common stocks. Generally, she would give which of the following the MOST consideration?

A company's year-to-year earnings momentum

When acting as the trustee for a family trust, who does an investment adviser consider for termination benefits?

A contingent remainder beneficiary

What gives a person the authority to manage the grantor's finances even if the grantor becomes incapacitated?

A durable power of attorney

A broker-dealer is participating in an initial public offering of a security that will be listed on Nasdaq. Which of the following documents is the broker-dealer required to deliver to a client who purchases the securities in the aftermarket immediately after the completion of the offering?

A final prospectus

Which of the following funds may an agent describe as no-load?

A fund with no front-end sales charges or contingent deferred sales charges together with a 12b-1 fee of .25% average net assets for the year.

Which of the following is the BEST description of inflation?

A general increase in prices.

Which of the following is dissolved when an owner dies?

A general partnership & sole proprietorship

What is a mid-cap stock called if it has a P/E ratio of 29, while stocks of other similar companies are selling with a P/E ratio of only 19?

A growth stock

An investor is interested in finding a pass-through investment in which the investors are able to take an active role in the company as members and the company is able to raise an unlimited amount of capital. What investment would meet these requirements?

A limited liability company A limited liability company is a pass-through investment that is similar to the structure of a limited partnership. A limited liability company is able to raise an unlimited amount of capital and the capital is provided by members who may take an active role.

A person is interested in investing in the oil and gas sector because she anticipates an increase in demand as the economy moves out of a recession. The person's IAR advises her on various vehicles to gain exposure to this sector, such as oil and gas mutual funds, oil and gas futures, options on the Oil and Gas Index, and oil and gas limited partnerships. When comparing these choices, what is one disadvantage of a limited partnership investment?

A limited partnership's interest is less liquid.

The separate account subaccounts chosen by the purchaser of a variable life insurance policy have had outstanding performance over the past 15 years. There would generally be no tax implications in which of the following situations?

A loan is taken equal to 95% of the policy's cash value

Which of the following investors typically are entitled to vote?

Common stockholders only

Under the Uniform Securities Act, all of the following individuals meet the definition of an agent, EXCEPT:

A person advising clients about securities for compensation *because they're not effecting securities transactions.

Under the USA, which of the following persons is considered an agent of a broker-dealer and required to be registered as such?

A person who accepts orders for limited partnership units as a sales assistant

If employed by a federal covered adviser, which of the following individuals would be required to register as an IAR in State A?

A person who works at the home office in state A, and all of his clients are institutions located in State A and State B When an IAR is employed by a federal covered adviser and has an office in the state, the IAR would be required to register in that state, regardless of the number or type of clients being serviced. Although all of the clients may be institutions, since the IAR has a place of business in State A he is required to register in State A

What disclosure document is for partners that invest in a private placement?

A private placement memorandum

Which of the following choices is a characteristic of equity-indexed annuities?

A rate of return that varies with the value of the underlying index **they guarantee return but not equal or above the actual index, only at a minimum rate of return.

Which of the following employees of an investment adviser are considered a registered investment adviser representative? An individual who manages the investment adviser representatives A junior partner that makes investment recommendations A portfolio manager NOT a:

A senior partner because there's no indication of any responsibilities of an IAR

A B-D has an excellent research department with a highly rated team of analysts. An IA manages several mutual funds as well as a hedge fund. The IA uses the broker-dealer to execute many of its transactions even though the B-D charges higher commissions than some other brokerage firms. In return, the IA receives copies of all the B-D's research reports. This is an example of:

A soft-dollar arrangement

Which TWO of the following statements are TRUE of stop orders?

A stop order may be described as a suspended market order & A stop order, when triggered, guarantees an execution

What trust is established through instructions left in the donor's will?

A testamentary trust

If a client is interested in purchasing a stock that has a low P/E ratio, a high dividend payout ratio, and wants the issuer to have a large amount of cash reserves, what type of stock should an IAR recommend?

A value stock

Generally, the identity of an estate's executor can be determined from which of the following documents?

A will

If the dollar is increasing against foreign currencies, which TWO of the following results would most likely occur?

A worsening of the U.S. balance of trade An increase in imports into the U.S. *We can afford to bring more in but it could also decrease are exports which would worsen the US balance of trade.

A program in which a client pays a flat fee for both transaction costs and investment advice:

A wrap fee program

An investment adviser representative has a client who prefers the safety of securities guaranteed by the U.S. Government, yet is concerned about volatility due to uncertainties in the future direction of interest rates. Which of the following recommendations would best address these concerns? A)8% Treasury bond maturing in 2036 B)Treasury STRIPS, maturing in 2036 C)5% Treasury bond, maturing in 2037 D)6% Treasury bond maturing in 2035

A)8% Treasury bond maturing in 2036 B)Treasury STRIPS, maturing in 2036 C)5% Treasury bond, maturing in 2037 D)6% Treasury bond maturing in 2035 **highest coupons have the shortest duration Treasury STRIPS are sensitive to interest rate risk & volatile with long duration.

Mr. Brown has received preemptive rights from one of the stocks held in his portfolio. Which of the following is NOT an alternative regarding these stock rights? A)Redeeming them from the issuer for cash B)Exercising C)Selling at the market D)Giving the rights to his son

A)Redeeming them from the issuer for cash Rights are not redeemable by the issuer. They may be sold in the secondary market or be given to someone else to exercise.

A hedge fund is being sold to accredited investors as a private placement under Regulation D. An agent believes that this fund would be an excellent investment for several of his clients. The agent may recommend the fund to which of the following investors?

A- AA newly-retired investor whose annual income last year was $200,000 B- A middle-aged couple who are both physicians with a joint annual income of $400,000 C- A young, aggressive investor with a net worth of $500,000 and an annual income of $150,000 D- A couple that just won the lottery, whose annual income this year was $500,000 and whose net worth is $550,000 *The income will be the same next year as it was last year

A client is interested in trading actively, purchasing on margin, and having broad exposure to the U.S. equity market. Which of the following investments is the LEAST suitable? A-An S&P 500 Index mutual fund B-An S&P 500 Index ETF C-A DJIA Index ETF D-A closed-end fund

A- An S&P 500 Index mutual fund B-An S&P 500 Index ETF C-A DJIA Index ETF D-A closed-end fund

According to NASAA Model Rule 411(c), an investment adviser is required to keep a record of all the following documentation, EXCEPT: A-The IARs personal e-mails B-Statements of unpaid bills C-Written supervisory procedures D-A ledger reflecting the return of third-party checks within three business days

A-The IARs personal e-mails

A common shareholder can:

A-Vote for the board of directors B-Receive dividends if voted for by the board of directors C-Give or sell shares to anyone she wishes NOT Appoint officers of the corporation

Which of the following products are defined as securities according to the Uniform Securities Act? ADRs REITs Endowment Policies Interests in oil and gas drilling programs

ADRs REITs Interests in oil and gas drilling programs

Under the Investment Advisers Act, which of the following forms must be filed if an investment adviser has custody of customer funds and securities?

ADV-E

Brochures need to be given:

AT THE TIME OF CONTRACT or 48 hours in advance

The owner of a sole proprietorship is responsible for which of the following activities?

Accurately maintaining all of the necessary business records

What excludes companies inventories, includes assets & liabilities and is usually for a one-to- three-month period?

Acid-Test (quick asset) Ratio

As a child approaches college age, the custodian of a 529 plan might want to:

Adjust the asset allocation within the plan Many 529 plans provide the opportunity to alter the asset allocation to reduce market risk as the beneficiary approaches higher education enrollment. A 529 plan offers tax-free growth. There is no tax benefit if the 529 plan assets are moved into a variable annuity.

Securities that are registered through qualification may only be sold Once the registration has been declared effective by the:

Administrator

The amount of the bond that a broker-dealer is required to post is determined by the:

Administrator The Administrator is allowed to waive the bond requirement if the broker-dealer has a minimum amount of net capital, which is also determined by the Administrator.

When does a person become eligible for Social Security benefits?

After she's worked 40 quarters or 10 years

During the day, Big Block Traders has taken down 100,000 shares of Vantage Holdings at $6.33, another 200,000 shares at $6.17, and then 327,000 shares at $6.54. When distributing these shares to its discretionary clients, which of the following allocation methods is acceptable?

All clients should be given shares at a price that is near the firm's average daily cost

Which of the following statements best describes why an individual may choose to create a general partnership rather than a limited partnership?

All of the investors want to manage or operate the business

An investor owns a $100 convertible preferred stock which is convertible into two shares of common stock. The common is selling at $52 and the preferred is selling at $104. The preferred stock is called at $105. What should the investor do?

Allow the preferred to be called The value of the preferred ($104) equals the value of converting to common (two shares at $52 per share). The investor would receive the greatest amount ($105) by allowing the preferred to be called.

Which of the following is a risk-adjusted return?

Alpha

A Japanese company would like to have its stock traded in the U.S. securities markets. This would most likely be accomplished through the issuance of:

American Depositary Receipts

Foreign stocks trade in U.S. markets as:

American Depositary Receipts (ADRs)

-A sales assistant authorized to accept client orders -Any person other than a broker-dealer who acts on behalf of a broker-dealer or issuer in effecting sales or purchases of securities are a:

An Agent

What is a type of investment company that represents a basket of securities and is traded on an exchange?

An Exchange-Traded Fund (ETF)

A client would like to invest $250 a month and have broad exposure to the U.S. equity market. Which of the following recommendations would be most suitable?

An S&P 500 Index mutual fund *mutual fund most cost effective

Under the Uniform Securities Act, which of the following advisers meets the definition of a federal covered adviser?

An adviser who is registered with the SEC under the Investment Advisers Act of 1940

Which of the following would NOT be considered a reason to suspend or revoke an investment adviser's registration under the Uniform Securities Act? The adviser was convicted of a securities-related misdemeanor six years ago The adviser was sued by a client and lost the case The adviser acted in violation of the provisions of the Investment Advisers Act of 1940 The adviser acted in violation of a state's securities rules and regulations

An investment adviser losing a lawsuit that was brought on by a client is not cause for the immediate revocation of registration, provided the registrant had not violated industry rules.

Regarding risk tolerance and suitability, Modern Portfolio Theory contends that:

An investment that is risky on its own might be less risky in a portfolio if it behaves independently from the other investments in that portfolio

When dealing with a customer, a broker-dealer is quoting an offering price of $10.00 per share on a stock that is currently trading in the market at $6.00 per share. If the broker-dealer does not disclose the difference in prices to the customer, this would be considered:

An unethical business practice since the quoted price is not related to the current market price **this is too large of a markup

What is used to s used to calculate a client's internal rate of return and takes into account how much the client earned based on the amount of money invested?

Dollar-Weighted Return *measures average return that a client's investment earned

The manager of the XYZ Fund is permitted to move assets between the stock and bond markets, depending on economic conditions. Last year the manager had 70% of the fund's assets invested in stocks while only 30% in bonds. This year she has reversed the ratio. XYZ fund is most likely a(n):

Asset allocation fund An asset allocation fund permits the manager to change investment strategies and vehicles, based on changing market/economic conditions.

The balance sheet equation is:

Assets - Liabilities = Net Worth

Which of the following statements is TRUE regarding the receipt of Social Security benefits?

At age 62, a recipient receives a lower initial benefit, but he will receive benefits for more years.

A general partnership is characterized by all of the following, EXCEPT:

At least one or more limited partners *a general partnership does not have any limited partners.

An investment adviser is required to disclose a conflict of interest to a customer:

At or before making the recommendation

Which of the following choices is a lagging economic indicator?

Average prime rate The average Prime Rate is a benchmark rate that is used by lenders for determining the interest rate to use on new loans. Typically, this metric is seen as a lagging indicator as banks will adjust their rates in response to economic conditions

An investment adviser representative is preparing a financial plan for a client. As part of this process, he's helping her create a personal balance sheet and income statement. The income statement should include all of the following items, EXCEPT: A-Commissions and bonuses B-Depreciation on the primary residence C-Interest income D-Mutual fund dividends

B-Depreciation on the primary residence - Balance sheet

William purchased $10,000 worth of VULC when he was 60 years old. At the age of 98, William dies and leaves the shares of VULC to his grandson James. James learns that the shares are now worth $300,000. According to the IRS, which TWO of the following statements are TRUE regarding the shares of VULC? A-The cost basis of the shares is $10,000 B-The cost basis of the shares is $300,000 C-The holding period of the shares for James is short-term D-The holding period of the shares for James is long-term

B-The cost basis of the shares is $300,000 D-The holding period of the shares for James is long-term *gifted security is better

For an investor in the 35% federal tax bracket who is looking to minimize tax liabilities, what would be of LEAST interest? A-The benefits of taxable versus tax-free bonds B-The investment ideas and methodologies of a prospective mutual fund manager C-Whether to invest in actively managed funds or index funds D-The percentage of the fund's portfolio that is kept in cash

B-The investment ideas and methodologies of a prospective mutual fund manager *least concerning

Under the Investment Advisers Act, all the following statements are TRUE regarding investment adviser solicitors, EXCEPT: A-They may not function as solicitors if they are under suspension B-They must be registered C-Any additional costs must be disclosed D-Disclosure is required for officers and directors of the adviser acting as solicitors

B-They must be registered The requirement is that the adviser be registered, NOT the solicitor. Some states require a person who solicits business on behalf of a federal covered adviser to be registered as an investment adviser representative.

A client has invested $20,000 in a variable annuity. After 10 years, the annuity is valued at $45,000. If the client withdrew $20,000 at age 59, he is subject to:

Being taxed on the distribution as ordinary income, plus a 10% penalty on the amount withdrawn (prior to age 59 1/2)

An investor wants to invest in a fixed-income security for her portfolio. She understands there is a tradeoff between risk and return; however, she prefers to avoid speculative-grade investments. Which of the following bonds is MOST suitable for her portfolio?

BBB collateral trust certificate, present value = $1,251, market price = $1,148 The market value is less than the present value so it's trading at a discount and the investor would receive a higher return.

What is the measure of the volatility of an asset/portfolio as compared to the volatility of the market.?

BETA Generally, assets with a beta higher than 1 are more volatile than the market, while assets with a beta lower than 1 are less volatile than the market. (67608)

An investor believes in the Random Walk Theory (Hypothesis). She most likely:

Believes that the markets were too efficient to actively trade with superior results

the net worth of the firm at the end of the reporting period is found on the:

Balance Sheet

What is the market outlook for the buyers of put options?

Bearish * The right not the obligation to sell if the stock falls.

Who decides: cash & stock dividends and stock buyback?

Board of Directors

Issuance of which of the following would most likely increase the leverage in a company's capital structure?

Bonds

What represents debt obligations owed by a corporation?

Bonds

The investments that tend to perform the WORST during periods of inflation are:

Bonds Bonds tend to perform the worst during periods of inflation since rising interest rates will result in falling bond prices and a decrease in the purchasing power of the interest payments.

The original asset allocation of an investment portfolio was 10% cash, 40% bonds, and 50% stocks. A recent bear market, however, has altered this allocation to 10% cash, 50% bonds, and 40% stocks. The client's investment objectives and risk tolerance have not changed. The adviser recommends that the portfolio be systematically rebalanced by selling:

Bonds and buying stocks with the proceeds *so the stocks can go back up and bonds can go back down. In this case, a bear market has caused the value of the stocks in the portfolio to shrink so that this asset class now represents only 40% of the total portfolio. The adviser would rebalance the portfolio by selling bonds and buying stocks with the proceeds.

According to the USA, which of the following securities are exempt from registration?

Bonds issued by a government-regulated common carrier Exempt securities include those that are issued by a U.S. federal, state, or local government, a railroad, a common carrier, a public utility, or a holding company that is subject to specified regulations.

What stimulates the economy?

Borrowing & Spending Inflation (up) % Interest down

An investor is evaluating two different bonds-one that matures in three years and another that matures in 25 years. Both bonds have a high credit rating. The 3-year bond has a 4% coupon and the 25-year bond has a 7% coupon. If interest rates are expected to decrease, how will the bonds' prices be affected?

Both bonds will gain value (prices increase)

The possibility that a company may perform poorly, causing its stock to decline in value is called:

Business risk

Which of the following statements BEST describes the similarities between an S Corporation and a general partnership?

Both provide flow-through of losses

A semi-retired IAR works for an investment adviser that is located in State A, but she intends to spend the winter months in her second home in State B. The IAR put the addresses of both her office in State A and her home address in State B on her business cards since she intends to continue servicing her clients that reside in State A over the winter months. If the investment adviser does not have an office in State B, which of the following statements is TRUE?

Both the IAR and the investment adviser need to be registered in State B since the IAR's residence in State B is considered an office and it is listed on her business card.

The Securities Exchange Act of 1934 regulates:

Broker-dealers Stock exchanges Transfer agents FINRA / NYSE

Under Fiscal Policy, President & Congress set:

Budget & Control: Taxation, Spending

What is the market outlook for the buyers of call options?

Bullish

A company's stock experiences wild fluctuations due to unsubstantiated rumors about its products. After further analysis, the company's earnings and sales are better than average. The wild price swings may be described as what risk:

Business risk (because the rumors are only affecting that business)

When managing a portfolio of bonds, which of the following would be considered a passive investment strategy?

Buy & Hold

If a client is long a large number of stocks in different industries, he may reduce the risk of a market decline by doing which of the following?

Buy S&P 500 Index puts By buying puts on the S&P 500 Index, the client has the right to receive cash, the in-the-money amount, should the market decline, values decrease. -Client is long, meaning they purchasers/holders of stocks

An individual expects the market price of XYZ to go up. This investor might:

Buy XYZ call options & Write XYZ put options (bullish)

Ms. Brown sells short 100 shares of ABC at 95. Two weeks later, the stock drops to a price of 89. In an attempt to protect her profit, Ms. Brown would enter a:

Buy stop order at 90 Ms. Brown is seeking to protect her profitable short position should the market price of ABC increase. While a buy stop order at 90 would not guarantee a profit, it would be activated as a market order if the stock rose to 90 or higher.

Which statement best summarizes the benefits of a buy-and-hold compared with an active management strategy?

Buy-and-hold investing gives investors both lower transaction costs and lower tax liabilities.

Which of the following is the best hedge for a long stock position? Hint: Opposite of buying a put

Buying a put

A client portfolio is invested in a well-diversified group of large-cap stocks. Which of the following strategies would minimize the market risk connected with this portfolio?

Buying puts on a large-cap index

A client is invested in a large number of stocks in different industries. If the client is concerned that they may fall in value, an adviser may recommend a hedging strategy to the client, such as;

Buying puts on the S&P 500 Index

A vote of the common shareholders is required for a corporation to declare a:

Stock split

All of the following metrics are included when calculating a company's market capitalization, EXCEPT: A-The number of shares held by institutional investors B-The number of shares of restricted stock C- The number of shares of treasury stock D-The number of shares held by insiders

C- The number of shares of treasury stock because these are the shares that are repurchased by the company.

Which of the following statements about variable annuities is FALSE? A-The assets in a separate account are managed with a specific investment objective B-The portfolio may be invested in shares of other mutual fund companies C-The annuity feature protects investors from capital losses D-A change in investment objectives requires voter approval

C-The annuity feature protects investors from capital losses--- no, that's a feature of a fixed annuity

Which right is NOT granted to shareholders under the Investment Company Act of 1940? A-The right to approve changes to the firm's investment policy B-The right to approve the investment adviser's contract C-The right to receive real-time updates of changes in the firm's portfolio D-The right to vote for or elect the firm's board of directors

C-The right to receive real-time updates of changes in the firm's portfolio Under the Investment Company Act of 1940, shareholders are not entitled to current information about the composition of the fund's portfolio. This information is considered to be proprietary and is not released in real-time

Which of the following statements in NOT TRUE about preemptive rights? A-They are short-term securities which allow the holder to purchase stock at a reduced price. B-Shareholders receive one right for each share owned. C-They receive the same dividends as those paid to shareholders. D-They can trade in the secondary market.

C-They receive the same dividends as those paid to shareholders. rights don't receive dividends

Which of the following is not correct regarding the capital asset pricing model (CAPM)?

CAPM uses standard deviation as a measure of market risk. NO, CAPM doesn't believe in unsystematic risk or thinks it can be diversified away. Standard deviation is used for diversification.

What was developed to explain the behavior of security prices, Provides a mechanism to assess risk and return, Is based on the efficient market theory and assumes all investors act rationally?

Capital Asset Pricing Model (CAPM) *This does not predict future value of stocks

What includes preferred & common stock listed at par value?

Capital Stock

If an investor is attempting to maximize her portfolio growth over a long period, what is her strategy called?

Capital appreciation strategy *considered a risky strategy

amount of money OVER par value that company received when issuing it's common stock. Ex. Par value $1 per share, stock issued at $5 per share, paid in surplus $4 per share.

Capital in excess of par

A fundamental analyst could use a corporation's balance sheet to determine all of the following measurements, EXCEPT: A-Working capital -Balance sheet B-Current ratio - Balance sheet C-Cash flow D-Debt-to-equity ratio -Balance sheet

Cash flow -Income Statement

An investment adviser representative is managing a portfolio for a client on a discretionary basis. The client's objective is conservative growth. According to prudent investor standards, which of the following statements is TRUE about including options in such a portfolio?

Certain types of options strategies may be appropriate as part of a conservative portfolio For example, writing covered calls could be part of a conservative growth portfolio.

Which of the following factors is a disadvantage of a buy/hold strategy?

Changing portfolio risk levels the mix of assets can drift substantially from the original asset allocation, changing the risk levels of the portfolio. The risk level may eventually be outside the client's risk tolerance.

Under ERISA, all the following are prohibited between the plan and parties of interest, A-Selling property to the plan -NO! B-Using plan assets for their own benefit -No! C-Lending money to the plan -No! EXCEPT:

Charging the plan an advisory fee

Which one of the following investments trade independently from its net asset value (NAV)?

Closed-end fund *may sell at, above or below its NAV since it trades on the stock exchange

Where prices are now, industrial production is an example of:

Coincidental indicator

A broker-dealer acting in an agency capacity will charge customers a:

Commission **when they act in principal capacity it's a markup (selling) & markdown (buying) stock from customer

If the average current ratio for a sector is 2.0, which of the following companies has the best short-term outlook? Company A with a current ratio of 3.5 Company B with a current ratio of 1.7 Company C with a current ratio of 1.3 Company D with a current ratio of 0.7

Company A with a current ratio of 3.5 The current ratio measures the liquidity or short-term financial health of a company.

A-Fees are considered compensation B-Nominal commissions are considered compensation C-The fee for advice may be either listed separately or included as part of a larger bundled charge are all correct forms of:

Compensation

Who enacts fiscal policy?

Congress in conjunction with the president.

This is computed monthly, measures the rate of increase or decrease in a broad range of prices, such as food, housing, medical care, and clothing, measures the increase in the general price level of a basket of consumer goods

Consumer Price Index (CPI)

The average cost of goods and services (market basket) purchased by consumers, compared to those same goods and services purchased during a base period is known as?

Consumer Price Index (CPI) (measure prices bananas, apples & milk in Jan 2020 & Feb 2020) Doesn't compare to wholesale pricess.

During a period of stable interest rates, which type of preferred stock tends to be the most volatile?

Convertible During a period of stable interest rates, the other types of preferred stock, Cumulative, Non-cumulative, Participating stock tend to remain stable.

A security that pays a fixed amount on a quarterly basis, and also allows the holder to profit if the common stock rises, is known as a:

Convertible preferred stock *convert for more if it rises!

Which shares of preferred stock may increase the most if the value of the company's common stock appreciates?

Convertible preferred stock Convertible preferred stock can be exchanged for the common stock of the issuer. For that reason, if the common stock's value increases, the market value of the convertible preferred stock will also increase.

A feature of which of the following business entities is limited liability but no flow-through of earnings or losses?

Corporation C corporation -limited liability to shareholders

Which of the following metrics is the MOST important when attempting to diversify a stock portfolio?

Correlation Correlation measures the degree to which two securities move in relation to each other. The greatest diversification benefit is found when a security is negatively correlated.

A free trade agreement is entered into between Country A and Country B. As time goes on, the value of Country A's currency decreases while that of Country B increases. The effect of this will likely be that

Country B's imports from Country A will increase A $ ↓ US B $ ↑ Italy B will be able to buy more, import from A

Chances that the issuer won't be able to pay the interest and/or principal is what type of risk?

Credit Risk

If an analyst wanted to determine a company's ability to pay debts that would be maturing in one year, he would be most interested in the:

Current Ratio *one year period

What measures a company's liquidity or short-term financial health?

Current Ratio & Quick Acid Test

A fundamental analyst, evaluating the common stock of a corporation, would examine all of the following, -Sales of the corporation -Management of the corporation -Current amount of earnings paid as dividends to the shareholders (EPS) Not:

Current amount of short interest positions for the stock A fundamental analyst would examine all of the factors listed relating to a common stock except the current amount of short interest for the stock. Short interest is a statistic used by technical analysts. It represents the total amount of shares sold short that will have to be covered in the future.

Corporate debt obligations due for payment w/in 12 months. Includes: Accounts payable, Accrued wages payable, Current long-term debt, Notes Payable, Accrued taxes

Current liabilities

If an adviser wanted to determine a company's ability to pay debts that would be maturing in one year, the adviser would be most interested in the:

Current ratio

If an analyst wants to determine a company's ability to pay its liabilities that will be maturing in one year with its liquid assets, he will be most interested in the:

Current ratio

High Earnings in Economy during Business Cycle during Expansion Phase are:

Cyclical

Which of the following transactions would NOT be considered exempt under the Securities Act of 1933? A-A private placement B-An intrastate offering C-An unsolicited brokerage transaction D-An initial public offering of an investment company's common stock

D-An initial public offering of an investment company's common stock A private placement, intrastate offering & unsolicited brokerage transaction are all exempt.

Which one of the following statements regarding variable annuities is FALSE? A-Investors may invest in various asset classes inside of a variable annuity B-On average, mutual funds have lower fees and expenses than annuities C-In a variable annuity, your investment grows tax-deferred D-On average, variable annuities have lower fees and expenses than mutual funds

D-On average, variable annuities have lower fees and expenses than mutual funds -FALSE

Which of the following would NOT be an important consideration when conducting a capital needs assessment for a client A-The rate of inflation B-The client's future anticipated earnings C-The client's life expectancy and retirement needs D-The amount of anticipated volatility in the marketplace

D-The amount of anticipated volatility in the marketplace These items need to be considered: A-The rate of inflation B-The client's future anticipated earnings C-The client's life expectancy and retirement needs

Under the Uniform Securities Act, which of the following sales would be considered a nonissuer transaction? A-A primary offering sold by a broker-dealer B-The sale of a security executed by an agent of the issuer C-The sale of a new issue in a private placement D-The sale of an outstanding security on the New York Stock Exchange

D-The sale of an outstanding security on the New York Stock Exchange A nonissuer transaction is a purchase or sale of a security whereby the issuer does not benefit, directly or indirectly. A trade between two investors for IBM stock on the New York Stock Exchange (a secondary market trade) would be an example of a nonissuer transaction

What allocation type focuses on rebalancing to maintain the original allocation percentage?

Strategic asset allocation 90% stocks $4500 10% bonds $500 buy & sell to get to original allocation %

In calculating a company's market capitalization, the treasury stock of a corporation is:

Ignored Company's market capitalization= number of outstanding shares of common stock x the current market price --treasury shares is what company buys

In which of the following strategies would the risk level of the portfolio be the most stable?

Strategic asset allocation followed by monthly rebalancing

If an analyst wants to measure the degree to which a company or partnership is leveraged, he would calculate the:

Debt-to-total capital ratio or debt-to equity ratio which is debt / total capital measure the amount of a company's capital that is financed with debt

A client has a traditional IRA and she just turned 75. She must take the required minimum distribution (RMD) no later than:

December 31 of the current year

An agent is registered in State A and provides financial services to an older client who lives in State A. The client's son, who lives in State B, calls the agent and indicates his intention to open an account, but wants to immediately place an order to buy 1,000 shares of XYZ stock. If the agent is not currently registered in State B, what course of action should he take?

Decline the order

An issuer includes warrants with a bond offering that it's conducting. This is done to:

Decrease the coupon rate on the bonds

Drug companies, pharmaceuticals, food, nondurable goods are known as ____________ and good for investors when they fear a coming recession.

Defensive industry

If an investor's portfolio is comprised primarily of stocks that have low levels of retained earnings, high dividend payout ratios, and low price-to-earnings ratios, he is investing primarily in:

Defensive stocks -safer **opposite to growth stocks which have low dividend payouts, high price-to-earnings ratio & high level of retained earnings -riskier

Which feature of a deferred compensation plan is generally considered to be a disadvantage?

Deferred compensation is not deductible to the employer.

A significant decline in the general level of prices is referred to as:

Deflation

If the U.S. economy was experiencing tough times with slow or negative growth, creating an extreme lack of demand for consumer goods, the result might be:

Deflation

Six consecutive quarters of negative economic activity or 18 months is known as a:

Depression

Which of the following choices is a custodian's primary goal under the Uniform Prudent Investor Act?

Developing a suitable investment strategy

Analysts who base stock price valuations on calculations of the present value of estimated future dividend payments are using which of the following models?

Dividend discount model

Based on the following information, which stock is most likely to appeal to a growth investor?

Dividend yield of 0.3% higher-than-normal P/E ratio, typically 20:1 or higher, and a low dividend yield

Under the Uniform Securities Act, a person effecting transactions in commodities:

Does not meet the definition of an agent Since commodities are not securities, a person effecting transactions in commodities is not considered an agent.

When an individual invests a constant dollar amount over a fixed period, which of the following activities is he engaging in?

Dollar cost averaging

An investor has a long-term goal of saving for his daughter's college education in 15 years. He is planning on investing regularly over the next several years in the Pluto Growth Fund to attain that goal. The investor acknowledges that he has not had much success picking individual stocks or predicting the market. Which of the following investment strategies might be MOST appropriate under these circumstances?

Dollar cost averaging because the investor seems to believe a market timing approach will not work for him.

Which TWO of the following statements are NOT TRUE regarding TIPS? Hint: TIPs is about protecting principal from inflation

During a period of inflation, the interest rate is adjusted upward. During a period of deflation, the interest rate is adjusted downward. True: Treasury Inflation-Protected Securities (TIPS) pay a fixed rate of interest, based on inflation-adjusted principal. During an inflationary period, the principal of the TIPS increases. During a deflationary period, the principal decreases. When the security matures, the amount paid will be the greater of the original principal or the adjusted principa

All of the following must be obtained by an agent opening a new account for a customer, A street address Tax identification number Date of birth EXCEPT/NOT:

E-mail address- no requirement

Net income minus any preferred dividends paid by the number of common shares outstanding is the calculation for:

EPS or Earnings Per Share

All of the following are associated with state standards for prudent investing by fiduciaries, EXCEPT: The prudent man standard ERISA Legal lists The Uniform Prudent Investor Act

ERISA traditional state law standards for investing by fiduciaries were the prudent man standard and the more restrictive legal list. Today, many states have adopted a version of the Uniform Prudent Investor Act, which allows fiduciaries to take into account the concepts of Modern Portfolio Theory. ERISA is a federal law regulating qualified pension plans.

These are forms of secured debt instruments that have credit risk, return is linked to the performance of an index, commodity, or currency, may be sold short, at maturity investors receive the value of the underlying asset.

ETNs

What may lose value even if the underlying index remains stable?

ETNs ETN is an unsecured bond that's issued by a financial institution. That company promises to pay ETN holders the return on some index over a certain period and return the principal of the investment at maturity. However, if something happens to the issuing company (e.g., bankruptcy) and it's unable to make good on its promise to pay, ETN holders could be left with a worthless investment

A client who is willing to accept market risk should be advised to accept which of the following investment recommendations?

Eliminating the unsystematic or diversifiable risk in his portfolio

Who is eligible to enroll in a private 457 plan?

Employees who are members of a union *Non-Governmental employers, may include members of a union, hospital workers, & employees of charitable organizations

During the first quarter, TJG common stock paid a $.75 dividend. The stock's price fell from $75 per share at the beginning of the quarter to $67.50 per share at the end of the period. Based on these results, what is the stock's annualized total return?

Ending Value-Beginning Value +.75 in dividends/Beginning value = 9% loss per quarter X 4 quarters = -36%annualized total return

To protect against a loss in a short sale, an investor could: Sell a call Enter a stop-loss order Buy a call Buy a put

Enter a stop-loss order Buy a call To protect (not guarantee) against a loss in a short sale, an investor could buy a call or enter a stop-loss order (buy-stop) to cover the short sale.

An investment adviser is in the process of devising an asset allocation strategy for a client. The client has a short-term time horizon and may need to withdraw a substantial portion of the portfolio at any time. Investing a large portion in which of the following may be inappropriate?

Equities Over long periods, equities have historically provided higher returns than fixed income investments or money markets. However, short-term performance can be very unpredictable. Thus, the shorter an investor's time horizon, the less exposure she should have to equity securities.

An investor is considering purchasing an equity exchange-traded fund (ETF) to further diversify his portfolio. All of the following are reasons for him to purchase this investment: A)lower taxable distributions than most mutual funds. B)shares may be purchased and sold throughout the day. C)lower annual expenses than those of mutual funds. NOT/Except: ETFs offer tax benefits similar to a limited partnership.

Equity ETFs are often organized as regulated open-end investment companies and rarely as limited partnerships.

What following funds would a buy-and-hold style most likely be used?

Equity index fund

A Fixed annuity that offers the potential for greater returns - tied to a benchmark S&P 500 index, but since it's non-variable doesn't have to register with SEC.

Equity-indexed annuity

3-month CDs T-bills: 4-52 weeks Commercial paper: 270 days Are appropriate for what type of account?

Estate Account because the maturities short & estate accounts only exist for limited amount of time (1-2 years most).

Which of the following statements is TRUE regarding American style versus European style exercise for option contracts?

European style options may only be exercised by the buyer on the business day of expiration. However, American style options may be exercised by the buyer on any day up to, and including, the day of expiration.

Mary and John are both investment adviser representatives with Everyman Investment Advisers. Mary leaves Everyman to join another firm and her accounts are reassigned to John. What is Everyman required to do under the Investment Advisers Act?

Everyman does not need to do anything IAR leaving, IA doesn't need to do anything.. if IA changed to another firm, IA would need to notify clients & seek their consent to have their contracts reassigned

Current Ratio = Current Assets/ Current Liabilities

Ex. Assets: Cash, Accounts Receivable, Inventory __________________________________________________________________ L: Short-term debt, accounts payable **don't include equipment, only inventory

To find parity price, find number of shares upon conversion and then determine values.

Ex. $1000 bond Convertible: $20 Trading at $22 1000/ 20=50 shares x $22 Trading price= $1100 Bond/Conversion price = shares x trading price

Which term is used to describe the price at which a call owner can buy a stock?

Exercise or Strike price

Gross Domestic Product (GDP) is increasing. Real interest rates are relatively high. Consumer sentiment is strong, as are auto and retail sales. Labor productivity is declining. What state of the business cycle is the economy likely experiencing?

Expansion to peak

Broker-dealers with no place of business in a state who limit their agents to selling exempt securities in a state need not register. T/F

FALSE

Long-term interest rates are more volatile than short-term rates. T/F.

FALSE

Jumbo certificates of deposit are secured obligations of the issuing bank. True/False

FALSE Negotiable CDs are general obligations of the issuing bank; they are not secured by any specific asset

Persons who violate federal insider trading regulations are subject to all of the following penalties: Treble damages Prison Terms Civil Lawsuits by traders NOT:

FINRA fines

Which of the following statements is TRUE regarding discounted cash flow?

It is used to determine the attractiveness of an investment If the investment is trading at a value lower than its discounted cash flow value, this would suggest it is attractive or undervalued. Research analysts use discounted cash flow analysis to determine the value of many different investment opportunities in the marketplace.

According to NASAA Model Rules, an IA may be compensated on the basis of performance provided the adviser discloses all the following information in writing to the client: -Fee arrangement may create an incentive for the adviser to make riskier or more speculative investments -Adviser may receive a share of both realized and unrealized gains in the account -Period used to measure performance -the nature of any index and why the adviser believes it is appropriate EXCEPT the:

Fact that the adviser has discretion as to any index to measure performance - NO **The adviser may not use any index to measure performance, only one that is appropriate.

An adviser is considering a recommendation that a customer sell uncovered options. The recommendation would NOT be suitable if the adviser:

Failed to satisfy himself that the customer was aware of the risks involved and had the financial capacity to assume such risks Written approval from the firm's registered options principal or branch manager is required to open an account. There is no requirement to receive written approval prior to making a recommendation to a client.

equity financing/debt financing

Financing Activities

Which of the following statements is TRUE of an investment adviser that maintains custody of client funds and/or securities?

It must initiate Form ADV-E. *Audits must be at least once every year!

How do you slow inflation and the economy?

Fed Reserve will increase interest % rates = Price of T-Bills go down

Under Monetary Policy, who buys & sells T-Bills?

Federal Reserve Board (FED)

According to the ABC test, an individual must earn compensation for providing advice in order to be considered an investment adviser. Which of the following statements is NOT TRUE regarding the meaning of compensation?

Fees must be received directly from the client who makes use of the advice (or a third party)

In order to form a limited partnership, two or more people must:

File a certificate with the appropriate state or local official

A client of an IA owns his own home and the title is in his name. If he wants to avoid probate when the property is transferred upon his death, the adviser may recommend which of the following?

File a transfer on death (TOD) deed which identifies a specific beneficiary

The manager of a value fund will look for securities that have which of the following characteristics?

High dividend yields

Under the Uniform Securities Act, the statute of limitations for criminal violations of the Act is:

Five years

When US dollar is strong buy: Imports/Exports, increase or decrease?

Foreign goods (Mercedes) Imports increase because we can buy more of the other currency.

Annual Audited Financial Report Must use independent accountant Annual Report Sent to stockholders, muse form 10-K

Form 10-K

Quarterly financial report

Form 10-Q

Event driven→ BIG EVENTS Sale of significant asset Management change Change of company name Bankruptcy filing Resigination of disgruntled board member file form:

Form 8-K → MAJOR incident Filed within 4 business days of Event

An advisory firm has 30 individuals who are registered as IARs. What record is the investment adviser required to keep in regard to its IARs?

Form U4 for each IAR amendments & renewal filings

This market refers to direct institution-to-institution trading and does not involve the public markets or exchanges.

Fourth Market

On Tuesday, May 1, XYZ Corporation's Board of Directors announced a dividend that's payable on Friday, May 25 to stockholders of record on Monday, May 14. The ex-dividend date is:

Friday, May 11 Stocks begin to trade ex-dividend on the business day preceding the record date. Since the record date is Monday, May 14, the ex-dividend date is Friday, May 11 (the business day preceding the record date).

A _________ fee is averaged over a specific period. It increases and decreases proportionately with the investment performance of a client's account, in relation to the investment record of an appropriate index of securities.

Fulcrum fee

An advisory fee that increases and decreases proportionately with the investment record of an appropriate securities index is called a(n):

Fulcrum fee

P/E Ratio & EPS (Earnings Per Share) are what kind of indicators?

Fundamental Analysis

The study of the market, earnings of a company, economic environment, using public data and observing what competitors are doing to come up with fair value of stock is what type of Analysis?

Fundamental Analysis

To determine the fair market value of a bond, an adviser would calculate the:

Future cash flows discounted to their present value

Which of the following investments are prohibited in an IRA?

Gemstones aka Commodities (ART, RUGS, STAMPS)

Samantha Wells, a British citizen temporarily working in the United States, wants to form a business venture with other investors. She is looking for favorable tax treatment of earnings and losses. She also wants to limit the number of investors, but is willing to share control of the enterprise with others to attract them. What business form do you advise to her?

General Partnership

Which of the following is TRUE concerning the private placement of securities being distributed under Rule 506(c) of Regulation D?

General advertising is permitted, but all investors must be accredited. *basically offered to everyone but issuers can only accept offers from accredited investors

If an investor were to purchase several general obligation and revenue bonds issued by the state of New York, the investor could have diversification in all of the following, EXCEPT:

Geography

Based on donor's original cost basis passes to recipient of:

Gifted Securities

If a 65-year-old woman of substantial means is seeking income and preservation of capital, which of the following should you recommend?

Government bond fund, corporate bond fund, municipal bond fund

A project manager is evaluating a project and determines that she needs an internal rate of return of 10%. Currently, the project has a positive net present value (NPV). Based on this information, the project's estimated internal rate of return (IRR) must be:

Greater than 10%

If the NPV (net present value) of an investment is greater than zero, the investment will provide a return:

Greater than the discount rate used

In determining the gross profit margin, an analyst would subtract the:

Gross profit from sales, divided by sales

Paul and Mary Smith have discussed various portfolio allocations with their adviser Chuck. He has considered the Smiths' risk tolerance and expected return in order to recommend an efficient portfolio, that is, one in which the portfolio offers the:

Highest expected return for the lowest level of risk

An 81-year-old father is establishing a bypass trust for his two adult children who are both in their 40s. His investment adviser is evaluating the risks and benefits of numerous investment vehicles. Which of the following choices is MOST appropriate investment in a bypass trust?

Growth stocks, since the beneficiaries will not need the funds for several years

Harold has established a revocable trust. His son Stanley is the trustee and his daughter Dora and her children are the beneficiaries. The income is currently taxable to:

Harold, the grantor.

A trader has a short futures position that he wants to offset. This means that:

He will buy futures on the same exchange in the same delivery month

Last year, an investor had a $5,000 loss after netting all realized capital gains and losses. This year the investor has a $1,000 capital gain. After netting his gains and losses, what will be his tax situation this year? Hint: $5k- $3k= $2k, netted against 1$k gain =

He will offset $1,000 ordinary income this year. Only $3,000 of last year's loss can be deducted against that year's income. Therefore, the losses carried forward from the previous year are the remaining $2,000. These losses are netted against the gain of $1,000 for a net loss of $1,000. That loss can be used to offset $1,000 of ordinary income. There are now no longer any losses to carry forward.

Someone who wants tax advantages, exposure to a wide range of securities & strategies & professional management of their funds are suitable for this investment?

Hedge Funds

This can be marketed to anyone/investor as long as it's suitable and the investments are usually illiquid

Hedge Funds

This is a characteristic of what fund? Their managers usually receive performance-based fees

Hedge Funds

The potential loss for a limited partner in a real estate limited partnership is limited to:

Her initial investment plus any unpaid amounts to which she had committed to pay

The manager of a value fund would look for securities with which of the following characteristics?

High Dividend Yields

Which of the following statements is FALSE regarding discounted cash flow methods used to evaluate an investment? A-Net present value is a discounted cash flow method B-Internal rate of return is a discounted cash flow method C-Holding period return is a discounted cash flow method D-Discounted cash flow calculations consider cash inflows, outflows, and the time value of money

Holding period return is a discounted cash flow method, NO it's not. Holding period return is calculated by adding any income, plus capital gains, minus capital losses, and dividing by the value of the initial investment.

The major advantage of an S Corporation versus a C Corporation is that an S Corporation:

May elect to be treated like partnerships for federal tax purposes. The owners of both types of corporations have the protection of limited liability.

A client of yours owns some convertible preferred stock. She notices an article in the business section of her local newspaper that reports the company is going to pay a 20% stock dividend on their common stock. She wants to know how this will affect her?

If there is an antidilution clause, her conversion privilege will permit her to acquire 20% more shares than before the stock dividend.

Which of the following brochure delivery periods applies to investment advisers under the Uniform Securities Act?

If an ADV or brochure is not provided at least 48 hours prior to signing the contract, clients must be given five days to rescind without penalty

If an investment increases in value, which of the following statements would be TRUE?

If it was held for less than one year, the annualized rate of return would be greater than the holding period return

When can an agent of a broker-dealer and a client share in an account?

If the agent is exposed to risk that's proportionate to his investment in the account

Which of the following asset management techniques would NOT be used to identify a security that is either undervalued or overvalued?

Indexing Fundamental, technical, and tactical approaches all attempt to identify securities that are either overvalued or undervalued and use this information in an attempt to outperform the market.

An investment adviser who believes that securities markets are efficient and that high transaction costs can substantially reduce returns would most likely favor which of the following portfolio management strategies?

Indexing , A Passive Strategy

Which of the following choices BEST describes accredited investors under SEC Regulation D?

Individuals with an annual income of $200,000, regardless of net worth or $300k if married or $1 million in assets, excluding the value of their primary residence,

A decrease in the value of the monetary unit is known as:

Inflation

Based on Date of Death of Decedent is what type of cost basis & the holding period is long-term regardless how long the client holds stock for:

Inherited cost-basis (due to death)

The purchase of which of the following securities by an investment adviser for its own account would MOST likely involve a conflict of interest?

Initial public offerings (available only in limited amounts)

Manny is an active septuagenarian who would like to create a living trust. This trust is referred to as a(n):

Inter vivos trust

Which of the following types of risk would have the greatest impact on a 20-year corporate bond during the first year of the investment?

Interest-rate risk

An investment adviser's client owns a company and wants to add a new line of business with an initial cash outlay of $1,000. The expected cash flow is $200 the first year, $400 the second, and $800 the third. What would the best measure be to evaluate the client's entrance into the new business?

Internal Rate of Return (IRR)

sale of securities, land, buildings, equipments,

Investing Activities

If a portfolio manager is focused on keeping a client's assigned asset allocation properly balanced over the long term, she is using a:

Strategic asset allocation strategy *Tactical is more shor-term in th emoment

When investing in a variable annuity, investors would be MOST concerned with which of the following risks?

Investment risk

Which of the following is TRUE regarding management companies?

Investors will liquidate Open-end fund shares at their NAV, but Closed-end fund shares may be liquidated below their NAV.

Your clients have a sizable estate, which they wish to leave to their children upon their death. Which of the following trusts would remove assets from their estate and potentially reduce their estate tax?

Irrevocable -to remove assets and reduce estate tax, irrevocable

Which of the following is TRUE of the weak form of the efficient market hypothesis?

It implies that market information cannot be used to identify future price movements.

Under the Uniform Securities Act, which of the following statements is TRUE regarding the posting of a surety bond by a broker-dealer?

It is used to cover the costs of possible legal actions. A bond may be required by an Administrator to cover possible legal costs that arise from violations of the Uniform Securities Act. The Administrator may accept cash or securities in lieu of a bond; however, property may not be accepted. A surety bond is not required of all broker-dealers; it is only required for those that have custody of or discretionary authority over client funds and securities and do not meet the minimum financial requirements.

Jake purchased a corn futures contract at $1.20 per bushel. At the end of the contract, if the price of corn has fallen to $1.10 per bushel, which of the following statements is TRUE?

Jake takes delivery. *He's obligated to take the delivery in a futures, standardized contract even though the price fell. The party who sold the corn has the obligation to make the delivery.

A)they are readily marketable B)they are usually issued in denominations of $100,000 to $1 million C)they usually have maturities of 1 year or less These are TRUE of:

Jumbo Certificates of Deposit!

The major disadvantage to a limited partner in a DPP is:

Lack of liquidity

What is considered diversifying a bond portfolio by staggering the maturity dates of the bonds in an attempt to manage interest-rate risk?

Laddering

Who sets the Prime rate?

Large banks (individual bank)

Manufacturing new orders is what type of indicator?

Leading

Agency securities are

Less liquid Higher yielding -NOT as safe as Treasury securities, greater credit risk Exs. GMNA, Fannie Mae

Partnership agreements, articles of incorporation, minute books from board meetings, and stock certificate books are preserved

Life of the firm and for at least three years after termination of the firm *All other records are retained for five years.

Paul and Todd are starting their own business. They are trying to decide whether to organize this new business as a partnership or an S Corporation. What are some of the advantages of an S Corporation compared to a partnership?

Limited liability In a partnership, the general partners are liable for the partnership's debts. (Limited partners are not liable; however, there's no indication in the question stem that either Paul or Todd is a limited partner.) In an S Corporation, the owners are not liable for any of the company's debts. Instead, they have only limited liability.

Ed and Stephan want to start a Web site design business. They are trying to decide what the best way is to organize the business. They want to protect their personal assets from any debts that the business incurs, but they also want to avoid being double-taxed on their profits. Based on these objectives, the BEST organizational structure for them to adopt would be a:

Limited liability company

Which of the following business structures allows the pass-through of income and loss to its members on a Form K-1?

Limited liability company (LLC) **Shareholders are for S-Corporation (K-1) **Partners are for Limited partnerships (K-1)

Which form of business would offer limited liability and the flow-through of profits and losses?

Limited partnership Unlike general partners in general partnership that have unlimited personal liability.

What is the most typical organizational structure of a private equity investment?

Limited partnership.

Which types of investments have historically shown a great deal of exposure to regulatory risk?

Limited partnerships

The major distinction between a cash commodity contract and a commodity futures contract is:

Liquidation of the contract by offset The most significant difference between a futures contract and a cash contract is that the cash contract is directly negotiated between the buyer and the seller, and both parties are obligated to each other to perform on the terms of the contract. In a futures contract, the buyer and seller do not know the identity of each other, nor do they care. In the event that either party decides not to fulfill his obligation to make or take delivery of the actual commodity, he need simply offset his position. -cash commodity is tangible good given as payment

A hedge fund investment would be least suitable for a client who is seeking:

Liquidity

A registered representative has a client who owns a small business. The business produces strong cash flow during the holiday season, but negative cash flow the rest of the year. This may indicate a need for which of the following choices in the client's portfolio?

Liquidity Because the client may need access to capital when the cash flow from the business is negative, the portfolio should have some investments that are liquid. Money-market instruments might be suitable for this portion of the portfolio.

A client has been watching a thinly traded stock and has noticed that it has not had any trading activity today. What type of risk is the MOST significant for this type of investment?

Liquidity risk Thinly traded - illiquid investments

Which of the following is the BEST hedging strategy if a client is long 1,000 shares at $42?

Long 40 puts **out the money, you're lower- buy put options at a lower premium **in the money buy higher

Financial obligations due AFTER 12 months. Ex. bonds & mortgages are:

Long-Term Liabilities

A Value fund's portfolio manager is analyzing potential common stocks. Generally, she would give which of the following the MOST consideration?

Low price-to-book value and high current dividend yield, while also considering the company's size.

Regarding the influence of market risk on personal investments, an investor can:

Minimize market risk by investing in low-risk, low-return investments *market risk is systematic risk and CANNOT be diversified away

The last dollar of income earned each year is taxed at the:

Marginal tax rate

After analyzing the financial sector, an analyst writes a report indicating that he expects a downturn in that sector. This could BEST be described as:

Market risk

While presenting a financial plan to a customer, an IAR talks about different types of risk. One of the primary risks mentioned by the IAR relates to the impact of current events, consumer confidence, and the general political climate. This risk is called:

Market risk

A widow has a mix of small-cap growth stocks, large-cap stocks from mature industries, investment-grade bonds, speculative bonds, preferred stock, and foreign securities. She is attempting to reduce:

Market risk Market risk is reduced by investing in different asset classes. The more random the correlation between the different asset classes, the greater the overall reduction in market risk. A high positive correlation between the asset classes equates to high market risk.

Investors often use financial futures to hedge portfolios against which of the following types of risk?

Market risk -financial futures are often trying to hedge portfolios against interest-rate risk, exchange-rate risk (also called currency risk), and market risk

According to the National Securities Markets Improvement Act (NSMIA), state Administrators are allowed to set:

Minimum financial requirements not to exceed those set by the SEC

What policy affects the quantity of money?

Monetary Policy

Treasury securities are:

More liquid (short maturities) Lower yielding *safer

Writing covered call options provides a client with:

More potential income & The potential to increase return

Expenditures (spending funds) on Income Statement include:

Mortgage payments Taxes Insurance premiums

If an investment adviser representative is reviewing a client's IRA portfolio, she would be most concerned with the inclusion of which of the following investments?

Municipal bonds, Since an IRA is a tax-deferred account, the tax-exempt nature of the municipal bond loses its effectiveness. Instead, the placement of a higher yielding investment is more suitable.

Rate the following bonds in terms of yield from lowest to highest: 1-Municipal bonds 2-Treasury bonds 3-Corporate bonds

Municipal securities will have the lowest nominal yield because the interest is federally-tax free. After municipal bonds come Treasury bonds because of safety of principal. The bonds with the highest nominal yield are corporate bonds.

The Current Account +The Capital Account =

Must be 0

The investments that tend to perform the BEST during periods of inflation are:

Mutual funds, ETFs, and gold and silver commodities tend to be good investments for a person seeking to offset inflation.

Yield to call (YTC) is a financial term that refers to the return a bondholder receives if the bond is held until the call date, which occurs sometime before it reaches maturity.

NY> Current Yield> Yield to Maturity> Yield to Call

An efficient market is one with:

Narrow or small spreads between the bid and ask prices Liquid or efficient markets tend to have a large amount of trading activity and narrow spreads (bid and ask prices that are close to each other). While narrow spreads are a sign of an efficient market, wide spreads are a sign of an inefficient market.

Short-term maturities higher yield than long-term, sensitive to Fed policy, indicates rate will change or recession

Negative (Inverted) Yield

An investor lives in New Jersey and is opening a 529 college savings plan that's sponsored by the state of Montana for his daughter's benefit. His initial contribution is $75,000. Which of the following statements is TRUE?

Neither the investor nor his daughter will be liable for gift taxes on the $75,000 contribution. The investor may contribute up to $75,000 at one time to his daughter's 529 plan without incurring federal gift taxes. The IRS allows donors to aggregate five years' worth of gifts under the annual gift exclusion ($15,000) into one lump-sum contribution (5 x $15,000). Some states do allow donors to deduct a portion of contributions made to 529 plans from their state income taxes, but only if the donor contributes to a plan that's sponsored by his home state.

Assets-Liabilities=

Net Worth / Owner's Equity

An investor wishing to calculate the basic earnings that a corporation capitalized with common and preferred stock and convertible bonds would divide the:

Net income minus any preferred dividends paid by the number of common shares outstanding (Earnings per share)

According to the Investment Advisers Act of 1940, when must an access person submit a transaction report?

No later than 30 days after the end of each calendar quarter. On the other hand, the Uniform Securities Act requires an adviser to maintain a record of all personal securities transactions by no later than 10 days after the end of the calendar quarter.

A firm is located in State Y and has been hired by a pension plan to evaluate its investment manager. The investment manager's office is in State Z. The firm will be advising the pension plan whether it should retain the investment manager or hire a new one. Under the Uniform Securities Act, is the firm required to register as an investment adviser in State Z?

No, because the firm has no place of business in State Z and is servicing an institutional investor. Under USA, an adviser that has no place of business in a state and whose clients are only institutional investors (e.g., pension plans) is exempt from the registration requirements.

All of the following are true of U.S. government agency bonds: -Are taxable at the federal level -May be issued in book-entry form -Are generally a low-risk investment Not a:

Not a direct obligation of the U.S. government like T bonds, bills and notes are only GNMA pass-throughs have government backing

Under the Uniform Securities Act, an employee of a municipal issuer selling securities to the public is considered:

Not an agent A person representing a municipal issuer is not considered an agent and would not be subject to registration. If the securities were not exempt, the employee would be subject to registration. Muni bonds are exempt securities

One of your clients has heard that the use of leverage can increase his portfolio's return. This client normally buys securities that have high dividend payout ratios and uses the dividends to supplement his income. He wants to open a margin account and asks you to use his existing securities as collateral to purchase additional shares of the same stocks that you have in your portfolio. You should:

Not recommend this strategy since buying on margin may not increase the return received by this client *Riskier, greater chance of loss if investment goes south Buying on margin is the act of borrowing money to buy securities. The practice includes buying an asset where the buyer pays only a percentage of the asset's value and borrows the rest from the bank or broker. The broker acts as a lender and the securities in the investor's account act as collateral.

You are the chief financial officer of Colfax Advisers, a registered investment adviser located in Dallas, Texas. Your firm manages portfolios and has safekeeping services for its clients. The state of Texas requires that all registered advisers who have custody of client assets maintain a minimum net worth of $35,000. In reviewing the month-end financials for the firm, you calculate the current net worth at $32,875. What would your best course of action be considering these circumstances?

Notify the Administrator within one business day and file a statement of financial condition by the next business day

Seller= Writer= Short=

Obligation *Writer always has the Obligation

A client will be traveling and wants her IAR to have check-writing privileges so that he is able to pay her utility bill while she is away. Her IAR should:

Obtain full power of attorney from the client

The price of a futures contract bought or sold is determined by:

Open bids and offers on the exchange floor

inventory, payroll, taxes, utilities, rent

Operating Activities

Barry McKenna's equity portfolio was strongly correlated to the performance of the S&P 500 Index. Barry was concerned that the S&P was overdue for a correction, so he liquidated the portfolio and moved to short-term Treasury securities that were yielding 2%. After one year, the S&P 500 returned 8%. What is the BEST term to describe the difference in the Treasuries and the S&P 500 as it relates specifically to Barry's situation?

Opportunity cost

What includes public and private information?

Strong Form Efficient Market

A corporation that has issued common or preferred stock has created:

Outstanding equity, ownership in the corporation

What's a benefit to establishing a business entity as an LLC rather than as a sole proprietorship?

Owners can protect their personal assets

One of the most common uses for a bypass trust is to:

Pass assets from the second deceased parent to his children

In the weak form market efficiency, what information do securities reflect?

Past market prices & data (Historical prices) reflected in securities prices

Patrick invests in a diversified portfolio of income-producing equity investments. Patrick is investing to achieve the goal of early retirement. He takes all of his dividend income and uses it to pay bills. What is the main problem with this type of strategy?

Patrick does not take advantage of compounding (reinvestment of dividends) to increase earnings.

A client who has no dependents wants to ensure that the securities in his account will go to his sister upon his death, but also wants to avoid probate. What type of account is the most appropriate for the client?

Payable On Death (POD) *similar to a TOD account

During which phase of the business cycle will an investor experience a decrease in purchasing power?

Peak The peak is the high point of the business cycle, during which the demand for goods starts to overtake supply. During this phase, prices and inflation are increasing, which results in the decline of the consumer's purchasing power.

Which of the following distribution methods will ensure that each branch of family receives an equal share of an estate?

Per stirpes

A whole life insurance policy may be referred to as:

Permanent Life Ordinary Life Straight Life

A person located in State A has been a client for four years of a firm that is headquartered in State B. The firm is registered in both States A and B. Based on the advice of the firm, the client buys securities that become worthless. Two years later, the client files a civil suit to recover the purchase price of the securities. If the agent who sold the securities to the client has passed away, the client is:

Permitted to file the civil suit and may be able to recover damages The statute of limitations for civil liabilities under the USA is three years from the sale or rendering of investment advice, or within two years of discovery. Therefore, the suit may be filed and the customer may recover damages. (The client still has one year left to file.)

Desert Beverages has a beta of 1.3. Over the past year, Desert has returned 14% while the market as a whole has risen only 10%. A technical analyst would say that Desert Beverages has an alpha that is:

Positive 1% Alpha is the amount either above or below the expected return as indicated by the beta. If a security outperforms the expected return, it is said to have a positive alpha. If it underperforms the expected return, it has a negative alpha. With the market advancing 10%, the expected return for a security with a beta of 1.3 would be 13%. Since Desert Beverages went up 14%, its actual return is 1% greater than the expected return

Yields Increase as maturities lengthen, greater risk & greater return is an example of a:

Positive Yield Curve

According to modern portfolio theory (MPT), the expected return of an investment is the:

Possible returns on the investment weighted by the likelihood of that return occurring *assets that expect return given the risk

According to modern portfolio theory (MPT), the expected return of an investment is the:

Possible returns on the investment weighted by the likelihood that return will occur

According to Modern Portfolio Theory, the expected return of an investment is the:

Possible returns on the investment weighted by the likelihood that returns will occur

Who determines fiscal policy?

President and Congress

An investment adviser is constructing a diversified portfolio for a client. If the client requires liquidity, which of the following asset class would he least likely recommend?

Prime real estate

According to the USA, if the ownership of a registrant changes, it must do which of the following?

Promptly file a correcting amendment with the Administrator *new application is not required. Whenever there is a material change of ownership for a registrant, a correcting amendment to its registration must be filed with the Administrator promptly.

If a federal covered adviser makes a material change to its Form ADV, it must notify the SEC:

Promptly, (generally within 30 days)

A client considering an investment in a real estate investment trust would benefit from all of the following advantages, -Stable dividend income -The ability to buy and sell shares easily -Diversification -Most REITs change on exchange, offering liquidity EXCEPT:

Protection against rising interest rates *values of the shares decrease when interest rates increase*

An investment adviser intends to purchase 100,000 shares that it will place into various clients' accounts. Which of the following is an acceptable method of allocating the bunched order?

Provide clients with the average price at which the investment adviser purchased the shares

A decrease in the value of the monetary unit or dollar also leads to a a decrease in:

Purchasing Power

At least 75% of the income from a REIT must be derived from investing in real property At least 90% of the income from a REIT must be distributed to investors each year are characteristics of a:

REIT, Real Estate Investment Trust

The RIF Corporation would not be able to issue:

RIF call options.

Individuals with an annual income of at least $200,000 during the last two years who reasonably expect to continue to earn that much in the future A married couple with a joint income of at least $300,000 who reasonably expect their income to continue at the same level in the future An individual or a couple with a net worth of at least $1 million are:

Regulation D Requirements for Accredited Investors

Which FRB tools determines the amount of money that member banks must keep on deposit?

Reserve requirements

What does the Sharpe Ratio measure?

Return of an asset based on the amount of risk being assumed

Buyer= Owner= Holder= Long=

Right *Buyer always has the Right

Someone who is reluctant to take risk is:

Risk Averse

Value investing is:

Risky because it's contrarian (betting against the market) alue investors tend to focus on company stocks that have low share prices, high dividends, low P/E ratios, and low price-to-book ratios. Value investors try to find stocks that are trading at prices lower than their intrinsic value (i.e., the market undervalues them)

When analyzing strategic and tactical asset allocation, all of the following statements are TRUE, A-Active asset allocation requires a belief that markets are inefficient. B-Passive asset allocation requires a belief that markets are efficient. C-Unlike strategic asset allocators, tactical asset allocators believe they can time the market. EXCEPT:

Sector rotation is a form of strategic asset allocation, while buy-and-hold is a form of tactical asset allocation. False. Sector Rotation= Tactical Asset Allocation Buy & Hold = Strategic Asset Allocation (Passive)

Which of the following acts requires publicly traded corporations to issue annual reports?

Securities Exchange Act of 1934 *mandates that public issuers file annual and quarterly reports with the SEC.

Swaps and Options on equities, futures, and REITs are regulated as _____________ However, an option to buy or sell real estate is not considered a __________.

Securities.

A person who invests in a variable annuity is most concerned with the performance of the insurance company's:

Separate account

The Investment Advisers Act of 1940 would consider an individual to be in the business of providing investment advice if:

She provides mutual fund timing and sector rotation advice to her clients - client specific

A person who considers herself a contrarian investor would follow the:

Short interest theory *opposite direction of conventional wisdom. The short interest theory proposes that when open short interest (uncovered short sales) increases, it is a bullish indicator. The short sellers will have depressed the price of the stock and at some point they must all reenter the market as buyers, causing the price of the stock to rise.

An IAR is analyzing various fixed-income securities for a client's portfolio. She notes that the yield curve is sloping upward. This indicates that:

Short-term bonds are yielding less than long-term bonds short}high The economy may be slowing - that's when the FRB attempts to lower short interest interest rates.

If you owned and lived in the home for two of the five years before you sold it and your filing status is single, then up to: married:

Single filing: $250,000 of profit is tax-free Married filing: $500,000 of profit is tax-free

During periods of easy money when interest rates are declining, yield curves tend to:

Slope upward from the shorter to the longer maturities

At age 62, eligible workers are permitted to start receiving benefits at a reduced level. The reduced level is partially offset by the fact that they will receive benefits for a longer period. If a person waits until his full retirement age (either 66 or 67), he will start with a higher payout. However, at age 70, a person must start receiving benefits. Keep in mind, no recipient forgoes cost of living increases. Qualities of:

Social Security

Must have 40 working quarters or 10 years for:

Social Security

In a soft-dollar arrangement, which TWO of the following choices are benefits that would justify a broker-dealer charging a higher commission to an investment adviser?

Software to conduct research & Seminar attendance fees Soft-dollars may not be used to acquire payments for advertising and marketing, travel expense reimbursement, or computer terminals.

A customer believes a stock will have a wide fluctuation in price over a short period. If he wanted to engage in an option strategy that would be profitable from a sharp movement either on the upside or downside, he would buy a:

Straddle

Bryce Dunne is long 300 shares of YYZ, a company specializing in radio broadcasting. Bryce also is long 3 YYZ Aug calls. What is the purpose of this strategy?

Speculation Bryce is making a very speculative trade with YYZ stock and YYZ call options. He is extremely bullish on the stock. This is demonstrated by the fact that he purchased both the stock and the call options. If the stock's price appreciates, he will make money on both trades.

What's the difference between a broker-dealer's bid and ask prices?

Spread

An investor has been consistently investing in Treasury bills over a long period. The investor will have:

Stable principal - T Bills, safe & Unstable interest (long period)

The Modern Portfolio Theory uses which of the following to measure volatility?

Standard deviation

Which of the following offers the opportunity to realize a capital gain rather than ordinary income?

Stock dividends

If inflation and unemployment are low, but energy prices are expected to rise, what results would be expected of stock prices and actions of the FRB?

Stock prices would peak and the money supply would tighten Low unemployment and lower-than-expected inflation generally signal the peak of a market. Although the inflation numbers may be low, expectations of higher inflation may cause the FRB to reduce the money supply to keep inflation in check.

As a group, limited partners may:

Sue the general partner

A technical analyst will consider which of the following? Supply and demand figures BP/E ratio Risks DBeta

Supply and demand figures = Technical Analysis P/E ratio - Fundamental analysis Risks - Fundamental analysis (market risk) Beta (systematic risk, fundamental not technical analysis)

Currency values in a floating-rate system are established by:

Supply and demand for the currency

If a portfolio manager has a diversified portfolio of large-cap stocks, it would use index options to reduce which of the following risks?

Systematic Risk

Interest-rate risk, Market Risk, Inflation Risk are types of:

Systematic Risk

Which TWO of the following types of risk cannot be mitigated by diversifying into various sectors?

Systematic risk Nondiversifiable risk *These are not diversifiable

The pricing of preferred stock will most closely follow the pricing of:

T-bonds *follows pricing of debt-instruments not common stock because preferred stock pays a fixed dividend & most likely follows pricing of long-term debt instruments.

Which of the following securities is most susceptible to interest-rate risk?

T-bonds- long maturity of 20/30 years

What is the liability for loss for an investor in a limited partnership?

THE INVESTOR'S BASIS An investor's basis consists of her initial investment plus any recourse loans (cosigned loans) or profits retained by the partnership that are not distributed.

____________are typically purchased as protection against inflation or purchasing-power risk.

TIPS, Treasury Inflation-Protected Securities *U.S. government securities whose principal is inflation-adjusted based on the Consumer Price Index (CPI)

A broker-dealer is subject to federal registration requirements and registers with the SEC. This is T/F: The net capital requirement is determined by the SEC and the Administrator may not set a higher requirement

TRUE

Those investors, who believe markets are not perfectly efficient, may use an active strategy in which the asset mix of a portfolio is altered in anticipation of economic events. This market timing approach is known as:

Tactical Asset Allocation

An investor has a total of $350,000 to invest, but he wants to invest $150,000 in a manner that will follow the business cycle. This type of investing is referred to as:

Tactical asset allocation *based off market timing, trends & the business cycle- analyzes theories & patterns

A resident of State A buys a 4% general obligation bond offered by State B. The investor is in the 30% federal tax bracket and State A imposes a 5% tax. What is the bond's taxable equivalent yield?

Tax-free yield ÷ (100% - Tax rate %). (4% ÷ [100% - 30%])=5.71%

Short interest and trading volume are what kind of indicators?

Technical Analysis

What type of insurance policies have level premiums and level death benefits?

Term life and whole life =fixed premiums and fixed death benefits. On the other hand, the premiums on universal life policies can be changed and the death benefits of variable life policies can fluctuate

A client wanting only financial protection for her family in case of her premature death should buy:

Term life insurance *PROTECTION AT THE LOWEST COST

If an agent resigns from their broker-dealer and is subsequently hired by another broker-dealer, who is required to notify the Administrator?

The Broker Dealers & the Agent 1-The broker-dealer that the agent resigned from 2-The broker-dealer that now employees the agent 3-The agent

What shows the inflows and outflows of capital in transactions involving property and financial assets?

The Capital Account

Which of the following documents must be filed with the state Administrator for registration of all broker-dealers, investment advisers, agents, and investment adviser representatives?

The Consent to Service of Process

What shows the results for the trade transactions completed in the current year?

The Current Account

Current Assets ÷ Current Liabilities=

The Current Ratio

Monetary policy is set by the:

The Federal Reserve Board

An IAR intends to recommend speculative debt offerings to some of her more aggressive accounts. Since the IAR specializes in equity investments, she plans to use an outside fixed-income expert to help in the selection process. In this situation, which of the following statements is TRUE under the UPIA?

The IAR may delegate her investment decision-making authority. **allowing fidicuciarires to delegate investment responsibilities to competent third parties like accountants, attornies, CPA's etc without needing a form

An IAR has been discussing the advantages of purchasing a financial plan with a potential client. During a party that they are both attending, the client mentions that she has looked over the contract and is ready to move forward with the financial plan. The client hands her signed contract and a check to the IAR. Although the IAR has not provided the client with his firm's brochure, the client states that she has reviewed it online. Regarding the disclosure document, which of the following statements is TRUE?

The IAR may not accept the contract until he has provided the client with a copy of his firm's brochure. AT THE TIME OF Entering CONTRACT or 48 hours in advance

An investment adviser representative and a client have similar financial resources, investment goals, and risk tolerance. However, although the IAR recommends penny stocks as a small part of her client's portfolio, she would never consider investing in such securities herself. Which of the following statements is TRUE?

The IAR should tell her client that the recommendation is inconsistent with her own investment policy An investment adviser whose personal investing is inconsistent with recommendations made to clients generally has an obligation to disclose this to customers.

An advisory firm is evaluating an investment opportunity for a client. Current projections show that the net present value (NPV) is equal to zero and the client requires an internal rate of return of 6%. Based on this given information, what is the investment's internal rate of return (IRR)?

The IRR is equal to 6% Because the NPV is 0.

Which of the following indexes or averages is made up of the largest number of stocks?

The Wilshire Associates Equity Index The Wilshire 5000 includes all the stocks from the U.S. stock market.

The limited registration provision available to Canadian broker-dealers conducting business in a state permits which of the following actions?

The broker-dealer transacts business with Canadian residents with whom the broker-dealer had an existing relationship

To ensure that all investment advice is impartial and disinterested

The buyer of a straddle expects the market to fluctuate. The writer (seller) of a straddle (call & put) expects the market to remain stable.

What theory states that investors are basically risk-averse and that, if presented with two investments offering the same expected return, they would prefer the less risky one?

The Modern Portfolio Theory

What is used to determine how long it would take for an investment to double in value, given a rate of return, or the rate of return needed for an investment to double?

The Rule of 72

Registration by coordination is used in conjunction with which of the following Acts?

The Securities Act of 1933

What risk-adjusted return measurement indicates the amount of return earned per unit of risk. The basic idea is to determine how much additional return is being received for the willingness to hold a risky asset.

The Sharpe Ratio

In completing Form BD, all the following information is required, EXCEPT: -Whether the applicant has been charged with a crime -Whether the applicant has been convicted of a crime -Minor rule violation NOT:

The Social Security number, unless the applicant is a sole proprietorship

Which of the following statements BEST describes active portfolio management?

The adviser attempts to exceed the performance of the market

An adviser who manages $140 million in assets is recommending the sale of Nasdaq-listed securities to a client. Which of the following statements is TRUE?

The adviser is a federal covered adviser and exempt from state registration, and the securities are federal covered securities and exempt from state registration

An investment advisory firm and an accounting firm have offices in the same building, but are otherwise unaffiliated. One of the investment adviser representatives pays a cash referral fee to a CPA in the other office for any clients she sends over to the adviser. All the following statements are TRUE, -The CPA must give the investment adviser's brochure to the clients that she refers to the adviser. -The CPA must give a separate disclosure document to any clients that she refers to the adviser. -The adviser must make a bona fide effort to ensure that the CPA is giving the clients whom she refers copies of the adviser's brochure and the separate solicitor disclosure statement. EXCEPT:

The adviser must give each client that is acquired through the CPA another copy of the separate solicitor disclosure document at the time the client agrees to enter into an advisory relationship. -Not required However, the adviser is required to obtain written acknowledgment from any clients that the CPA refers that they received the adviser's brochure and the separate solicitor disclosure statement either before or at the time the client enters into a contract for the adviser's services.

An agent recommends that a client purchase a particular security. The agent believes the client has the resources to pay for the transaction. Three days after the trade is executed, the client indicates that he cannot meet his financial obligation to the brokerage firm. According to the Uniform Securities Act, if the agent lends personal funds to the client:

The agent has acted in an unethical manner (not fraud)- An agent may not borrow funds from, or lend funds to, a client

What is filed to establish a corporation?

The articles of incorporation

If an index option is exercised, what does the buyer of the contract receive?

The cash differential between the option strike price and the index value

A client purchases a TIPS with a 2% coupon and, over the course of the year, the CPI increases by 1%. Which of the following statements is TRUE?

The client will earn 2% on an adjusted principal amount.

What does a debt-to-equity ratio of 1-to-1 signify?

The company is highly leveraged the debt and equity are the exact same amount

An over-the-counter trader, when talking about the spread, is referring to:

The difference between the bid and asked price of a stock

Federal Reserve Board controls:

The discount rate The reserve requirement Regulation T

Which of the following tools is NOT directly controlled by the FRB?

The fed funds rate- set by Monetary policy Federal Reserve Board controls: Reserve Requirement, Regulation T (fed call/controls margin), The Discount Rate

An investment adviser is registered in 10 states. The firm wants to transact business with three clients in a state in which it is not registered. According to the Uniform Securities Act, which of the following statements is TRUE?

The firm would not be required to register as an investment adviser if it did not lease an office in the state in which it is not registered. According to the Uniform Securities Act, if a firm has five or fewer clients in a state (during a 12-month period) in which it has no office, it is exempt from registration in that state. Also, if all the clients, regardless of their number, are banks, trust companies, insurance companies, or employee benefit plans, the firm is exempt from state registration.

For an investor in the 35% federal tax bracket who is looking to minimize tax liabilities, what would be of LEAST interest?

The investment ideas and methodologies of a prospective mutual fund manager

An investor might purchase a stock with a high P/E ratio because: Hint: Growth stocks have e High P/E ratio & higher chance for...

The investor expects higher future earnings (higher return/ riskier) tocks with high P/E ratios (typically growth companies) tend to pay a low, or no, dividend.

Which of the following statements is TRUE in relation to the buyer of a call option?

The investor has limited risk A purchaser of a call option would have limited risk with the potential for unlimited profit. The risk is the possibility of losing the entire premium (cost of the option). The owner of the call option is not an equity owner of the stock unless and until the option is exercised.

Four municipal bonds each have a 3% coupon, the same face value, but different maturities. One bond matures in one year, another in five years, another in 10 years, and the last in 20 years. Duration is:

The longest for the 20-year bond and shortest for the one-year bond **too simple

A broker-dealer owns 100 shares of ABCO stock which it purchased at 28. If the stock is sold to a customer, the broker-dealer will base the markup on:

The lowest offer on the Nasdaq system

An OTC market maker would justify the amount of its markup based on all of the following: -Current Price -Dollar value of the trade -Availability of the securities NOT:

The market maker's cost

The Pink Marketplace displays:

The market makers for stocks that are not listed on either the NYSE or Nasdaq *Bids & quotes for OTC equities

An investor purchases a newly issued 8% Treasury bond at par but earns only a 6% total return over the next year. Which of the following is the MOST likely explanation for this?

The market value of the bond declined by 2%

If the FRB engages in repurchase agreements, which of the following statements is TRUE?

The money supply has been increased. When FRB purchases securitiesthe immediate result is an increase in money supply.

After years of managing his own money, a client approaches an investment adviser representative seeking some financial advice regarding his IRA account. The IAR notices that the client's current investments include stocks, bonds, Treasury inflation-protected securities (TIPS), and a municipal bond fund. Also, the client is holding a small amount of cash that has not been invested. Which of the instruments in this client's IRA would be the biggest concern for the IAR?

The municipal bond fund nterest earned in an IRA is deferred, so, there is no need to purchase a tax-free security. Including municipal securities in an IRA is not advisable since the tax-free income received from the municipal bond fund becomes taxable if purchased in an IRA and later distributed.

A wealthy individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed?

The original value plus any appreciation is taxed as part of the grantor's estate.

In the past year, a client reported earnings of $3,000 in dividends, $6,000 in long-term capital gains, and salary of $190,000. The client also had a loss of $8,000 from a limited partnership investment. For tax purposes, how is the limited partnership loss treated?

The partnership loss is only deductible against passive income

Two bonds each have a coupon rate of 3.5%, but one has a five-year maturity and the other has a 10-year maturity. If interest rates increase by 1%:

The price of the 10-year bond depreciates more than the price of the five-year bond. When interest rates rise, bond prices will fall. However, the price of bonds with longer maturities will fall more than the prices of bonds with shorter maturities. Long-term bonds have a greater duration

An investment adviser representative (IAR) who works for a federal covered investment adviser has engaged in trading that was considered excessive in regard to both the size and frequency of the trades. According to NASAA's model rule, who is responsible in this situation?

The rules would apply to both the IAR and IA

An American company manufactures its products in the U.S. and sells them in Spain. Which of the following statements would be TRUE if the euro depreciated?

The sales would translate into lower dollar amounts

Your firm is a registered investment adviser and as part of its client services, the company provides safekeeping of securities. Which of the following statements are TRUE regarding the safekeeping services provided by the firm?

The securities must be deposited with a qualified custodian A notice must be sent to the clients as to where the securities are being held

In order to determine the suitability of a potential investor for a limited partnership, which of the following forms would the client complete?

The subscription agreement

A broker-dealer has filed an application to withdraw its registration. Which of the following statements is TRUE?

The withdrawal will become effective when the Administrator determines whether there is an action for revocation of the firm's license pending at the time the application was filed. An application for withdrawal generally becomes effective 30 (not 60) days after it was filed. the Administrator can still bring a cause of action against the B/D for up to one year after the withdrawal

Which of the following statements is TRUE regarding funds of hedge funds?

They are generally illiquid investments.

Securities listed on an exchange (NYSE/Nasdaq), but traded in the OTC market is what type of market? (between b-d & institutional investors)

Third Market

Trading in WXYZ has been particularly heavy and the stock's price has been fluctuating wildly. A customer calls her agent and asks for the current price, since she is considering selling her position in WXYZ. The agent has been extremely busy and last saw a price of 44 on the stock 20 minutes ago. The agent tells the customer, "Last price I have for it is 44." The agent then takes another phone call. Which of the following statements is TRUE regarding the price provided by the agent?

This statement is misleading since the rep did not indicate how old the price was and, in a volatile market, it could now be quite different

In calculating the discount rate used to determine the discounted cash flow, which TWO choices are used?

Time value of money & Risk Premium

What may be used to compare the performance of two money managers & does not consider the inflows and outflows of cash?

Time-Weighted Rate of Return Since managers cannot control when investors either deposit or withdraw their funds, the time-weighted return does not consider inflows and outflows.

Which of the following is a consequence of being a general partner?

To accept a personal obligation to repay creditors of the partnership

Which of the following is considered to be part of an investment adviser's fiduciary duty?

To ensure that all investment advice is impartial and disinterested

What is called when we bring goods into the country, which means we're sending US dollars out of the country and importing foreign goods?

Trade Deficit

When Imports EXCEED exports (sending money out of the country) this known as a?

Trade Deficit

You are the executor of your parents' estate. Which of the following investments would be the most suitable for the estate? A diversified portfolio of hedge funds Insured bonds Treasury bills Credit default swaps

Treasury bills *short term and most liquid option here to give to beneficiaries

Which of the following investments would NOT be appropriate for an estate account? 3-month CDs T-bills Commercial paper Treasury bonds

Treasury bonds- LONGEST maturity An estate is only expected to exist for a limited amount of time (i.e., one or two years at the most). By this time, the executor should have distributed all of the assets to the heirs and completed the estate's affairs. Treasury bonds are long-term investments with maturities exceeding 10 years. All other investments are short term.

A client of ABC Advisers has recently retired and is looking for an investment that will provide steady income and offer the ability to sell quickly if the need arises. Which of the following investments would be the BEST recommendation

Treasury notes

FUNDAMENTAL Analysis rely heavily on financial ratios in their analysis of stocks. T/F

True

As of the close of business on Monday, a state-regulated IA has fallen below its minimum financial requirement. When must the deficiency be reported to the state Administrator?

Tuesday If an IA falls below the minimum financial requirement, it must notify the state Administrator by the next business day.

A general partnership, in contrast, is created whenever

Two or more people agree to form a partnership. The agreement does not even need to be in writing.

If the U.S. dollar has been appreciating against foreign currencies, all of the following statements are true: the U.S. dollar buys more of foreign currencies U.S. goods become more expensive in foreign countries foreign goods become cheaper in the United States NOT TRUE/EXCEPT

U.S. exports become more competitive **The U.S. exports will cost more to foreigners and become less competitive.

Mr. Brown is a client who must fulfill a $300,000 obligation in two years. He currently has the $300,000 and would like your advice as to how to invest these funds temporarily. Which of the following securities is most suitable?

U.S. government securities maturing in two years

A CPA who specializes in tax and estate planning is serving as a trustee. Since the CPA will be charging a minimal fee for his services, he chooses not to perform a complete tax analysis for the trust. Under the Uniform Prudent Investor Act, the CPA's actions are considered:

Unacceptable because the trustee is not acting in the best interest of the trust

Which of the following insurance contracts have the elements of term insurance, a cash value that is not market-based, and a flexible death benefit?

Universal life

A 30-year-old client needs protection for his family in the event of his death. He does not have a high income, but he does want to develop cash value which would be accessible as he moves forward in his career. Which insurance recommendation is the most appropriate?

Universal life *flexible with policy payments & creates cash value

Five years ago, a registered representative sold a variable annuity to a 65-year-old client. The annuity carries a seven-year surrender fee. The client made a lump-sum investment of $100,000 into a growth-oriented separate account which has grown to $150,000. The RR expects a major market correction in the near future and recommends that the client conduct a 1035 Exchange into a fixed annuity. The RR explains to the client that the surrender fee will be less than the anticipated decrease in account value. This recommendation is:

Unsuitable, since there is no benefit in surrendering the annuity due to the other investment options that are available in the separate account. **Do not recommend signing a new, long-term contract

A client calls an investment adviser representative to discuss a stock she is interested in purchasing. The stock has a low P/E ratio, a high dividend payout ratio and its issuer has a large amount of cash reserves. What type of stock is it? Growth Value Large-cap Small-cap

Value *Value stocks are also characterized by low price-to-book ratios, which is consistent with a company that has a lot of cash on hand.

Modern Portfolio Theory (MPT) defines risk as the:

Variability of expected returns about the mean In MPT, risk is defined as the degree to which investment returns deviate from what was expected or predicted. Risk vs. Reward. It is usually measured by the standard deviation of expected returns about the mean (δ), although its square, variance (δ2), is sometimes used.

A-It is included in the estate of the deceased B-It is not taxable to the beneficiary C-The beneficiary may elect to receive the death benefit as an annuity

Variable Life Insurance policy Although the death benefit of a variable life policy may increase or decrease due to the performance of the separate account, it will not decrease below a minimum guaranteed amount (the face value)-never go to $0

Which TWO of the following statements are NOT TRUE regarding the investment risk of a life insurance policy?

Variable life policy writers bear the risk of poor separate account returns. -No Variable life policy owners bear the risk! Whole life policy owners bear the risk that the general account return will not meet the guaranteed rate. Since the writer of a whole life policy guarantees the return, the insurer bears the risk that general account returns will not meet the guaranteed rate.

What are generally considered a "sweetener," which gives holders the ability to purchase stock at a predetermined price for a long period. When issued with bonds, the issuer can typically lower the coupon rate and reduce its interest cost.

Warrants

A U.S. portfolio manager that anticipates receiving an interest payment in a foreign currency would be concerned that the currency might:

Weaken against the dollar

When is a mutual fund's prospectus required to be delivered?

When a client is solicited to buy mutual fund shares

Which TWO of the following types of insurance have fixed premiums?

Whole life insurance Variable life insurance

When should a federal covered adviser (FCA) file an amendment to its registration?

Within 90 days of the end of its fiscal year

Which items would change if a company declared a cash dividend?

Working capital (decrease) - money is given out Total liabilities (increase)- money is given out Shareholders' equity (reduce shareholders' equity because retained earnings would be decreased by the dividend). ** Total assets would not be affected until the dividend is actually paid.

An individual expects the market price of XYZ to go down. This investor might:

Write XYZ call options Buy XYZ put options *Since the individual is bearish, he should buy puts and/or write calls on the underlying stock- he thinks it going down.

Your client owns a portfolio of blue-chip equity securities and would like to increase the overall rate of return through the use of options. The most conservative strategy to achieve this objective is to:

Write covered calls

Which of the following options positions is the MOST risky? Writing an:

Writing an uncovered call

True about __________ bonds: It has no reinvestment risk The bondholder receives all interest at maturity The bondholder pays tax each year on the accretion

Zero-Coupon Bonds

A corporation ends its accounting year on September 30. It would be correct to state that it uses

a fiscal year

An expansionary fiscal policy (taxation & spending) would usually result in

a government increasing government spending to stimulate economic activity. *This would loosen $, increase spending, increase demand to expand the economy.

tactical asset allocation encompasses short-term decisions (market-timing) & Strategic asset allocation has a:

long-term outlook (ex. buy and hold/ more passive strategy)

Under the Uniform Securities Act, which of the following would NOT be considered a broker- dealer?

agents, issuers, and banks

The semi-strong form of efficient market hypothesis (EMH) asserts that

all public information is already reflected in security prices making fundamental analysis valueless.

The S&P 500 (SPX), Dow Jones Industrial Average (DJI) and Nasdaq Composite (IXIC)

are the world's largest indices based on the market capitalization of their constituents.

The primary function of the Federal Reserve System (the Fed) is to

carry out monetary policy

An analyst comparing revenues with expenses is most likely analyzing

cash flow *On Income Statement

An investor is short stock at 60. The current market price of the stock is 35, and he anticipates it will continue to decline. If he thinks the price will rise temporarily and if he does not wish to close out his short position, his best strategy to prevent a loss would be to Hint: investor is being bullish

buy an XYZ 35 call If the client is correct, a near-term rise in the price of XYZ will cause the long 35 call to be in the money and the investor can sell the call at a profit. Hedging short position = buying calls

Nonagricultural employment is a ____________ indicator.

coincidental indicators

CMV Long positions + Credit Balance Short account - CMV of short positions - debit balance in Long account =

combined equity in a mixed margin account

A corporation issues:

common stock rights warrants

-The stock risk premium is the inducement necessary to entice the individual to invest in a particular stock. -The market risk premium is the incentive required for the individual to invest in the securities market. (systematic) -Only considerssystematic risk. Qualities of:

capital asset pricing model (CAPM)?

Most convertible securities are sold with antidilutive clauses that provide for an adjustment in the number of

shares based on stock splits or stock dividends.

Russell 2000 is an example of what type of bench-mark?

small-cap

A weaker domestic currency or weak US dollars stimulates:

exports. Foreign countries can buy more US products. Imports are more expensive because US dollar can't buy as much.

Durable goods such as cars, washing machines production ____________ during a recession.

decrease

A UIT, Hedge Fund & REIT ARE NOT:

derivatives SWAPS, Forwards, Futures, Options are!

FCAs, Federal Covered Advisers are required to follow federal (SEC) rules regarding books and records; therefore, state Administrators don't

determine the requirements Ex. The state securities Administrator may indicate the types of books and records that are required to be kept by an investment adviser that's registered with the SEC. FALSE.

What estimates the fair market price of an investment?

discounted cash flow

This authorizes a person to manage the affairs of an individual who is in good health and remains in force if the individual is declared incompetent or becomes incapacitated.

durable power of attorney

What is a measurement of how sensitive a bond's price is to small changes in interest rates?

duration Bonds with longer maturities tend to be more sensitive to interest-rate swings—in other words, the bonds have longer durations. Conversely, bonds with shorter maturities are less sensitive to interest-rate swings—they have shorter durations.

NONCyclical industries produce goods we can't live without like:

food and dugs. Ex. Supermarket chain is noncyclical

One way an investor can protect against a weakening U.S. dollar is to invest in:

foreign securities.

Components of a company's net worth would include all of these

goodwill inventory fixed assets NOT operating income

A broker-dealer may effect transactions with a person from Canada who is temporarily

in the state if there was an existing broker-dealer-client relationship before the person entered the United States.

Warrants can be perpetual (never ending)

in their duration and are issued by the corporation that also issues the common stock. Warrants give the holder the ability to convert the warrant into the common stock of the corporation at a specified price and at the holder's choice

The alternative minimum tax is designed to ensure that certain high-income taxpayers do not avoid all income tax through the use of various tax preference items. Those preference items are added back to the taxpayer's ordinary income on IRS Form 6251 and would include

interest received from specified private purpose municipal revenue bonds.

buying long-term bonds and selling short-term bonds will cause an:

inverted yield curve r

Advice, Business & Compensation determines whether the firm meets the definition of:

investment adviser

A stop-limit order becomes a limit order when a round-lot trades at or through its stop price, and requires that

its limit price be satisfied to receive an execution.

Prime interest rate is a ____________ indicator. *interest rate for lending used by banks (credit cards)

lagging indicators

Manufacturers' new orders for consumer goods & Building permits (housing starts) are _____________ indicators:

leading indicators

Issuers with a large amount of bonds outstanding would be in a_________ position.

leveraged

A limited partner, owners of an LLC, & shareholders of an S Corporation all have:

limited liability

Mutual funds (even long-term) are easily redeemable securities, therefore:

liquid the investor is assured of a buyer that will exchange money for the redeemed fund shares within 7 days of the redemption request

Cyclical industries make or sell products that we can:

live without or delay buying when times are tough. Examples travel and construction, leisure products, automobile & appliance manufacturing.

The Uniform Securities Act is a:

model law governing state registration statutes for securities and financial professionals. The USA gives guidance to individual states when they draft their own securities statutes, but the USA itself is not the actual law of any one state.

You have a 70-year-old client who owns a whole life insurance policy. The face amount of the policy is $1 million and it currently has a cash value of $400,000. The client is interested in a life settlement. If the policy is accepted, the client would expect to receive

more than $400,000, but less than $1 million When a policy is sold through the life settlement process, the insured receives more than the cash value, but less than the face amount of the policy

When interest rates rise, bond prices will fall. However, the price of bonds with longer maturities will fall:

more than the prices of bonds with shorter maturities. Long-term bonds have a greater duration

A fund that assesses a 12b-1 fee of 0.25% of average net assets per year is a?

no-load fund

Strategic asset allocation focuses on the client's investment objectives and risk tolerance, while tactical asset allocation focuses

on economic and market conditions (market can be beaten or timed)

The Investment Company Act of 1940 states that:

open-end companies may issue common stock only

Form 1065 is used for:

partnerships

Charging the client a flat fee regardless of how much management has been provided is:

prohibited for advisory fees because fee must appropriate for services provided. This could be too little or too much..

An increase in US deficit means we're spending more money (our debt is rising) ussually outside of the country. US imports more than it exports. Exs include: Americans buying Japanese cars investments by U.S. firms abroad U.S. foreign aid (helping other countries) NOT

purchase by foreigners of U.S. securities (this would lower our deficit) because foreigners are purchasing our stuff.

Phocine and Ursus, LLC, a covered investment adviser, has a client with a large short position in PQR common stock. Their chief analyst believes that PQR is an attractive target for an acquisition. Based on this information, it might be wise for the firm to suggest this client

purchase call options on PQR.

All of the following statements regarding technical analysis are correct:

technical analysts use terms such as trendline, support, and resistance in analyzing stocks technical analysts attempt to predict the future movement of stock prices based on past trends. technical analysts rely on charts to predict the future prices of stocks.

A benefit of active investment in real estate that is not available to purchasers of REITs is

the Section 1031 exchange privilege. Under Internal Revenue Code Section 1031, no gain or loss is recognized on the exchange of real estate held for investment if such property is exchanged solely for real estate of like-kind which is to be held for investment

When a bank borrows from the Federal Reserve, it does it at what rate?

the discount rate (a managed rate, monetary policy)

If a mutual fund shareholder decides to reinvest the dividends that are paid by the fund and purchase additional shares, what is the tax treatment?

the dividend is taxed even if it is reinvested

In the secondary market, U.S.Treasury bond prices are most influenced by

the inflation rate

The total of the cash from operations, investing, and financing, as reported on the statement of cash flows, is

the net change in the cash position of the firm for the reporting period not reported on either the balance sheet or the income statement. It is the sum total of the entries on the statement of cash flows which is a separate financial statement.

One of the reasons why the discounted cash flow method of valuation is useful in assessing the value of fixed income instruments is

the predictability of income / time value of money

The annuitant assumes the risk. Monies are invested in the separate account. Future payments will vary, based on the performance of the subaccounts.

variable annuity

The term "earned income" would include

wages, salaries, tips, and other taxable employee pay, such as bonuses a bonus paid as a result of your division exceeding its goals.

What is the Discount Rate?

Bank rate for borrowing money from other banks reserves on disc rate. The minimum interest rate set by the Federal reserve for lending to other banks. 0% borrow

What is the term given to that item, typically found at the bottom of a corporation's balance sheet, that describes such things as significant accounting policies, commitments made by the company, and potential liabilities and potential losses?

Footnotes

Under SEC regulations, publicly-traded (reporting) companies are required to file all of the following

Form 8-K, Form 10-K, Form 10-Q Not Form 13F (intuitional investment managers)

A narrowing yield spread between corporate and government bonds equals:

Investors are willing to take more risks, economic expansion. They will sell government bonds to buy higher-yielding bonds

The U.S. Treasury issues bonds to the general public to finance the budget:

deficits of the federal government.

Net income is only found on the

income statement.

The current rate of inflation will remain at this level until economic shocks cause it to change is called:

inertial inflation