Series 66
An investor writes an uncovered RST May 25 put for a premium of 4. What is the maximum profit that the investor could realize? a. $400 b. $2,100 c. $2,500 d. An unlimited amount
a. $400
According to the NASAA Recordkeeping Requirements for Investment Adviser Model Rule, an IA is required to maintain a record of the names and addresses of any person to whom it has sent any notice, circular, advertisement, offering, report or publication if the number of persons is: a. 10 or fewer b. 10 or more c. More than 10 d. Less than 10
a. 10 or fewer
Investor Jones begins the year with a portfolio of high-grade bonds and blue-chip stocks valued at $300,000. During the year he receives dividends and interest amounting to $11,345, all of which is reinvested. At year-end, the portfolio is valued at $325,435. The percentage return for the year for this portfolio is: a. 8.5% b. 12.3% c. 7.8% d. 3.7%
a. 8.5%
A bank customer deposits $9,000 in cash into his checking account. On the same day, he deposits $6,000 in cash into his savings account. The bank is required to file: a. A Currency Transaction Report (CTR) b. A Currency and Monetary Instrument Report (CMIR) c. A Suspicious Activity Report (SAR) d. Nothing since each deposit was less than $10,000
a. A Currency Transaction Report (CTR)
Under the Uniform Securities Act, which individual is considered to be an agent? a. A secretary who accepts customers' securities orders b. A principal of a broker-dealer c. A person who solely performs clerical functions d. A silent partner of a broker-dealer
a. A secretary who accepts customers' securities orders
Action Advisers creates financial plans for clients. It generally implements these plans through Packaged Products Producers (PPP), a limited broker-dealer owned by Action. PPP offers a mix of mutual funds and variable annuities, but does not engage in transactions involving individual stocks or bonds. What information must be disclosed to Action's advisory clients? a. A statement that the implementation of client financial plans may be limited because of the incomplete product selection available through PPP b. PPP's monthly net capital position c. A statement that the plans implemented using only mutual funds and annuities will not be able to sufficiently offer diversification for most clients d. A statement that the plan will probably have subpar performance due to the limited investment choices offered by PPP
a. A statement that the implementation of client financial plans may be limited because of the incomplete product selection available through PPP
Under the Investment Advisers Act, the form that is filed annually with the SEC and determines an adviser's continued eligibility for federal registration is called: a. Annual Updating Amendment b. Consent to service of process c. ADV Part 2 d. ADV-W
a. Annual Updating Amendment
Under the Uniform Securities Act, what information is NOT disclosed in an investment advisory contract? a. Any other states in which the investment adviser is registered b. The manner in which the advisory fee will be computed c. A provision disallowing the investment adviser to assign the contract to another party without client consent d. A provision prohibiting the investment adviser from being compensated based on a share of capital gains
a. Any other states in which the investment adviser is registered
Zemo, a new company engaged in green technologies, has announced its IPO will trade on the NYSE. Frank, an adviser with Einstein Advisory Services, plans to purchase a large block of the stock and allocate shares only to his largest discretionary clients. One regulatory concern would be: a. Breach of fiduciary duty b. Liquidity c. Diversification d. Front-running
a. Breach of fiduciary duty
The economic cycle consists of four stages--full recession, early recovery, late recovery, and early recession. Since the market tends to move ahead of the economic cycle, an adviser who believes the economy is in a full recession may advise clients to rotate into what sector? a. Cyclicals, such as transports and technology b. Fixed income securities c. Staples and defensive stocks d. Services and utilities
a. Cyclicals, such as transports and technology
Which of the following statements are TRUE of both variable life insurance and variable annuities? I. The investment risk is borne by the contract owner. II. The product must be sold with a prospectus. III. Partial surrenders are first treated as a tax-free return of principal. IV. If the contract owner dies, the beneficiary receives any proceeds tax-free. a. I and II only b. III and IV only c. I, III, and IV only d. I, II, III, and IV
a. I and II only
Which TWO of the following items does the IRS consider earned income? I. Royalties II. Dividends III. Long-term disability benefits received prior to minimum retirement age IV. Social Security a. I and III b. I and IV c. II and III d. II and IV
a. I and III
Which of the following statements are TRUE regarding a limited partnership? I. There must be only one general partner. II. There must be more than one limited partner. III. There is undivided interest in equity that does not pay income taxes. IV. It is a form of ownership that passes its profits and losses through to its participants. a. III and IV only b. I, II, and III only c. I, II, and IV only d. II, III, and IV only
a. III and IV only
What is the biggest advantage of investing in a general partnership? a. Income is only taxed once b. Each partner has limited liability c. Each partner shares equally in the partnership's profits d. It is easy to dissolve or liquidate the partnership
a. Income is only taxed once
Mammoth Investments is a federal covered investment adviser with offices in 42 states. Which of the following statements concerning the firm's registration is TRUE? a. Mammoth's federal registration is sufficient to do business in all states and state registration of the firm is not required b. Mammoth must also register as an adviser in each state in which it has an office c. Mammoth must maintain dual federal and state registrations in all states in which it does business d. Mammoth must maintain both federal and state registrations in all states in which it does business with noninstitutional customers
a. Mammoth's federal registration is sufficient to do business in all states and state registration of the firm is not required
Robin works part-time for an investment adviser and develops financial plans for the advisory clients. The customized financial plans that she creates for a fee often include recommendations for clients to purchase insurance or variable annuities as well as open IRAs or some other types of retirement accounts. Robin does not earn commissions for selling variable annuities and insurance products to implement the clients' plans. Is Robin an investment adviser? a. No, she is an investment adviser representative. b. No, since she does not provide investment advice on a full-time basis. c. No, since she does not receive compensation for implementing her financial planning recommendations. d. Yes, since she charges a fee for financial planning services.
a. No, she is an investment adviser representative.
When considering the tax consequences of trading securities within a trust, the trustee should examine: a. Other taxable income that is generated by the trust b. The taxable assets of the trustee c. The taxable assets of the grantor d. The taxable income of the beneficiary of the trust
a. Other taxable income that is generated by the trust
A married couple, who are both 60-years-old, earned $150,000 jointly last year. They each make 401(k) contributions, but want to save more for their retirement. The most suitable type of plan for an IAR to recommend is a: a. Roth IRA, into which each may contribute $7,000 per year b. Traditional IRA, into which each may contribute $6,000 per year c. Roth IRA, into which both may contribute $6,000 per year d. Traditional IRA, into each may contribute $7,000 per year
a. Roth IRA, into which each may contribute $7,000 per year
An investment adviser has computed investment returns from clients over the past three years. Which of the following methods would be most useful for calculating the variance of returns that the clients have attained? a. Standard Deviation b. Average Return c. Black-Scholes Model d. Sharpe Model
a. Standard Deviation
Stephen Gigs is about to retire and is concerned about having enough income to supplement his Social Security retirement savings. He would like to buy a conservative investment that can help offset inflation. Mr. Gigs takes the advice of his agent and purchases Treasury Inflation-Protected Securities (TIPS) with a face value of $100,000 and a coupon rate of 2 3/4%. Six months later, he reads that the CPI is up 3 1/2%. What is the approximate amount of Mr. Gigs' next interest payment? a. $1,375 b. $1,423 c. $2,750 d. $3,500
b. $1,423
As an investment adviser, you are required to record and keep a record of every transaction in a security for a client's account within: a. 10 days of the end of each quarter b. 10 days of the end of each quarter, excluding direct obligations of the U.S. government c. 20 days of the end of each quarter d. 20 days of the end of each quarter, excluding direct obligations of the U.S. government
b. 10 days of the end of each quarter, excluding direct obligations of the U.S. government
An equity-indexed annuity is linked to the S&P 500 Index and has a spread of 2.5%. If the S&P returns 7.5% in one year, the annuity's rate of return will be: a. 2.5% b. 5.0% c. 7.5% d. 10%
b. 5.0%
Provided a broker-dealer has written procedures allowing for an agent to borrow or lend money to a customer, the agent may do so in all of the following situations, EXCEPT: a. A customer is a member of the agent's immediate family b. A customer is registered with a different broker-dealer than the agent c. A customer is a financial institution engaged in the business of making loans d. A customer has a personal relationship with the agent that exists outside their brokerage relationship
b. A customer is registered with a different broker-dealer than the agent
Which of the following investments would qualify to pass through both income and losses? a. A real estate investment trust b. A hedge fund c. A regulated investment company d. A company that is subject to SEC Section 12 reporting requirements
b. A hedge fund
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. A real estate investment trust b. A limited liability company c. A Subchapter S corporation d. A master limited partnership
b. A limited liability company
All of the following would be considered an investment adviser representative under the Uniform Securities Act, EXCEPT a(n): a. Portfolio manager for Winners Asset Management Co b. Broker-dealer offering wrap accounts to its clients c. A partner of Winners Asset Management Co. who supervises investment adviser reps d. An accountant who works for Winners Asset Management Co., who provides financial plans for clients
b. Broker-dealer offering wrap accounts to its clients
Which of the following statements is NOT TRUE concerning the registration requirements of securities professionals? a. Broker-dealers with no place of business in a state and a limited number of noninstitutional clients in a state must register b. Broker-dealers with no place of business in a state who limit their agents to selling exempt securities in a state need not register c. Investment advisers with no place of business in a state and whose only clients are institutional investors in a state need not register d. Investment advisers with no place of business in a state and a limited number of noninstitutional clients need not register
b. Broker-dealers with no place of business in a state who limit their agents to selling exempt securities in a state need not register
Maria wants to open a 529 savings plan for her daughter. The advantages of this type of account include all of the following factors, EXCEPT: a. Earnings grow on a tax-deferred basis b. Contributions may be deducted from the donor's federal and state income taxes c. There are no limits on the contributor's income d. Distributions are not subject to federal income taxes provided they are used to pay for education expenses
b. Contributions may be deducted from the donor's federal and state income taxes
Which of the following transactions would NOT be considered an unethical business practice by a broker-dealer? a. Effecting a transaction in a security that does not involve any beneficial change of ownership b. Effecting a transaction in a security on behalf of clients for the purpose of acting as an agent for both buyer and seller c. Effecting a transaction in a security on behalf of clients for the purpose of increasing the trading volume of that security d. Effecting a transaction in a security with other broker-dealers for the purpose of increasing or decreasing the price
b. Effecting a transaction in a security on behalf of clients for the purpose of acting as an agent for both buyer and seller
A technology company's stock is listed on an exchange and is also traded over-the-counter by a small number of market makers. The stock is considered by the Administrator to be a: a. Non-exempt security and subject to registration by coordination b. Federal covered security and not subject to registration with the Administrator c. Federal covered security and subject to registration by qualification d. Federal covered security and subject to notice filing with the Administrator
b. Federal covered security and not subject to registration with the Administrator
According to the Uniform Securities Act, the Administrator may require federal covered advisers to: a. Register in every state in which they have a branch office b. Give notice or notice file in any state where they transact business with six or more individual retail clients c. Register with the Administrator in any state where they transact business with six or more individual retail clients d. Do nothing because the Administrator has no jurisdiction
b. Give notice or notice file in any state where they transact business with six or more individual retail clients
Foresight Advisers does not have an office in New Mexico. Under the Uniform Securities Act, in which of the following situations would the firm be required to register as an investment adviser in that state? I. Foresight limits its practice to wealthy individual investors with $1 million or more in net assets who are domiciled in New Mexico. II. Foresight only advises government entities. III. Foresight solicits its services to eight retail customers in New Mexico. IV. Foresight has assets of $103.4 million under management. a. I and II only b. I and II only c. III and IV only d. I, III, and IV only
b. I and II only
In which of the following situations is an adviser required to provide a customer with an annual audited balance sheet? I. The IA has custody of client assets II. The IA receives substantial prepayment of advisory fees III. The IA has limited discretionary authorization over a client's account a. I only b. I and II only c. II and III only d. I, II, and III
b. I and II only
Which of the following is/are regulated under the Investment Company Act of 1940? I. Investment companies investing money into other investment companies II. The firm that serves as a mutual fund's custodian and holds its assets III. The minimum rate of return required to remain registered as a fund IV. The performance of the investment company a. I only b. I and II only c. I, II, and III only d. I, II, III, and IV
b. I and II only
In which TWO of the following circumstances will dollar cost averaging result in an average cost per share that is always less than the average price per share? I. The price of the stock has fluctuated over a given period. II. A fixed number of shares is purchased regularly. III. A fixed-dollar amount is invested regularly. IV. A constant-dollar plan is maintained. a. I and II b. I and III c. II and III d. III and IV
b. I and III
Under IRS rules, which of the following items are exempt from the definition of earned income? I. Unemployment benefits II. Alimony III. Child support IV. Income received from investments in property V. Net earnings from self-employment a. I, II, and III only b. I, II, III, and IV only c. II, III, IV, and V only d.I, II, IV, and V only
b. I, II, III, and IV only
According to SEC Release 1092, an attorney is excluded from the definition of an investment adviser in all the following circumstances, EXCEPT: I. The attorney charges a separate fee for investment advice and offers these services only to existing legal clients II. The attorney's website indicates that he is available to offer investment advice on any judgments that his clients win III. The investment advice being offered by the attorney is incidental to his law practice IV. The income that the attorney generates from providing investment advice is less than 1% of his gross income a. I and II only b. I, II, and IV only c. III only d. III and IV only
b. I, II, and IV only
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? I. If he withdraws some of his cash value, it will be treated as taxable earnings first, then a tax-free return of premiums (LIFO). II. If he withdraws some of his cash value, it will be treated as a tax-free return of premiums first, then taxable earnings (FIFO). III. If he takes a loan against the cash value, it will be taxed as earnings first, then treated as a tax-free return of premiums (LIFO). IV. If he takes a loan against the cash value, it will be tax-free. a. I and III b. II and IV c. II and III d. I and IV
b. II and IV
When considering the suitability of investment advice, which of the following statements is NOT TRUE? a. The suitability of investment advice is determined by the appropriateness of the advice for that particular client, not the profitability of the client's account b. If a client refuses to supply complete information about her financial resources, the adviser may assume she has other assets that have not been disclosed c. IARs should document their inquiry into the client's financial background and investment objectives by completing a data-gathering form d. Counseling a client to choose very conservative investments is not always a defensible approach to providing investment advice
b. If a client refuses to supply complete information about her financial resources, the adviser may assume she has other assets that have not been disclosed
David is the owner of a private company and his firm needs to raise capital in order to expand its e-commerce business. David's company will issue debt securities and has decided to avoid hiring an investment bank. Under the USA, in which situation will David's salespersons be exempt from registration as agents? a. If the company wants to raise capital and issues debt in minimum denominations of $100,000 that matures in two years b. If the company wants to raise capital and issues debt in minimum denominations of $100,000 that matures in four months c. If the company wants to raise capital and issues debt in minimum denominations of $25,000 that matures in 270 days d. If the company wants to raise capital and issues debt in minimum denominations of $100,000 that matures in less than one year
b. If the company wants to raise capital and issues debt in minimum denominations of $100,000 that matures in four months
According to the USA, if an investment adviser wants to charge a fee based on the average value of a client's portfolio, the fee: a. Is prohibited unless permitted by the Administrator b. Is permitted unless prohibited by the Administrator c. Is always permitted d. Is always prohibited
b. Is permitted unless prohibited by the Administrator
According to the Investment Advisers Act of 1940, access persons must submit their personal security holdings reports by: a. Promptly upon becoming an access person; then at least monthly thereafter b. No later than 10 days after becoming an access person; then at least every 12 months thereafter c. No later than 30 days after becoming as access person; then at least monthly thereafter d. No later than 45 days after becoming an access person; then at least monthly thereafter
b. No later than 10 days after becoming an access person; then at least every 12 months thereafter
If an agent unknowingly misrepresents the risk associated with a security, which of the following statements is correct according to the Uniform Securities Act? a. This is considered an act of fraud. b. Since the agent unknowingly made misrepresentations regarding a security, the agent is not subject to disciplinary action. c. Unknowingly making misrepresentations will result in the denial, suspension, or revocation of the agent's registration. d. Unknowingly making misrepresentations will result in the denial, suspension, or revocation of the registration of the security.
b. Since the agent unknowingly made misrepresentations regarding a security, the agent is not subject to disciplinary action.
According to the Uniform Securities Act, which of the following statements is NOT TRUE concerning a private placement offering? a. The offer may not be made to more than 10 retail investors in the state during any 12-month period. b. The offer may not be made to more than 35 retail investors in the state during any 12-month period. c. The offer may be made to an unlimited number of institutional investors during any 12-month period. d. Commissions may not be paid if the buyers are non-institutional investors.
b. The offer may not be made to more than 35 retail investors in the state during any 12-month period.
A company has entered into bankruptcy and is in the process of being liquidated by the trustee. When one of the company's buildings is sold, its current value is greater than the outstanding loan that is collateralized by the building. What will the trustee do with the excess funds? a. Distribute the excess funds to the secured creditors b. Use the excess funds to pay the company's general creditors c. Distribute the proceeds to the stockholders as a capital gain d. Distribute the proceeds to the stockholders as income
b. Use the excess funds to pay the company's general creditors
When acting as the trustee for a family trust, who does an investment adviser consider for termination benefits? a. The grantor b. An income beneficiary c. A contingent remainder beneficiary d. The trustee
c. A contingent remainder beneficiary
What information may NOT be part of an investment adviser's contract with its clients? a. A description of how the client's transactions will be executed b. A clause incorporating Part 2 of the adviser's ADV form into the contract by reference c. A hedge clause limiting adviser liability except in cases of gross negligence d. A notification provision stating that the adviser will notify all its clients in case of a change in ownership
c. A hedge clause limiting adviser liability except in cases of gross negligence
Under the USA, which of the following transactions is NOT considered exempt? a. An offering being made to an investment company b. A transaction by an executor of an estate c. An unsolicited issuer transaction that is executed through a registered broker-dealer d. A transaction by a trustee that is involved in a bankruptcy proceeding
c. An unsolicited issuer transaction that is executed through a registered broker-dealer
A common investment strategy is dollar cost averaging. The objective of using this method of investment is the: a. Average price of securities purchased is less than the average cost of the securities over a long period b. Average cost of securities purchased is more than the average price of the securities purchased over a short period c. Average price of the securities purchased will be more than the average cost of the securities over a long period d. Average cost of the securities will be equal to the average price of the securities over a long period
c. Average price of the securities purchased will be more than the average cost of the securities over a long period
Jim is an agent of a broker-dealer who has received an employment offer from another broker-dealer. If Jim resigns from his present firm, his registration will: a. Automatically be transferred to the new firm b. Automatically expire c. Be terminated through the filing of Form U5 d. Not be affected
c. Be terminated through the filing of Form U5
If an investment adviser uses a social media site as a form of advertising, all records of its use must be maintained for at least: a. Two years b. Three years c. Five years d. THe life of the firm, plus three years
c. Five years
Under the Uniform Securities Act, the statute of limitations for criminal violations of the Act is: a. One year b. Three years c. Five years d. There is no time limit for criminal violations
c. Five 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: a. Dora b. Dora's children c. Harold d. Stanley
c. Harold
Nelson is an advisory client of XPert Capital Management, a registered investment adviser. Nelson is the sole trustee of an irrevocable trust for which his son, Tad, is the beneficiary. The trust was created and funded by Bertha, Tad's well-to-do aunt, and Nelson's sister. Nelson has hired XPert Capital to manage the trust's investment portfolio. Which of the following choices would be considered fiduciaries in this situation? I. Nelson II. XPert Capital III. Bertha a. I only b. II only c. I and II only d. I, II, and III
c. I and II only
Related to a transaction, which of the following actions would cause it to be subject to the laws of State Z? I. The offer and acceptance occur in State Z. II. The offer originates over the phone from State Z and is directed to State A. III. The offer is mailed from State A, directed to State Y, and accepted in State Z. IV. The offer originates over the phone from State Y and the sale occurs in State A. a. I and II only b. II and III only c. I, II, and III only d. I, II, III, and IV
c. I, II, and III only
An Administrator receives a written notice indicating that an IA has just violated the net capital rule and is currently below the minimum requirement. Which of the following reports would the Administrator demand? I. A current balance sheet II. Contact information for the qualified custodian that handles the clients' funds III. A client ledger IV. A list of all client-owned securities and nonsegregated funds a. I and II only b. I, II, and III only c. I, III, and IV only d. I, II, III, and IV
c. I, III, and IV only
Which TWO of the following investments are NOT considered money-market instruments? I. A U.S. Treasury bill II. A money-market mutual fund III. A convertible debenture IV. A tax anticipation note a. I and II b. I and III c. II and III d. II and IV
c. II and III
A group of investors is starting a business to explore and drill for oil. All want to be actively involved in the business, but none wants to be personally liable for the venture's debts. Which of the following business structures would meet their objectives? I. A limited partnership II. A general partnership III. A limited liability company IV. An S Corporation a. I only b. I and II only c. III and IV only d. I, III, and IV only
c. III and IV only
Which of the following statements is TRUE about indexing? a. It measures the performance of an IA versus an index. b. It is an active management strategy. c. It may result in a portfolio that does not accurately track the index. d. It is a strategy in which an IA attempts to outperform a specific index.
c. It may result in a portfolio that does not accurately track the index.
Under the Uniform Securities Act, an institutional investor: a. Has more than $2.1 million of net worth b. Has a minimum of $1 million under management with an investment adviser c. May be designated as such by rule or order of the Administrator d. Is any financial institution or trust
c. May be designated as such by rule or order of the Administrator
Currently, the price of gold is increasing as the price of Treasury bills is declining. These two assets are considered: a. Perfectly correlated b. Uncorrelated c. Negatively correlated d. Slightly correlated
c. Negatively correlated
According to the Investment Advisers Act of 1940, when must an access person submit a transaction report? a. No later than 10 days after the end of the calendar quarter in which the transaction was effected b. Promptly c. No later than 30 days after the end of each calendar quarter d. Within 90 days of the end of the adviser's fiscal year
c. No later than 30 days after the end of each calendar quarter
Carrie has been a client of an investment adviser that is established as a partnership for four years and is happy with the performance of her account. If she wants to renew her contract with the firm, which of the following provisions is NOT required in the contract? a. Notification if a managing partner, who does not manage any of Carrie's assets, retires from the firm b. Notification if a managing partner, who does not manage any of Carrie's assets, leaves to start a new advisory firm c. Notification if the investment adviser representative, who manages Carrie's assets, leaves to start a new advisory firm d. Notification if a minority partner leaves the firm
c. Notification if the investment adviser representative, who manages Carrie's assets, leaves to start a new advisory firm
If Jane Brown annuitizes her nonqualified variable annuity, how will the series of payments be taxed? a. LIFO b. FIFO c. Part of each payment is taxable earnings and part is a tax-free cost basis d. All taxable earnings first, then all cost basis
c. Part of each payment is taxable earnings and part is a tax-free cost basis
According to modern portfolio theory (MPT), the expected return of an investment is the: a. Average return including realized and unrealized gains and losses, plus income over a measured time period b. Market return on the investment adjusted by the beta of the stock or the portfolio c. Possible returns on the investment weighted by the likelihood that return will occur d. Standard deviation of gains and losses over the life of the investment
c. Possible returns on the investment weighted by the likelihood that return will occur
Bob Bender is an investment adviser representative for Bender Investments, a firm founded by his great grandfather several decades ago. Over the years, he has held several positions with the firm. In which of the following job capacities would Bob NOT have been required to register as an IAR? a. Supervising representatives employed by Bender b. Negotiating investment advisory contracts with institutions c. Preparing tax documentation for some of Bender's customers d. Managing portfolios for a select group of clients who are old family friends
c. Preparing tax documentation for some of Bender's customers
An investment adviser has begun to experience difficulties in collecting fees from the accounts of clients that do not elect to have the fees deducted directly from their accounts. As a result, the firm has decided to raise its fees and require a larger up-front deposit from all new accounts for the upcoming year. However, to reward its current clients, the adviser has decided to waive the fee increase and will not change the terms of their contracts. For this situation, what is the adviser required to do? a. The IA must update its Form ADV Part 2 and any customer disclosure documents within 90 days of its year-end b. The IA must make necessary changes to all of its disclosure documents and receive written consent from all of its current clients within 30 days c. The IA must make all of the necessary changes and promptly file amendments to its Form ADV d. The IA must notify all of its current clients of the new fees and update its Form ADV Part 2 within 60 days
c. The IA must make all of the necessary changes and promptly file amendments to its Form ADV
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: a. The inventory cost of 28 b. The highest bid on the Nasdaq system c. The lowest offer on the Nasdaq system d. A price that is fair and reasonable
c. The lowest offer on the Nasdaq system
All of the following statements are TRUE of covered call option writing, EXCEPT: a. The writer can increase the overall yield on his portfolio b. It is considered a conservative option strategy c. The premium received guarantees the writer cannot have a loss on the underlying security d. The writer will have a short-term capital gain if the option expires unexercised
c. The premium received guarantees the writer cannot have a loss on the underlying security
According to the recordkeeping requirements for IAs, if a client trade is executed, which of the following items is NOT required to be included on the order memorandum? a. The person who recommended the transaction b. The person who placed the order c. The time that the order was executed d. The date on which the order was entered
c. The time that the order was executed
An investment adviser charges fees based on a percentage of the assets being managed by the firm for the client. The schedule of fees reveals that the more assets the firm manages for the client, the lower the advisory fee. For customers with more than $5 million under management, the firm's advisory fees are negotiable. Which of the following statements is TRUE? a. The firm's fee structure is illegal since all customers must be charged the same rate for the same advisory services b. That part of the firm's fees that declines as assets increase is acceptable, but advisers may not negotiate different fees with different clients for the same amount of assets under management c. This fee structure is acceptable as long as the resulting fees are reasonable d. Any fee structure is acceptable as long as it is disclosed to the client and the client consents to it
c. This fee structure is acceptable as long as the resulting fees are reasonable
Bill and Jean would like to contribute to a 529 plan for their only child. They figure they can afford to contribute $5,000 per year for the next 15 years. If they are able to maintain their annual contribution, and earn at least 5% on their contributions, what would the future value of the 529 plan be in five years? a. $10,762.50 b. $16,550.63 c. $22,628.15 d. $29,009.56
d. $29,009.56
A portfolio has an alpha of 0%, a beta of 1.0, and an actual return of 12%. What would the alpha of the portfolio be if the beta was 0.9 and the actual return was 10.6%? a. 1.40% b. -1.40% c. 0.00% d. -0.20%
d. -0.20%
Which of the following is not a security as defined by the USA? a. A certificate of interest in a profit-sharing agreement b. A certificate of interest in a mining title c. A preorganization certificate d. A futures contract in precious metals
d. A futures contract in precious metals
According to the Uniform Securities Act, which of the following investment adviser representatives (IARs) is considered to have custody of customer funds? a. An IAR who receives a customer check in the mail that is made payable to a broker-dealer b. An IAR who receives a customer's permission to place trades in her account c. An IAR who also acts as an agent for a broker-dealer and earns commissions d. An IAR who has been hired by a customer to act as the trustee for the customer's account
d. An IAR who has been hired by a customer to act as the trustee for the customer's account
An adviser is constructing a bond portfolio for a client whose goals are stable income and return of principal. The adviser determines that the appropriate benchmark to compare this portfolio's performance is the Wheyman Intermediate-term Government Bond Index. Which of the following statements is NOT TRUE regarding this decision? a. Choosing this index implies that mortgage-backed securities are not a large part of the portfolio. b. This portfolio should have low levels of risk to match the benchmark. c. The client's goals of stable income and return of principal are not guaranteed by the choice of this benchmark. d. Any returns of this portfolio that exceed the performance of the benchmark are measured by the beta of the portfolio.
d. Any returns of this portfolio that exceed the performance of the benchmark are measured by the beta of the portfolio.
During the course of an investigation under the Uniform Securities Act, the Administrator finds that an investment adviser representative has engaged in fraudulent activities. The representative says that he is unaware of any fraud and was only following the directions of his firm. He produces a written recommendation list issued by his firm upon which he based his recommendations. What action would the Administrator most likely take in this situation? a. Impose a fine and prison sentence b. Impose a fine but not a prison sentence c. Bring an action in court to impose a fine and prison sentence d. Bring an action in court to impose a fine but not a prison sentence
d. Bring an action in court to impose a fine but not a prison sentence
A wrap account would likely be MOST suitable for a client who: a. Employs a buy-and-hold strategy b. Wants to minimize the taxes generated in the account c. Often conducts his own research and trades actively d. Executes several securities transactions per week
d. Executes several securities transactions per week
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, EXCEPT the: a. Fee arrangement may create an incentive for the adviser to make riskier or more speculative investments b. Adviser may receive a share of both realized and unrealized gains in the account c. Period used to measure performance d. Fact that the adviser has discretion as to any index to measure performance
d. Fact that the adviser has discretion as to any index to measure performance
According to the Investment Advisers Act, in order to register as an investment adviser with the SEC, which of the following choices is required? a. File a consent to service of process, pay a fee, and individually register all employees b. File Part 1 of Form ADV c. File Part 1 of Form ADV and produce a surety bond d. File Part 1 and Part 2 of Form ADV
d. File Part 1 and Part 2 of Form ADV
According to the Uniform Securities Act, investment advisers are required to maintain their books and records for: a. Three years with the most recent two years in an appropriate office b. Three years with the most recent two years easily accessible c. Five years with the most recent three years in an appropriate office d. Five years with the most recent two years in an appropriate office
d. Five years with the most recent two years in an appropriate office
Which of the following statements about barbell strategies is NOT TRUE? a. The strategy consists of purchasing bonds with both short and long maturities, but no intermediate-term securities are included b. The short-term bonds will provide for quick cash to purchase new bonds upon maturity c. A barbell strategy is used to take advantage of potential interest-rate changes d. Gains from the short-term maturities will offset losses in the long-term maturities
d. Gains from the short-term maturities will offset losses in the long-term maturities
All of the following are characteristics of futures contracts, EXCEPT: I. Most of the contract's terms are set by the buyer and the seller II. The amount of the commodity being traded is standardized III. Prices are negotiated between the buyer and the seller IV. The buyer of a futures contract cannot be forced to take delivery a. I only b. I and II only c. II and III only d. I and IV only
d. I and IV only
Which of the following are characteristics of zero-coupon bonds? I. They can be purchased at a deep discount II. There is no reinvestment risk III. Tax consequences occur only at maturity IV. The investor is taxed annually a. I and III only b. I and II only c. I, II, and III only d. I, II, and IV only
d. I, II, and IV only
Which of the following features are characteristics of variable life insurance policies? I. Minimum guaranteed death benefits II. Guaranteed separate accounts III. Exposure of policyholders to investment risk IV. Nonguaranteed surrender value a. I and III only b. II and III only c. III and IV only d. I, III, and IV only
d. I, III, and IV only
Which TWO of the following are NOT included in the adjusted gross income (AGI) of a customer? I. Salary, tips, and bonus II. Alimony support payments that are received from an ex-spouse III. Dividends received from stock IV. Interest received from a municipal bond investment a. I and III b. I and IV c. II and III d. II and IV
d. II and IV
ABC Investment Adviser is a federal covered adviser and requires its IARs to have an MBA degree before they are able to provide advice to its clients. For any of the firm's IARs who provides advice, in what document(s) must their education be disclosed? I. ADV Part 1 II. ADV Part 2 III. Schedule E IV. The adviser's brochure a. I only b. I and II only c. II and III only d. II and IV only
d. II and IV only
Under the Uniform Securities Act, all the following are considered to meet the definition of agent, EXCEPT: I. A sales representative of a broker-dealer who sells only securities that are covered under a federal exemption II. An assistant to a sales agent who accepts orders when the agent is unavailable III. A subsidiary of a bank that is registered as a broker-dealer and sells non-exempt securities to the public IV. A broker-dealer that sells only exempt securities within the state a. I and II only b. I and IV only c. II and IV only d. III and IV only
d. III and IV only
Jill has created a revocable trust to provide for the support of her adult child. The trust has generated $20,000 in income during the year and is invested in a wide variety of stocks and bonds. Which of the following statements concerning this trust is NOT TRUE? a. Jill controls the assets in the trust. b. The trust must be structured as a living trust. c. The trust will become irrevocable upon Jill's death. d. Jill reduces her potential estate tax liability by the amount of the gains in the trust.
d. Jill reduces her potential estate tax liability by the amount of the gains in the trust.
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: a. Limited partnership b. General partnership c. C Corporation d. Limited liability company
d. Limited liability company
The major advantage of an S Corporation versus a C Corporation is that an S Corporation: a. Provides its owners with limited liability b. Has greater access to the capital markets c. Is exempt from state corporate income taxes d. May elect to be treated like partnerships for federal tax purposes
d. May elect to be treated like partnerships for federal tax purposes
An agent who is registered in State A contacts an individual investor in State B. The investor agrees to open an account and buy a security through the agent. If the broker-dealer is registered in State B, but the agent is not, the agent MAY: a. Sell the security if it is registered in State B and the agent's registration is pending in State B b. Sell the security as long as the agent's supervising principal is registered in the state c. Sell the security if it is exempt d. Not sell the security
d. Not sell the security
An IA that has been given the authority to direct the trades in a client's brokerage account opens an account for the client with a broker-dealer. The broker-dealer offers the IA an incentive of additional compensation tied to the volume of transactions executed in the account. Due to the potential incentive, what action must the IA take? a. No action is required since including incentives is an acceptable practice b. It must contact the client and let him choose his own broker-dealer c. It must disclose any incentives earned and the number of trades effected annually d. Prior to offering any advice, it must disclose all compensation and incentives to the client
d. Prior to offering any advice, it must disclose all compensation and incentives to the client
Which of the following is not a sector rotation strategy? a. Investing in different industries that perform better based on the economic business cycle b. Investing in different countries' economies based on their ability to overperform c. Rotating assets between cyclical and counter-cyclical industries d. Rotating between long-term and short-term bonds
d. Rotating between long-term and short-term bonds
Sid is an investment adviser. A number of his clients are willing to accept a relatively high level of risk to achieve potentially high returns. At various times in his career, Sid has attempted to anticipate market events to generate higher returns for his clients. He has found that over time, the results were disappointing. Sid is now a firm believer in indexing. Sid's view of a portfolio's performance over an extended time horizon is an example of: a. The Random Market Theory b. Modern Portfolio Theory c. The Dow Theory d. The Efficient Market Hypothesis
d. The Efficient Market Hypothesis
All of the following are found on a customer's confirmation statement for a bond, EXCEPT: a. The date of the transaction b. Whether the bond is callable c. The bond's purchase price d. The bond's yield-to-maturity at the time it was originally issued
d. The bond's yield-to-maturity at the time it was originally issued
Under the Securities Exchange Act, a customer confirmation is NOT required to disclose: a. The amount of commission to be received by the broker-dealer for executing an agency transaction b. The settlement date of the trade c. The capacity in which the broker-dealer is acting d. The time of the trade execution
d. The time of the trade execution
Ace Financial Consulting is a registered investment adviser specializing in financial planning. Although Ace's IARs are experienced and knowledgeable, they have many clients with complex tax issues. Ace has a consulting agreement with Block & Tackle, a local law firm that specializes in taxation. Block & Tackle is paid a fee whenever Ace calls them in to consult on the tax issues in a complex financial plan. Which of the following statements is TRUE? a. If Block & Tackle is not registered as an investment adviser, it would be required to obtain a waiver from the state Administrator to operate in this advisory capacity b. If Block & Tackle receives cash compensation from Ace, it must follow the rules for cash solicitors under the Investment Advisers Act c. This arrangement is appropriate provided Block & Tackle is compensated directly by the advisory clients on whose plans it provides advice d. This is a legitimate use of a professional consultant by the advisory firm and Block & Tackle need not register as an adviser
d. This is a legitimate use of a professional consultant by the advisory firm and Block & Tackle need not register as an adviser
Why would an investment adviser perform a capital needs analysis for a client? a. To determine how much income the client will need at retirement b. To determine how to best reduce the client's tax liability c. To determine how much disposable income the client has available to purchase insurance d. To determine how much insurance the client needs in order to fund future financial goals
d. To determine how much insurance the client needs in order to fund future financial goals
Which of the following investments would NOT be appropriate for an estate account? a. 3-month CDs b. T-bills c. Commercial paper d. Treasury bonds
d. Treasury bonds
