Series 66 SE - 01/03

Which of the following would be considered a precious metal? A)Platinum B)Tin C)Lead D)Copper

A)Platinum

Duration is A)a measure of a bond's price sensitivity with respect to a change in interest rates B)equivalent to the yield to maturity C)the deviation of a bond's returns from its average returns D)identical to a bond's maturity

A)a measure of a bond's price sensitivity with respect to a change in interest rates

Which of the following statements is TRUE? A)The Uniform Securities Act is national law that each state enforces through a state Administrator. B)State Administrators are permitted to establish regulations relating to the registration, testing and fees for broker-dealers, agents, investment advisers and investment adviser representatives. C)The state Administrator has authority to amend federal law to meet the needs or special circumstance in his state. D)The USA only provides for civil liabilities for persons involved in illegal securities transactions in their state, while federal law provides criminal penalties.

B)State Administrators are permitted to establish regulations relating to the registration, testing and fees for broker-dealers, agents, investment advisers and investment adviser representatives. U3LO5

All of the following statements concerning IRA contributions are true EXCEPT A)contributions for the past year may be made after April 15, provided an extension has been filed on a timely basis B)if you pay your tax on January 15, you can still deduct your IRA contribution, even if not made until April 15 C)between January 1 and April 15, contributions may be made for the current year, the past year, or both D)contributions can be paid into this year's IRA from January 1 of this year until April 15 of next year

B)if you pay your tax on January 15, you can still deduct your IRA contribution, even if not made until April 15 Contributions can be made to an IRA only until the first tax filing deadline (April 15), regardless of having filed an extension. U24LO1

The basis of an asset received from a decedent's estate is referred to as a stepped-up basis. This means that the asset's basis is generally A) the amount the decedent originally paid for the asset B) the fair market value of the asset on the day the decedent acquired it C) the amount the recipient ultimately sells the asset for D) the fair market value of the asset on the day the decedent died

D) the fair market value of the asset on the day the decedent died U21LO5

An investment adviser has recommended funds sponsored by the GEMCO Fund group for many years. One of his clients who has been in several GEMCO Funds for over 10 years sends the IA a referral suggesting that the IA put his friend into the same GEMCO Funds as he owns. Under what circumstances would this be the appropriate action to take? A)The referred client says that he wants just what your existing client owns. B)The IA discloses that GEMCO Funds provides the firm with soft-dollar compensation. C)GEMCO Funds have had outstanding performance for the past 10 years. D)GEMCO Funds are suitable for the referred client.

D)GEMCO Funds are suitable for the referred client. U7LO4

In order to perform a discounted cash flow estimation of the value of a bond, it would be necessary to know all of the following EXCEPT A)the discount rate B)the number of interest payments C)the future cash flow D)the parity price of the bond

D)the parity price of the bond In its simplest iteration, discounted cash flow is nothing more than taking all the money you are scheduled to receive over a given future period and adjusting that for the time value of money (the discount rate). Parity price is only relevant to convertible bonds. U13LO12

When describing exempt transactions under the USA, which of the following are fiduciaries? I. Executor of an estate II. Administrator in intestacy III. Custodian for a minor in an UTMA account IV. An agent with authority over time and price execution

I & II

If an agent feels that his secretary is underpaid and decides to split his commissions on an 80%/20% basis, this practice is A)permitted if the secretary is also registered as an agent and the appropriate supervisory person agrees to the arrangement B)permitted if the secretary is also registered as an agent C)a violation in certain states D)a violation under all circumstances

A)permitted if the secretary is also registered as an agent and the appropriate supervisory person agrees to the arrangement U7LO4

Under the provisions of the Internal Revenue Code, which of the following business forms is not required to file a separate tax return? A)S corporation B)LLC C)Limited partnership D)Sole proprietorship

D)Sole proprietorship

Which of the following statements about bid and asked prices are TRUE? I. The bid price is the price a dealer is willing to pay to buy a security. II. The asked price is the price a dealer is willing to accept to sell a security. III. The bid price for a security is higher than the asked price for the security.

I and II

Under the Uniform Securities Act, the Administrator has the power to deny or revoke exemptions for which of the following types of securities? I. Stock issued by a bank organized under the laws of another state. II. Securities of nonprofit organizations. III. Investment contracts issued by employee benefit plans.

II and III U4LO3

Damon Raymond is an agent with ABC Investment Planning, a registered broker-dealer and investment adviser. Under what circumstances would Damon not have to obtain client consent when ABC Investment Planning is acting in a principal capacity? A)Only if the client terminates the advisory relationship B)When the client has given ABC blanket permission to engage in this type of transaction C)Never D)When the trade that is made is unrelated to the advisory relationship

D)When the trade that is made is unrelated to the advisory relationship Under normal circumstances, when acting in an advisory capacity, client consent must be obtained no later than completion of the trade. However, in a case like this where the transaction is strictly based on the broker-dealer relationship rather than on the advisory one, no consent is necessary. U6LO1

Which of the following concerning a money purchase pension plan are TRUE? I. All employees must contribute to the plan. II. Voluntary employee contributions are optional. III. Employer contributions are required. IV. Employer contributions are optional.

II & III A money purchase pension plan is a defined contribution plan established by the employer, thereby making the contributions mandatory. Employee participation by making voluntary contributions to the plan is optional. Employees who contribute to the plan usually contribute a percentage of their income. U24LO2

An investment advisory firm advertises a stock-picking system that helps investors choose the timing and selection of securities for purchase. Under the Investment Advisers Act of 1940, which of the following must be disclosed in the advertisement? I. The number of years the system has been used successfully II. The difficulty of using the system III. The limitations of the system

II and III The act prohibits reference to any formula, charting, or graphing device without disclosing the difficulties or limitations in their use. The number of years used is not required. U6LO5

A portfolio manager using index options is trying to hedge which of the following types of risks? A)Systematic B)Selection C)Financial D)Purchasing power

B)Selection U20LO12

During the past year, the market price of Kapco common stock has increased from $47 to $50 per share. Over that period, Kapco's earnings per share (EPS) have increased from $2.00 to $2.50 per share, and their dividend payout ratio has decreased from 50% to 40%. Based on this information, the current yield on Kapco common stock is A)6.34% B)2.13% C)2% D)4.26%

C)2% The current yield on a stock is computed by dividing the annual dividend rate by the current market price. With EPS of $2.50 and a 40% payout ratio, the annual dividend is $1.00. This dollar divided by the current market price of $50.00 results in a current return of 2%. U23LO1

Jake Aaron is registered as an agent with ABC Securities, a broker-dealer registered with the SEC doing business in 34 states. In addition, Aaron has his own investment advisory business, Jake's Money Advisers, and is registered with the SEC. To comply with all appropriate regulations, which of the following would have to be stated on the business card for Jake's Money Advisers? I. Jake Aaron, RIA II. Jake's Money Advisers, RIA III. Jake's Money Advisers, registered investment adviser IV. Securities offered through ABC Securities

III and IV It is not permissible to use the initials RIA, but one would properly describe the fact that the firm is a registered investment adviser. If one is registered as an agent with a broker-dealer, that fact always must be stated on that person's business card. U6LO5

All of the following are examples of unsystematic risk EXCEPT A)financial risk B)political risk C)purchasing power risk D)tenure risk

C)purchasing power risk U11LO2

The Uniform Securities Act provides for civil penalties in the event of illegal activities of agents. Under the act, the maximum that a purchaser would be entitled to claim would be I. the original consideration paid for the security II. interest at the state's legal rate III.attorney's fees IV. court costs

I, II, III, and IV U5LO3

During your annual review with your clients, Matt and Sally Eberhart, they indicate that they think it is time to start putting away some money for college for their 3-year-old son. They ask you to describe the advantage of using an UTMA account over a Coverdell ESA. You would likely point out all of the following as advantages EXCEPT A)contributions to the UTMA are made with after-tax dollars B)there are no earnings limits for making UTMA contributions C)there is no limit to the amount that can be contributed to an UTMA D)withdrawals for other than qualified education expenses are not subject to any penalties

A)contributions to the UTMA are made with after-tax dollars U24LO7

An investment adviser representative, who also receives commissions as an agent at a brokerage firm, has opened an account with a client whose net worth is $200,000. The customer wants the account aggressively traded and wishes the investment adviser to be compensated based on the account's performance. In this account, payment on a performance basis is A) permissible with approval from the agent's supervisor and written permission from the customer at the time the account is opened B) not permissible C) permissible if the customer's net worth is a minimum of $1 million D) permissible

B)not permissible It is not permissible to trade this account on a performance basis; the investment adviser representative must be paid on commission or through a fixed-fee arrangement. Under the Investment Advisers Act of 1940, performance fees are allowed only for clients with a minimum of $1 million invested or a minimum net worth in excess of $2.1 million. U7LO1

Which of the following categories of assets is most likely classified as an alternative asset? A)Convertible bonds B)Cash C)Real assets D)Preferred stocks

C)Real assets Traditional investments include cash, bonds, and stocks, regardless of the adjective used. Alternative investments include four major categories: real assets, hedge funds, private equity, and structured products. U17LO5

When discussing the purchase of a scheduled premium variable life insurance policy with a client, it would be CORRECT to state that A)you will receive a statement of your death benefit no less frequently than semiannually B)if a policy loan exceeds the policy cash value, the deficiency must be remedied within 10 business days to keep the policy from lapsing C)by surrendering the policy, its cash value may be obtained D)premiums will vary based upon performance of the separate account

C)by surrendering the policy, its cash value may be obtained

An investment adviser has legal access to a broker-dealer's confidential research document and uses the information to support a recommendation to a client. The investment is successful. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, the adviser A)must share the commission with the broker-dealer that prepared the research document B)must notify the client that the recommendation was based on the broker-dealer's research document C)need not disclose the source of the information D)must provide the client with a copy of the research document

C)need not disclose the source of the information If an adviser provides its clients with reports or recommendations prepared by a third party without disclosure of the source, the adviser has acted unethically. There is, however, an exception to this rule, which happens to apply here. If the adviser uses third-party reports as a basis for its own recommendation or as a support to its own recommendation to its client, it does not have to disclose this information. U7LO4

A corporation may benefit by attaching warrants to a new issue of debt securities from A)a decrease in the company's amount of debt service coverage B)a decrease in the earnings per share C)a decrease in the bond's rating D)a decrease in the company's interest costs

D)a decrease in the company's interest costs When a corporate issuer attaches a warrant to an issue of preferred stock or debt it is giving the investor a potential opportunity by setting the price that the investor will be able to purchase the underlying common stock in the future regardless of the current market value. In return, the investor will accept a lower interest rate on the debt or lower stated dividend rate on the preferred stock. This results in a lower cost of capital.

Bryan, an agent registered with a broker-dealer, buys 1,000 shares of XYZ Corp. in his own account. In recommending XYZ Corp. to his customers, Bryan informs them that he believes in the company so much that he put his own money in the stock. This practice is A)an illegitimate sales tactic B)only unethical if investors lose money in the investment C)only unethical if Bryan sells his shares after informing his clients of his intention to do so D)not an unethical sales practice

D)not an unethical sales practice This practice is ethical, providing it is accurate and not employed in a coercive manner. It would be expected that when Bryan decides to sell his position, he would not do so prior to notifying his clients with a position in that stock. Otherwise, this would be an ethical problem. U7LO5

According to the Uniform Securities Act, which of the following would be defined as an investment adviser representative? I. John, who opens an investment advisory firm where he devotes his time exclusively to management responsibilities as the sole proprietor of the firm II. Paul, who works for a firm soliciting investment management accounts on behalf of several different investment managers III. Margaret, who works as a commission sales agent for a broker-dealer IV. Mark, an employee of AAA Broker-Dealers, who solicits brokerage clients for commissions on the basis of research conducted by his firm's securities analyst

I & II U2LO1

Under which of the following circumstances does NASAA allow an investment adviser to charge performance-based fees? I. The client must initially have $1 million under management or a net worth in excess of $2.1 million. II. Compensation paid in this way must be for gains reduced by losses. III. Disclosure must be made that the fee arrangement may create an incentive for the investment adviser to make investments that are riskier or more speculative than would be the case in the absence of a performance fee.

I, II, and III