Series 66 Study Questions
Agent registration requirements
- an agent must register in the state in which he advertises and solicits a security - a secretary for a broker dealer who takes orders for the broker-dealer's clients must be registered
differences between C corporations and S corporations
-the number of allowable shareholders -the tax treatments of the corporations earnings -residency requirements of shareholders there is a limit on the number of shareholders in an S corp. S = shareholder limitation. none of the shareholders can be non-resident alien. C corp have no residency restrictions. S corporations earnings and losses flow through to shareholders C corporations earnings are only received by shareholders when dividends are paid
Which of the following issues is most affected by credit risk a. debentures b. preferred stock c. corporate zero coupon bonds d. common stock
C. Coporate zero coupon bonds credit risk is the risk of default, found ONLY with debt instruments.
Terms commonly found in Modern Portfolio Theory include
Capital asset pricing model efficient set Feasible set
529 vs Coverdell ESA
Contributions to coverdell are limited to $2000 per beneficiary. married couples whose income exceeds $220,000 cannot make a coverdell contribution. Coverdell can be used for any level of education 529 plan have higher contributions limits which can be as high as $300,000 in some states. No earnings limits to contribute to 529. 529s can only be used for secondary education no contributions on either are tax deductible at the federal level
advantages of using the partnership form of business organization include
Ease of dissolution. Partnerships are easy to form and dissolve. They are NOT practical for raising large sums of capital as are corporations. General partners have full personal liability and partnership agreements specify events that will lead to the termination of the entity
Life insurance companies offer many different products. Which of the following would NOT be considered a security I. index annuity II. modified endowment III. Variable annuity IV. Varible life
I & II. Any insurance product that includes the world variable, is a security.
Under the uniform securities act, the administrator is required to provide which of the following in a disciplinary proceeding? I. Appropriate prior notice II. Opportunity for a hearing III. written findings of fact and conclusion of law
I, II, and III.
You can avoid probate using
JTWROS, TOD, Using a tenants in the entirety account. using a TIC would not
POD
Payment on Death account. Less common term for TOD. An account opened with this designation avoids probate upon the death of the account holder
Under the USA does an individual who is hired by an investment adviser who solicits new advisory accounts for the firm but does NOT engage in giving advice need to register?
Yes. If the IA is registered at the state level then the provisions fall under the USA. Under the USA an IAR includes those who solicit for services of an IA. Therefore they would need to register
if interest rates decline sharply, which of the following bonds is likely to appreciate the most 1. 15 yr zero coupon trading on a 7.8 basis 2. 15 yr 8% bond trading on a 7.90 basis c. 15 yr 8% bond trading on a 8.10 basis d. 15 yr 7% bond trading at par
a. zero coupon prices of zero coupl bonds tend to more volatile than prices of interest bearing bonds because of thier longer duration
contributions to 457 plans
contributions to a 457 plan do not have to be aggregated with other retirement plans
S&P 400
mid-cap index
Bill will put money into stocks if he expects that stock returns, over time, will outpace bond returns by some amount that compensates him for the added volatility of owning stock. This reflects
risk premium. investors will put money into stock only if they expect that stock returns, over time, will outpace bonds return
an IAR recommending investments for an IRA should give primary consideration to
risk. risk is the key consideration in an IRA or other retirement plan. These accounts seek to preserve capital first and then to achieve a reasonable rate of return.
a client has a TIPS with a coupon rate of 3.5%. The inflation rate has been 4% for the last year. What is the inflation adjusted return
3.5%. TIPS adjust the principal value each 6 months to account for the inflation rate. Therefore, the real rate of return will always be the coupon
Under the USA, an agents request for withdrawal of registration takes effect
30 days after receipt of an application to withdraw or within such a shorter period of time as the Administrator may determine The Administrator has the power to shorten the time period for both withdrawal and initial registration
under the USA, delivery of the investment adviser brochure may be made less than 48 hours prior to the entering of the advisory contract, provided the customer can cancel without penalty within
5 business days of entry
the USA requires that an administrative order appeal must be requested within how many days after the order has been entered
60 days
A registered IA recommends a stock that will be sold to an advisory client in a principal transaction. The broker-dealer that will sell the stock is also registered as an investment adviser and employs the IA as an agent. This transaction: A. requires both written disclosure to and the consent of the client prior to completion of the transaction B. is prohibited C. requires the consent of the client D. requires written disclosure of the client
A. ; under normal circumstances when the a BD acts as a principal in a trade, the face it noted on the confirmation. However, in this case, because it is an IA who is recommending the transaction, both written disclosure by the adviser and consent by the client are required prior to completion of the transaction.
Which of the following investment analysis tools can be used most efficiently to predict the probability of outcomes of portfolio performance recognizing that variables such as holding periods and rates of return are generally uncertain
Monte Carlo analysis. This analysis uses simulations to predict the probability of portfolio performances in light of multiple and uncertain variable conditions
which items would be included in a current ratio computation
accounts payable wages payable short term debt
LLC
allow losses to flow through to the brothers, continue in the event one brother or owner should die, and have the same type of protection as that offered by a C corporation
the death benefit of a variable life policy must be calculated at least
annually. The cash value is calculated monthly
You have a client who wishes to manage his own portfolio of individual stocks. The simplest style for him to follow would be
buy and hold. If the client wished to have the simplest overall portfolio and did NOT want to manage things, then indexing would be the answer
an employer whose 401k plan complies with ERISA section 404(c) is placing investment risk with the
plan participant
form of business organization that offers flow-through of income and loss while providing the owners with limited liability
s-corp LLC
When analyzing mutual funds the one with the highest standard deviation would most likely be
small-cap funds. A fund consisting of small-cap stocks will generally have a high standard deviation
what is considered to best indicator of a stock's volatility
standard deviation
An Administrator has specific authority under the USA to
suspend the registration of a security if the suspension is in the public interest and the offering has excessive commissions enforce subpoenas in the state at request of an Administrator of another state for alleged violations that occurred in another state require that the proceeds from an offering be held in escrow until issuers receives a certain percentage of the sale of the securities offered
a portfolio that maximizes an investors preferences with respect to return and risk is called
the optimal portfolio
transaction exemptions
transactions between issuers and broker-dealers (but NOT investment advisers) are exempt transactions.
what is the differences between variable and universal variable life insurance
variable life insurance has a minimum guaranteed death benefit, whereas universal variable life insurance does not variable life insurance requires scheduled premium payments, where as universal variable life insurance permits flexible premium payments
State laws provide for exclusions from the definition of investment adviser which of the following persons is specifically excluded under the USA a. Investment adviser representative b. economist whose advice is strictly incidental to their professional activity c. bank subsidiary offering investment advice d. broker-dealers receiving special compensation
A. investment adviser representative The USA specifically excludes IARs from its definition of investment advisers. -banks but not subsidiaries offering investment advice.
Advisory contracts must: I. prohibit assignment of the contract without clients consent II. contain information of the advisers performance for at least the most recent 12 month period III. describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated
I and III advisory contracts must prohibit assignment without the clients consent and must describe the amount of any prepaid fee that will be returned to the client if the contract is terminated. it must describe the fee or formula for computing the fee. Contracts would never contain information regarding the advisers past performance
Which of the following business entities has an income tax filing due date of March 15th
Multiple member LLC electing to be treated as a corporation and S corporations. LLCs, partnershops and s corps all have the same filing date C corporations are usually April 15th
an individual has been employed by a broker dealer to solicit new subscriptions for the firms free monthly stock market report. The individual is paid a salary plus bonus based on his success rate with signing up subscribers. Under the USA the person would
NOT have to be registered as an agent of the broker-dealer. Agents of BDs are in the business of securities related transactions on behalf of clients of the firm. A free market report is not a security. so this individual is not soliciting securities business.
which statement best describes the effect of NSMIA on securities regulation
Preempts state registration of covered securities. The National Securities Market Improvement Act preempts state registration of covered securities. State administrators may not impose registration requirements on securities that are subject to federal regulation
in the formula for determining the real rate of return, the:
Real rate of return represents inflation-adjusted compounding (or discounting). the inflation rate is subtracted from the investment return
What do technical analysis, fundamental analysis and the efficient market hypothesis focus on?
Technical analysis = price patterns Fundamental analysis: economic, industry, and business conditions efficient market hypothesis: argues that analysis itself has little, if any, value
the advantage of structuring a business operation as an S corporation rather than a C corporation would be
avoiding double taxation
a feature of which of the following business entities is limited liability but no flow through of earnings or losses a. LLC b. Limited partnership c. Corporation d. sole propietorship
c. Corporation the corporation (always assume C corp unless is says different on the test) offers limited liability to its shareholders, but there is no flow-through of income or loss. LLC and limited partnerships offer both and sole proprietorship has unlimited liability
a client needs emergency cash for 30 days. All the following are acceptable sources EXCEPT a. margin loan from BD b. using credit card access checks c. term life insurance d. taking a premature distribution from an IRA
c. term life insurance term life insurance has no cash value. Withdrawals from an IRA incur no tax or penalty if 100% of the funds are replaced within 60 days
An administrator may require which of the following from a federal covered adviser
copy of the IA's Form ADV and a filing fee. They can NOT require filing of the IA's advertising in the state or a listing of the IAs fee schedule
the statue of limitation for criminal offenses under the USA is
five years. remember the sequence 5-5-3 5-year statue of limitations, $5,000 maximum fine, and imprisonment up to 3 years
annual renewable term insurance
has an increasing premium, level face amount no cash value. because the premium is based on the attained age, the premium increases each year on the renewal date
a 68 year old client indicated that he interested in changing the portfolio mix of his IRA to become largely invested in non-investment grade bonds. You would probably infer from this that the client
has insufficient retirement savings. Seniors with insufficient retirement savings attempt to compensate by being tempted to reach for higher yields to maximize retirement income without full consideration of the increased risk that come alongs
in order to calculate an investors holding period of return it is necessary to know
i. value of the portfolio at the beginning of the period ii. value of the portfolio at the end of the period iii. income received during the period an investors holding period of return is the total return received over the specified holding period. that return included any plus or minus any gain or loss. Once getting this value, you will know the capital appreciation of depreciation over the period so it is not included in the calculation
An example of an interest-on-interest reinvestment program is
interest left to compound on a bank insured certificate of deposit
holding period return
investors original value subtracted from the ending value, and then has the income received over that time period added to it which is then divided by the original cost
Under the USA an exemption from registration is available to common stock listed on the
new york stock exchange american stock exchange Nasdaq stock markety Not Montreal stock market
Unde ERISA section 404(c), plan participants must be able to reallocate plan assets
once every three months. many 401K plans provide for daily reallocation of plan assets
differences between static and interactive content on social media
only static content needs pre-approval only interactive content can be commented on by others
as defined in SEC Release IA-1092, which of the following is a pension consultant
persons suggesting portfolio managers to administrators of employee benefit plans
if a technician believed in the importance of volume, which of the following would indicate bullish sentiment
price increase on heavy volume. Technicians watch volume changes along with price movements as an indicator of changes in supply and demand
a client with a sizeable estate would probably find it most efficient to pay estate taxes with
proceeds from a life insurance policy. In general people with estates where there is a potentially large estate tax liability, find the most efficient way to pay those taxes is through a life insurance policy
if general interest rates increase, the interest income of a bond unit investment trust will probably
remain the same. since the portfolio of a UIT is fixed, the income generated by the portfolio will not change
What is the basic assumption in an active management investment style
some securities are mis-priced and value can be captured through security selection
breakeven of a long stock position and a covered call
the investor who writes a call against a long stock is covered on the downside to the extent of the premium collected. Therefore breakeven is the cost of the stock minus the premium
the tax on the last dollar of income is at
the marginal rate. The IRA defines marginal tax rate as the highest rate that you pay on your income. The effective tax rate is the average that you pay on all of your income
the main benefit that variable life insurance has over whole life insurance is
the potential for a higher cash value and death benefit
