Simulated Exam 3

If your clients, spouses both age 50, are interested in long-term growth and are willing to accept a moderate amount of risk, you should recommend

a large-cap stock fund

When discussing a stock exchange, a specialist is

a member of the New York Stock Exchange who executes orders for other members and who also acts as a market maker charged with the responsibility of keeping an orderly market in designated stocks

In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under the Investment Advisers Act of 1940, this activity requires written

disclosure to the client and consent prior to completion of the transaction

One of your longtime advisory clients has been critically injured in an automobile accident. The client is in the ICU at the local hospital, unable to communicate. You would be able to accept orders for the account

from a person who has a written durable power of attorney over the account

If an investment adviser purchases a research report from the advisory arm of a nonaffiliated broker-dealer, the adviser may distribute this report to clients

if the clients are told that the report was prepared by a third party

One of the primary benefits of dark pools of liquidity is

institutional traders are able to execute large block trades without impact to public quotes or prices.

An inverted yield curve results in part by

investors buying long-term bonds and selling short-term bonds

Becky Biggins has an executive position with a large corporation that covers her under its defined benefit pension plan. This year, Becky's salary will top $235,000. Becky has no dependents and wishes to maximize funds that she can accumulate for her retirement. Becky could not open a traditional IRA open a traditional IRA but would not be able to deduct her contributions open a Roth IRA not open a Roth IRA

II and IV

An investor signed a letter of intent to purchase $50,000 worth of Sky-High Mutual Fund. At the end of 13 months, he had only invested $48,000 in the fund. Which of the following is TRUE?

The fund will liquidate shares to meet the additional sales charge.

If a woman owns 9% of the common shares of XYZ, and her spouse owns 2% and wishes to sell his shares, he: is considered an affiliate. is not considered an affiliate. must file a Form 144 to sell. does not have to file a Form 144 to sell.

I and III

Specified in an exchange-traded futures contract would be the quantity of the underlying asset the quality of the underlying asset the time of delivery of the underlying asset the location of delivery of the underlying asset

I, II, III, and IV

An agent of a broker-dealer who willfully violates the Uniform Securities Act may be subject to which of the following? Civil liabilities Criminal penalties Action taken by the Administrator to deny, suspend, or revoke the agent's registration

I, II, and III

Securities of which of the following issuers are exempt under the USA? National banks State banks Bank holding companies Federal savings and loan associations

I, II, and IV

Discounted cash flow is commonly thought of as applying solely to fixed-income securities. However, forms of DCF used for the valuation of common stock also include the price-to-earnings ratio the dividend discount model the discounted book value model the dividend growth model

II and IV

Which of the following statements regarding foreign investing is (are) TRUE? Foreign financial markets are more efficient than the U.S. market. Most foreign investment entails the systematic risk of foreign exchange. Adding foreign-issued securities to a portfolio provides the greatest diversification when the foreign stock market has a 1.0 correlation relative to the U.S. market. Foreign securities markets are more highly regulated than the U.S. market.

II only

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? Jake Aaron, RIA Jake's Money Advisers, RIA Jake's Money Advisers, registered investment adviser Securities offered through ABC Securities

III and IV

Under the Uniform Securities Act, Paul must register as a state-registered investment adviser if he

opens an investment advisory business as a sole proprietor in New Jersey with the intention of advising individual clients on the advisability of investing in securities. Paul will have $90 million in AUM within 120 days of opening.

If XYZ Mutual Fund has an expense ratio of 1.85% that includes a 12b-1 fee of 0.30%, which of the following statements are TRUE? The fund may use the 12b-1 fee to pay for mailing sales literature. Advertising materials may state that the fund is no-load. Management fees may be paid from the 12b-1 fee. The fund's prospectus is required to disclose the fee.

I and IV

An investor purchases zero-coupon bonds issued by the U.S. Treasury due to mature in 18 years at $100,000. Which of the following might describe the primary reason for selecting that investment vehicle? The investor is 65 years old and needs the reliability of current income. The investor is 45 years old and has purchased these in an IRA rollover account and wants the assurance of funds for retirement. The investor is 30 years old and has a newborn child and wishes to assure funds for a college education. The investor is 20 years old, has just received an inheritance, and wishes to shelter income for as long as possible

II and III

The management style that is most similar to buy and hold is

Strategic management

Which of the following types of risk cannot be eliminated through diversification under the modern portfolio theory?

Systematic risk

As current interest rates go up, the market price of existing corporate bonds bearing lower interest rates will

decrease

The minimum face amount of a negotiable CD is:

$100,000

If an investment can be expected to return 8%, using the rule of 72, what is the present value needed to have $50,000 for a child's education in 18 years?

$12,500

Last year, ABC Corporation had earnings per share of $5 and paid a quarterly dividend of $.75 per share. It has a current market value of $75. What is its price-earnings ratio?

15:1

If a publicly traded corporation was going to sell a wholly-owned subsidiary, the information would be made available through the filing of a Form

8-K

Which of the following statements referring to renewal of a broker-dealer's registration under the Uniform Securities Act are CORRECT? Annual renewal takes place on the anniversary of the registrant's initial registration. Each renewal application must be accompanied by the appropriate fee. Each renewal application must be accompanied by a consent to service of process signed by an authorized supervisory person of the firm. Registrations expire December 31 unless renewed or canceled.

II and IV

If AAA Investment Advisers has entered into a written discretionary advisory contract with a client, all of the following information must be stated in the contract EXCEPT

AAA Investment Advisers shall be compensated on the basis of a share in the capital gains exclusive of capital losses

Review of an SEC-registered investment adviser's policies and procedures designed to prevent violation of the federal securities laws must take place no less frequently than

Annually

Investors with a short time horizon most likely will invest in which class of mutual fund shares?

Class C Shares

A client with 25 years until retirement should invest primarily in

Common stocks

An investment adviser who believes that we are in the early recovery portion of the business cycle would most likely recommend

Cyclical stocks

Specific or unsystematic risk refers to investment risk that is

Diversifiable

For a trust account not seeking appreciation, which of the following would be recommended?

Highly rated, fixed-income securities

Registration of an investment adviser automatically confers registration on officers, partners, and directors of the firm who are functioning as IARs any employee who is functioning as an IAR clerical employees handling back-office operations an employee who will be soliciting clients for the adviser A)

I only

Under the Uniform Securities Act, any partner, officer, or director of a registered investment adviser is an investment adviser representative if a function of the position involves offering advice concerning securities managing client accounts or portfolios determining securities recommendations for representatives to disseminate supervising personnel engaged in advisory activities but not directly dealing with the public

I, II, III and IV

Which of the following are fiduciaries? Executor of an estate Administrator of a trust Custodian of an UGMA account Investment adviser representative granted with discretionary authority over the account

I, II, III and IV

Under the Uniform Securities Act, if sent to 2 or more persons, a file must be maintained containing a copy of which of the following? Bulletins Newspaper articles Notices Websites

I, II, III, and IV

An investor wishes to save for her retirement. She arranges to have $250 per month withdrawn from her account to be invested into a commodity fund. This type of saving plan is called

dollar cost averaging

When describing the differences between an investment adviser and an investment adviser representative, it would be correct to state that the investment adviser may exercise discretion in an account, whereas an IAR may not maintain custody of client funds and securities, whereas an IAR may not be required to be bonded, whereas an IAR may not be required to maintain a minimum net worth, whereas an IAR may not

II, III, and IV

If a widow with no outside source of income and moderate financial resources asked you for investment advice, the most appropriate recommendation(s) would be new issues of common stocks growth stocks speculative issues income securities

IV only

Which investment strategy is consistent with a belief in the efficient market hypothesis?

Selecting a random set of stocks for a portfolio

An agent taking which of the following actions would be committing a violation?

Selling securities from a minor's custodial account without the custodian's consent but with the beneficial owner's consent

Which efficient market hypothesis suggests that an investor can achieve above-market returns by only utilizing insider information?

Semi strong

Money market instruments are:

Short term debt

A client of a broker-dealer turns in an order to purchase 10,000 shares of XYZ stock on the NYSE. This would be

a block trade

An investment manager is looking at 10 possible stocks to include in a client's portfolio. In order to create the most efficient portfolio, the manager must

find the combination of stocks that produces a portfolio with the maximum expected rate of return at a given level of risk.

Investors using proprietary trading using high-speed systems to monitor and submit large number of orders to the markets are engaging in

high frequency trading.

To enforce the Uniform Securities Act, the Administrator may do all of the following EXCEPT

issue a warrant for the arrest of a suspected violator

A corporation organized as a C corporation is taxed on the corporate level and then again to its shareholders when dividends are paid is limited to a maximum of 100 shareholders provides limited liability to its owners may not have any trusts as shareholders

I and III

A pattern of currency deposits designed to avoid currency reporting requirements is termed

Structuring

Which of the following is NOT a characteristic of owning a limited partnership?

Tax-free income

An investment adviser has devised a charting system and wishes to advertise this fact in order to obtain additional clients. To do so, the USA would require

a statement as to the limitations of and difficulties involved in using this system

If a new joint tenants with rights of survivorship account is opened by two related individuals, all of the following statements are true EXCEPT

checks may be drawn in the name of either party

To a technical analyst, the resistance level signifies the price at which a stock's supply would be expected to

increase substantially.

Which of the following individuals employed by an investment adviser would be required to be registered as an IAR?

A chief compliance officer (CCO) who has no sales duties

In the administration of a qualified retirement plan, which of the following individuals is considered to be a fiduciary?

A financial planner acting as a trustee over the plan assets

The Jones family has scheduled an initial visit with a financial planner. Mr. Jones has an annual salary of $70,000, and this is their first attempt at financial planning. Which of the following should be the first step taken by the financial planner?

Establish an emergency fund

Which of the following is a risk faced by investors in foreign stocks that is not found when investing in domestic issues?

Exchange rate risk

In this industry, many words have similar meaning. Which of the following choices consists of a pair which are NOT properly considered synonyms?

Financial risk—market risk

Due to changes in customer preferences, a manufacturing company has decided to discontinue the operations of one of its subsidiaries. An explanation of this decision would most likely be found in the company's

Footnotes to the financial statements

One type of alternative investment considered to be a pooled investment vehicle is the exchange-traded note. Exchange-traded notes (ETNs) are unsecured debt securities unsecured equity securities issued by financial institutions, such as banks insured by the FDIC

I and III

Typical broker-dealer fees that must be disclosed as part of a fee disclosure document would include a charge when a client requests that a stock certificate be issued in his name a commission charge when a client buys a security on a listed exchange the interest charged by the firm on money owed by customers in their margin accounts fees for providing advisory services to high net worth individuals

I and III

Under the Uniform Securities Act, an agent registered in one state may transact business in another state in which he is not registered with which of the following? An existing client visiting the state for a 2-week period An existing client who moved to the state 6 months ago An existing client who moved to the state less than 30 days prior An acquaintance from another state who requests that the agent execute transactions on his behalf

I and III

According to the ethical guidelines set forth in the NASAA Statements of Policy and Model Rules, which of the following statements regarding discretion is CORRECT? An agent of a broker-dealer must have written prior discretionary authorization prior to effecting discretion in a client's account. An agent of a broker-dealer must receive written discretionary authorization within 10 business days of the first discretionary transaction in the account. An investment adviser representative must have written prior discretionary authorization before effecting discretion in a client's account. An investment adviser representative must receive written discretionary authorization within 10 business days of the first discretionary transaction in the account.

I and IV

An owner of an annuitized annuity can do all of the following EXCEPT

receive monthly payments for a defined period and then 2 years later change the contract to payment for life

Which of the following is specifically excluded from the definition of an investment adviser providing the investment advice is solely incidental to the business in which the person is engaged?

Industrial engineer

A client plans to purchase a home within the next 3 months and will require $100,000 for the down payment. The client has the money in her DDA and asks you for your recommendation as to the best place to put the money. Your recommendation would probably be for the client to

Keep the money where it is

On April 15, ABC Advisers, Inc., made application for registration as an investment adviser with State X. Absent a denial or stop order, registration will become effective

May 15

An investor would write a call option to

Obtain income

Which of the following would be considered a precious metal?

Platinum

Which of the following statements regarding an agent's registration is most accurate?

Revocation of the registration of that agent's broker-dealer will result in cancellation of that agent's effective registration.

Which of the following should be considered a liquid asset for emergency fund purposes?

Savings account

If a group of money managers were having a discussion and the term LIBOR was mentioned, the topic would most likely be:

Short term borrowing rates

A form of business structure that exposes all personal assets of the owner to creditors is

Sole propietorship

In contrast with a typical forwards contract, futures contracts have:

Standardized terms

The Conference Board releases information about the economy on a periodic basis. Included are a number of different indicators. These indicators can be used to predict how the economy as a whole might change. Which of the following would be considered a leading indicator?

Stock prices as measured by a broad index such as the S&P 500

Which of the following is a component of U.S. fiscal policy?

Taxes and budgeting

Which of the following is NOT true regarding the Securities Exchange Act of 1934?

The act bars the use of arbitrage by broker-dealers.

The capital asset pricing model (CAPM) is based on several limiting assumptions. Which of the following statements is correct regarding the CAPM?

The capital asset pricing model (CAPM) is based on several limiting assumptions. Which of the following statements is correct regarding the CAPM?

An investment adviser affiliated with a broker-dealer would be considered to be maintaining custody when

receiving a check made payable to that broker-dealer

Investment adviser representatives are often called upon to help clients select an appropriate mutual fund. When making a recommendation, which of the following would not be a consideration?

The fund's net asset value per share

In the secondary market, Treasury bond prices are most influenced by

The inflation rate

Which of the following best describes a global mutual fund?

The portfolio consists of securities of companies domiciled throughout the world, including the United States.

What does the term "guaranteed" mean when used to describe a security?

The security has a third party other than the issuer that guarantees the payment of principal and interest or dividends.

If a customer owns 7% of a publicly-traded company's stock and his spouse owns 6% and wants to sell her shares, which of the following statements is true?

The spouse is an affiliate and Rule 144 applies.

Which of the following is not included in fundamental analysis of a company?

The study of a company's historical stock prices and trading volume.

An agent tells a customer that by investing in U.S. Treasury bonds, he is guaranteed to make money. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following statements is TRUE?

This is unethical because it constitutes a guarantee against market risk.

An investor purchases a 5% callable convertible subordinated debenture at par. Exactly one year later, the bond is called at $104. The investor's total return is

Total return consists of income plus gain. Buying a bond at par and having it called at $104 results in a $40 gain. With a 5% coupon, there will be two semiannual interest payments of $25 in a one-year holding period. Adding the $40 + $50 = $90 total return on an investment of $1,000 which = 9%.

A new client is looking for a recommendation. The client is 72 years old, has sufficient income from Social Security and a pension plan to cover all of her living expenses. She has just inherited $100,000. She wants to invest this money to have a bit more income so she can spoil her grandchildren. Which of the following would be antipodal to her wishes?

Treasury strips

All of the following statements concerning the types of risk are correct except

reinvestment rate risk is the risk that proceeds available for reinvestment must be reinvested at a higher rate than that of the investment vehicle that generated the proceeds.

A customer earns $31,432 this year and mistakenly overcontributes to her IRA. To avoid paying a penalty, she should

remove the excess, plus associated growth, from the IRA

A customer of an investment adviser inadvertently mails some stock certificates to the IA. The IA does not maintain custody of customer assets. If the certificates were received on a Monday, NASAA rules would requires that the certificates be

returned no later than Thursday

A fundamental analyst is reviewing a company's financial statements. When attempting to determine their debt exposure, all of the following would be included EXCEPT

accounts receivable

If an employer installs a Keogh plan, it must include all full-time employees

age 21, with at least 1 year of service.

An investment adviser representative for ABC Money Managers, a wholly owned IA subsidiary of ABC Securities, Inc., sold 1,000 shares of registered securities traded on the NYSE to one of her advisory clients. ABC Securities charged commissions for both the buyer and the seller of these securities. This is known as

an agency cross transaction

A REIT and a direct participation program are similar because they both

are operated by a centralized management

An advantage of structuring a business operation as an S corporation rather than a C corporation would be

avoiding double taxation

A customer upset with his agent for the execution price of a recent trade sends the agent a complaint via email. The agent should

bring the customer complaint to his supervisor immediately

An investor would have to pay the alternative minimum tax when

it exceeds the investor's regular income tax

One of the ways that individuals can accumulate funds for retirement is through individual retirement arrangements (IRAs). There are a wide range of investments eligible for inclusion in an IRA and would include all of the following except

life insurance contracts.

A stock that has no ready market is said to have a high degree of

liquidity risk

A management investment company owns portfolio securities with a current market value of $100 million. The company owes $10 million for securities purchased but not yet paid for and accrued management fees of $5 million. If there are 2,611,437 shares outstanding and the current asking price of the shares is $36.38 per share, it would be correct to state that this investment company is

selling at a premium.

When reviewing a corporation's financial statements, shareholders' equity is computed by

subtracting total liabilities from total assets.

Esther Watson has recently been hired by Robinson, Ibbotson, Carlson and Hanson (RICH), an investment adviser registered with the SEC. RICH has offices in 17 states and Esther works in the branch located in State A. If no exemption is available, Esther will have to register as an IAR with

the Administrator of State A.

An investment adviser registered in State A decides it wishes to maintain custody of customer assets. As long as the securities laws of State A do not prohibit custody, the investment adviser would have to promptly notify

the Administrator on Form ADV that it is going to maintain custody.

Which of the following securities are the most interest rate sensitive? Utility stocks Growth stocks Preferred stocks Common stocks

I and III

Which of the following statements correctly describe similarities between exchange-traded funds and closed-end investment companies? There are a limited number of outstanding shares. They are traded on registered stock exchanges. They trade at prices that are not dependent upon but close to their net asset value. Investors pay commissions to purchase and liquidate their positions.

II and IV

Create A Large Legacy (CALL), Inc., is a state-registered investment adviser with offices in States X, Y, and Z. CALL currently does not have a place of business in State W, but does have 5 retail clients who are residents there. Opening an account for which of the following prospective clients domiciled in State W would now require CALL to register in State W?

A trust having 4 minor children as beneficiaries with total trust assets of $5 million

Which of the following are exempt transactions under the Uniform Securities Act? XYZ Company signs an agreement to sell 1 million shares of its stock to ABC broker-dealer, who will then act as an underwriter in marketing the shares to the public A nonissuer sale of securities listed on the Nasdaq Stock Market to several individual clients of the agent Mr. Jones sells 100 shares of an unregistered security he owns to his next-door neighbor for $1,000 A customer calls a registered agent and asks to buy 1,000 shares of SPHG, a company the representative is not familiar with, and the representative fills the order

I, III, and IV

Active Technicians (AT) is a state-registered investment adviser. In its brochure supplement, it would include information relating to each of the following individuals EXCEPT

members of AT's board of directors who are active in the firm's business

Which of the following is generally believed to present a more accurate picture of a portfolio manager's performance?

Time-weighted return

An investor will likely exercise a put option when the price of the stock is

below the strike price.

Which of the following definitions involving derivatives is inaccurate?

A call option gives the owner the right to sell the underlying asset at a specific price for a specified time period.

XYZ, Inc. is a C corporation in the 21% federal income tax bracket. Which of the following investments offers the company the highest after-tax return?

ABCD, Inc. preferred stock paying a 6% dividend

Which of the following statements about dividends on common stock is NOT true?

Corporations are contractually obligated to pay dividends to their shareholders each year

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

Country A's imports from Country B will increase

In which of the following funds would a buy-and-hold style most likely be used by the manager?

Equity Index fund

Under the Uniform Securities Act, which of the following statements is (are) TRUE regarding registration of broker-dealers and agents? Those defined as broker-dealers must be registered with the state before transacting any securities business. An agent of a broker-dealer must become registered with the state before transacting business. Agents of a broker-dealer are not required to be registered

I and II

Which of the following statements are TRUE of a discretionary account at a broker-dealer? It must be approved by a designated supervisory individual of the firm. It must be reviewed frequently to minimize the chances that the account has been churned. A discretionary order may be placed once the customer has placed a power of attorney in the mail. It must be approved by the Administrator of the state of residence of the client.

I and II

A federal covered investment adviser registered with the SEC that has offices in 5 states must do which of the following? Pay state filing fees if required by the Administrator Notify the Administrator within 1 business day if net worth falls below the required minimum Notice file in any of those states where required by the Administrator Become licensed as a broker-dealer

I and III

An investor plans to fund the college education for her newborn child by purchasing $5,000 of investment-grade bonds on an annual basis. She is most likely using

the bullet strategy.

The holding period return (HPR) on a share of stock is equal to

the capital appreciation plus the dividend income received over the period

A company's current ratio is .5:1. This could be an indication

the company may have trouble paying its bills.

If an index annuity has a participation rate of 80%, it means

the investor's account will be credited with 80% of the growth of the index.

If the required rate of return is higher than anticipated in a present value calculation, the effect would be that

the present value would be lower

When a security is registered with the Administrator, it means that

the security may be legally sold in the state

If an investor buys a utility stock with a stable 5% dividend, and after a year the investor's total return in the stock is 10%, the most likely reason for this is

the stock appreciated by 5%

All of the following factors have an inverse relationship to a bond's duration except

time to maturity.