66 Q's pt2

A federal covered investment adviser may enter into a contract with a client that provides for performance-based compensation under all of the following conditions EXCEPT A) disclosure that the performance compensation may create an incentive for the adviser to take greater risks B) the formula used to calculate compensation includes realized capital losses and unrealized depreciation C) compensation is based on gains, less losses, for a period of no less than 1 year D) the client must meet certain minimum financial standards

A

and advisor's financial impairment must be disclosed to clients if what? (3 pts)

1) the advisor has discretion, 2) the advisor has custody, 3) they require > $1200 in fees 6+ months in advance

Which of the following statements is TRUE? A) Dividends have a significant influence on the value of the corporation's stock. B) A growth company would be more likely to pay a cash dividend than a stock dividend. C) A stock split increases the owner's proportionate share of the company. D) A corporation is required to pay a cash dividend to stockholders if the earnings are sufficient, especially if it is of preferred stock.

A

Your client asks for a recommendation for her emergency fund. You would most likely suggest A) a money market mutual fund because of its high degree of liquidity B) a corporate bond mutual fund because of its high degree of income and liquidity C) a money market mutual fund because of its fixed rate of return D) a diversified common stock mutual fund because of its high degree of liquidity

A

consent of the client before completion of a trade made between the firm and a client must be made when A) an investment adviser will be acting in the capacity of a principal B) a broker-dealer will be acting as a contra party to the trade C) a broker-dealer will be acting in the capacity of a principal D) a broker-dealer will be acting in the capacity of an agent

A

A speculator, believing that a drought in the Midwest will lead to a weak corn crop, would probably A) take a long position in corn futures B) take a long position in corn forwards C) take a long position in orange juice futures D) take a short position in corn futures

A (A weak corn crop means a shortage in the supply. That will lead to an increase in prices. When one is speculating that prices will go up, the best position is a long one - why not the long forwards? Those who purchase forwards contracts anticipate accepting delivery of the asset.)

A risk-averse client, living in the United States and holding a high proportion of his assets in cash and cash equivalents in U.S. dollars, is exposed to which of the following risks? A) Purchasing power risk B) Reinvestment rate risk C) Market risk D) Exchange rate risk

A (Although cash and cash equivalents (money market instruments) may assist in managing liquidity risk, they do have purchasing power, or inflation risk, because they have limited opportunity for capital appreciation)

with respect to a qualified retirement plan, fiduciaries must act in all of the following ways except A) solely in the interest of the sponsoring employer. B) solely in the interest of plan participants and beneficiaries. C) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent professional would use. D) to diversify investments to minimize the risk of large losses, unless doing so is clearly not prudent under the circumstances.

A (ERISA's rules dealing with qualified plans require that the plan's fiduciaries place the interest of the plan participants and their beneficiaries first, not the employer.)

As defined in the Uniform Securities Act, the term "offer to sell" would include A) a gift of warrants. B) the sale of U.S. Treasury bills. C) a gift of nonassessable stock. D) the attempt to sell gold coins.

A (Even though a gift is not normally a sale or an offer to sell, when it is of a warrant, a right, or any convertible security, it is considered to be an offer to sell the underlying security.)

One of the critical components of making suitable recommendations is the ability to evaluate risk. Risk measurement tools would include all of the following EXCEPT A) future value B) beta C) Sharpe ratio D) standard deviation

A (Future value measures the time value of money and has no relationship to risk.)

Which of the following hedge funds characteristics is least accurate? A) They are heavily regulated by capital market authorities. B) They require large entry-level investment amounts. C) Most can borrow funds and use derivatives. D) Their investment style is generally aimed at producing "absolute" returns.

A (Hedge funds are unregulated collective investment vehicles)

An investor has her agent enter a sell stop order at 60, limit 60. Following the order entry, trades occur at 62.12, 60, 59.95, 60.06, 61. More than likely, the investor received A) 60.06 B) 60 C) 59.95 D) 61

A (once it passes through 60, it's triggered and then the limit order is saying, "Get me 60 or higher, the 59.95 is not an acceptable price." But, the next trade, 60.06 will meet the client's goal of receiving no less than 60.)

While an application for registration as an agent of a broker-dealer is still pending, that person would be permitted to A) limit her acceptance of orders to those from the broker-dealer's existing clients B) assist registered employees of the firm by doing research on securities they are following C) accept unsolicited orders only D) engage in no activity at the office other than studying for the exam

B

Which of the following statements is NOT true? A) Management of the enterprise is solely within the jurisdiction of the general partner(s). B) Limited partners have the option of actively managing the business operations. C) Limited partners are not liable for funds in excess of the amounts they have invested or otherwise committed for. D) It is the general partners rather than the limited partners who bear the liability for partnership debt.

B

Which of the following statements regarding state registration of securities is TRUE? A) Registration by qualification is effective after 30 days. B) Registration by coordination is effective concurrent with federal registration. C) Registration by coordination is effective on the 10th day after filing with the Administrator. D) Notice filing is effective when ordered by the Administrator.

B

Registration statements for securities A) need not be filed with the Administrator if the securities are only sold in one state. B) may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed C) expire on December 31 of each year and must be renewed if further sales are to be continued D) are effective for at least 2 years from their effective dates, or longer if the securities are still under distribution by the underwriters

B

Searching Out New Growth (SONG) is a venture capital fund. As such, all of the following statements are true EXCEPT A) SONG's investment adviser is exempt from registration B) SONG must have less than $150 million in assets in the fund C) SONG is not registered under the Investment Company Act of 1940 D) SONG only issues securities which are, except in extraordinary circumstances, non-redeemable

B

Under the Securities Exchange Act of 1934, which of the following statements regarding reports required to be filed with the SEC is TRUE? A) Persons who become the beneficial owner of more than 5% of a security registered under the Securities Exchange Act of 1934 must file a report within 2 days. B) Institutional investment managers who exercise discretion over accounts valued at $100 million or more of 13(f) securities must file reports quarterly. C) Persons who become the beneficial owner of more than 2% of a security registered under the Securities Exchange Act of 1934 must file a report within 5 days. D) Institutional investment managers who exercise discretion over accounts valued at $100 million or more need not file reports if all their clients are insurance companies.

B

A client of Wall Street Wealth Management (WSWM), a federal covered investment adviser, calls the IAR handling the account and gives instructions to use some of the surplus cash in the account to purchase 500 shares of RMBM, a small-cap stock traded on the Nasdaq Stock Market. Prior to submitting the order, the IAR checks with a supervisor and learns that WSWM has 1,000 shares of RMBM in its proprietary account and is looking to halve the position. If, instead of forwarding the order to the broker-dealer who normally handles trade executions for this client, WSWM filled the order out of its own account, A) it would be permissible only if consent was obtained, and written disclosure of the firm's capacity was disclosed prior to execution B) it would be permissible as long as consent was obtained and written disclosure of the firm's capacity was disclosed prior to the completion of the transaction C) WSWM would be engaging in a prohibited practice D) because it was an unsolicited transaction, the only required disclosure would be the firm's capacity on the trade confirmation

B

A grandparent wishes to contribute funds to an account for the benefit of the college education of a grandchild. In which of the following does the donor have the greatest amount of control over the assets in the account? A) An UTMA account B) A Section 529 plan C) An UGMA account D) A Coverdell ESA

B

A portfolio manager who routinely shifts portfolio assets to take advantage of the business cycle is said to be engaging in A) asset allocation B) sector rotation C) correlation D) rebalancing

B

Your friend is a licensed life insurance agent whose client wants to purchase a variable annuity. You are a licensed securities and insurance agent, and your friend wants you to sell the policy and split commissions with him. Splitting commissions A) in variable annuities is allowable only if the agents involved are both licensed to sell life insurance and maintain securities licenses with broker-dealers registered with the Administrator B) in variable annuities is allowable only if the agents involved are both licensed to sell life insurance and maintain their securities licenses at the same or affiliated broker-dealers C) is an unethical trade practice D) would be allowable if the securities representative receives at least 60% of the commission and the insurance agent receives no more than 40%

B

Your married customers are both 42 years old, have 2 children ages 14 and 12, and have spent the past 10 years accumulating money to provide for their children's education. Their oldest child will enter college in 4 years, and the customers are very cautious investors. If they need a safe investment that provides regular income to help them meet tuition payments, which of the following mutual funds is the most suitable for these customers? A) RST Balanced Fund B) LMN Investment-Grade Bond Fund C) ABC Stock Index Fund D) ATF Overseas Opportunities Fund

B

Which of the following is guaranteed by a variable life policy? A) Minimum separate account performance B) Minimum death benefit C) Policy loans after the policy has been in effect for at least 24 months D) Cash value

B (A variable life policy has a minimum guaranteed death benefit, but there is no minimum guaranteed cash value. There is no performance guarantee on separate accounts, and policy loans are required after the policy has been in effect for at least 3 years (36 months).)

In order to compute a client's realized holding period return, it is NOT necessary to know A) the original investment B) the paper profits and losses C) the income received D) the ending value

B (An investor's realized holding period return is the total return received over the specified holding period. That return includes any income plus or minus any realized gain or loss. That is why paper gains or losses, which are not realized, are not part of the computation)

A client is risk averse and is planning on retiring in 16 years. The client is rolling over $100,000 from his 401(k) plan, all of which is currently invested in his former employer's stock. As the client's investment adviser, which of the following would you recommend? A) Keeping the money in the employer's stock B) AAA-rated zero-coupon bonds maturing in 16 years C) Laddering U.S. Treasury bills D) Highly rated preferred stocks paying liberal dividends

B (Because the assets are in a rollover IRA, the "phantom" tax on zero-coupon bonds is not an issue here. Being risk averse, the safety of AAA bonds with the guaranteed return of increased principal in 16 years makes this the most appropriate investment. The T-bills will probably not offer as much return and will be subject to continual reinvestment risk)

A broker-dealer holds fully paid-for customer securities for safekeeping. Under the NASAA Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents, the broker-dealer A) may lend them to make delivery on short sales B) must pay interest to the clients C) must segregate them D) would be in violation unless a properly executed margin agreement was in effect

C

According to the USA, under which of the following circumstances may an Administrator cancel an investment adviser representative's registration? A) The Administrator determines it would be in the public interest. B) The investment adviser representative has admitted to selling unregistered exempt securities to individual clients. C) The investment adviser representative is judged to be mentally incompetent. D) The investment adviser representative is the subject of an insider trading lawsuit.

C

An IAR with a state-registered adviser would like to employ the services of an individual as a solicitor to help bring in more business. The solicitor will be compensated by receiving a percentage on all assets placed under management. In order to do this, all of the following must be complied with except A) disclosure of the arrangement must be made to the client B) the solicitor must be registered as an IAR in order to receive compensation based upon advice C) the client must sign the contract at the same time as he receives the IA brochure and the solicitor disclosure document D) the terms of the compensation must be spelled out

C

In order to compute the real rate of return for a security, it would be necessary to know all the following EXCEPT A) the purchase price B) the CPI C) the beta of the security D) the annual dividend

C

One of the features of an index annuity is the ability for the principal value to increase based on the performance of the specified index. Which of the following is NOT used as a method to compute the amount of interest to be credited to the account? A) Point to point B) High-water mark C) Participation rate D) Annual reset

C

One of your clients currently holds a long position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss? A) Buy limit B) Sell limit C) Sell stop D) Buy stop

C

One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser A) shall disclose the agency capacity before the transaction B) shall notify the Administrator of its capacity in the proposed transaction C) shall obtain client consent before completion of the transaction D) may not charge a commission on the transaction

C

The discounted cash flow method is frequently used to assess the value of a bond. When making the DCF computation, it would NOT be necessary to know the bond's A) nominal yield B) principal amount C) rating D) number of remaining interest payments

C

The responsibility for administering the Investment Advisers Act of 1940 lies with A) the Administrator B) the Investment Advisers Association (IAA) C) the SEC D) FINRA

C

Under both state and federal law, there are a number of exclusions from the definition of investment adviser. Which of the following would not qualify for an exclusion? A) A personal injury attorney who recommends that clients consult with a CFP® for advice on how to deal with the large settlements they receive B) A CPA who gives high tax bracket clients a chart showing the tax-equivalent yield of municipal bonds C) A publisher of a newsletter that is paid to make reports to be used in the sale of specific securities D) An economist who teaches a course in fundamental analysis at a local community college

C

Under the USA, agent registrations expire A) 2 years after the effective date B) 365 days after the effective date C) each year on December 31 D) 3 years after the effective date

C

Which of these features are common to both variable annuities and scheduled premium variable life insurance? I) Income earned in the separate account is tax deferred. II) Separate account performance below the AIR causes a reduction in cash value. III) Fixed contributions are required. IV) Contract owners have voting rights.

I and IV

Which of the following conditions would most likely meet compliance standards of state regulators? A) Only those in a supervisory role need to recognize the difference between business and nonbusiness communications. B) At a minimum, a firm that permits use of social media sites must hold biannual training as part of its continuing education obligations. C) Both supervisory personnel and agents need to understand the difference between interactive and static content. D)Maintaining an under-the-radar system of monitoring social media use by its agents is permissible when determining compliance with NASAA's rules.

C

Which of the following is NOT considered to be in the business of investment advising? A) A financial planner who provides advice on many types of financial instruments, including securities, and receives commissions on the sale of life insurance B) An insurance agent who provides investment advice regularly, but such advice represents a small portion of her business C) Insurance agents who discuss the merits of whole life insurance verses nonsecurities financial instruments and who receive commissions on the sale of life insurance only D) A person who prepares reports about securities in general

C

Which of the following is NOT related to the variability of a portfolio's returns? A) Market timing B) Security selection C) Total return D) Asset allocation

C

Which of the following statements regarding internal rate of return (IRR) is TRUE? A) If the IRR is higher than the cost of borrowing to fund an investment, the investment is likely to be unprofitable. B) IRR cannot be used effectively to measure return on investments with even cash flows, such as bonds. C) IRR is a discount rate at which the net present value (NPV) of an investment is equal to zero. D) IRR ignores the time value of money.

C

Which of the following statements regarding the properties of duration is NOT true? A) Duration is a weighted-average term to maturity of a bond's cash flows. B) Duration measures a bond's price volatility by weighting the length of time it takes for a bond to pay for itself. C) Duration measures the holding period return on a bond. D) Duration measures the effect of an interest rate change on the price of a bond or bond portfolio.

C

Which of the following terms best describes ETNs and leveraged ETFs? A) Registered investment companies B) Speculative investments C) Alternative investments D) Forms of hedge funds

C

Which of the following would be considered an unethical business practice? A) Broker-dealers sending retail clients an email 30 days in advance of a change to fees B) Broker-dealers charging larger than ordinary commissions on certain transactions C) Agents correcting execution orders in their customer's accounts D) Agents exercising discretion in discretionary accounts

C

Writing an option provides all of the following EXCEPT A) income B) limited downside protection when long the underlying asset C) maximum protection against loss D) hedging

C

A client of your broker-dealer accepts your recommendation and turns in a market order to purchase 600 shares of MNOP Corporation common stock. Based on the following market maker quotes, it would be expected that the firm's trader would direct the market order to A) MMB: 22.08 - 22.25, 6 x 5. B) MMC: 22.10 - 22.28, 10 x 6. C) MMA: 22.05 - 22.25, 10 x 8. D) MMD: 22.11 - 22.30, 6 x 6.

C ($22.25 (MMA and MMB), but MMB is only firm for up to 500 shares and the client's order is for 600 shares. Therefore, it would be sent to the lowest price that is firm for at least 600 shares and that is MMA.)

Under the Uniform Securities Act, which of the following is an investment adviser? A) A broker-dealer who receives no compensation for investment recommendations B) An investment adviser representative C) A firm with no office in the state that has provided specific investment advice to 10 noninstitutional clients within the state during the past 12 months D) An individual who provides financial advice over the Internet with no recommendations based on specific investment situations of individual clients

C (A firm with no office in the state that provides investment advice is an investment adviser in the state if its clients exceed the de minimis level of five noninstitutional (retail) clients within the state in the past 12 months.)

A sales assistant employed by a full service broker-dealer would be required to register as an agent when accepting orders for A) commodity futures contracts. B) gold coins. C) direct participation programs. D) fixed annuities.

C (An individual employed by a broker-dealer who is involved in the sale of securities must register as an agent. The security here is the DPP.)

Which of the following is a characteristic of the passive investment style? A) Tactical management B) Income rather than growth objective C) Rebalancing D) High portfolio turnover

C (Because the passive (strategic) style of investing does not involve frequent trading (as does the tactical or active style), periodically the portfolio will be rebalanced to insure that the asset mix is at the desired level. This style may be used for either income or growth objectives)

A client enters an order as follows: Sell stop 100 shares of LTC at 45 limit 45.50. Following the entry of that order, trades occur in the following sequence: 47; 46; 45.12; 44.97; 45.28; 45.97; 46.05. More than likely, the client received A) 46.05 B) 44.97 C) 45.97 D) 45.28

C (This is really two orders. The first is to stop at 45. That is, once the stock trades at 45 or lower, enter the order. The second order is a sell, but with a limit of 45.50. So the first time the stock hits 45 (or less) is the trade at 44.97. That triggers the sell limit. The next trade is at 45.28 and that is not acceptable to the limit order at 45.50. Because the limit order is saying, "get me 45.50 or higher," the 45.97 is an acceptable price.)

All of the following statements regarding registration of broker-dealers under the Uniform Securities Act are true EXCEPT A) broker-dealers with discretion over client accounts may be required to post a surety bond B) a successor firm is exempt from paying registration fees until the renewal date C) a successor firm is exempt from filing a consent to service of process until the renewal date D) no broker-dealer can be required to meet financial requirements in excess of those of the SEC

C (When one firm succeeds another, no fees are due until renewal date. However, the successor firm must file a consent to service of process at the time it registers.)

It would not be a violation of the Uniform Securities Act for an applicant for registration as an agent to do which of the following while the application is pending? A) Use a preliminary prospectus to obtain indications of interest for a new issue but wait until he is registered before accepting any orders B) Conduct seminars on asset allocation C) Sell fixed annuities D) Limit his sales activity to immediate family members only

C (While registration as an agent is pending, the applicant can take no active role in the sale or offering of securities. However, because fixed annuities are not securities, registration as an agent is not required. Yes, we know that an insurance license would be required, but apparently NASAA doesn't care about that.)

John and Martha, both in their early 40s, were divorced on November 22, 2018. Because Martha is unemployable, the terms of the divorce require John to pay Martha $300 per month in alimony and $1,000 per month in child support for their 4 children. Given that information, which of the following statements is CORRECT? A) Martha has reportable taxable income of $12,000 for the year. B) John is able to deduct $12,000 from his taxable income. C) John is able to deduct $3,600 from his taxable income. D) Martha could contribute a maximum of $6,000 this year to an IRA.

C (for any divorce before January 1, 2019, the alimony is income to the recipient and a deduction for the payor)

Which of the following best describes a nonissuer transaction? A) One that provides capital to a corporation that is offering stocks or bonds to the public B) One that is generally prohibited under the USA C) One that occurs between investors in the secondary market D) One that involves investors in the primary market

C (the most common nonissuer transaction occurs between investors in the secondary market. An issuer transaction provides capital to issuers.)

A client of an investment adviser needs a bridge loan and approaches the IA to see if the firm is interested. Because the IA is not in the business of lending money, a special agreement is drawn up specifying the terms of the loan. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers A) the loan could be made if the IA was affiliated with a bank B) the loan could be made if the client was an institutional investor C) the loan would not be permitted under any circumstances D) the loan could only be made after the advisory contract was terminated

D

All of the following statements regarding scheduled premium variable life insurance are correct EXCEPT A) the policyowner has the right to change the selection of subaccounts B) once selected, the policyowner may change payment modes C) premiums are determined based on age and sex of the insured D) better than anticipated results in the separate account could lead to a reduction in annual premium

D

An analyst uses the dividend growth model to assist in determining appropriate stocks to recommend. This analyst would consider all of the following factors EXCEPT A) required rate of return B) growth of the dividend C) current dividend D) market capitalization

D

Dr. David Livingstone is registered as an agent in States H and M with Stanley Securities, a broker-dealer registered in every state. Livingstone would now like to register in State W. In order to do so, all of the following would be required except A) filing a consent to service of process with State W. B) filing an application for registration with State W. C) paying the appropriate fee to State W. D) passing State W's qualification exam.

D

If a company successfully gets the owners of its long-term bond issue paying 7% annual interest to exchange them on a dollar-for-dollar basis with the company's preferred stock paying a 7% annual dividend, what is the effect on EPS? A) No effect B) Not enough information C) Increase D) Decrease

D

If a nonexempt company has authorized a stock split that will give each shareholder 2 shares for every 1 share owned without charge, this action A) need not be registered because the shares of the corporation have already been registered B) must have the prior written approval of each state Administrator in which the shares trade C) must be registered because it is the issuance of new nonexempt securities D) need not be registered because it is neither an offer to sell or a sale

D

Last year, the bond market was profitable and ABC fund had 70% of its assets in bonds. Next year, the fund's managers expect the equity market to outperform and will adjust the fund's portfolio so that 60% of its assets will be invested in stock. ABC is most likely A) a growth fund B) an income fund C) a specialized fund D) an asset allocation fund

D

One of the differences between call options, rights, and warrants is that A) warrants generally have a strike price below the current market value of the underlying stock. B) holders of call options stand to profit if the market price of the underlying stock increases. C) rights generally have the longest "life" of these 3. D) a corporation can't issue call options on its own stock.

D

Under the Investment Advisers Act of 1940, which of the following statements is NOT true regarding custody of a client's funds or securities? A) The adviser must arrange for an audit of the client's accounts at least once annually and arrange for the results to be forwarded to the SEC. B) Client securities must be segregated and kept safe. C) The adviser must be named as agent or trustee for a client's account or else use a qualified custodian. D) The adviser must report the location of funds or securities at 6-month intervals.

D

Under the Uniform Securities Act, bonds issued by which of the following are nonexempt securities? A) Canadian national government B) Canadian province of Ontario C) Canadian city of Montreal D) ABC, Inc. of Canada, a distributor of beverages in the United States and other countries

D

Under the brochure rule of the Investment Advisers Act of 1940 A) each client must be offered a written disclosure statement at least 48 hours before signing a contract B) each client must be offered a written disclosure statement at the time of signing the contract C) each client must be delivered a written disclosure statement no later than 48 hours after signing the contract D) each client must be delivered a written disclosure statement no later than at the time of agreement to contract for the adviser's services

D

When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office, A) only the terminating investment adviser must notify the Administrator B) the investment adviser representative and the federal covered advisers must notify the Administrator promptly C) the investment adviser representative and the employing adviser must notify the Administrator promptly D) only the investment adviser representative must notify the Administrator promptly

D

Which of the following orders would be used to protect a short sale profit? A) A sell stop B) A sell short C) A buy limit D) A buy stop

D

Which of the following would be most suitable for a young couple investing the assets of their IRAs? A) Oil and gas exploration programs B) Penny stocks C) Call options on large-cap stocks D) Growth mutual funds

D

Your client's wife retired as a 3rd grade teacher in 2009, where she was covered under the school system's 403(b) plan. If she resumes employment with a corporate employer, and that new employer has a 401(k) plan, is she entitled to defer RMDs from the 403(b) plan past the regular age 72 date? A) RMDs may be deferred only if the current employer offered a 403(b) plan. B) RMDs may be deferred as long as the individual is employed on a full-time basis. C) RMDs may never be deferred for those who were participants in a 403(b) plan. D) RMDs may be deferred only from the plan sponsored by the current employer.

D

Your customer redeemed 200 of her 500 Kapco common shares without designating which shares were redeemed. Which of the following methods does the IRS use to determine which shares she redeemed? A) Identified shares B) LIFO C) Wash sale rules D) FIFO

D

An IA hires a third-party solicitor to recruit new clients. Which of the following records is the IA required to keep? A) A copy of the written agreement between the IA and the solicitor, signed by the client B) Copies of all investment recommendations made by the solicitor C) A receipt for any fee charged by the solicitor, signed by the client D) A statement, signed by the client, that both the IA's and solicitor's brochures were received

D (When a third-party solicitor engaged by an investment adviser makes contact with a potential client, that client must acknowledge, in writing, the receipt of the brochures of both the adviser and the solicitor.)

The Zxion Corporation has just distributed a 7½ to 1 split of its common stock. Prior to the split, Zxion had EPS of $15, the market price of Zxion common stock was $225 per share, and the price of its $75 par preferred stock was $82.50. As a result of the split, the price-to-earnings (P/E) ratio is now A) 2 x 1. B) 6 x 1. C) 7.5 x 1. D) 15 x 1.

D (A stock split does not change the P/E ratio because both the stock's price and its earnings decline by the same proportion.)

Which of the following statements regarding Coverdell ESAs and QTPs is NOT correct? A) If a portion or all of the withdrawal (QTP) is spent on anything other than qualified higher education expenses, the distribute will be taxed at her own tax rate on the earnings portion of the withdrawal. B) QTPs are extremely useful tools that provide significant tax savings, allow for substantial investments for a child's education and provide a tool for avoidance of gift and estate taxes if used correctly. C) Coverdell ESAs are designed to offer tax benefits to those individuals who wish to save money for a child/grandchild's higher education expenses. D) Coverdell ESAs currently permit up to $5,000 in annual contributions, whereas QTPs allow large contributions reaching as high as $300,000 and above.

D (Coverdell ESAs currently permit up to $2,000 in annual contributions, whereas QTPs (Section 529 Plans) allow large contributions reaching as high as $300,000 (each state sets its own limit))

All of the following would flow through as a loss to limited partners except A) depletion. B) accelerated depreciation. C) interest payments on partnership debt. D) principal repayment on partnership debt.

D (Principal repayments are not an expense for tax purposes)

Which of the following offers the opportunity to realize a capital gain rather than ordinary income? A) Cash dividends B) Section 529 plans C) Deferred annuities D) Stock dividends

D (Stock dividends, unlike cash dividends, are not taxable in the year of receipt. Instead, they reduce the owner's cost basis and, when sold at a price above that cost basis, are treated as capital gain rather than ordinary income. Deferred annuities never generate anything but ordinary income, and qualified withdrawals from Section 529 plans result in no taxation on the earnings. If they are not qualified, there is ordinary income tax plus a penalty.)

It would be considered an unethical and dishonest business practice for an agent registered with a broker-dealer to A) effect a securities transaction not recorded on the books of the broker-dealer after having received written authorization from the firm to do so B) promise to provide a service that the agent is capable of performing C) attempt to convince a client that a specific mutual fund is a suitable investment for that client D) purchase a stock for her own account knowing that a large institutional buy order is about to be processed for that same stock

D (b is a problem, but not one of ethics)

Which of the following is NOT classed as a security under the Uniform Securities Act? A) Options on stocks B) Stocks C) Bonds issued by a foreign country D) Heating oil futures

D (commodity futures are not securities)

Under the USA, which of the following are exempt transactions? I) A transaction between an issuer and an underwriter II) An unsolicited customer order to buy an exempt security III) U.S. Treasury bonds IV) Municipal securities

I and II

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

I and III

Which of the following accounts could be opened with a TOD designation? I) Individual II) Joint tenants in common III) Joint tenants with rights of survivorship IV) UTMA

I and III (The only types of accounts that may have the Transfer on Death (TOD) designation are individual and JTWROS. Minors cannot designate a beneficiary. Upon the death of a minor, any assets belong in the deceased's estate.)

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 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, I) Kapco's P/E ratio has decreased II) Kapco's P/E ratio has increased III) an investor holding Kapco over this period would have noticed a decrease in income received IV) an investor holding Kapco over this period would have noticed no change in income received

I and IV

The Administrator may require which of the following from a federal covered adviser? I) copy of the IA's Form ADV II) filing of the IA's advertising in the state III) a listing of the IA's fee schedule IV) a filing fee

I and IV

Which of the following entities are considered to be exempt issuers under the Uniform Securities Act? I) State of Michigan II) City of Calgary, Alberta III) City of Birmingham, UK IV) Kapco Leveraged Partners, an unregistered hedge fund whose adviser is registered with the SEC

I, II (Any state or Canadian province, or political subdivision thereof, is considered an exempt issuer. Foreign NATIONAL governments with which the United States has diplomatic relations, but not their political subdivisions, are considered exempt issuers. SEC-registered investment companies are exempt issuers, but unregistered hedge funds are not, regardless of with whom their advisers are registered.)

Which of the following regarding a Roth IRA are TRUE? I) The contributions are nondeductible. II) One may not contribute to a Roth IRA if concurrently contributing to a traditional IRA. III) The contributions are deductible. IV) Withdrawals after age 59½ may be tax free.

I and IV (In a Roth IRA, contributions are not deductible from current income. Withdrawals after age 59½ are tax free, provided the account has been open for at least 5 years. One may maintain both a Roth and a traditional IRA concurrently. However, the maximum total contribution between both plans is $6,000 (or $7,000 for those age 50 or older).)

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

I only

An Administrator may summarily suspend a registration of an agent or an IAR pending final determination of proceedings under the Uniform Securities Act. However, the Administrator may not enter a final order without I) appropriate prior notice to the applicant as well as the employer or prospective employer of the applicant II) opportunity for a hearing III) findings of fact and conclusions of law IV) prior written acknowledgment of the applicant

I, II, III

Under the Uniform Securities Act, as a result of a hearing, the disciplinary actions that may be taken by the Administrator include which of the following? I) Permanent revocation of a registration II) Bar from employment with any registrant III) Restriction on a registrant's performance of any activity in the advisory or brokerage business

I, II, III

Which of the following would be deemed to be an assignment of an investment adviser's contracts? I) All of the stock in NLT Advisers, a corporation, is acquired by MMS Advisers, Inc. II) The Lucky Seven Partnership is an investment adviser with 7 partners. Four of the partners make a fortune and decide to retire. They are replaced by new partners. III) Albert is an investment adviser. His clients' accounts are automatically debited monthly for his fee. Because of this steady cash flow, his banker readily accepts a pledge of these accounts as collateral for a loan.

I, II, III

The Investment Company Act of 1940 requires that a mutual fund do which of the following? I) Provide a monthly balance sheet to investors II) Have $100,000 minimum capitalization prior to making a public offering III) Provide semiannual reports to shareholders IV) Not acquire more than 5% of the outstanding shares of another registered investment company

II and III

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following? I) They must be renewed on an annual basis. II) They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. III) They must prohibit assignment of the contract without the client's consent.

II and III

Under IA-1092, an investment adviser I) makes advice his principal activity II) makes advice his regular activity III) is compensated directly for advice IV) is compensated directly or indirectly for advice

II and IV

Under the Investment Company Act of 1940, which of the following statements regarding the investment objective of a mutual fund are TRUE? I) Only the board of directors needs to approve changes in the investment objective. II) The majority of outstanding shares must vote to approve changes in the investment objective. III) The SEC must approve all changes in the investment objective. IV) The investment adviser does not set, but tries to meet, the investment objective.

II and IV

Under the NASAA Model Custody Rule, an investment adviser would be considered to have custody of client assets if that adviser inadvertently receives I) a check from a client made out to the IA and does not return the check within 24 hours II) a check from a client made out to a third party and does not forward the check within 3 business days III) stock certificates from a client and does not forward them within 3 business days IV) stock certificates from a client and does not return them within 3 business days

II and IV

Under the Investment Advisers Act of 1940, in which of the following cases has an investment adviser acted improperly by not making appropriate disclosures to clients? I) An adviser that requires prepayment of $1,000 in fees, 9 months in advance, has liabilities that exceed its assets and does not disclose this fact to clients. II) An adviser that has investment discretion over client accounts cannot meet its financial obligations as they come due and does not disclose this fact to clients. III) An adviser that does not require prepayment of fees and does not have discretion over accounts or custody of client securities or funds has just been found by a state court to have violated a rule issued by the SEC and does not disclose this fact to clients.

II andIII

One measure of a corporation's liquidation value is its book value per share. When performing this computation, the value of which of the following would normally be subtracted from the corporation's net worth? I) Cash II) Wages payable III) Patents IV) Preferred stock

III and IV

A highly compensated customer owns 200 shares of Datawaq. He bought it 20 years ago, and it is now trading at 90. If he donates the stock to a 501(c)(3) charity, how much can he claim as a tax deduction for this donation? A) $18,000 B) $6,000 C) $12,000 D) $0

a (Securities can be gifted to charity and deducted at their fair market value, as long as they have been held more than one year. The fair market value of the deduction allowed for 200 shares is 200 multiplied by the current market price of the stock, or $18,000.)

Securities issued by which of the following are exempt from the registration and disclosure requirements of the Uniform Securities Act (USA)? I) The United States or any territory II) A state or political subdivision of a state III) A common carrier (e.g., a railroad) regulated in respect to its rates and charges by the United States or a state IV) Banks and savings institutions

all

Which of the following are defined as securities under the Uniform Securities Act? I) Real estate investment trust certificates II) Preorganization subscription agreements III) Shares of treasury stock IV) Voting-trust certificates issued by a corporation undergoing a reorganization

all

Which of the following are federal covered securities? I) A security quoted on the Nasdaq Stock Market II) Shares of an investment company registered under the Investment Company Act of 1940 III) An offering in a security exempt from registration under the Securities Act of 1933 IV) A security that has a federally imposed exemption from state securities registration.

all

Which of the following would not constitute a conflict of interest between the plan and a fiduciary? A) A fiduciary sells a real estate investment to the plan at the current market rate. B) a fiduciary participates in a transaction on the plan's behalf that involves a party with interests adverse to those of the plan in order to ensure favorable terms for the plan. C) The fiduciary receives fees for acting as a trustee to the plan. D) A fiduciary offers reduced commissions to the plan for transactions that are executed through his employing financial institution.

a

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

a (Surrender of the contract requires the insurance company to pay out its cash value. Death benefit is adjusted annually.)

If you are registered as an agent for a broker-dealer in State Y and you conduct business as an agent of theirs in State Z, a state in which you are not registered as their agent, you I) expose yourself and your employer to disciplinary action by State Z II) expose yourself to a possible fine III) may obligate your broker-dealer to offer your client the right to rescind the sale IV) may have your registration in State Y revoked

all

According to both the Investment Advisers Act of 1940 and the Uniform Securities Act, under which of the following circumstances is an investment adviser required to make disclosure to the client? I) The adviser intends to recommend the use of the broker-dealer with whom he is affiliated. II) The transactions recommended to the client are inconsistent with those for the adviser's own account. III) The investment adviser intends to sell the client the insurance policy recommended for his financial plan. IV) The adviser is employed by a broker-dealer but provides investment advisory services outside the scope of his employment with the broker-dealer.

all (All of the situations listed involve some potential conflict of interest. Although such transactions are not prohibited, proper disclosure is required.)

It is deemed to be an assignment whenever a ........ Pledging a client's contract is/is not considered to be an assignment?

majority interest in an adviser changes hands, is

Mary is a bowling buddy of Susan, a covered investment adviser. Mary refers Amanda, a wealthy widow, to Susan, and after a very pleasant meeting, Amanda places $15 million under management with Susan. If Susan were to give Mary a cash payment for the referral, A) both Susan and Mary would have to disclose the cash payment to Amanda B) she would be engaging in an prohibited practice C) she would have to obtain Mary's permission first D) only Susan would have to make disclosure to Amanda

b (Although there are circumstances under which cash payments may be made to solicitors, none of the required conditions found in the Investment Advisers Act of 1940 appear to be met here. A formal written agreement must be in effect, not just a one-time reward.)

Liquidity ratios measure the solvency of a firm or the firm's ability to meet short-term financial obligations. Which of the following is a liquidity ratio? A) Dividend divided by earnings per share B) Current assets divided by current liabilities C) Gross profit divided by net sales D) Net income divided by average total equity

b (current ratio = measures the liquidity of a firm)

Which of the following is an investment adviser? A) A columnist for a major news magazine who writes on the business and economic functions of banking institutions B) a lawyer with sophisticated investment experience who gratuitously offers his clients advice on the value of securities C) A retired mechanical engineer who offers investment advice in his areas of expertise to a small number of clients for a fee D) A bank that purchases securities on behalf of its custodial accounts

c (Even though an engineer is part of the acronym LATE, a retired or active mechanical engineer who offers investment advice to clients for a fee falls within the definition of investment adviser under the Uniform Securities Act. The LATE exclusion only applies to incidental advice given in the practice of a profession.)

It is agreed by most investment advisers that diversifying an investment portfolio can reduce the overall risk. Benefits of diversification would include all of the following except A) lowering the volatility of the portfolio. B) mitigating the effects of a bankruptcy of a security held in the portfolio. C) lowering trading costs. D) increasing risk-adjusted returns.

c (If anything, diversifying a portfolio will increase the trading costs. Those higher costs are outweighed by the benefits in risk reduction and potential higher returns.)

An investor purchases a Treasury note and the confirmation shows a price of $102.25. Rounded to the nearest cent, the investor's cost, excluding commissions, is A) $1,020.25. B) $102.25. C) $1,027.81. D) $1,022.50.

c (Treasury notes are quoted in 32nds where each 32nd equals $.3125. The 102 in the quote equals $1,020 and the 25/32 is an additional $7.81 bringing the total to $1,027.81.)

Current assets divided by current liabilities is the ___________________ ratio, a ratio that measures the ....

current, liquidity of a firm

One way in which futures contracts differ from options contracts is that A) only the buyer is obligated on a futures contract where only the seller is obligated on an options contract B) both parties are obligated on futures contracts where only the buyer is obligated on an options contract C) only the seller is obligated on a futures contract where both parties are obligated on options contracts D) both parties are obligated on futures contracts where only the seller is obligated on an options contract

d

define mortality risk .... who holds it?

danger tht some annuitants will live to surpass their avg life expectancy, held by life insurance co

Dividend amount divided by earnings per share is the _________________ ratio which measures ....

dividend payout, how much of a company's earnings are distributed to common stockholders.

Sales made under the provisions of Rule 506(b) of Regulation D must be reported on...

form d

The only types of accounts that may have the Transfer on Death (TOD) designation are _____________ and _________________.

individual and JTWROS

the greatest risk T-STRIPS face is ...

interest rate risk

The most common form of organizational structure for venture capital investment is the...

limited partnership

are commodity futures securities?

no

Gross profit divided by net sales is a ___________________ ratio that measures ....

profitability, the gross profitability of the firm's business operations (not its liquidity)

Investment advisers that maintain custody of customer securities and/or cash are required to send statements to customers on a ______________ basis

quarterly

Net income divided by average total equity is the ___________________________________, which measures the ....

return on stockholders' equity, efficiency of common shareholders' investment or equity in the firm

MidWest Advisory Services has $175 million in assets under management and has offices in 10 Midwest states. Regarding recordkeeping requirements, MidWest must meet those of...

the SEC

A bank purchases 200 shares of a stock. In regard to this purchase, the bank would be considered A) an institutional investor B) a public investor C) a corporate investor D) a small investor

A

A contract between an investment adviser and a customer may be assigned to another investment adviser, provided A) the client consents to the assignment B) the broker-dealer handling the account's transaction is notified in writing C) the client is notified in writing within a reasonable period of time D) the assignment is done 1 year after the initial contract

A

A customer suspiciously makes deposits totaling $12,000 in 4 installments of $3,000 each. This attempt to circumvent the currency reporting rules is known as A) structuring. B) placement. C) layering. D) laddering.

A

A federal covered investment adviser is a person A) registered, or excluded from the definition, under the Investment Advisers Act of 1940 B) exempt from regulation under the Securities Exchange Act of 1934 C) registered with North American Securities Administrators Association (NASAA) D) registered under the Uniform Securities Act

A

A person who has no place of business in this state would not be considered a broker-dealer if he effects transactions in this state exclusively with all of the following except A) investment advisers. B) the issuers of the securities involved in the transaction. C) insurance companies. D) other broker-dealers.

A

All of the following are advantages of a 401(k) plan EXCEPT A) the employer may make unlimited contributions, which generate unlimited tax deductions for the business B) tax deferral on the plan earnings is advantageous to employees C) the owner of the business may participate in the plan D) employees and the business may reduce current taxes

A

All of the following statements are features of hedge funds EXCEPT A) they generally have relatively low minimum initial investments B) they frequently employ speculative strategies to maximize returns C) they are usually composed of a wide array of global investments D) they are generally organized as private investment partnerships or offshore investment corporations

A

An analyst would use the discounted cash flow method in an attempt to find A) the fair value of a security. B) the current rate of return of a security. C) the current market price of a security. D) the cash flow from operations.

A

An investment adviser representative recommends that a customer purchase shares of Silicon Switches. The representative indicates that the company has reduced market risk because it has graduated to the level of quality acceptable to the New York Stock Exchange. According to the Uniform Securities Act, the adviser's statement is A) not permitted because it is misleading to imply that meeting listing requirements reduces market risk B) permitted because an investment adviser may recommend listed stocks C) not permitted because the transaction is not suitable for the customer D) permitted because the NYSE sets stringent earnings requirements for listed stocks

A

As the correlation between any 2 assets decreases, A) the benefits of diversification increase B) the benefits of diversification decrease C) the standard deviation of the portfolio increases D) greater risk is assumed

A

Form PF must be filed by A) SEC-registered advisers with at least $150 million in private fund assets under management B) SEC-exempt reporting advisers C) SEC-registered advisers with no more than $150 million in private fund assets under management D) state-registered private fund managers, regardless of the amount of assets under management

A

In the event that a filing with the state securities Administrator is found to have material misstatements or omissions, a correcting amendment must be filed A) promptly B) with the Administrator and the SEC Fraud Division within 5 business days of the discovery C) with a new consent to service of process D) within 7 business days of the discovery

A

John Law is the owner of Mississippi Advisory Services (MAS), an independent financial planning organization. Law is registered as an investment adviser representative of SSC Securities and Investments, registered as a broker-dealer, and an investment adviser with the SEC. Supervision over Law's advisory activities is the responsibility of A) SSC's CCO. B) MAS's CCO. C) the SEC. D) John Law.

A

Kapco Advisers, a federal covered investment adviser operating on a calendar-year basis, published a list of recommended securities in January 2015. A copy of this must be maintained until at least A) December 31, 2020 B) January 31, 2020 C) January 31, 2017 D) December 31, 2017

A

Pemberton bought a stock share at $50 and wants to earn a profit, so he decided he will never sell it below $52. The company has now underperformed for multiple quarters as per street analysts, and the stock is down to $48. Pemberton continues to hold the stock in line with his original plan. In this case, Pemberton may be exhibiting A) anchoring bias. B) herding bias. C) regret aversion bias. D) overconfidence bias.

A

Strategic Investment Managers Company (SIMCO) is an investment adviser registered with the SEC. They have over 1,000 clients, about 53% of whom have granted SIMCO discretionary authority. From time to time, SIMCO feels the same security is appropriate for a number of their accounts and turns in a bunched order. When the order is filled at different prices, the shares are allocated A) to all accounts proportionately, regardless of the size of the individual account B) through a formula developed by SIMCO and used on a consistent basis C) to the $1,000,000+ accounts first D) on a FIFO basis

A

The financial ratio that shows the relationship between the price of a company's stock and the company's net worth (stockholders' equity) is A) the price-earnings (P/E) ratio B) the price-to-book-value ratio C) the dividend discount ratio D) the price-sales ratio

A

The value of a variable annuity during the accumulation period is determined by A) the number of accumulation units owned multiplied by the value of each unit B) the total payments made by the evaluation date C) the number of accumulation units owned multiplied by the number of payments made into the account D) the value of the securities in the general account of the insurance company

A

Under the USA, every investment adviser organized as a partnership, must include in its contracts an agreement to notify clients within a reasonable period of time of A) the addition or removal of any of the partners B) a change in the location of securities held in custody C) the decision to charge fees in advance rather than arrears D) a change in the method of computing fees

A

Under the Uniform Securities Act, a state-registered investment adviser whose only office was in State N would NOT have to register in State O if its only clients were A) trust companies B) individual accredited investors C) 6 or fewer retail clients D) complex trusts

A

Which of the following best describes a global mutual fund? A) The portfolio consists of securities of companies domiciled throughout the world, including the United States. B) The portfolio consists of securities of companies domiciled throughout the world, excluding the United States. C) The portfolio consists of a global selection of asset classes, including cash equivalents, equities, debt, and tangible assets. D) The investment adviser under contract to the fund uses a team of managers who are located at the various financial capitals around the globe.

A

Which of the following is federally tax exempt for a corporation? A) Municipal bond interest B) Capital gains C) Preferred stock dividends D) Foreign corporate stock dividends

A

Which of the following reasons is appropriate justification for selling a stock short? A) To benefit from a decline in the price of the stock B) To benefit from a rise in the price of the stock C) To seek a modest potential reward with limited risk D) To cut losses on a long position

A

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 A) April 30 B) May 15 C) April 15 D) May 1

C (If no denials or stop orders are in effect and no proceedings are pending to do so, registration automatically takes effect at noon on the 30th day after the application was filed.)

In portfolio theory, the alpha of a security or a portfolio is A) the risk of the portfolio associated with the macroeconomic factors that affect all risky assets B) the difference in the expected return of the portfolio, given the portfolio's beta, and the actual return the portfolio achieved C) the portfolio's average return in excess of the risk-free rate divided by the standard deviation in returns of the portfolio D) a measure of the variance in returns of a portfolio divided by its average return

B

A trading venue where institutional traders are assured of anonymity is known as A) OTC market. B) dark pool. C) hidden pool. D) gray market.

B

All of the following statements regarding an investment's internal rate of return (IRR) are true EXCEPT A) investments are acceptable when their internal rates of return exceed the investor's required rate of return B) IRR is most often used with growth stocks C) IRR expresses the rate of interest that matches the initial investment with the present value of future cash flows D) IRR is the one rate of return that results in an investment having a net present value (NPV) of 0

B

An individual's net worth is A) largely irrelevant in identifying the individual's investment objectives B) the difference between the individual's assets and the individual's liabilities C) best determined by examining the individual's personal income statement D) another term for discretionary income

B

An investment adviser whose primary business is the rendering of investment advice providing investment supervisory services is entitled to use the term A) financial planner B) investment counsel C) senior adviser D) pension consultant

B

An investor's required rate of return is 6%. If the internal rate of return of the investment offered is 6.32%, then the NPV is A) zero B) positive C) between 6% and 6.32% D) negative

B

Because a trust account is managed for the beneficial interest of the beneficiary, the investment adviser representative can A) arrange to have the trust's funds pledged to support a loan for the trustee B) have a check drawn on the account payable to the trustee for expenses C) place the securities in the trust fund in a noncustodial brokerage account D) have funds withdrawn from the account at the direction of the beneficiary

B

Lamar is an investment adviser representative for Southeast Retirement Advisers (SRA), a wholly owned subsidiary of Southeast Retirement Solutions (SRS), a broker-dealer registered in a number of southeastern states. Lamar is also a registered agent with SRS. If one of Lamar's advisory clients sends a check made payable to SRS for a stock purchase, under NASAA's Model Rule on Custody A) SRA would be in violation of the NASAA requirement to use a qualified custodian B) SRA is considered to be maintaining custody of client funds and securities C) Lamar would have to post a surety bond in the amount of $35,000 D) Lamar is considered to be maintaining custody of client funds and securities

B

One of the major financial decisions to be made by a family is the amount and type of life insurance to purchase. The form of insurance that offers flexible premiums without a fixed cash value is A) term life. B) universal life C) whole life. D) variable life.

B

The type of trust created by a will that becomes operative at death is A) a living trust B) a testamentary trust C) a Q-tip trust D)a a revocable trust

B ("last will and testament.")

Under the Uniform Securities Act, which of the following would NOT be considered an exempt transaction? A) An executor liquidates the estate's portfolio B) An agent sells U.S. Treasury notes to an individual client C) The sale of ABCD common stock, listed on the Nasdaq Stock Market, to a trust company D) The purchase of an unregistered nonexempt security by an individual client at that client's request

B (Even though the bonds are an exempt security, the sale to an individual client is not an exempt transaction)

John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments? A) His annuity payments are all taxable as ordinary income. B) His annuity payments are partly taxable and partly tax-free return of capital. C) His annuity payments are partly taxable as capital gain and partly taxable as ordinary income. D) His annuity payments are tax free.

B (The key word here is nonqualified! The investment John made was with after-tax dollars, the money grows tax-deferred, and only the earnings are taxed at distribution.)

An investment of $2,000 made 10 years ago is now worth $8,000. Using the Rule of 72, the approximate compounded annual rate of return is A) 7.2% B) 14.4% C) 40% D) 25%

B (This investment has quadrupled in 10 years. Using the Rule of 72, we know how to compute the rate of return when an investment doubles. This one has doubled every 5 years. Dividing 72 by 5 years gives us an approximate rate of 14.4%.)

Centripetal Investment Advisers (CIA) has its principal office in State X and is also registered in States Y and Z. CIA would be considered to be maintaining custody of client assets in all of the following cases EXCEPT A) checks made out to CIA are deposited within 3 business days B) checks made out to 3rd parties are forwarded within 3 business days C) CIA's advisory contract calls for the automatic deduction of advisory fees D) CIA has a power of attorney granting authority to withdraw funds from the custodian

B (When a check made payable to a 3rd party is received by the investment adviser, it will not be deemed to be custody under the Uniform Securities Act if the check is forwarded within 3 business days. When a check is made payable to the investment adviser, it must be returned to the sender within 3 business days or it will be considered maintaining custody.)

Mr. and Mrs. Rose, advisory clients of yours, request a meeting with you to discuss the options available if they wish to deposit a lump sum to save for college tuition for their child. All of these would be factors to consider EXCEPT A) the expected inflation rate B) the Roses' salaries C) current college costs D) the age of the child

B (when making lump sum contributions, salary isn't a factor)

Broker-dealer A wants to promote and reward teamwork. The firm plans to pay out a small percentage of the firm's profits to the clerical staff as a bonus for their hard work. Under NASAA rules, is this permitted? A) No, this cannot be done. B) Yes, if all of the agents agree to it. C) Yes, no registration is necessary. D) Yes, if the entire clerical staff is registered as agents for the firm.

C

When it comes to advertising by investment advisers and their representatives, which of the following would be most likely to be acceptable to the Administrator? A) Showing past performance over the past 12 months of a group of securities selected from all of the adviser's recommendations B) A "like" from a client on an investment adviser representative's Facebook page with a comment on the wonderful service the client received C) A "like" from a client on an investment adviser representative's Facebook page post that announced the birth of her most recent child D) Offering prospective clients a free 3-month trial to the investment adviser's special investment formula that assures success

C

An investment adviser cannot adequately advise a client without knowing the client's financial status. When determining that status, it is important to differentiate between financial and nonfinancial considerations. Which of the following would be considered a financial consideration rather than a nonfinancial one? A) Client's membership in Greenpeace B) Fact that both parents were smokers who died of lung cancer C) Client's stamp collection D) Client's marital statusAn investment adviser cannot adequately advise a client without knowing the client's financial status. When determining that status, it is important to differentiate between financial and nonfinancial considerations. Which of the following would be considered a financial consideration rather than a nonfinancial one?

C (Financial considerations are those which can be categorized as an asset or a liability (something that can be assigned monetary value). Although a stamp collection would not be considered a very liquid asset, it is nonetheless something of monetary value.)

IRAs and Keogh plans are similar in the following ways EXCEPT A) distributions without penalty can begin as early as age 59½ B) deferral of taxes C) identical amounts of contributions are allowed D) there is a 50% tax penalty for insufficient distributions

C (IRAs and Keogh plans do not have identical contribution amounts; IRAs allow a maximum of $6,000 per individual or $12,000 per couple per year (with a catch-up of $1,000 for each individual aged 50 or older), whereas Keogh plans allow substantially more.)

Phocine and Ursus, LLC, a covered investment adviser, has a client with a large short position in PQR common stock. Their chief analyst believes that PQR is an attractive target for an acquisition. Based on this information, it might be wise for the firm to suggest this client A) sell call options on PQR. B) purchase put options on PQR. C) purchase call options on PQR. D) take a long position in PQR.

C (If the analyst is correct, a takeover usually occurs at significant premium to the current market. That would be bad news for the client with a short position because covering the short would be at that higher price. The best protection for a short stock position is buying a call because that fixes the future purchasing price. In the event the analyst is wrong, or the takeover bid fails, the client has maintained the short position and is only out the premium paid for the "insurance".)

Which of the following securities is the least suitable recommendation for a qualified money purchase plan account? A) Treasury bond B) Large-cap common stock C) Investment-grade municipal bond D) A-rated corporate bond

C (Investment-grade municipal bonds bear low yields that are federally tax exempt. Because money in a qualified retirement plan account grows tax deferred regardless of the investment instrument, tax-exempt securities are unsuitable)

Strategic Capital Asset Managers (SCAM) is preparing its Form ADV Part 2B relating to certain individuals. On this form, SCAM must disclose all of the following information EXCEPT A) the fact that any listed person has no formal education after high school B) disciplinary information about material events within the past 10 years C) compensation earned on dealings with clients D) the name, title, and telephone number of the individual supervising any listed person

C (It is compensation beyond that paid by the client (such as a sales award or other prize) that must be disclosed.)

If an agent fails to inform a client that a company whose security he is selling is changing the investment managers of its employee's pension plan, under the Uniform Securities Act, this omission constitutes A)a civil violation punishable by a fine up to $5,000 B) a criminal violation punishable by up to three years in prison C) no violation D) a misdemeanor

C (No violation occurs because the Uniform Securities Act requires the disclosure of only material facts. Material facts are those that could influence the price of a security. Changing investment managers on a pension plan would not affect the price of a stock and is not material to the investment decision.)

If a person who is not an agent or broker-dealer makes a false statement of material fact in connection with the sale of a security, that person A) has not violated the Uniform Securities Act if the sale was made to an institutional account B) will probably be arrested by the Administrator C) has violated the antifraud provisions of the Uniform Securities Act D) is not covered by the Uniform Securities Act

C (The Uniform Securities Act makes it illegal for any person to commit a fraudulent act in connection with the sale or offer for sale of a security, not just agents and broker-dealers. The Administrator does not have the power to arrest anyone. He may bring the case to the attention of the attorney general of the state, who can issue a warrant for the arrest.)

Parker and Mary have recently divorced. For Mary to receive Social Security benefits based on Parker's earnings, which of the following conditions must exist? A) Mary must have worked at least 40 quarters to be eligible for benefits. B) Parker must already be at full retirement age. C) The marriage must have lasted at least 10 years. D) Parker must not be remarried.

C (The marriage of these two must have lasted at least 10 years. In addition, Mary cannot be remarried (Parker can be). It is Parker who must have at least 40 quarters to earn Social Security benefits)

Your client turns in a buy limit order for 100 shares of ABC at $58. Following the entry of the order, trades occur at 59, 59, 58.80, 58.20, 58.40, 57.95, 57.85. At what price was this limit order triggered? A) $57.85. B) $57.95. C) The order was not triggered. D) $58.20.

C (The subject of the question is a limit order and then it asks for the trigger price. Stop orders are the only orders that have triggers so there is no trigger for this limit order. If the question had asked about the execution price, a buy limit order will be executed at the limit price or better (lower). In this case, the first trade at $58 or lower is $57.95)

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) only unethical if Bryan sells his shares after informing his clients of his intention to do so B) only unethical if investors lose money in the investment C) not an unethical sales practice D) an illegitimate sales tactic

C (This practice is ethical, providing it is accurate and not employed in a coercive manner)

Hugh Clark, a partner with a minority interest in ABC Investment Partners, a registered investment adviser, withdraws from the partnership to form his own separate partnership, Clark Advisers. ABC Investment Partners A) must notify Clark Advisers of Clark's withdrawal from ABC Investment Partners within a reasonable period B) need not notify its clients of Clark's departure because Clark was only a minority partner C) must change its name because the partnership has a new mix of partners as a result of Clark's departure D) must notify its clients of Clark's departure within a reasonable period

D

One of the most important definitions found in the Investment Company Act of 1940 is that of "investment company." Included in that definition are all of the following EXCEPT A) management investment companies B) face-amount certificate companies C) unit investment trusts D) REITs

D

The USA provides either an exclusion from the definition or an exemption from registration as an investment adviser for certain persons. Which of the following would be required to register? A) A bank trust officer with less than $250 million in assets under management B) An engineer employed by an oil company selling limited partnership interests to public investors who provides estimates of recoverable reserves C) A teacher who teaches a course in the local high school on consumer economics D) A CFP® who provides a full range of financial planning to clients on a fee-only basis

D

The capital asset pricing model (CAPM) is an investment theory that serves as a model for A) pricing securities based on their total risk B) measuring the correlation between a security and the overall market C) pricing securities based on their unsystematic risk D) pricing securities based on their systematic risk

D

The compliance rules of the Investment Advisers Act of 1940 require all of the following EXCEPT A) written compliance policies and procedures B) appointment of a chief compliance officer (CCO) C) annual compliance review D) independent review of an advisory firm's compliance procedures

D

The purpose of the Investment Advisers Act of 1940 is to provide A) regulation for investment companies and their operations B) minimum standards of performance for those registered as investment advisers C) standards among the various states for the regulation of investment advisers D) standards at the federal level for the regulation of investment advisers

D

Twenty-five individuals have formed an investment company. They have heard wonderful things about you as an investment adviser and ask if you would be interested in managing their portfolio. You reply that you would be interested but will only take the account if you can structure a compensation arrangement that calls for you to receive a base fee plus 18% of the profits to the extent that the account's performance exceeds a standard benchmark. Under the Uniform Securities Act, this type of agreement is allowable if A)a majority of the shareholders in the investment company are qualified investors B) the contract is signed by one of the investors who is an accredited investor C) the individual in charge of the investment company is a qualified investor D) the investment company has net worth of at least in excess of $2.1 million or will place at least $1 million in assets under management with the IA

D

Under provisions of the Investment Advisers Act of 1940, investment advisers that maintain custody of client securities are required to do all of the following EXCEPT A) keep copies of all confirmations sent to clients B) maintain a separate ledger for each client showing all purchases and sales C) arrange for a surprise audit by an independent public accounting firm at least annually and subsequently file a report of the examination with the SEC D) send an itemized statement to clients at least monthly

D

Regarding the use of testimonials in advertising, all of the following are true EXCEPT A) divulging a list of the investment adviser's clients in response to a court order is not considered a testimonial B) a prominent celebrity speaking publicly about his relationship with the investment adviser is considered to be giving a testimonial C) an agent of a broker-dealer may use a testimonial from an existing client with the approval of a designated officer of the firm D) an investment adviser representative may only use a testimonial from an existing client

D (Testimonials are prohibited under any circumstances for investment advisers and their representatives. Agents and broker-dealers are permitted to use testimonials if they meet FINRA standards.)

A client approaches the IAR handling the advisory account with a request to find a preferred stock that will offer a 6% income return. The IAR suggests a stock paying a $.28 quarterly dividend. That stock will meet the income objective if it has a current market price of A) $11.91 B) $6.72 C) $4.67 D) $18.67

D (The first thing to do is annualize the dividend by multiplying the $0.28 by 4. Once we have the annual dividend of $1.12, divide by 6% and the result is $18.6666 or $18.67 properly rounded. If you left your math skills at home, all you have to do is multiply each of the 4 choices by 6% to see which one is closest to $1.12.)

A variable annuity annuitant bears all of the following risks EXCEPT A) market risk B) interest rate risk C) inflationary risk D) mortality risk

D (The insurance company issuing the variable annuity bears mortality risk, or the danger that some annuitants will live to surpass their average life expectancy.)

Which of the following is indicative of the primary difference between variable life insurance and straight whole life insurance? A) Amount of insurance that can be issued B) Tax treatment of the death proceeds C) Cost of the insurance D) Way in which the cash values are invested

D (Variable life insurance allows the policyowner to decide how the cash value is invested through a number of subaccounts.)

The statement, "Stock prices fully reflect all information from public and private sources," can be attributed to which form of the efficient market hypothesis (EMH)? A) Semi-strong form EMH B) Weak form EMH C) Passive form EMH D) Strong form EMH

D (assume private includes insider info)

Which of the following would be a common use of a stop order? I) To protect the profit on a long position II) To prevent loss in a short position III) To buy at a specific price guaranteed by a specialist IV) To lock in a price with the specialist

I and II