final 3 s66

A company is formed with 120 shareholders and $20,000,000 of capital with the purpose of investing in securities. Which statement is TRUE? A This company must be registered as an investment company under the 1940 Act B This company must be registered with the Securities and Exchange Commission under the 1933 Act C This company is exempt from registration under the Investment Company Act of 1940 D This company is exempt from registration under the Securities Act of 1933

A

A customer wishes to open an account at a bank and name her son as beneficiary. She has $3,000 to deposit and wishes to maintain control of the account and be able to use the funds as she wishes. What type of account can be opened? A Totten trust account B Testamentary trust account C Intervivos trust account D Living trust account

A

A non-password protected website is defined as: A advertising B sales literature C correspondence D public forum

A

A plan trustee is considering making an investment in XYZ stock for a trust that has multiple beneficiaries. Under the provisions of the Uniform Prudent Investor Act, this investment decision must give consideration to the role that this investment plays: A to the overall portfolio strategy B to the investment strategy desired by each beneficiary C on its own merits, regardless of its impact on the overall portfolio D in meeting the financial needs of the trustee

A

If a life insurance policy is referred to as "permanent life," "ordinary life" or "straight life," it must be a: A whole life policy B term life policy C universal life policy D variable life policy

A

The Administrator is empowered to summarily suspend a registration by: A order B court order C injunction D adjournment

A

The spread is: I earned by a market maker when it effects a round turn principal transaction II earned by an order entry firm when it effects a riskless agency transaction III the difference between the bid and ask quote IV represents the commission charged for effecting the trade A I and III B I and IV C II and III D II and IV

A

Under the NASAA Statement of Policy on unethical practices, written discretionary authority need not be obtained by an investment adviser if the customer: A gives verbal discretionary authority and a written power of attorney from the customer is obtained within 10 days B selects the security to be traded and the price of execution C is an insurance company D effects 5 or fewer trades within a 12 month period

A

Under the Uniform Securities Act, the basic definition of a "security" is: A an investment in a common enterprise for profit with management by a third party B an undivided interest in a business enterprise with other parties C an investment that is transferable to another person D any investment made for profit

A

What mutual fund fee is based on an annual percentage of Net Asset Value? A 12b-1 B Load C Custodian D Redemption

A

Which investment is LEAST likely to offer tax advantages? A Growth stock B S&P 500 index fund C Real estate D Municipal bond fund

A

Which of the following statements concerning contributions to a 403(b) plan is TRUE? A Contributions may consist entirely of employee salary deferral B Employees may contribute by transfer from a savings account C Contributions are made entirely by the employer at no cost to the employee D No contributions are permitted unless the employer matches employee contributions

A

Which security would be expected to have the smallest duration? A 5 year; 5% coupon bond B 5 year; zero-coupon bond C 20 year; 6% coupon bond D 20 year; zero-coupon bond

A

Compute the non-compounded annualized inflation adjusted rate of return for the following investment held for 2 years. Initial Investment Value: $5,000 Ending Investment Value: $4,800 Dividends Received Over The Period: $400 Inflation Rate Over The Period: 7% A -1.50% B 2.00% C 3.00% D 4.00%

A The original investment is $5,000. Over 2 years, the customer lost $200 on the investment and received $400 in dividends, for a net return of $200, earned over 2 years. Annualized, the customer earned $100 per year on $5,000 invested = 2%. However, the rate of inflation over 2 years was 7%, or 3.50% per year (ignoring compounding). Therefore, the inflation adjusted rated of return over the 2 year period is 2% - 3 1/2% = -1.50%.

A 7% coupon bond is being offered on an 8% basis. If interest rates for similar bonds fall below 8%, the basis for this bond will: A increase B decrease C be unaffected D be volatile

B

A mutual fund manager would use beta as part of the analysis of the fund's performance in order to: A measure the fund's return on assets relative to the market as measured by the Standard and Poor's 500 index B measure the volatility of the fund's share price relative to the Standard and Poor's 500 index C select the specific securities that will be purchased by the fund; and those that will be sold by the fund D determine the timing of purchases of securities and sales of securities by the fund

B

Mutual funds must send their financial statements to shareholders: A annually B semi-annually C quarterly D monthly

B

The portfolio construction most suitable for a pension fund seeking current income and safety of principal is: A Treasury bonds, General Obligation bonds and covered call writing B Treasury bonds, Corporate bonds and covered call writing C Corporate bonds, Time deposits and naked call writing D Treasury STRIPs, Corporate bonds and naked call writing

B

Under the Uniform Securities Act, an "offer" or "offer to sell" include all of the following EXCEPT: A an offer of a security B a sale of a security C the solicitation of an offer to buy a security D an offer of an interest in a security

B

Under the provisions of the Prudent Investor Act, all of the following statements are true regarding the management of trust accounts with multiple beneficiaries EXCEPT the fiduciary: A must manage the trust impartially, taking into account the differing needs of the trust beneficiaries B must manage the trust to meet the needs of older beneficiaries before considering the needs of the younger beneficiaries C should seek to maximize portfolio performance and can assume extra risk consistent with the beneficiaries' investment objectives and needs D is permitted to delegate investment decisions to qualified agents without needing consent of the beneficiaries

B

When comparing a mutual fund purchase to a variable annuity purchase, the main advantage of investing in a variable annuity is the fact that: A the contribution to a variable annuity is tax deductible while the contribution to a mutual fund is not tax deductible B the dividends earned in the variable annuity subaccount grow tax deferred while the dividends earned in a mutual fund are taxable annually C annual expenses charged against a variable annuity holding are lower than the annual expenses charged against a mutual fund holding D the dividends earned in the variable annuity subaccount must be reinvested prior to annuitization while the dividends earned in a mutual fund can either be reinvested or withdrawn

B

Which State-registered investment adviser MUST report that it takes custody on Form ADV? A An adviser that is affiliated with a parent bank or trust company B An adviser that directly deducts management fees each quarter from client accounts C An adviser that has discretionary authority over client accounts under a limited power of attorney D An adviser that receives payments from clients at the time that services are rendered

B

Which of the following is NOT defined as a security under the Uniform Securities Act? A Bank note B Endowment policy C Variable annuity D Warrant

B

A $1,000 par TIPS is issued with 5 years to maturity. The coupon rate on the bond is 3.50%. If the inflation rate for the next 5 years is 2.50%, the bond will be worth how much in 5 years? A $1,000 B $1,131 C $1,188 D $1,338

B $1,000 inflated by 2.50% annually equals: $1,000 x 1.025 x 1.025 x 1.025 x 1.025 x 1.025 = $1,131.

1-year Treasury investments yield 4%; while a "high tech" common stock investment yields 25%. The equity risk premium is: A 0% B 4% C 21% D 25%

C

A Chinese Wall must be maintained by a broker-dealer between investment banking and which of the following departments? I Research II Trading III Retail Sales IV Mergers and Acquisitions A I and II B III and IV C I, II, III D I, II, III, IV

C

A bond is rated BBB by Standard and Poor's. The bond is: A Highest Quality Investment Grade B High Quality Investment Grade C Lowest Quality Investment Grade D Highest Level Speculative Grade

C

A customer is considering investing in a private partnership that is currently being formed to buy an office building. The certificate of limited partnership places a life of 9 years on the partnership, after which the office building will be sold and the proceeds distributed to the limited partners. The customer is evaluating the annual cash flow projections included in the Private Placement Memorandum using a CAPM approach. When doing so, the interest rate that would be used as the minimum "hurdle rate" for the project would be the: A 90 day Treasury Bill rate B 5 year Treasury Note rate C 10 year Treasury Note rate D 20 year CD rate

C

A money manager that believes that a company that reports higher than expected earnings will continue to generate superior returns and stock price appreciation is a follower of: A value investing B growth investing C momentum investing D efficient market theory

C

A portfolio manager generates a 15% rate of return on an "aggressive growth" portfolio compared to a 13% rate of return on the benchmark portfolio and a 10% rate of return on the Standard and Poor's 500 index over the same period. The passive rate of return on the portfolio is: A 2% B 3% C 13% D 15%

C

An investment adviser places an advertisement that reads:"Over the last year, our top ten stock picks produced a 40% return. We can guarantee that an investment with us will produce the same or better results." Beneath this statement is the following: "Required Disclosure: Assumptions can not be made regarding future investment performance or profits." Which statement is TRUE? A This advertisement is permitted because it includes the required disclaimer that past performance does not predict future results B This advertisement is permitted because it is truthful and in good taste C This advertisement is not permitted because it is misleading to make a "guarantee" of future results when investing in stocks D This advertisement is not permitted because the word guarantee can only be used for advertisements relating to U.S. Government guaranteed obligations

C

In an initial public offering, a member who acted as manager or co-manager CANNOT issue a research report on that company within how many days following the effective date? A 2 calendar days B 5 calendar days C 10 calendar days D 15 calendar days

C

The statute of limitations for criminal violations of the Uniform Securities Act is: A 1 year B 3 years C 5 years D 6 years

C

What is a characteristic of a dark pool? A Transactions are effected for retail investors B Transactions are not reported to the tape C Users are not aware of the size or identity of available orders D Users are not aware of the market venue where the order is filled

C

Which investment adviser MUST register with the SEC? An investment adviser with assets of: A $1,000,000 B $100,000,000 C $110,000,000 D all investment advisers must register with the SEC, regardless of their assets

C

Which of the following investments has a known long-term internal rate of return? A Low grade 7% corporate bond B Investment grade 5% municipal bond C Treasury STRIP D GNMA Pass-Through Certificate

C

Which of the following statements are TRUE regarding Federal Covered Advisers and their representatives that have a place of business in a state? I Federal Covered Advisers must register in the State II Federal Covered Advisers are not required to register in the State III Representatives of Federal Covered Advisers must register in the State IV Representatives of Federal Covered Advisers are not required to register in the State A I and III B I and IV C II and III D II and IV

C

DEFF stock has a beta of +1.5. The expected market rate of return is 8% and the risk-free rate of return is 2%. The standard deviation of returns is 3%. Using the Capital Asset Pricing Model (CAPM), what is the expected rate of return for DEFF stock? A 6% B 8% C 11% D 12%

C CAPM finds the "expected return of an investment" using the formula: Expected Return of An Investment =Risk-Free Rate of Return + Risk Premium* *Risk Premium is: Beta x (Expected Market Return- Risk-Free Rate of Return) Basically, the Risk Premium is the excess of the expected market rate of return over the risk-free rate of return multiplied by the risk level of the investment as measured by beta. Because the expected market rate of return is 8% and the risk-free rate of return is 2%, the risk premium is 6% x 1.5 beta = 9%. Thus, the Expected Return of The Investment is: 2% Risk-Free Rate of Return + 9% Risk Premium = 11%. Note that Standard Deviation has nothing to do with the formula and is a distractor in the question.

Investments made prior to annuitization of a variable annuity contract are: I legally owned by the insurance company II legally owned by the purchaser of the contract III held in the general account IV held in the separate account A I and III B I and IV C II and III D II and IV

D

Past performance, if shown by an investment adviser in an advertisement, must be based on: A Gross investment income B Gross investment income, reduced by advisory fees paid C Gross investment income, reduced by commission paid D Gross investment income, reduced by advisory fees, commissions and expenses paid

D

The "AIR" of a variable annuity contract is set when the: A prospectus is delivered to the client B purchase contract is completed C surrender period of the contract has been completed D contract is annuitized

D

The State Administrator is empowered to require the filing of advertising and sales literature relating to offers of which of the following? A U.S. Government securities B Municipal securities C Agency securities D Equity securities

D

Which of the following are "critical" pieces of information that MUST be collected from a customer to open a new account? I Name II Address III Date of Birth IV Social Security Number A I and II B III and IV C I, II, IV D I, II, III, IV

D

A customer buys a TIPS with a 3% coupon. The customer holds the investment for 5 years, during which the CPI increased by 3%, 4%, 4%, 4% and 5% respectively in years 1-5. What is the customer's Total Return over the 5 year holding period? A 3% B 4% C 7% D 38%

D A TIPS is a Treasury Inflation Protection Security - which grows principal at the rate of inflation each year and the interest paid each year is based on the inflated principal amount. In year 1, the investor will get $1,000 x 3% = $30 of interest. At the end of year 1, the principal is adjusted by the 3% inflation rate. $1,000 x 1.03 = $1,030 adjusted principal amount. In year 2, the investor will get $1,030 x 3% = $30.90 of interest. At the end of year 2, the principal is adjusted by the 4% inflation rate. $1,030 x 1.04 = $1,071.20 adjusted principal amount. In year 3, the investor will get $1,071.20 x 3% = $32.14 of interest. At the end of year 3, the principal is adjusted by the 4% inflation rate. $1,071.20 x 1.04 = $1,114.05 adjusted principal amount. In year 4, the investor will get $1,114.05 x 3% = $33.42 of interest. At the end of year 4, the principal is adjusted by the 4% inflation rate. $1,114.05 x 1.04 = $1,158.61 adjusted principal amount. In year 5, the investor will get $1,158.61 x 3% = $34.76 of interest. At the end of year 5, the principal is adjusted by the 5% inflation rate. $1,158.61 x 1.05 = $1,216.54 adjusted principal amount. This is the redemption price after year 5. Thus, the investor's Total Return is 5 years of interest plus 5 years of appreciation. The 5 years of interest totals $161.22. The 5 years of appreciation totals $216.54. The Total Return over 5 years is $161.22 + $216.54 = $377.76 / $1,000 invested = 38% (rounded). Note that this question asks for 5 year Total Return; not for annualized return. Also note that from the choices given, if you understand that the 5 years returns are added up to get the "Total," then doing all this math was not needed! Eyeballing the choices gives the answer!