progress exam 2
An investor has purchased a corn futures contract at $1.20 per bushel and the contract delivery size is 5,000 bushels. If the price of corn has fallen to $1.10 per bushel, what's the client's profit or loss? There's no profit or loss since the client did not exercise the contract. $0.10 unrealized loss $500 unrealized profit $500 unrealized loss
$500 unrealized loss
A bond is convertible at $50 and is selling in the market for $1,080. At what price per share must the common stock be trading to be at parity with the bond? $1,080 $54 $20 Par
$54
A young, married couple are ready to start investing and their main objective is long-term growth. Of the following choices, the most appropriate mutual fund for the couple is one with a portfolio that contains: 40% stocks and 60% bonds 50% domestic stocks and 50% foreign stocks 100% money-market investments 40% large-cap stocks, 20% mid-cap stocks, 20% small-cap stocks, and 20% bonds
40% large-cap stocks, 20% mid-cap stocks, 20% small-cap stocks, and 20% bonds
Eight years ago, a person invested $4,000. During the eighth year, the investment had increased to $8,800, but finished the year at $8,000. What is the compounded return on investment achieved for the eight-year period? 8% 8.25% 9% 9.5%
9%
According to the Uniform Securities Act, which of the following persons is an agent? A state official who sells his state's investment-grade G.O. bonds to qualified pension plan buyers A CEO who sells shares of his company's IPO to family, friends, and other retail investors A CFO who structures a private placement offering directly with institutional investors All of the above
A CEO who sells shares of his company's IPO to family, friends, and other retail investors
Which of the following statements is NOT TRUE concerning agency cross trades executed by investment advisers? A client may provide verbal authorization for up to 10 days. A client must provide written authorization for such activities. At least one side of these trades must be unsolicited. The trades are summarized annually for clients.
A client may provide verbal authorization for up to 10 days.
A 30-year-old single mother has income of $25,000 and has put money into an equity fund for her 12-year-old son's college education. She wants to balance out the risk with a small bond investment and is hoping to avoid accessing any of this money until her son turns 18. Which of the following securities is the MOST appropriate for the mother? A government bond fund A 15-year zero-coupon bond A 15-year municipal bond A high-yield corporate bond fund
A government bond fund
Which of the following statements is TRUE regarding a sports and entertainment representative? A sports and entertainment representative who provides advice about asset allocation, but does not recommend individual investments, meets the definition of investment adviser. Only a sports and entertainment representative who recommends specific investments to 15 retail clients is included in the definition of investment adviser. A sports and entertainment representative is only considered an investment adviser if her IA-related compensation exceeds $1,000 per client. A sports and entertainment representative is specifically exempt from registration under SEC Release IA-1092.
A sports and entertainment representative who provides advice about asset allocation, but does not recommend individual investments, meets the definition of investment adviser.
Which of the following is a risk-adjusted rate of return? Beta Duration Convexity Alpha
Alpha
Which of the following provides an option customer with the most flexibility if she wants to exercise her option? A European style option A Straddle A Spread An American style option
An American style option
Which of the following is a type of unsystematic risk? Interest-rate risk Market risk Business risk Inflation risk
Business risk
An investor has owned stock for several years and has an unrealized capital gain. If he is willing to sacrifice some yield in order to protect the unrealized gain, which option strategy is the BEST? Buying calls on the stock Writing calls against the stock Buying puts on the stock Writing puts against the stock
Buying puts on the stock
An industry average debt-to-equity ratio is 2.0. Stocks in the industry have following ratios: Company W: 3.5 Company X: 1.7 Company Y: 1.3 Company Z: 0.7 Which of the following statements is TRUE? Stock Z has the worst ratio. Company X has less debt than Company Z. Company W is the most leveraged firm. Not enough information has been provided.
Company W is the most leveraged firm.
A client of an agent has instructed her to buy 1,000 shares of a Nasdaq stock as close to the opening price as possible. However, at 9:00 a.m., negative news about the company is released. If the agent placed a call to inform the client of the news, but has not yet reached him, what should she do? Wait for the client to return the call Attempt to reach a family member Execute the trade Obtain permission from her supervisor and compliance department prior to the execution of the trade
Execute the trade
Which TWO of the following choices are considered derivatives?Interest-rate swaps Unit investment trusts (UITs) Credit default swaps (CDS) Mutual funds I and III I and IV II and III II and IV
I and III
Which TWO of the following retirement plans typically have a zero cost basis? A 401(k) A Roth IRA A Coverdell IRA A traditional IRA I and III I and IV II and III II and IV
I and IV
An investor has set aside a large sum of money to purchase a corporation. The legal details of the acquisition should be completed within the next six months, but he is unsure of the exact date on which this will happen. If the investor decides to temporarily invest his money in Treasury bonds until he needs the funds to complete the purchase, which TWO of the following risks are the most serious for him? Currency risk Interest-rate risk Timing risk Credit risk I and II I and III II and III II and IV
II and III
Which of the following is NOT considered an active portfolio management strategy? Tactical asset allocation Value investing Indexing Sector rotation
Indexing
A married couple wants to pay off their mortgage when they retire in 15 years, which will require $60,000. After receiving an inheritance of $30,000, they meet with their investment adviser representative for help in determining the lowest annual rate of return that they need to earn on the inheritance in order to use it to pay off the mortgage in 15 years. The IAR tells them the rate is 4.75%, which is referred to as the: Present value Future value Internal rate of return Expected return
Internal rate of return
A company whose stock is listed on the NYSE intends to issue additional shares in State X. The Administrator of State X: May require the issuer to perform notice filing. May not require the registration of the offering in State X. May require the issuer to pay a fee. May ignore any allegations against the underwriter for possible fraud in connection with the offering.
May not require the registration of the offering in State X.
The Modern Portfolio Theory uses which of the following to measure volatility? Standard deviation Beta Alpha Sharpe Ratio
Standard deviation
Which of the following insurance policies allows the owner to skip her premium payments? Whole life insurance Variable life insurance Universal life insurance Term life insurance
Universal life insurance
An investor is seeking an investment that will pay her family after she dies. The investor's income is sufficient to satisfy her living expenses and she is willing to accept a moderate degree of risk. Which of the following is the MOST suitable? Fixed annuity Variable annuity Whole life insurance Variable life insurance
Variable life insurance
In a JTWROS account, if one person dies, which of the following statements is TRUE? With proper documentation, the assets in the account become the property of the other person. With proper documentation, 50% of the assets in the account become the property of the other person. The assets become the property of the state in which the customer was a resident. The assets are sold and the account is liquidated.
With proper documentation, the assets in the account become the property of the other person.
According to the Uniform Securities Act, which of the following statements is NOT misleading if it is made by an agent? "Diversifying a portfolio with multiple issues of common stock will reduce market risk and increase long-term performance." "Fixed-income instruments represent a conservative investment and are the most appropriate investment vehicle for older clients." "Investments in equities will permit an investor to maintain positive returns in an inflationary economy." "A gift of assessable stock is technically treated as both an offer and a sale."
"A gift of assessable stock is technically treated as both an offer and a sale."
A married couple wants to fund IRAs to save for their retirement. The husband is 60 years old and is a retired CFO, while the wife is 55 years old and works for the federal government. What is the maximum amount that the couple may contribute? No contributions are permitted once either spouse reaches age 59 1/2 $6,000 for the wife, but no contribution is allowed for the husband, since he is retired $12,000 $14,000
$14,000
Based on the past performance of XYZ Company, an investment adviser has determined that in a bull market there is 25% probability that XYZ stock will return 15%. In a flat market, there is 50% probability that the stock will return 4%. In a bear market, there is 25% probability that the stock will lose 20%. What is the expected return for XYZ stock? -1.0% +0.75% +2.0% 0.0375
+0.75%
A portfolio contains fixed-income instruments and common stock. The portfolio's beginning value was $240,000; however, the portfolio was valued at $280,000 at the end of the second year. If interest and dividends totaled $20,000, what's the annualized yield on the portfolio? 12.50% 25% 16.60% 8.30%
12.50%
An investor who is in a high federal tax bracket and also subject to state and local taxes will benefit the MOST by purchasing: A state general obligation bond A transportation revenue municipal bond A zero-coupon Treasury STRIPS A Commonwealth of Puerto Rico Water and Sewer bond
A Commonwealth of Puerto Rico Water and Sewer bond
According to SEC Release 1092, which of the following persons is considered an investment adviser? A brokerage firm that offers retirement planning advice to clients A pension consultant who advises several large publicly traded companies The publisher of Bulls, Bears, and Pigs, a financial magazine A teacher who offers advice to students who remained after class
A pension consultant who advises several large publicly traded companies
Which of the following persons must be registered as a broker-dealer in State B? An agent of a broker-dealer that is registered in State A, but has institutional clients in State B. An issuer that intends to issue its securities in State B. A person with a place of business in State B, but effects securities transactions with institutional clients in State B. A person with no place of business in State B and only executes securities transactions with existing clients who are temporarily in State B.
A person with a place of business in State B, but effects securities transactions with institutional clients in State B.
Under the Uniform Securities Act, which of the following firms is excluded/exempt from the definition of investment adviser? An advisory firm that is headquartered in the State A and has $115 million under management A newly established adviser in State A that manages a mutual fund's $11 million portfolio An in-state bank that conducts business exclusively with institutions All of the above
All of the above
An investment adviser's contract with its clients may contain all of the following provisions, EXCEPT: A provision which provides details regarding the possible assignment of the advisory contracts An exculpatory provision A provision for performance-based fees for select clients Termination provisions and penalties
An exculpatory provision
According to the Uniform Securities Act, all of the following are excluded from the investment adviser definition, EXCEPT: A bank An attorney An insurance company A broker-dealer
An insurance company
Which of the following investments provides the highest real rate of return? An investment earning 15% when inflation is 16% An investment earning 15% when inflation is 10% An investment earning 10% when inflation is 2% An investment earning 6% when inflation is 3%
An investment earning 10% when inflation is 2%
Under the Uniform Securities Act, which of the following persons is considered an investment adviser representative? A registered representative of a broker-dealer who occasionally offers complimentary tax and financial planning advice to clients A lawyer who refers business to an advisory firm An office manager of an advisory firm who supervises salespersons, but does not have her own clients All of the above
An office manager of an advisory firm who supervises salespersons, but does not have her own clients
An investor maintains a portfolio of debt securities. She is concerned that the FRB may tighten the money supply, leading to an increase in interest rates. To measure the effect that this change will have on the value of her portfolio, which of the following choices will be the BEST in providing her with this information? Evaluating the credit risk in her portfolio Analyzing the duration in her portfolio Analyzing her current yield Evaluating the business risk in her portfolio
Analyzing the duration in her portfolio
Which of the following measures the leverage of a company? Debt-to-equity ratio Working capital Quick asset ratio Price-to-earnings ratio
Debt-to-equity ratio
An agent is registered in State A and provides financial services to an older client who lives in State A. The client's son, who lives in State B, calls the agent and indicates his intention to open an account, but wants to immediately place an order to buy 1,000 shares of XYZ stock. If the agent is not currently registered in State B, what course of action should he take? Conduct the trade through the client's account who lives in State A and then transfer the shares once he is registered in State B Open an account for the son using his mother's State A address Ask the son if he is willing to wait for a few weeks while the agent registers in State B Decline the order
Decline the order
An investment adviser representative has discretionary authority over a client's portfolio. The client's objective is conservative growth. According to the UPIA, which of the following statements is TRUE regarding the use of equity derivatives in his portfolio? Derivatives are not appropriate in a conservative portfolio. Derivatives are acceptable if the investor provided prior written authorization for the strategy. Derivative strategies may be appropriate as part of a conservative portfolio. Derivative strategies may be appropriate for conservative portfolios, provided the strategy is used exclusively to reduce the overall level of risk in the portfolio.
Derivative strategies may be appropriate as part of a conservative portfolio.
An individual is licensed as an agent of a broker-dealer, an insurance agent, and an investment adviser representative. One of her clients is nearing retirement and explains that he intends to live off his investments and pension once he retires. He believes that his pension will provide the monthly income he needs to cover his basic expenses. His main investment objectives are to leave a substantial amount of assets to his grandchildren upon his death and to prevent a loss of purchasing power in the event that he lives another 20 to 30 years. The agent should NOT consider recommending a: Fixed immediate annuity Variable annuity Growth and income mutual fund Permanent life insurance policy
Fixed immediate annuity
After conducting extensive research on XYZ Company, an agent believes that the company's prospects are very positive. The agent thinks the stock could easily double in the short-term and plans on sending out an e-mail to all of his customers recommending purchase of XYZ stock. How should the agent proceed? He should send out the e-mail once he obtains his approval from another agent. He should send out the e-mail with a risk disclaimer. He should file the group e-mail and await approval from his compliance department, since the communication is considered sales literature. He should reconsider his plan, since XYZ stock may not be appropriate for all of his clients.
He should reconsider his plan, since XYZ stock may not be appropriate for all of his clients.
According to the National Securities Markets Improvement Act (NSMIA), which TWO of the following federal covered securities are subject to notice filing? Investment company securities Securities sold under Rule 506 of Regulation D Exchange listed securities Securities sold to qualified purchasers I and II I and III II and III III and IV
I and II
Which TWO of the following factors are used in a discounted cash flow (DCF) analysis? Present value of future cash flows Expected rate of return earned on reinvested cash flows Future value of current cash flows Expected risk-free rate of return over the life of the investment I and II I and III II and III II and IV
I and II
An investment adviser has no place of business in State A. According to the Uniform Securities Act, in which TWO of the following situations is the firm required to register as an investment adviser in State A? The firm only provides advice to accredited investors in State A. The only client the firm has in State A is a pension fund. Over the last 12 months, the firm has provided advice to 10 retail customers who are residents of State A. The firm is registered under the Investment Company Act of 1940. I and II I and III II and III III and IV
I and III
In a soft-dollar arrangement, which TWO of the following choices are benefits that would justify a broker-dealer charging a higher commission to an investment adviser? Software to conduct research Payments for advertising and marketing Seminar attendance fees Computer terminals I and II I and III II and III II and IV
I and III
Which TWO of the following statements are TRUE regarding a time-weighted rate of return? It may be used to compare the performance of two money managers. It is a way of calculating an investor's internal rate of return. It does not consider the inflows and outflows of cash. It measures the average return that a client's investment earned. I and III I and IV II and III II and IV
I and III
As fiduciaries, investment adviser representatives must do which TWO of the following? Engage in actions that are exclusively in their clients' best interest If any conflict of interest exists, abstain from any action If any conflict of interest exists, a public record must be published Disclose any potential conflict of interest to their clients I and II I and IV II and III III and IV
I and IV
Which TWO of the following statements regarding investment advisory contracts are TRUE? Under the Uniform Securities Act, IA contract must be written Under the Uniform Securities Act, IA contracts are not required to be written Under the Investment Advisers Act of 1940, IA contracts must be written Under the Investment Advisers Act of 1940, IA contracts are not required to be written I and III I and IV II and III II and IV
I and IV
When comparing variable annuities to fixed annuities, which TWO statements are TRUE regarding the assumption of investment risk? It is assumed by the investor in a variable annuity. It is assumed by the insurance company in a variable annuity. It is assumed by the investor in a fixed annuity. It is assumed by the insurance company in a fixed annuity. I and III only I and IV only II and III only II and IV only
I and IV only
Which TWO of the following persons are required to register as agents according to the Uniform Securities Act? The CEO of a company who sells his company's new issue of stock to its underwriter A life insurance salesperson who solicits sales in separate account products An outside consultant who has entered into a contract with a municipality to assist in the marketing of its debt obligations A branch manager of a brokerage firm who supervises several salespersons who are engaged in the sale of securities I and II I and III II and IV III and IV
II and IV
When comparing asset allocation strategies, passive and active strategies can be characterized in which TWO ways? I. Some active strategies seek to restore the volatility of the portfolio to its original level if it deviates due to securities' price movements. Passive strategies are based on the premise that markets are inefficient. Some passive strategies seek to restore the volatility of the portfolio to its original level if it deviates due to securities' price movements. Active strategies are based on the premise that markets are inefficient. I and II I and III II and III III and IV
III and IV
Which TWO of following situations are disadvantages of portfolio rebalancing? Appreciating assets are retained while depreciating assets are sold. The risk-reward characterizations of the portfolio are retained. There are increased tax liabilities due to the sale of appreciated assets. There are increased transaction costs. I and II only I and III only II and III only III and IV only
III and IV only
Which of the following statements about discounted cash flow (DCF) analysis is TRUE? It is based on the theory that markets are efficient and there is no way to predictably outperform the market as a whole. It uses cash flows that an investor has already received and reinvested. If the net present value of an investment is less than zero, it represents a good investment opportunity. If the net present value of an investment is greater than zero, it represents a good investment opportunity.
If the net present value of an investment is greater than zero, it represents a good investment opportunity.
Regarding inverse ETFs, which of the following statements is TRUE? Inverse ETFs move in tandem with the underlying index. Inverse ETFs use derivatives in order to move in opposition to the underlying index. Inverse ETFs are designed for long-term investors. Inverse ETFs will reset their portfolios quarterly.
Inverse ETFs use derivatives in order to move in opposition to the underlying index.
From a compliance standpoint, which of the following activities causes the greatest concern when determining if there are conflicts of interest between an advisory firm and its clients? The firm has a minimum size for client accounts of $250,000. Clients are permitted to choose the broker-dealer that will execute their trades. Investment adviser representatives are allowed to own the same securities that the firm recommends to its clients. Investment adviser representatives may not recommend commodities or futures contracts to clients.
Investment adviser representatives are allowed to own the same securities that the firm recommends to its clients.
Which of the following is an advantage of investing in a hedge fund? Fee structures that are different than what is assessed by regulated investment companies Investment strategies which could potentially outperform the market as a whole Investment returns that are guaranteed by the fund manager Quarterly performance reports that are distributed to investors
Investment strategies which could potentially outperform the market as a whole
Which of the following statements is TRUE regarding a client's occupation as it relates to her financial status and the suitability of recommendations? Its importance relates solely to the amount of income it produces. It can influence the liquidity needs of the client's portfolio. It is generally irrelevant when evaluating the client's financial needs. It is only relevant if the client works in the securities industry.
It can influence the liquidity needs of the client's portfolio.
According to NASAA's Statement of Policy Regarding Dishonest and Unethical Business Practices, which of the following statements regarding customer accounts is TRUE? A broker-dealer must receive a written order ticket from the account owner before executing every trade. Conversion of customer's cash is acceptable; however, broker-dealers must segregate securities positions. An agent of a broker-dealer is not permitted to lend money to his parents. Margin agreements must be signed promptly following the first transaction.
Margin agreements must be signed promptly following the first transaction.
An issuer is seeking to raise capital through a private placement offering. The company is located in State A and does not want to incur registration expenses for the offering at either a state or federal level. To satisfy the issuer's goal, the offering: Must be registered in State A even if it is exempt at the federal level, since the issuer has a place of business in State A May be offered to institutional investors in State A without any registration May be offered in State A to no more than 35 non-accredited investors without requiring registration May be offered to accredited investors in State A without being registered
May be offered to institutional investors in State A without any registration
An investor has a portfolio comprised of large-cap, mid-cap, and international equities. To which of the following risk is the investor LEAST exposed? Market Regulatory Currency Money-rate
Money-rate
If an investment adviser receives an advisory fee of $5,000, six months in advance, the adviser: Is in violation of the Investment Advisers Act of 1940 Must provide the client an audited balance sheet Has discretion Has custody and discretion
Must provide the client an audited balance sheet
When calculating the current ratio of a corporation, all of the following are included, EXCEPT: Accounts payable Net income Accounts receivable Inventory
Net income
A client will be traveling and wants her IAR to have check-writing privileges so that he is able to pay her utility bill while she is away. Her IAR should: Refuse to accept the request Obtain full power of attorney from the client Obtain durable power of attorney from the client Ask his compliance department for permission
Obtain full power of attorney from the client
An investment adviser intends to purchase 100,000 shares that it will place into various clients' accounts. Which of the following is an acceptable method of allocating the bunched order? Provide all clients with the average price per share based on the security's trading on that day Provide clients with the average price at which the investment adviser purchased the shares Allocate the lowest cost shares to the clients that have had an account for the longest period Bunched orders are prohibited under NASAA model rules
Provide clients with the average price at which the investment adviser purchased the shares
An S Corporation is similar to a partnership in that both: Provide limited personal liability Require full personal liability Do not provide flow-through of losses Provide flow-through of losses
Provide flow-through of losses
The liabilities section of a personal balance sheet could include which of the following? Market value of real estate holdings Remaining mortgage balance Qualified investments in a 401(k) plan Cash held in a FDIC-insured account
Remaining mortgage balance
A nonissuer transaction is also referred to as a(n): Proceeds transaction Private placement Secondary market transaction Non-IPO primary distribution
Secondary market transactio
An investor owns a large portfolio of stock and wants to hedge against a market downturn. Which of the following orders are the most appropriate? Market orders to sell Sell limit orders Sell stop orders Buy limit orders
Sell stop orders
The primary advantage of establishing a trust is: Tax-free income distributions by the grantor Tax-free income for the beneficiaries Separate tax status of the trust, which is distinct from the party that establishes the trust The grantor will realize tax benefits when establishing himself as beneficiary to the trust
Separate tax status of the trust, which is distinct from the party that establishes the trust
Which of the following choices is a disadvantage of investing in a C Corporation? Shareholders claim the company's losses on their own tax return. Shareholders pay tax on income that was already taxed to the company. Shareholders have personal responsibility for the company's debts. Shareholders have no personal responsibility for the company's debts.
Shareholders pay tax on income that was already taxed to the company.
In which of the following practices is an agent permitted to engage? Stating facts to a client which relate to material, inside information. Stating facts which relate to an unannounced underwriting that her broker-dealer is managing. Stating facts which relate to positions that are held by other clients of her broker-dealer. Stating facts to a client which relate to a market letter that is published by her firm.
Stating facts to a client which relate to a market letter that is published by her firm.
An adviser is managing the portfolios of several clients who are invested in bonds. He anticipates that the economy is beginning to expand too rapidly and advises his clients to reallocate some of their holdings into money market instruments. What strategy is the adviser utilizing? Tactical asset allocation Strategic asset allocation Asset class recharacterizations Sector rotation
Tactical asset allocation
An IAR intends to recommend speculative debt offerings to some of her more aggressive accounts. Since the IAR specializes in equity investments, she plans to use an outside fixed-income expert to help in the selection process. In this situation, which of the following statements is TRUE under the UPIA? The IAR may delegate her investment decision-making authority. The IAR may delegate her investment decision-making authority once each client signs a third-party indemnity waiver form. The IAR may use an outside resource, provided the expert is given full documentation regarding each client before any recommendations are made. The IAR is prohibited from using outside experts, since any fees paid would increase a client's management cost.
The IAR may delegate her investment decision-making authority.
An IAR has been discussing the advantages of purchasing a financial plan with a potential client. During a party that they are both attending, the client mentions that she has looked over the contract and is ready to move forward with the financial plan. The client hands her signed contract and a check to the IAR. Although the IAR has not provided the client with his firm's brochure, the client states that she has reviewed it online. Regarding the disclosure document, which of the following statements is TRUE? The IAR may obtain the client's signature on the contract as long as he delivers a brochure to her within five business days. The IAR is not required to provide the client with the brochure, since she has reviewed it online. The IAR must ensure that the client receives the brochure within 48 hours. The IAR may not accept the contract until he has provided the client with a copy of his firm's brochure.
The IAR may not accept the contract until he has provided the client with a copy of his firm's brochure.
An investor has an account with an investment adviser and has provided discretionary authority to his IAR. The client's objectives are income and preservation of capital. Although his account has shown a positive return, he is concerned about numerous in-and-out trades that occurred on the same day. Which of the following statements best describes this situation? The IAR's actions are unethical. The IAR's actions are illegal. No violation has occurred, since the IAR has discretion and the account's return has been positive. A violation has occurred, since day trading is specifically prohibited in advisory accounts.
The IAR's actions are unethical.
A federal covered adviser is considering the possibility of establishing an in-house custodial program to eliminate the payment it currently makes to its custodian. Which of the following statements concerning the custodian activity is TRUE? This action is prohibited since non-bank investment advisers are not allowed to maintain custody of customer assets. The adviser may only enter into direct custody arrangements with institutional clients, while retail account assets must continue to be held at with the outside custodian. The adviser is permitted to establish its own program to maintain custody of client assets. This is only permitted if the adviser obtains permission of its state Administrator.
The adviser is permitted to establish its own program to maintain custody of client assets.
If a state registered investment adviser intends to enter into a contract with a registered investment company to manage its portfolio valued at $75 million, what is required of the adviser? The adviser must immediately update its registration with the Administrator. The adviser must withdraw its state registration and register at the federal level with the SEC. The adviser must register in the state in which the investment company is located. The adviser must file an updated brochure with the Administrator.
The adviser must withdraw its state registration and register at the federal level with the SEC.
An investment advisory firm has created a new contract for its advisory clients. Which of the following clauses should NOT appear in the contract? The adviser will provide various services, including management of the client's portfolio on a discretionary basis, monthly summaries of account activity, and quarterly personal review of the client's assets under management. The adviser will not be held liable for civil damages unless criminal liability is established. The client will pay the adviser a quarterly fee equal to 3/4 of 1%, which is based on the ending value of the assets under management. The adviser will select the broker-dealer that will execute all portfolio transactions.
The adviser will not be held liable for civil damages unless criminal liability is established.
An agent has opened a new account for a client and entered a market order to buy 200 shares of stock. Prior to the end of the day, the agent turned in the new account form and a copy of the order ticket for approval by his supervisor. According to the Uniform Securities Act, which of the following statements is TRUE? If the agent is registered with FINRA, he is not required to comply with the Uniform Securities Act. The agent needed approval for the new account before executing the first trade. The agent needed approval for the first order ticket before executing the first trade. This is acceptable, provided the execution of the order was deemed suitable by the supervisor.
The agent needed approval for the new account before executing the first trade.
An investor placed money in his Roth IRA and invested in mutual fund shares. He has consistently reinvested any distributions and purchased extra shares. Since the fund charges an 8.5% sales charge, the fund allowed for reinvestment at the NAV. When the investor withdraws money at retirement, how will the distributions be taxed? The distributions are considered tax-free. Capital gains will be taxed at ordinary rates, but interest and dividends will be exempt from taxation provided reinvestment occurred in the year of distribution. Interest and short-term capital gains are taxed at ordinary rates, while the qualified dividends and long-term capital gains will be taxed at a maximum rate of 20%. The principal will be treated as tax-free, while the growth is taxable as ordinary income.
The distributions are considered tax-free
An investor intends to purchase mutual fund shares, but needs to determine whether she should buy Class A, B, or C shares. Which of the following considerations is NOT important when making this decision? The holding period The experience of her agent The dollar amount being invested The possibility of receiving sales charge breakpoints
The experience of her agent
An investor has granted power of attorney over his account to his daughter. Whose objectives and related investment experience should be considered when making a determination of suitability? The father's Both the father's and daughter's The daughter's Investment experience should not be considered when making a suitability determination
The father's
An investment adviser that is registered in State A has recently fired several of its portfolio managers. As a result, the firm is required to amend the registration application that was filed with the Administrator. What action must the firm take to remain in compliance with the USA? The firm must file the amendments promptly. The firm must file the amendments within 48 hours. The firm must provide written notification of the personnel changes within 72 hours and must update its application within 45 days. The firm must amend its registration at the end of the calendar year.
The firm must file the amendments promptly.
An investment adviser has $57.5 million under management. Among the firm's clients is a small, in-house family of funds whose shares are currently offered exclusively to the adviser's clients. What is the firm's status for registration requirements? The firm is an exempt adviser due to its in-house mutual fund advisory business and must file Form ADV-E (ADV Exempt) to maintain such status. The firm may register with either the SEC or each state in which it does business, until its assets under management exceed $110 million. The firm must register as both a state and federal adviser. The firm must register as an investment adviser with the SEC.
The firm must register as an investment adviser with the SEC.
A mother has invested money into a 529 plan to save for her son's college expenses. If her son is awarded a full scholarship to a university, what is the mother permitted to do with the funds in the 529 plan without paying taxes or a penalty? The funds may be given to another relative to be used for education expenses. The funds must be withdrawn by the son's 30th birthday. She may rescind the contribution and use the money for her own purposes. The son may roll over the funds into an IRA.
The funds may be given to another relative to be used for education expenses.
Which of the following situations does not constitute the assignment of an investment advisory contract requiring client approval? The investment adviser is a partnership with seven partners, three of whom retire, while another dies. The investment adviser changes from a sole proprietorship to a LLC. The investment adviser is a partnership with three partners, one of whom dies An investment adviser acquires 60% of the assets of another investment adviser.
The investment adviser is a partnership with three partners, one of whom dies
An issuer has filed a registration statement in a state to offer securities. Which of the following choices is NOT a valid reason for the Administrator to deny its registration? It is in the public interest to deny the registration. The issuer's method of doing business is illegal in the state. The issuer has not filed a registration statement with the SEC. The issuer has not paid a registration fee.
The issuer has not filed a registration statement with the SEC.
In an effort to generate new business, an investment adviser wants to publish a list of its past recommendations. According to the USA, which of the following best describes the adviser's obligations? The list must include all recommendations that it made within the past three months The list must include all recommendations that it made to retail accounts during the prior six months The list must include all recommendations that it made over a minimum one-year time frame The adviser may publish a list of its most favorable recommendations if it is based on an investment period of at least one year and the list is maintained for a minimum of three years
The list must include all recommendations that it made over a minimum one-year time frame
What's the name of the agreement in which an adviser discloses it's obligation to keep customer information confidential? The arbitration agreement Conflicts of interest agreement The non-disclosure agreement (NDA) The statement of policy agreement
The non-disclosure agreement (NDA)
All of the following statements are TRUE regarding term life insurance, EXCEPT: It provides insurance coverage for a limited period. The policy matures and its cash value is paid out at the end of the term period. It may be converted to an individual whole life plan. It does not build equity against which owners may borrow.
The policy matures and its cash value is paid out at the end of the term period.
A registered investment adviser is located in State X and is going out of business. Which of the follow is TRUE regarding the registration of the adviser and its IARs? The registrations of both the IA and its IARs will remain effective until December 31. The registrations of both the IA and its IARs will become ineffective 30 days after the IA files withdrawal forms with the Administrator. The registration of the IA will be withdrawn 30 days after filing a withdrawal form, but the registrations of its IARs will remain effective until December 31. The registration of the IA will be withdrawn 30 days after filing, but there's a two-year grace period before the registrations of its IAR are withdrawn.
The registrations of both the IA and its IARs will become ineffective 30 days after the IA files withdrawal forms with the Administrator.
Under the Uniform Securities Act, all of the following transactions are exempt, EXCEPT: The sale of corporate bonds to a savings and loan The sale of corporate bonds to an investment company The sale of corporate bonds to a customer in a solicited trade The sale of corporate bonds to a customer in an unsolicited trade
The sale of corporate bonds to a customer in a solicited trade
A client has recently won the lottery. She has the option of receiving $100,000 immediately or $150,000 spread over 15 years with monthly installment payments. Which of the following concepts would help her make the best decision? The Capital Asset Pricing Model Modern Portfolio Theory The time value of money The Efficient Market Hypothesis
The time value of money
Which of the following statements is NOT TRUE of hedge funds? They are typically registered with the SEC under the Securities Act of 1933. They are not sold with a prospectus. They are often sold under Regulation D Rule 506. They may charge performance fees
They are typically registered with the SEC under the Securities Act of 1933.
Two agents (Agent X and Agent Y) work for the same brokerage firm that is located in State A. Agent X recently contacted a referral who currently works in State A, but maintains a primary residence in State B for tax purposes. Agent X is not registered in State B, but Agent Y is registered there. Since the account may be a multimillion dollar, actively traded account, Agent X wants to have the account serviced by Agent Y, with whom she will split the commissions. How should this be handled? This is permissible since splitting commissions is allowed between agents who are employed by the same or affiliated firm. This is permissible since the sale would go under Agent Y's registration. Commission splitting is not permissible under any circumstances. This is not permissible since Agent X is not registered in State B.
This is not permissible since Agent X is not registered in State B.
The owner of a small investment advisory practice has decided to close her firm. The adviser currently has a sizable surety bond posted with the state Administrator and the owner wants to use these funds for personal reasons. The adviser is required to maintain the bond with the Administrator for: 10 business days following the receipt of a Letter of Release from the Administrator Six months from the firm's withdrawal date or December 31 of the year in which the resignation occurred, whichever is later One year following the firm's withdrawal date Three years following the firm's withdrawal date
Three years following the firm's withdrawal date
When should a federal covered adviser (FCA) file an amendment to its registration? Within 30 days of the amendment Within 90 days of the end of calendar year Within 90 days of the end of its fiscal year By the end of the calendar year
Within 90 days of the end of its fiscal year
An investor has owned stock for several years and has an unrealized capital gain. If she believes that the stock's price will remain stable and wants to increase her portfolio's yield, which option strategy is the BEST? Buying puts on the stock Writing calls against the stock Creating a credit call spread Creating a debit call spread
Writing calls against the stock
An investment adviser uses an unaffiliated broker-dealer to execute transactions for its clients, despite the fact that the broker-dealer charges higher commissions. Which of the following statements is TRUE? Directing customer transactions to a broker-dealer that charges higher commissions is acceptable if the firm provides best execution. Directing customer transactions to a specific broker-dealer is unethical. This is acceptable only if approved by the state Administrator. Investment advisers are required to have soft dollar arrangements to direct customer orders.
directing customer transactions to a broker-dealer that charges higher commissions is acceptable if the firm provides best execution.
