Series 65 Exam questions Source Pass The Exam

अब Quizwiz के साथ अपने होमवर्क और परीक्षाओं को एस करें!

An investment's market value decreases from $10 to $8.50 over Q1. The investment's annuals return rate of return is...?

60% annualized

XYZ common stock currently pays a dividend of $.44 annually. If the dividend is increased by 6% per year for five years, what will be the dividend at the end of this period?

$.59 Take $.44 multiplied by 1.06 five times in a row. The "1.06" is just a Numeric way of saying that the dividend will be 100% of what it was plus 6%

PDQ common stock has a 40% chance of appreciating 10% and a 60% chance of appreciating 8%. Therefore, it's expected return is...?

40% of 10 (4%) add to 60% of 8 (4.8%). The expected return is 8.8%.

And investor purchasing a corporate bond yielding 9.5% would find that a tax-free bond you Yielding ______% would be equivalent?

7.125% that is the tax free Municipal bond would have to yield to put the same dollars in the investors pockets

An investor in a 30% marginal tax bracket would find that a General Obligation bonds of the state of New York paying 4% would be equivalent to a taxable debenture paying...?

A 4% tax-free yield is equivalent to a taxableyield a 5.7%

All of the following are lagging economic indicators except for A. Inventory B. Corporate profits C. Average weekly hours worked by manufacturing employees D. Prime rate

C.

Which of the following plans allow only for employer contributions? A. Simple IRA B. SCP - IRA C. 401(k) D. Roth 401(k)

Answer: B The SEP - IRA is funded with employer contributions only, unlike the Simple IRA and the 401(k).

Which of the following investments is generally the most volatile? A. Growth mutual funds B. Equity income mutual funds C. Value mutual funds D. Balanced mutual funds

A. Growth is more volatile than value. Balance funds have a large percentage of bonds, which are inherently less volatile than Stocks.

If the yield curve is inverted, which of the following trades at the highest yield? A. T-bills B. T-notes C. T-Bonds D. Intermediate term municipal bonds

A. T-bills are short term debt securities

XYZ common stock pays quarterly dividend of $.75 one of your investors purchase the stock at $50 at the beginning of Q3. If the stock trades for $49 at the end of Q3, what is your investors annualized rate of return?

An annualized rate of return of -2%

All of the following are direct obligations of the US government except A. Treasury receipts B. Treasury bonds C. STRIPS D. Treasury bills

Answer: A A treasure receipt is created by a broker dealer or other financial institution

It's an investor elects to receive dividends and capital gains distributions from a mutual fun in cash, rather than reinvesting into new shares, within a 401(k) or traditional IRA plan, which of the following best describes the tax ramifications of this decision ? A. The decision will have no ramifications B. The dividends will be taxed as long-term capital gains C. The long-term capital gains will be taxed as long-term capital gains D. Will grow tax-deferred, but capital gains will be taxed annually

Answer: A Don't read information into the questions. Nobody said she was taking an early distribution. She has simply elected to allow dividends and capital gains distributions to accumulate until she's ready to invest that cash.

Your customer sold short 100 XYZ @ 55. With the stock currently @49, you would recommend that he protect his position by A. Buying an XYZ Oct 50 call B. Writing an XYZ Oct 50 put C. Buying an XYZ Oct 50 put D. Writing XYZ Oct 45 put

Answer: A He can name his purchase price by buying a call. If you sell a stock short, you have to buy it back to "cover your short position". You can let the market name your price or you can buy the "right to buy" the stock at a set price. That is a call.

And annuitant requiring the largest possible monthly check should choose A. Life only (straight life) B. Periodic immediate C. Period certain D. Joint and last survivor

Answer: A If the company only has to bear one mortality TV risk, they will be more generous with the monthly payout. As soon as the annuitant ceases, so do the payments. Unlike a quote. Certain" that locks in payments for minimum number of years.

The major difference between variable annuities and mutual funds involve A. Tax deferral B. Investment objectives C. Bonds and stocks D. EPS

Answer: A Mutual funds give no tax deferral, annuities dodo. The other three choices do not distinguish the two: either could invest in bonds or stocks, they both have investment objectives. EPS is a fluff answer.

The main difference between open and closed end funds has to do with A. Redeem ability B. Tax benefits C. Management styles D. Investment options

Answer: A Open and fund shares are redeemed or so back to the issuer. Closed and fund shares are traded among investors.

Which of the following securities is most interest rate sensitive? A. Preferred stock B. Common stock C. Convertible preferred stock D. Warrants

Answer: A Preferred stock is interest rate sensitive, because investors simply compare the fixed rate of return to current interest rates. But, if we also tied the value of the convertible but preferred stock to the value of the common stock that makes the security less sensitive to interest rates. Both convertible preferred and Street preferred stock are sensitive to interest rates but, adding the common stock price into the equation makes the convertible preferred stock less sensitive to the interest rates.

An investment in which of the following equity mutual funds is generally associated with the highest standard deviation? A. Small-cap growth B. Mid-cap value C. Large-cap growth D. Large-cap value

Answer: A Small-cap is more volatile than mid-cap or large cap. Growth is more volatile than value. Growth has more hope and expectation built into the price and is very ugly when that hope is crushed by a bad earnings announcement.

The main advantage of investing in mutual funds is A. Diversification B. Tax benefits C. Marketability D. FDIC insurance up to $100,000 per account

Answer: A The mutual fund portfolio is almost certainly going to contain more securities, from more industries, then an individual investor would be able to own cost effectively.

If an investor were reading a prospectus profiling all of the mutual funds offered within a mutual fund complex, she would expect to see which of the following categorized as having the highest price volatility? A. Growth B. Value C. Balanced D. Growth and income

Answer: A The notion that growth is expensive and volatile should be pretty well entrenched

A company considering investing in capital equipment would most likely be concerned with A. Net present value B. Future value C. CAPM D. CPI

Answer: A Why: if the net present value is positive, it might be worth doing.

Which of the following investments has the greatest future value: investment A compounds at 5% for five years, investment B compounds at 4% for six years, or investment C, which compounds for 6% for four years? A.Investment A B.Investment B C.Investment C D. Investment B and C have the same future value

Answer: A Why: keep running the future value formula until you determined that taking the one dollar times 1.055 times in a row produces the highest future value.

Which of the following bond features would typically allow the issuers to lower the nominal interest rate? A. Convertible B. Callable C. Long term to maturity D. Lack of a sinking fun

Answer: A investors will except a lower interest rate in exchange for the chance to make money on the common stock

2 1/2% is equivalent to how many basis points? A. 25 B. 250 C.25 D. 2.5

Answer: B

Jerry Stevens had the following results on for Stock sales last year: $15,000 in long-term gains $5000 in long term losses $5000 in short-term gains $13,000 in short-term losses Therefore the tax implications were: A. Short term capital gains of $8000 B. Long-term capital gains of $2000 C. Short term capital gains of $2000 D. Long-term capital gains of $15,000

Answer: B

If an investor purchases common stock regular way on the x date, who receives the forthcoming dividends? A. The buyer B. The seller C. The transfer agent D. The registrar

Answer: B "Ex" means without, which means that on the ex-date, you buy the stock without the dividend. The seller gets the dividend if the stock is bought on the ex-date.

Which of the following statements is true of callable bonds? A. Bonds are typically called when interest rates are rising B. Bonds are typically call when interest rates are falling C. Bonds trading at a discount are more likely to be called D. Bonds trading at a premium are less likely to be called

Answer: B Bonds are called when rates are falling. Remember that borrowers refinance at lower rates, so the rates have to be headed down before anyone's terribly interested in borrowing new money to pay off the previous loans

When is the best time to buy preferred stock on the primary market? A. When interest rates are rising B. When interest rates have Peaked C. When bond prices are high D. When the investor requires monthly income income

Answer: B If rates have Pete, you buy at a low price and then watch the market price rise as the interest rates in inevitably fall.

Which of the following represent potential money markets securities? A. ADRs B. Short term equity instruments maturing in one year or less C. Shares of a money market mutual fund D. Commercial paper

Answer: B If they "sweeten the deal "with a warrant the buyers will except a lower yield on the bond

Which of the following would be associated with a 50% insufficient withdrawal penalty? #23 A. Internal rate of return B. Required minimum distribution C. Substantially equal periodic payments D. Non-qualified premature distribution

Answer: B In a traditional IRA, there is a required minimum that must be distributed when the individual turns 70 1/2.

Eileen resides in Richmond Virginia. If Eileen purchases a tax exempt municipal bond mutual fund from Rory, an associated sales agent of FINRA a member firm, which of the following accurately describes the tax implications? A. If Rory is licensed in Virginia, Eileen will pay no state income taxes on the investment B. When I leave receives dividend distributions, they will likely be exempt from federal income taxes C. When Eileen receives capital gains distributions, they will likely be exempt from federal taxes D. When Eileen receives dividend distributions, they will be exempt from Virginia state taxes

Answer: B It makes no difference where the agent happens to be licensed. The only thing we can depend on one of the other three choices is that the federal government likely will consider the dividend distribution from the municipal bond mutual funds to be tax-exempt. If Eileen wants a break from Virginia, she needs to buy a fund set up to provide income exempt from the states awesome ability to tax.

Stop trading below estimated intrinsic value is found typically in a A. Growth mutual fund B. Value mutual fund C. Large-cap growth fund D. Sector mutual fund

Answer: B Just like buying something at a garage sale, the value investor get a buzz when by in stock for less then he thinks it is worth.

XLT Enterprises Inc. pays a quarterly dividend a $.35 and trades @20 for a yield of: A. 1.75% B. 7% C. 10% D. 17.5%

Answer: B Multiply the dividend by four, then divide that by the stock price

If common stock is purchased regular way on the ex dividend date A. The buyer is entitled to the dividend B. The seller is entitled to the dividend C. The dividend is distributed to all shareholders pro Rata D. The broker-dealer holding the securities in street name retains the balance

Answer: B On the X date it's too late for the buyer

Options are defined as A. Debt securities B. Derivatives C.Future contracts D. Money market instruments

Answer: B Options derive their value from some other thing so they are called "derivatives"as our futures and swaps.

Which two of the following represents accurate statements concerning growth and value investing? I. Growth investors are willing to pay high value ratios II. Growth investors prefer stock trading close to their book value III. Value investors are willing to pay high valuation ratios IV. Value investors prefer stocks trading post to the book value A. I, III B. I, IV C. II, III D. II, IV

Answer: B Remember that growth stocks or purchase at high multiples, while value stocks are purchased at low multiples. If you can buy a stock close to his book value, your essentially pay you for the hard, tangible assets of the company, all the puffery and speculation have been taken out of the price, giving you the "margin of safety" that Benjamin Graham, Warren Buffett's professor at Columbia, was always seeking.

Which of the following is associated with market timing? A. Indexing B. Tactical asset allocation C. Strategic asset allocation D. Efficient market theory

Answer: B Strategic allocation is based on the clients objective and time horizon and efficient market Siri says that the stock picking is useless.

Aunt Myra purchase 392 shares of the XLT value fun in 1983, with the NAV at $9.92 and the Pio P at $10. Aunt Myra dies and wills all shares to you. On the date of death the NAV is $12. If you redeem the shares for months later with the NAV at $13 and the POP at $13.25, your capital game will be: A. Short-term gain of $3 per share B. Long-term gain of $1 per share C. Short-term gain of $3.33 per share D. Short-term gain of $1 per share

Answer: B Take the fair market value on the date of death as your cost basis which is $12. You receive the NAV of $13 when you redeem the fund shares, for a gain of $1 per share. Inherited stock always leads to long-term gains, regardless of how soon it is so by their heirs.

How far are the IBM Aug 70 calls in the money if IBM trades at $77? A. $77 B. $7 C. $0 D. None of the above

Answer: B Take the market price minus the strike price

One of your investing clients purchased 1000 shares of GE @22, paying a $50 commission when March 11, 2007. On March 11, 2008, the client sells the shares @33, paying another $50 commission. Which of the following accurately describes the tax implications? A. Long-term capital gains of $10,900 B. Short-term capital gains of $10,900 C. Long-term capital gains of $11,000 D. Short-term capital gains of $33,000

Answer: B Take the proceeds of $32,950 minus the cost basis of $22,050 to get a capital gain of $10,900. This investor need to wait until March 12th if he wanted long-term capital gains treatment. The holding period starts the day AFTER you buy it and ends ON the day you sell it. If you buy on March 11th, don't sell it until March 12th the following year if you want the long-term capital gain.

Mason Meyer Purchased 1000 shares of MMM on January 1, 2008. On December 31, 2008, Mason sold his shares for $300 capital gain. If the trade settled when January 4 of 2009, which of the following accurately describes the text consequences? A. The gain will be considered long-term new line B. The gain will be considered short term C. Mason will report to gain or loss for the tax year 2007 D. The gain will be treated as dividend income

Answer: B The settlement date has nothing to do with the holding period. The holding period stops the day you sell the stock and includes that day.

A capital structure that tilts heavily towards Debt capitalization is a sign that the enterprise is A. Generating free cash flow B. Leverage C. A shell company D. Regulated company under IRC subchapter M

Answer: B The word "leverage"is associated with Borrowed money. To buy a house, we put down a tiny percentage and then pledge the property as collateral, which is it are you an example of using "leverage. "

All of the following investments are redeemable except A. UITs B. Closed end funds C. Open end funds D. Face amount certificates

Answer: B There are three types of investment companies -face amount certificate, UIT, and management companies. The management companies include the open-end funds currency (redeemable) and the closed-end funds that are traded on the secondary market.

RT why corporation has authorized 1 million shares in its corporate charter. After issuing 700,000 shares there are 500,000 shares held in treasury. The number of outstanding shares is: A. 300,000 B. 200,000 C. 700,000 D. 1,000,000

Answer: B They issued 700 and bought back 500. There are 200 (000) left outstanding

Which of the following orders could best be used for capital Appreciation on a stock position? #20 A. Buy-limit B. Sell-Stop C. Buy-Stop D. Sell-limit

Answer: B This is called a "stop - loss" order because it is designed to leave your upside unimpeded but to stop your loss if the stuff begins the fall. If you bought Amazon at $10 and is now at $40, you might not want to sell, but you also don't wanna watch your paper profit evaporate. With the stock now at $40, enter a sell - stop at $38. If the stock never drops to $38 or lower, you still own a winner. If it does drop to $38 or lower, the sell-stop becomes a market order automatically and you take your profit.

One of ABC's equity funds focuses on investing in stocks of companies with long track record of suffering temporary setbacks. This fund is a A. Growth fund B. Value fund C. Specialty fund D. Sector fund

Answer: B When a good company suffers a setback in the market over reacts, sending it stock price down to a low P/E or price to book ratio, value investors become interested. The exam could say that value funds seek to buy companies currently out of favor trading below their estimated intrinsic value. It could say that value funds seek to buy stock trading cheaper than it should be.

Current ratio is best expressed as A. Current assets divided by long-term liabilities B. Current liabilities divided into current assets C. Long-term assets minus long-term liabilities D. Leverage minus fiscal reserve ratio

Answer: B Why: a normal human would express current ratio as "current assets divided by current liabilities, "which is why the series 65 Will feel compelled to backwards it say. Try not to fall for the totally made up answer such as choice D.

Rockford tool & Die, Inc. List the following on its income statement: Revenue $2 million COGS a $500,000 Depreciation $400,000 Therefore, the gross margin is A. 25% B. 75% C. 45% D. 55%

Answer: B Why: after subtracting the cost of goods sold, the company has 1.5 million out of (divided by) $2 million. That's a 75% gross margin. Depreciation would be figured into operating margins, which means this is it it is a subtraction that comes farther down the income statement, closer to the net margin. You ignore it when you're figuring gross.

Which of the following items are found on a corporation's income statement A. Cash and equivalents B. Cost of goods sold C. Retained earnings D. All choices listed

Answer: B Why: cash and equivalents is the top line of the balance sheet, not the income statement. Retained earnings are also on the balance sheet under shareholders equity/net worth.

If a technical analyst wanted to sell a stock short below support, he would most likely enter which of the following orders A. Buy - Stop B. Sell - Stop - limit C. Buy - limit D. Sell - limit

Answer: B Why: first of all, if you choose any answer with the word "buy" in it. I would only expect you to choose an answer with the word "sell" in it. So limit order is executed if the stock prices. This short seller wants to sell it if it drops... Sell - stop. More later.

Which of the following best represents expected return? A.Inflation adjusted return B.Possible return waited by probability C.Returns in excess of three month T - bills D. Future value divided by present value

Answer: B Why: overtime, I return will always end up closer to the returned that is attached to the highest probability. Attaching the probability to the possible return makes a 75% Outcome much more important to our calculation than a 25% outcome. For example, if a portfolio has a 75% chance of returning 8% And a 25% chance of returning 14%, which of the two possibility returns is our expected return going to be closer to? It ends up being 9.5%, which is much closer to 8% then it is to 14%, because we wait the 8% three times more heavily than the 14%. Another words, we'll probably get about 8%. We might get as much as 14%.

Jerry Stevens has the following results for Stock sales this year: $15,000 in long-term gains $23,000 in long term losses $15,000 in short-term gains $5000 in short-term losses Therefore, the tax implications are: A. Short-term capital gains Tax at maximum of 15% B. No net gains or losses C. Short-term capital gain of $2000 taxed at ordinary income rates D. Long-term capital loss of $8000, short term capital gains of $8000

Answer: C

You have contributed to your traditional IRA for each of the past four years. You recently took a job with another plan paying you $27,000 per year. If you participate in the employer's defined benefit pension plan, what is your true what is true of your IRA? A. It must be closed B. It may remain open, but no contributions are allowed for five years C. You may continue to make pretax contributions to your IRA D. You may only make after-tax contributions to your IRA

Answer: C

Heather Hardwick is a college student. Heather earned $1,100 last year waiting tables and also earned $500 for Marley at art-school classes. If Heather also received $1,400 in treasury notes interest, she may contribute how much to her Roth IRA? A. $3,000 B. $1,100 C. $1,600 D. $5,000

Answer: C 100% of the earned income up to the current maximum. Her earned income is $1600 that is her maximum contribution.

Which of the following represents non-taxable gifts? I. Joe Miller pays the tuition of Stephanie Sanders, not a blood relative II. Joe Naylor gives a friend $18,000 III. Joe Naylor gives a friend $12,000 IV. Joe Naylor donates $15,000 to a 501(c)3organization A. I,III B. II, IV C. I, II, IV D. II,III

Answer: C A gift up to $12,000 is not taxable and neither is a charitable donation. Paying tuition or medical costs directly to the provider also does not trigger gift taxes.

Which of the following debt securities carry the least default risk? A. Mortgage Bond rated A- B. Unsecured bond rated A+ C. Subordinated bond rated AA D. Convertible bond rated A-

Answer: C AA is the highest rating presented here. don't out smart your self

And investor is convinced that the asset allocation of his portfolio is under weighted towards equities, even though he plans to retire in two years. He would like to increase the equity allocation but only has $3000 to invest. Which of the following best addresses suitability in this example? A. An investor should never invest in equities, even a small percentage, for a period of less than 10 years B. Treasury bonds are the most suitable investment for the entire portfolio C. C-shares of a conservative equity income fund might be suitable D. ETFs would not be suitable, due to the high management fees

Answer: C About the only thing C - shares are good for is the short term investing. You do pay the high 12b-1 fees but the investor may only do so for a couple years, after which I'll end up having avoid it front-end and back-end sales charges if he wants to get back out.

Which of the following is associated with "double taxation of dividends"? A. LLC B.Limited partnership C. C corporation D. S corporation

Answer: C C corporations are tax as individual entities, as opposed to the other structures in which income and expenses flow-through to the owners

All of the following are advantages of closed end funds over open end except A. Shares maybe sold short B. Shares may sometimes be purchased at a discount C.Shares may be redeemed for the NAV D. Shares may sometimes be sold at a premium

Answer: C Closed end funds are traded among investors, not redeemed for the NAV. The other choices are advantages, depending on who is doing the buying and selling at the time.

Which of the following statements is correct? A. Corporate bonds yield less than municipal bonds because they cost less B. Corporate bonds yield less than municipal bonds because they cost more C. Corporate bonds yield more than municipal bonds because they carry more default risk D. Corporate bonds offer tax-free interest only at the state level

Answer: C Corporate bonds yield more than municipal bonds because corporations are not solid, they have to make a profit. The state only has to raise taxes or fees.

One of your vesting clients is married couple interested in gifting various relations as much as possible without incurring a tax liability. Into thousand and eight the husband gave his nephew, Jason, $18,000 and the wife gave her niece, Jennifer, $19,000 therefore, which of the following accurately addresses the tax ramifications? A. Space the excess of $13,000 will be taxable at gift tax rates B. The couple can choose to split the gifts, without filing a return C.The couple can choose to split the gifts without incurring gift tax liability, but must file a return D. The couple can make a one time gift of 39,000 without reporting

Answer: C Gift splitting requires that a return to be filed. No gift tax liability exist here, as $9000 of the $18,000 gift came from each spouse and $9500 of the $19,000 gift came from each spouse. $9000 and $9500 are well below the annual exclusion of $12,000 per person, per recipient for the tax year 2008.

Tim Johnson owns 100 shares of RTZ common stock @ 50. If RTZ undergoes a 2:1 split, Tim will own: A. A greater percentage of the company B. 200 shares @50 C. 200 shares @25 D. Fewer shares RTZ stock

Answer: C He will have more shares, but the total value is unchanged at $5000

To which of the following investor should a registered representative most likely recommend an aggressive growth fund? A. Investor with a short term horizon B. 45-year-old investor who is primary objective is income and secondary objective is growth C. 47 year old investor who's insurance needs are adequately met and who participates in a defined benefit pension plan D. 45-year-old investor with a 16-year-old daughter hoping to attend a private college

Answer: C If the investor has a short time horizon, keep her out of growth funds. That illuminates to answer choices. Another investor's primary objective is income, so if you put her into growth stocks it isn't just a bad idea, it could actually lead to an Administrative enforcement action by your state Regulator to deny, suspend, or revoke your registration. Don't assume that because 47 my sound old to you, it means that the investor shouldn't be putting money in growth investments, especially if he's covered on the defensive front already.

An analyst is adjusting EPS in terms of converting debentures issued by the same company. This is called calculating A. Parity B. Yield to parity C.Diluted earnings per share D. Non-diluted earnings per share

Answer: C If the same earnings have to be shared among more investors, every share of stock becomes diluted/worth a little less. Those convertible bond holders will someday become stock holders, so we simply see how much that would knock down the earnings per-share if we have the same earnings divided among more shares, each share of stock is worth that much less.

The AIR for a variable annuity is 3.5%. Last month, your client received a check for $1000 based on actual performance of 6%. If the actual performance is 5% next month... A. Your client will receive slightly less than $1000 B. Your client will receive $1000 C. Your client will receive more than $1000 D. AIR will be increased

Answer: C It is hard to see how the check will go up if the return next month is lower then the return this month. Don't do that, do not compare next month return to this months return. Only compare the returns to AIR. AIR is 3.5%, so anything higher than that makes the check go up.

XYZ equity income fund reports net income of $1 million and distributes $880,000 directly to investors. Therefore, the fund will be taxed on what amount? A. $120,000 B. $20,000 C. $1 million D. As stipulated in the prospectus

Answer: C Not sure why they try to trick you on this "conduit tax treatment" concept. Remember, that the fund must distribute at least 90% to get favorable tax treatment.

One advantage of owning common stock as compared to corporate bonds is A. Seniority B. More substantial yields C. Bonds mature, often early, while owning Stocks afford more control over capital gains D. Priority of dividend payments over interest payments

Answer: C Notice how it's not all the point you would expect a test question to bring up? That's what makes it such a likely a Series 65 question we might expect advantages such as 'capital appreciation' or 'purchasing power' protection, but that is why we must remember that test likes to make sure you studied and that you can think on your feet.

A MSFT Jun 50 call is in the money when MSFT trades at which of the following prices? A. $49 B. $50 C. $51 D. $49.05

Answer: C Only one price is above $50

Which of the following would increase your clients net worth? A. Paying off credit card debt with a withdrawal from savings B. Paid off mortgage debt from a checking account C. Stocks inside an individual retirement arrangement appreciating in value D. Purchasing $100,000 of stock on margin

Answer: C Removing $10,000 from checking or savings to pay down a $10,000 debt has no immediate effect on personal net worth

A type of plan available specifically to employees of non-profit, tax-exempt organizations is called a A. 401(k) B. Section 457 C. 403(b) D. Keohh

Answer: C Some testable points are purely memorization

Which of the following is/are related to a belief in efficient market? I. Strategic asset allocation II. Tactical asset allocation III. Indexing IV. Market timing A. II B. III C. I, III D. I, II, III, IV

Answer: C Strategic asset allocation would be based on a time horizon, wrist tolerance and investment objectives, regardless of what the portfolio manager anticipates the stock and bond markets will do. Since the markets are perfectly efficient, there is no point in trying to select one stock over another or change our mix of investments based on market timing; hence the use of index funds. A tactical asset allocation will shift based on market movements or interest paid it market movements, which implies that the portfolio manager does not believe markets are efficient.

Use the following information to determine an investors capital gain liability for tax year 2008: #7 Bought 1000 shares 0RCL January 5, 2007 @15 Sold 1000 shares ORCL January 6, 2008 @21 Bought 1000 shares and SFT January 4, 2007 @27 Sold 1000 shares MSFT January 4, 2008 @25 A. $4000 short-term loss B. $6000 Long - term capital gains C. $4000 a long - term capital gains D. $6000 short - term capital loss

Answer: C The investor has $6000 in long-term capital gains and can offset that with the $2000 short term loss. $4000 in long-term capital gains.

Use the following information to determine and investors capital games liability for the tax year 2008: Bought 1000 shares 0RCL January 5, 2007 @15 Sold 1000 shares ORCL January 6, 2008 @12 Bought 1000 shares MSFT January 4, 2007 @27 Sold 1000 shares MSFT January 4, 2008 @36 A. 9000 hours long-term capital game B. $3000 short-term capital loss C. $6000 short-term capital gains new line D. $12,000 long-term capital game

Answer: C The investor realized a $9000 gain taxable as short term capital gains rates, so two days later he took a loss on ORCL in order to reduce his tax burden by $3000. He is left with a $6000 short term capital gains, taxable at his ordinary income rate. This assumes he doesn't buy any ORCL 30 days before and/or after selling it, under wash sales rules.

Which of the following features do you see ESA (Coverdell education savings accounts) and 529 savings plans have in common? I. Qualified withdrawals are exempt from federal taxation II. Maybe used to cover middle school expenses III. Become the property of the beneficiary at the age of majority IV. May be used to cover college tuition, books, room and board A. I B. III C. I, IV D. II, III, IV

Answer: C The other two choices only apply to the CESA, which can be used for kindergarten through higher education and which becomes the property of the beneficiary when she becomes an adult under state law. The 529 on the other hand, always remains the property of the account owner and is only used for post high school education.

An IBM Mar 75 put @3 has how much time value with IBM @74? A. $1 B. $3 C. $2 D.None of the above

Answer: C The put lets us sell stock for $1 more than what it's worth, which is why the intrinsic value of the option is $1. The other $2 in the premium represents time value.

All of the following pay interest subject to state taxes except A. GNMA B. FNMA C. T - bills D.Municipal bonds

Answer: C The states cannot tax the interest paid on treasury securities.

Which of the following is/are subject to state taxation? I. Municipal bond interest II. Interest on US treasury obligations III. Capital gains on US treasury obligations IV. GNMA interest A. I B. II,III,IV C. I, III, IV D. IV

Answer: C The states cannot tax the interest you earn on treasuries, but capital gains are another matter. Well the federal government usually doesn't tax the interest earned municipal bonds, your state can hassle you about bonds issued outside the state. GNMA, FNMA and FHLMC (Ginnie, Fannie, Freddie) issue mortgage backed securities that are subject to taxation at the federal, state and local levels.

Under the uniform prudent investor act, When may a fiduciary choose not to diversify the assets of a portfolio? A. When a portfolio consists entirely of FDIC insured deposits B. Under no circumstances C. When doing so is in the best interest of the beneficiaries D. When the beneficiaries submit a waiver of affidavit

Answer: C The trustee should do everything only because it serves the interest of the beneficiaries

Which of the following statements is/are accurate of both variable annuities and variable life insurance? I. The insurance company bears all investment risk II. Net payments are allocated to the separate account III. The main advantage over fix contracts is the potential protection from inflation IV. They must be registered as securities with the SEC A. I B. III C. II, III, IV D. I, II, III, IV

Answer: C The word "variable" has to nullify the notion that the insurance company bears the risk. In whole life insurance policy's and fixed annuities, that's how it works but these are variable contracts, which are securities subject to SEC registration. That "variable" goes with "separate account" as "fixed" goes with "general account".

Which of the following investment-grade bond would probably fetch the lowest price? A. Aa B. A C. Baa D. Ba

Answer: C This is a trick question because "Ba" is not an investment grade bond. As quality drops, so does the price, which is what makes lower rated bonds "high-yield".

Which of the following risk is reduced through dollar cost averaging? A. Political B. Inflation C. Timing D. Market

Answer: C To avoid buying an investment at its all time high price buy some shares on a regular basis by putting in the same dollar amount each month, quarter, etc. If you put in $500 a month, you'll buy fewer shares when they are expensive and more shares when they are cheap.

Which of the following represents a value ratio? A. Cash flow B. EBITDA C. Price to book D. Interest coverage

Answer: C Whenever we compare the market price of a stocks to the earnings, book value, sales or cash flow, we are expressing a valuation ratio. That means we are comparing the market value of the stock to something related to the stock such as the earnings, book value or revenue per share. Remember that the dollar price of the stock is meaningless until we compare it to something, usually the earnings and the book value.

Your 60 year old client contributed $10,000 to a nonqualified variable annuity many years ago. Now that account is worth $40,000, the client takes a lump sum withdrawal of $35,000. If his ordinary income rate is 28% he will pay A. No taxes until age 65 B. No taxes C. $8400 in taxes D. $9800 in taxes

Answer: C Why would there be a penalty? He is over 59 1/2. Remember only earnings are taxed. He only had $30,000 of earnings, the difference between his $10,000 contribution and $40,000 value.

Barb is 53 and plans to retire at age 65. She is fully vested in a defined benefit pension plan but is concerned about purchasing power. Her mortgage will be paid off over the next two years, her husband has a life insurance policy with a half $1 million in death benefit. Which of the following statements best addresses suitability for this investor? A. US treasury securities are suitable for investors in Barb's age bracket B. Barb should invest exclusively in money market mutual funds C. A growth and income fund with a conservative investment approach may be suitable D. Barb should open an IRA and purchase a variable annuity to put it in

Answer: C Why would we need to stack treasuries on top of a defined benefit pension plan and a $500,000 insurance policy is beyond me. The question also says Barb is concerned about inflation, stock is the place to go for purchasing power protection. Barb needs and can easily afford to buy some stocks, especially being quite wimpy with conservative, growth and income approach. You don't put variables in an IRA.

Quantum mechanics, Inc., reported net profit of $1 million, $1.5 million and $2.25 million the past three years. If this rate of growth in profits continues for three more years, quantum's next profits will be which of the following? A. $3 million B. $4 million C. $7.6 million D. $14.25 million

Answer: C Why: if the profits are rising 50% a year, take $2.25 and multiply it by the 1.50 three times in a row.

Which of the following are determined by examining a corporations balance sheet? I. EPS II. Net income III. Quick ratio IV. Shareholders equity A. I, II B. II, III C. III, IV D. I, II, III, IV

Answer: C Why: remember that income and earnings/profits are shown on the income statement, also called the "statement of earnings".

Raleigh Robbins is an active trader who determines that the correlation between ORCL & MSFT is -.5. Therefore, when ORCL declines 10%, MSFT is expected to A.Decline 10% B.Decline 5% C.Increase 5% D. Increase 2%

Answer: C Why: space the negative sign means that they move in opposite directions. The .5 means it only moves by half as much.

One of your investing clients, Marjorie Miskowitz, expresses a need to have $155,000 available for her daughters education in five years. Given her time horizon risk tolerance, you determine that the best investment for her will compound at 4 1/2%. Therefore, the present value of the investment is A.$193,158 B.$100,000 C.$124,380 D. $148,025

Answer: C Why: take the $150,000 and divided by the 1.045 five times in a row. Notice how you were provided with the answer to future value, which is the answer you would get if you took $155,000 and multiplied it by 1.0455 times in a row

All of the following represents risk measurements except A. Standard deviation B. Sharpe ratio C.Time value of money D. Beta

Answer: C Why: the time value of money represents that you could earn and guaranteed, short-term debt securities 3 month T - Bill is a good proxy. We often then compare what the investment earns about that rate, but the time value of money in and of itself is not a risk measurement.

If a portfolio manager is compensated with a performance bonus for managing small cap portfolio, which of the following would provide an appropriate benchmark? A. S&P 500 B. NASDAQ 100 C. Russell 2000 D. Dow Jones industrial average

Answer: C Why: the two main indices/benchmarks for small-Cap portfolio are the Russell 2000 and the S&P small-cap 600.

One of your clients is considering investing in a state of Kentucky general obligation bonds, with a nominal yield a 5% and a yield to maturity of 6%. Your investor, who is in a 25% marginal tax bracket, we find that a corporate bond you'll be which of the following would be equivalent? A. 4.5% B. 6.7% C. 8% D. 3.8%

Answer: C Why: the yield to maturity is best yield to use when calculating tax equivalent yield, so take .06 and divided by .75 (100% minus the tax bracket) to get 8%. If you choose A or D, you really miss the concept. A corporate bond has to offer a higher Yield than a municipal bond to be equivalent.

One of your investing clients has inquired about methods of increasing personal financial network. Which of the following would increase net worth for the client? I. Pain down a mortgage balance with a personal check II. Capital appreciation on Stop held within a 401(k) account III. Market value appreciation on a home with a small mortgage balance IV. Market value appreciation I want to home with no mortgage balance A. III B. II,IV C. II,III, IV D. I, II, III, IV

Answer: C Your checking account balance is an asset and your mortgage balance is a liability that offsets it. If you reduce your checking account by $10,000 in order to reduce your mortgage balance by $10,000, you made no impact on your financial net worth. Your house is worth $400,000 your mortgage balance is $200,000 and you have $50,000 in checking. Your net worth is $250,000. Tomorrow you pay down the mortgage balance by cutting a $10,000 check, leaving you with $440,000 in assets minus a $190,000 mortgage balance. What's your net worth? The same $250,000. Whenever the value of your assets (home, stocks, bonds) rises, that increases your net worth as long as you're not taking on more and more liabilities. It makes no difference, if the stock is held inside a tax advantage account or a taxable account, either way it's an asset.

Your customer plans to send a child to college in seven years and wants to lock in a yield over that timeframe. She does not want to bear reinvestment risk and does not require current income. You would recommend A. Money market mutual funds B. T - bills C.STRIPS D. Corporate debentures

Answer: C Zero coupon bond such as a STRIP would return all the interest income at the very end, upon maturity. So there is nothing to reinvest in the meantime at varying rates.

Which of the following represents accurate statements concerning variable annuity contracts? I. Number of accumulation units is fixed II. Number of accumulation units very III. Number of Annuity unit is fixed IV. Number of Annuity units very A. I, II B. I, IV C. II, III D. II, IV

Answer: C The number of accumulation units very because you either buy more of them with new money or the dividends and capital gains distributions buy you more shares, accumulation units, automatically. Once you annuitize, the NUMBER of annuity units is fixed; it's the value that varies.

One of your fixed income clients purchases a GE 6S debenture at 93.50. At the end of one year, the bonds or treating at 90. Therefore, the total annualized return is A.-3.9% B.-3.7% C.2.7% D. 2.8%

Answer: C Why: The bond paid $60 6S but dropped $35 in value. Take $25 divided by the purchase price of $935 to determine the total return.

Jerry Stevens had the following results on for Stocks sales last year: $15,000 in long-term gains $5000 in long term losses $5000 in short-term gains $17,000 in short-term losses Therefore, the tax implications will be: A. Short term capital gains of $2000 B. Long-term capital gains of $2000 C. Short term capital gains of $5000 D. Short term capital loss of $2000 which offsets ordinary income

Answer: D

Annuity is maybe purchased in all of the following ways except A. Single premium immediate B. Single premium deferred C. Periodic deferred D. Periodic immediate

Answer: D "Periodic" means that the individual has not finished paying in and will continue to pay in periodically. The word "immediate" means that the annuity company starts paying out immediately. If the individual makes a single payment and is old enough, she can immediately go into the annuitization/payout face, but not if she still making periodic payments into this contract.

Which of the following represent(s) (an) accurate statement or statements concerning equity mutual funds? A. An equity income fund tends to have a lower beta coefficient that a growth fund B. A growth and income fund tends to have a lower beta coefficient then a growth fund C. The portfolio manager for a growth fund would not use dividend payout ratio's to select investments D. All choices listed

Answer: D A growth fund would have almost no dividends and capital appreciation and capital gains would be very erratic. A growth fund is going to be more volatile than a growth & income fund that distributes more dividend income to investors. That dividend is a major component of total return and is more consistent than the ups and downs of the market.

Discretionary authorization is required before choosing all of the following aspects of a transaction except A. The security to be purchased B. The security to be sold C. Whether to purchase or sell a security D. The price at which a market order to sell or buy a security is entered

Answer: D Choosing the time or price at which to enter an order does not require a written discretionary authorization

Which of the following represents a true statement about convertible bonds? A. Generally pay higher nominal heels then convertible B. Are considered equity securities C. Are considered derivatives D. May cause dilution of shareholder equity

Answer: D Convertible bonds would pay lower yields and are definitely debt securities. When the bondholders convert to common stock, the profits of the company are then divided among more shares, which is "dilution"

Which of the following would typically interest a value investor? I. Stock trading at its book value II. Stock trading below its book value III. Stock trading at a high multiple to earnings IV. Stock trading at a low multiple to earnings A. I B. III C. II, IV D. I, II, IV

Answer: D Don't assume that you have to choose between "stock trading at its book value" and "stock trading below its book value". Value investors would like to buy stock trading at the book value, near the book value or below the book value. They also insist on paying on multiples to earnings or P/E ratios.

A small business with 15 employees has just established a SIMPLE IRA. Therefore, participants will be fully vested A. After three work years B. After three calendar years C. After working 1000 hours D. Immediately

Answer: D If it says "IRA"the individual is immediately vested, period. If you own the business, you can often keep people around longer with a 401K plan that vest slowly over five years. With the SEP or SIMPLE IRA, your employees and all the money as soon as it is contributed to the plan and have no financial penalty should they decide to leave the company.

Which TWO of the following are considered the most important in determining investment results? I. Timing II. Investment managers skill and expertise III. Time horizon IV. Asset allocation A. I, II B. I, IV C. II,III D. III, IV

Answer: D If the investment world still believe in its ability to beat market indexes with good timing, we would not have so many index based ETFs and index mutual funds out there. Look in the morning newspaper and you'll find the 10 largest funds in America. One of the largest, if not the largest, funds is the vanguard S&P 500 index fund. Among all these portfolio managers out there running private money and mutual funds, one of the biggest investment is just a no-brainer index tracking the overall stock market. The exam is written from a financial planner's standpoint, whether you agree or not, tell the exam that asset allocation and time horizon are the main determinants of investment results, not market timing and stock picking skills.

How could a corporation benefit by attaching warrants to debenture offering? A. It allows them to offer much higher Nominal yields B. It allows them to offer lower nominal yields C. It is anti-dilutive D. It indicates a more sophisticated so capital structure

Answer: D It has to be a debt security, so that the other three choices don't work. Mutual fund shares are always shares of common stock, so "shares of a money market mutual fund" was intentionally tricky.

Which of the following represent(s) (an) accurate statement(s) concerning 529 savings plans? A. A gift can be made for the current gift tax exclusion times five years without triggering gift taxes B. Distributions may be taxable at the state level C. Distributions used for educational costs expenses are exempt from federal taxation D. All choices listed

Answer: D Just three important things to know about 529 plans

Which of the following investments would be expected to have the lowest volatility A. Small-cap fund B. Medium cap Fund C. Government bond fund D. Money market fund

Answer: D Money market mutual funds have a share price of one dollar and are often called "stable value fund". Although the government bond fund has no default risk, NAV will drop as interest rates rise and it will rise when interest rates drop.

The NAV of a corporate bond fund has increased dramatically. The most likely reason is A. Investors have bought substantially more shares B. Interest rates have risen C. Bond prices have fallen D. Yields have dropped

Answer: D Rates down, price up. Investors buying and redeeming have no effect on the NAV.

A client would expect to take federally tax-free withdrawals from which of the following plans in most cases? I. SEP.IRA II. Roth IRA III. Health savings account IV. 529 plan A. I,II,III,IV B. II C. I, III D. II,III,IV

Answer: D Remember that the SEP - IRA is funded with pretax contributions so the distributions are taxable at ordinary income rates.

There is a liquid secondary market for all of the following except A. T-bonds B. T - bills C.Common stock D. Re-purchase agreements

Answer: D Repos are basically just private arrangements between two parties.

Which of the following bonds would typically offer the highest nominal yield? A. School bond B. Revenue bond financing Suur improvements C. General obligation of a large city D. Revenue bond financing a convention center

Answer: D Revenue bonds are typically shakier than general obligation bonds. With in the various types of revenue bonds, the fees that people pay for water/sewer service are very reliable, unlike the projected revenues for a convention center.

Why would a corporation want to effect a 3:1 stock split? A. To increase equity B. To increase dad C. To raise the share price D. To lower the share price

Answer: D That is all that a forward stock split can accomplish, lowering the share price in order to entice more people to buy it.

Julianne held 1000 shares of ABC for 13 months before selling them for a loss of $1000. If Julianne repurchases shares of ABC 23 days later, which of the following accurately describes the tax implications? A. Julianne can be fined by FINRA B. Julianne can be sued for tax fraud by the IRS and/or FINRA C. The loss is disallowed D. The loss is this allowed but is added to the cost basis for the new purchase

Answer: D The question doesn't mention "wash sale rules" specifically, but that is what it is testing. If you can't wait 30 days before repurchasing the stuff you sold at a loss, you can't use the loss currently. However, you do at the amount of the loss per share to the cost basis on a new purchase... Which means you'll get the "benefit" of it later on.

A MSFT Jun 65 put @3 has how much intrinsic value with MSFT @65? A. $3 B. $2 C. $65 D.$0

Answer: D There is no intrinsic value in being able to sell a $65 stock for $65

Which of the following represents an accurate statement concerning head hedge funds? A. They are generally a illiquid B. Non-accredited investors may not invest directly in hedge funds C. Not accredited investors may invest in directly through "funds of hedge funds" given certain requirements D. All choices listed

Answer: D This question is really just an excuse to teach you three things about hedge funds.

Which of the following investments has the highest duration? A. 10 year debenture B. 12 year debenture C. 5 year treasury note D. 12 year STRIP

Answer: D Why: duration is "the weighted average of the bond's cash flows". If the bond pays out huge cash flows, it reduces the volatility/duration of the bond. If it is zero coupon bond such as a STRIP, there are no cash flows, so a 12 year STRIP has a much higher duration then a 12 year bond that pays regular cash flow to the investor.

Which of the following would be expected to benefit if the American dollar where to weaken against again? A. American investor holding the Toyota motors ADR B. A current American trade deficit with Japan C. Neither choice list it D. Both choices listed

Answer: D Why: if the dollar weekens, we can export our cheap American goods more easily and Japanese goods would be more expensive for us to buy, we would probably buy fewer of them. The weak dollar should make the ADR worth more dollars as well.

The 200 day moving average is considered important by technical analyst because A. It is primarily a to a fundamental analysis B. It is adjusted for taxes and inflation C. It's predictive ability is confirmed conclusively by many academic studies D. It it aids in spotting trends

Answer: D Why: moving averages help to spot trends. Rather than focusing on yesterday's closing Price, a technical analyst wants to know where it's been closing on average lately. Over the past 200 days, the Stocks average closing price has been X, so the fact that it closed at Y today seems significant. The indices also have 200 day moving averages, so we can talk about the 200 day moving average for the S&P 500 or NASDAQ 100 as well

Which of the following represents the most stringent measures of a corporation's financial condition A. Current ratio B. Quick ratio C. Cash to current assets D. Cash to total liabilities

Answer: D Why: the quick ratio is more stringent than the current ratio. You have to conclude that covering all of your liabilities using only your cash would be the most stringent measure.

How far is a MSFT Jan 90 call in the money with MSFT trading at $85? A. $5 B. $90 C. $87.50 D.None of the above

Answer: D Would you pay $90 for an $85 stock

Which of the following orders would be activated in a bull market? I. Sell - stop II. Sell - limit III. Buy - Stop IV. Buy - limit A. I B. II C. I, II, IV D. II, III

Answer: D You will have to know where the limit and stop orders are placed in relation to the current market price for the stock. Sell - limit orders buy - stop orders are placed above the current market price, they become activated in a rising/full market. That means there is a comparison companionship question to this one right? In a bear/down market, sell - stop and buy - limit orders would be activated, since they are placed below the current more market price for the stock.

Which of the following would protect an investor against missing assets do to the failure of her broker dealer firm? A. FDIC B. CBOE C. NASD D. SIPC

Answer: D If you work at a broker-dealer you have seen "member FINRA, SIPC" SIPC cannot protect you from making dumb investments and losing all your money. If your broker dealer who is holding your assets go bankrupt, SIPC protect those assets within certain limits.

Which are the following represent (S) taxable with drawls from traditional IRA? I. First time purchase of a primary residence to $10,000 II. Withdrawals as a result of a disability next line III. Withdrawals after 59 1/2 A. I, III B. II C. III D. I, II, III

Answer: D Many people see a question like this and get very excited thinking "oh cool retirement plans, I know the stuff like the back of my hand. None of these withdrawals is taxable". Unfortunately, the question didn't ask "which of the following with drawls are exempt from a 10% early distribution penalty?" It only asked which of the following withdrawals was/were taxable. In a traditional IRA, the money coming out is taxable, period. None of these withdrawals will be penalized with the 10% penalty tax, but that is a different question.

Working from a corporate income statement, and analyst would add which of the following items back to figure "cash flow quote"? A. Inventory B. Accounts payable C. Depreciation D. Accounts receivable

Answer:C Why: depreciation and amortization are just accounting entry. To reflect across associate it with the accounting period's revenues, we need to subtract that part of the cost for this period. But, since we don't spend any cash this period, we can add it back to the class cash flow.

The 200 - day moving average is A. Contrarian indicator B. Helpful inspiring trends C. Primary tool a fundamental analysis D. Use primarily an interest rate analysis

B. Associate moving average with "trends "and "technical analysis "

Which of the following best describes the price to earnings ratio? A. It is a tool for credit analysis B. Ever flex how richly investors value a company's Profitability as reflected in the market price for stock C. It is the inverse of dividend yield D. It reflects the rate of increase in the stock market price

B. Growth stocks trade at a high price to earnings ratio while value stocks trade at Lower ratios. Growth stocks, reflect more enthusiasm for the company's earnings/profits in value stocks

A head and shoulders bottom formation is a I. Bearish indicator II. Bullish indicator III. Reversal of an uptrend IV. Reversal of a downtrend A. I, IV B. II, IV C. I, III D. II, III

B. The head and shoulders pattern is always a reversal on the exam. If the reversal is at the bottom, the downtrend must be ending, with a bull market up ahead.

The consumer price index is used to A. Predict the direction of long-term interest rates B. Measure inflation C. Determine short-term financing rates D. Establish intermediate term rates on international business loans

Be the CPI measures inflation/deflation

Which of the following would increase a company's net profit margin? A. Increase in cost of goods sold B. Increase in interest expense C. Decrease in depreciation D. Increase in depreciation

C. Depreciation is a subtraction that lowers reported net income

And economic slump would be associated with which of the following? A. Rising unemployment, inflation, rising interest rates B. Falling on employment, inflation, rising interest rates C. Rising unemployment, falling GDP, falling interest rates D. Falling unemployment, deflation, rising GDP

C. In a text book perfect economic slump, interest rates would drop as people are being laid off and if the economy is stagnating

Which of the following best expresses the Federal Reserve Board's role in shaping economic policy? A. They establish long-term interest rates used by mortgage lenders B. They negotiate more attractive interest rates for low income home purchasers C. Through monetary policy they raise and lower short-term interest rates D. They write tax policy

C. The Fed can control short-term rates, but has little control over the long term such as mortgage rates

Which of the following equals a company's working capital? A. Total liabilities divided by total assets B. Current assets divided by current liabilities C. Current liabilities subtracted from current assets D. Long-term assets minus net-debt

C. The answer is the reverse of how normal people would define it, which makes it a perfect Series 65 question

One of your clients purchased a GE 5S debenture of '17 @96.375. What is the current yield?

Current yield equals 5.2%

Non-systematic risk is best reduced through A.Hedging strategies B.Diversification C.Buy-and-hold D. Equity options

D. Diversify to protect against un or nonsystematic risk. Hedging strategies are also associated with systematic risk on the exam

All the following are considered leading indicators except for A. S&P 500 index B. Building permits C. Claims for unemployment D. Inventory levels

D. Inventory levels

All of the following securities would typically be found in a money market mutual fund except: A. Commercial paper B. T-bills C. Bankers acceptances D. Treasury bonds

D. Look for short term debt securities. Treasury bonds or 10 to 30 year maturities

A 10 year zero-coupon Treasury bond is most susceptible to which of the following? A. Credit risk B. Reinvestment risk C. Liquidity risk D. Purchasing power risk

D. There is no income to reinvest. The US treasuries department credit is excellent, but fixed income securities are generally Poor At Protecting purchasing power.

Which of the following represents the least exposure to loss of principle? A. Highly rated commercial paper B. Bankers acceptances C. $1,000,000 Certificate of Deposit D. $3,000,000 treasury bill

D. You have to go with the US treasury for providing the safest investment

One of your clients requires $200,000 in seven years. If yourKline invest the money of 4% compounding, how much needs to be invested to achieve this goal?

Do the opposite for finding the future value. Take the $200,000 and divided by 1.07 seven times. Whether you're comfortable with this processor night, if you do that, your calculator will give you the right answer. The answer is $151,983. It is probably best around up to $152,000

An investment's market value decreases from $10 to $8.50 over Q1. The investment's annual rate of return is...?

If the market price drops from $10 to $8.50, take the $1.50 divided by the original $10. The investment just dropped 15% over Q1. There's 4 quarters per year, multiply 4 by 15%, so you have a -60% annualized return.

A portfolio's expected return is 6%, with a standard deviation of four. Therefore, the portfolio will most likely show returns between...?

Just subtract and add 4 to6%. The likely range of outcomes is between 2% and 10%

Disney and Microsoft, stock show a correlation of -.4. Therefore, if Disney rises 10%, Microsoft would expect be expected to...

Microsoft would go the other direction by as much as 40%. If Disney rises 10%, Microsoft falls 4%.

Disney and Microsoft, stock show a correlation of -4%. Therefore if Disney rises 10%, Microsoft would be expected to...

Microsoft we go the other direction by 40% as much. If Disney rises by 10%, Microsoft falls 4%.

A portfolio's expected rate of return is 6% with a standard deviation of 4. Therefore, the portfolio will most likely show returns between...?

Subtract and add 4 to 6%. Likely outcome is between 2% and 10%.

XYZ common stock currently pays a dividend of $.44 annually. If the dividend increases by 6% per year for 5 years, what will the dividend be at the end of this.?

Take $.44 x 1.6 five times in a row. The 1.06 is a numeric way of saying that the dividend will be 100% of what it was plus 6%. The answer is $.59.

An Investor in a 30% marginal tax bracket would find that a general obligation bond of the state of New York paying 4% would be equivalent to a taxable debenture paying...?

Take 4% and turn it into .04. Divide that by 70% (100 minus tax bracket). The investor would find that a 4% tax free yield is equivalent to a taxable yield 5.7%.

PDQ common stock has a 40% chance of appreciating 10% and a 60% chance of appreciating 8%. Therefore, its expected return is...

Take 40% of 10 (4%)and added to 60% of 8 (4.8%). The expected return is 8.8%. Just don't take any loans out on the street backed up by your expectations.

An investor purchasing a corporate bond yielding 9.5% would find that a tax-free bond yielding ______ would be equivalent? The investor is in the 25% marginal tax bracket.

Take 9.5% (.095) and multiply that by the percentage the investor keeps, which is 75% or .75. What is .095 x .75? 7.125%. That is all the tax free municipal bond would have to yield to put the same dollars in the investors pocket.

One of your clients requires $200,000 in seven years if your client invest the money at 4% compounded, how much needs to be invested to achieve this goal?

Take the $200,000/1.04 seven times in a row. The answer is $151,983, I would rounded up to $152,000.

One of your clients purchased a GE5s debenture of '17 @96.375. What is the current yield?

The "5S" means that the coupon rate is 5% or $50 per year. Divide that $50 of annual interest by the market price of $963.75, you've got the current yield of about 5.2%.

Which bond has the highest duration: a 10 year T-note, a 30 year T-bond or a 30 year STRIP?

The STRIP, is a zero coupon bond, providing no cash flow over 30 years. It's duration has to be much higher than the T-bond, which does provide interests payments every six months.

Which bond has the Highest duration: a 10 year T note, a 30 year T-bond, or a 30 year STRIP?

The STRIP, which is a zero coupon bond, provides no cash flow over 30 years, so it has to be much higher than the T-bond, which does provide interest payments every six months

Dale's investment depreciates 2% during a period in which the consumer price index (CPI) decreases 3%. What is Dale's real rate of return?

The investment drops 2% but prices are dropping even faster than that. The real rate of return is a positive 1%.

Dales investment depreciates 2% during a period in which the consumer price index (CPI) decreases 3%. What is Dale's real rate of return?

The real rate of return is a positive 1%

If ABC common stock has a beta coefficient of .5, what would occur if the S&P dropped by 10%?

The stock would drop by 5%. The ".5 "tells you that the stock moves half as much as the overall market

XYZ common stock pays a quarterly dividend of $.75. One of your investors purchase the stock at $50 at the beginning of Q3. If the stock trades for $49 at the end of Q3, what is your investors annualized rate of return?

This question is about both the annualized return and total return. How much money did the investor make over the quarter and what happened to the value of his investment? He took in $.75, but the stock dropped one dollar. He is $.25 down on a $50 investment, which is a return of -1/2%. Multiply the 1/2 by 4 to get the total annualized rate of return of -2%.

If ABC common stock has a beta coefficient of .5, what would occur if the S&P drop by 10%?

This stock would drop by 5%. The .5 tells you that the stock moved half as much of the overall market.


संबंधित स्टडी सेट्स

Math Quiz Eliminate Decimal Points

View Set

(Book 4) Ch. 1 - Contract Law Overview

View Set

A37 CH10: QUIZ- BEDMAKING & UNIT CARE - MELBENZ

View Set