Series 65 Mastery exam

If a client wishes to open a margin account, the most important warning you should give is that A) because of the leverage involved, the client can lose more than the original amount invested B) the Fed has the power to change margin requirements at any time C) not all stocks can be purchased on margin D) the cost of the money borrowed to carry the account is not fixed and has no upper limit

A (Although the other choices are true, the most important caveat to explain to a client is that buying on margin could lead to a loss equal to or greater than the investor's original principal.)

Which of the following pooled investment vehicles would not generally be considered an alternative investment? A) An ETF tracking an index B) An inverse ETF tracking an index C) An exchange traded note (ETN) D) A 2x leveraged ETF tracking an index

A (The "plain vanilla" exchange traded fund tracking an index is not considered an alternative investment while the others are.)

A fundamental analyst wishing to evaluate a corporation's ability to meet its short-term obligations under extreme conditions would probably wish to compute the A) quick ratio B) current ratio C) price to book ratio D) working capital

A (The quick ratio, sometimes called the acid-test ratio, is considered to be the toughest test of a company's liquidity.)

A client calls to discuss purchasing a specific security that he has been following. The agent handling the account recognizes that a potential conflict of interest exists. The best course of action to follow would be to A) disclose the conflict of interest and proceed if the client wishes B) accept the client's order because it is clearly unsolicited C) turn the client over to another agent who is not conflicted D) disclose the conflict of interest and end the discussion promptly

A (There is no problem with conflicts of interest as long as they are fully disclosed. If, after disclosure, the client wishes to proceed, that is fine. Unsolicited orders may make the security that is the subject of the discussion exempt from registration, but that has nothing to do with failure to disclose conflicts of interest.)

For a profitable and rapidly growing firm, holders of preference shares are leastlikely to benefit from the firm's growth if the preference shares are A) common stock B) cumulative. C) participating. D) convertible

B (Preferred stock shares, sometimes called preference shares, are cumulative if any dividends in arrears must be paid before the firm pays any common dividends. A profitable and rapidly growing firm is unlikely to be in arrears on its preferred dividends. Just as important, the return on those shares is fixed and, regardless of the growth in the company's earnings, the dividend will remain the same. Participating preferred shares may receive additional dividends if the firm's profits exceed a stated level. Convertible preferred shares can benefit from the firm's growth because of the ability to convert to common shares. The question is asking about preferred stock - do not make a silly error and choose common stock.)

Which of the following statements regarding a mutual fund are TRUE? I. Class A shares have no front-end sales charge and no 12b-1 fee. II. Class B shares have a contingent deferred sales charge and a 12b-1 fee. III. Class A shares are generally not eligible for breakpoint reductions. IV. Class C shares are generally referred to as level load. A) I and III B) I and II C) II and IV D) III and IV

C

A corporation with a 10%, $100 par cumulative preferred paid $5 to preferred stockholders last year. This year the company wants to pay common dividends. How much must it pay each preferred share outstanding before paying common shareholders? A) $10 B) $5 C) $15 D) $0

C (A 10% cumulative preferred stock with a $100 par value would pay an annual dividend of $10 ($100 × 10%). Cumulative preferred requires all dividends that have previously been skipped be paid before any dividends paid to common stock. The $5 that was paid last year left $5 in dividends in arrears. Therefore, this year requires that a $15 dividend be paid to the preferred shareholders before any common dividend paid to common shareholders.)

Holders of which of the following securities would be most likely to receive preemptive rights? A) Treasury stock B) Secured bonds C) Common stock D) Preferred stock

C (It would be very rare for any security other than common stock to receive preemptive rights.)

During the past year, the market price of KAPCO common stock has increased from $47 to $50 per share. Over that period, KAPCO's earnings per share (EPS) have increased from $2.00 to $2.50 per share, and their dividend payout ratio has decreased from 50% to 40%. Based on this information, the current yield on KAPCO common stock is A) 2.13 B) 6.34% C) 2.00% D) 4.26%

C (The current yield on a stock is computed by dividing the annual dividend rate by the current market price. With EPS of $2.50 and a 40% payout ratio, the annual dividend is $1.00. This dollar divided by the current market price of $50 results in a current return of 2%.)

Which of the following is a written document that sets forth a client's objectives, sets limitations on the portfolio manager, provides guidance to the portfolio manager, and provides a means for evaluating performance? A) Financial planning disclosure B) New account form C) Investment policy statement D) Risk profile questionnaire

C (The investment policy statement (IPS) is a written document that sets forth a client's objectives and limitations on the portfolio manager. It gives guidance and provides a means for evaluating investment performance of the portfolio manager. It includes the investor's objectives including risk tolerance and constraints, such as time horizon, need for liquidity, and unique circumstances or preferences (no tobacco or fossil fuel stocks).)

For an investment adviser to advertise a proprietary technical-based formula for timing the market, disclosure must be made of the I. extent of difficulty involved in applying the formula II. limitations of using the formula III. recommendations based on the formula that generated profits in the previous year IV. amount of experience the adviser has using the formula A) II and III B) I, II, III, and IV C) II, III, and IV D) I and II

D

Which of the following is a direct commitment between one buyer and one seller? A) Option contract B) Futures contract C) Settlement contract D) Forward contract

D (A forward contract is a direct commitment between one buyer and one seller. The forward seller is obligated to make delivery; the forward buyer is obligated to take delivery. Unlike futures or options where parties other than the two who originated the contract may take the role of the "other side," with a forward contract it is only the two originators who are involved.)

A FinCEN Form 112 would need to be filed when a client A) initiates a wire transfer in excess of $3,000 B) makes a cash deposit in excess of $10,000 C) initiates a wire transfer of $3,000 or more D) makes a cash deposit of $10,000 or more

b (FinCEN Form 112 is used only for large cash deposits (amounts in excess of $10,000). Wire transfers of $3,000 or more must be reported, but not on Form 112.)

The most important of the following nonfinancial considerations an agent should ascertain from the client when determining suitability is A) political orientation B) risk tolerance C) tax status D) education

b (It is important to know both risk tolerance and tax status, but tax status is a financial consideration, and this question asks for a nonfinancial consideration.)

When an agent is recommending an investment in an emerging market foreign security, disclosure must be made to the client that the investment is subject to I. market risk II. political risk III. currency risk IV. liquidity risk A) I, II, III, and IV B) II, III, and IV C) I, II, and III D) I and II

A

A publicly traded corporation changing its name would disclose this first by filing a A) Form 8-K B) Form 13F C) Form 10-K D) Form 10-Q

A (The Form 8-K is used to announce important company events such as a name change, a change in management, or a merger or acquisition. The Form 8-K is filed with the SEC within 4 business days of the event and is available for the public on Edgar.)

What type of risk prevents an investor from being able to convert an investment into cash without delay? A) Currency B) Liquidity C) Market D) Reinvestment

B (Liquidity risk refers to the time it takes to turn your investment into cash. Liquidity risk of 100 shares of a listed or Nasdaq stock is minimal. The liquidity risk of owning an office building is high.)

John and Jane have a net worth of $20,000 and total assets of $150,000. If their revolving credit and unpaid bills totals $8,000, how much are their total liabilities? A) $150,000 B) $130,000 C) $138,000 D) $122,000

B (The balance sheet formula is assets − liabilities = net worth. Therefore, $150,000 − liabilities = $20,000, where liabilities = $130,000. Did you answer $122,000? That is the amount of the liabilities other than the revolving credit, but that is not what the question is asking for.)

Which of the following debt instruments pays no interest? A) T-bonds B) TIPS C) T-bills D) T-notes

C (Treasury bills are always issued at a discount from their face value. At maturity, the investor receives par.)

As the number of stocks in a portfolio increases, the portfolio's systematic risk A) decreases at an increasing rate B) decreases at a decreasing rate C) increases at a decreasing rate D) can increase or decrease depending on the beta of the added stocks

D (When you increase the number of stocks in a portfolio, unsystematic risk will decrease at a decreasing rate. However, the portfolios systematic risk can be increased by adding higher-beta stocks or decreased by adding lower-beta stocks.)

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

b (The marriage of these two must have lasted at least 10 years. In addition, Mary cannot be remarried (Parker can be). It is Parker who must have at least 40 quarters to earn Social Security benefits. As long as Parker is drawing benefits—and one can start before full retirement age—benefits will be available as long as all of the conditions are met.)

XYZ Securities is a broker-dealer based in Wisconsin with offices in no other state. In addition to its Wisconsin clients, XYZ has 30 retail customers living in Illinois. During the winter, if 10 existing customers vacation in Florida for up to 7 weeks at a time, XYZ Securities is a broker-dealer in A) Wisconsin only B) Wisconsin, Illinois, and Florida C) Wisconsin and Illinois D) all states having enacted the USA

c (Under the USA, XYZ Securities is a broker-dealer in Wisconsin because it maintains an office there. XYZ Securities is also a broker-dealer in Illinois because with 30 Illinois retail (non-institutional) customers, registration is required even if there is no physical office in Illinois. Because none of XYZ's clients has taken up residence in Florida, such clients are transients rather than residents.)

One of the terms found in the Securities Exchange Act of 1934 is that of a "person associated with a broker-dealer." Included in that definition would be all of the following EXCEPT A) any person directly or indirectly controlling, controlled by, or under common control with the broker-dealer B) an individual registered with the broker-dealer as an agent who does not maintain a place of business in the state C) the individual managing the firm's smallest branch office D) an individual whose sole duties are ministerial in nature

d (As defined in the act, the term "person associated with a broker or dealer" or "associated person of a broker or dealer" means any partner, officer, director, any person directly or indirectly controlling, controlled by, or under common control with such broker or dealer, or any employee of such broker or dealer, except that any person associated with a broker or dealer whose functions are solely clerical or ministerial shall not be included in the meaning of such term.)

A corporation may benefit by attaching warrants to a new issue of debt securities from A) a decrease in the company's interest costs B) a decrease in the earnings per share C) a decrease in the bond's rating D) a decrease in the company's amount of debt service coverage

A (When a corporate issuer attaches a warrant to an issue of preferred stock or debt it is giving the investor a potential opportunity by setting the price that the investor will be able to purchase the underlying common stock in the future regardless of the current market value. In return, the investor will accept a lower interest rate on the debt or lower stated dividend rate on the preferred stock. This results in a lower cost of capital. That lower cost of capital should translate into higher earnings. It is true that the exercise of the warrants may have a dilutive effect on the earnings per share. However, warrants are always issued with an exercise price above the current market so it will be some time (if ever) before they are exercised. The lower interest cost might possibly lead to a higher rating. With lower intestest expense, the debt service coverage will be higher. Think about a reduction to the interest rate on your home mortgage. Your take-home pay now covers the lower monthly payments by a larger factor than before.)

Which of the following statements regarding investment companies is TRUE? A) It is generally prohibited for an investment company registered under the Investment Company Act of 1940 to acquire more than 3% of the outstanding voting shares of another investment company. B) An investment company can offer investors 2 ways of participating in the fund under management through the purchase of closed-end shares, or, if the investor prefers, open-end redeemable shares. C) The only 2 types of investment companies provided for in the Investment Company Act of 1940 are open-end and closed-end management investment companies. D) When investors sell or redeem their open-end fund shares, they receive the net asset value (NAV) as of the previous day's close.

A (Among the restrictions placed on the operations of investment companies is the 3% limitation on ownership of another investment company's shares. The Investment Company Act of 1940 classifies investment companies as face amount certificates, unit investment trusts, or management investment companies (open end and closed end). When mutual fund shares are sold, you receive the NAV that is next computed, not the previous day's NAV.)

A diversified open-end investment company's portfolio consists of holdings in U.S. equities, foreign equities, investment-grade U.S. corporate bonds, and U.S. Treasury bonds. An investor owning shares of this company would be subject to I. business or financial risk II. default or credit risk III. interest rate risk IV. systematic risk A) I, II, III, and IV B) I and IV C) I, III, and IV D) I and III

A (Any portfolio with equities is subject to business or financial risk. Likewise, any portfolio with debt securities is subject to interest rate risk. The corporate bonds possess default risk, and all securities are subject to systematic risk.)

An investor interested in obtaining the benefit of professional portfolio management, has been tracking a particular investment company for the past several months. In so doing, it becomes obvious that the market price of the shares moves independently from the computed NAV. This investor must be following a A) closed-end fund B) special situations fund C) common stock fund D) balanced fund

A (Because closed-end funds trade in the secondary markets, their prices are determined by supply and demand. As a result, the market price could be above, below, or the same as the NAV at any given point in time. Note that when the exam uses an adjective to describe a fund (balanced, common stock, and so forth), it is always an open-end company (mutual fund).)

Which of the following would be the most likely reason that clients would consider adding an investment in commodities to their portfolios? A) Commodity prices tend to have a high correlation coefficient with inflation rates. B) Commodity prices tend to have a high correlation coefficient with the equity markets. C) Commodity prices tend to be less volatile than stock or bond prices. D) Investments in commodities tend to have greater liquidity than equity securities.

A (Diversification is an important part of portfolio construction. The benefits of diversification increase when assets that are negatively correlated are included. Historically, commodity prices tend to follow inflation over the short run and have a low or negative correlation to equities. Their prices are generally more volatile than stocks and bonds and liquidity is not a reason for investment in commodities)

All of the following are required to compute the total return of a common stock EXCEPT A) dividend yield as of the pricing date B) amount of dividends paid during the holding period C) purchase price of the stock D) price of stock at the end of the holding period

A (Dividend yield is a measure in itself. The information needed for a total return calculation is any income received from holding the security plus any appreciation realized from holding the security.)

A client calls and tells her adviser that she has read about how to avoid estate taxes by transferring all her assets into an irrevocable living trust and would like the adviser's opinion on the matter. The adviser's most appropriate and ethical response should be to A) recommend the client consult with a qualified legal professional B) refuse to discuss the trust with the client because the adviser does not want the client to transfer her assets to another account C) discuss the advantages of the arrangement and assist the client in drafting the appropriate documents for a fee D) urge the client to consult with an attorney without disclosing that this attorney pays a referral fee to the investment adviser

A (Do not represent yourself as something you are not. The only response that would be appropriate in this instance is to suggest checking with a competent expert. Advisers may have knowledge, but unless they are tax attorneys or tax accountants, it is imperative that they do not represent themselves as tax experts. The attorney or tax adviser recommended should be competent.)

An advantage of being a bondholder compared to owning common stock is that A) income payments are more reliable B) the bondholder can select the optimum time to have the issuer redeem the bond, while common stock is not redeemable C) common stock has priority over the bond in the event of liquidation D) there is limited liability

A (Even though bond interest is semi-annual while dividends are typically paid quarterly, the payment of interest is an obligation that comes ahead of the payment of any dividend. Companies can skip or reduce their dividends—not so with their interest payments.)

An investor's portfolio is heavily weighted in AA and AAA rated municipal bonds with an average maturity of 18 years. The client has the most exposure to A) interest rate risk B) default (credit) risk C) business risk D) liquidity risk

A (For any high-quality fixed income security or fixed income portfolio with a relatively long average maturity, the greatest risk is the risk of interest movements. This becomes even more important with longer maturities. Another risk to consider here is the loss of purchasing power.)

When investors tend to increase their investments in debt securities into those on the long end of the spectrum rather than those with short-term maturities, it generally leads to A) an inverted yield curve B) long-term yields that greatly exceed short-term yields C) a flat yield curve D) a positive yield curve

A (Investors buying long-term debt rather than short-term debt will have the effect of driving the prices of long-term instruments up and, as a result, their yields down. This will give us the inverted or negative yield curve.)

All of the following social media sites are considered to be predominately used for personal rather than business communications EXCEPT A) LinkedIn B) Instagram C) Twitter D) Facebook

A (LinkedIn is viewed as a site used far more for business purposes than the others.)

Probate may be avoided by using A) a TOD account B) a living will C) an advance directive D) a medical directive

A (One of the benefits of having an account registered Transfer on Death (TOD) is that the assets pass to the named beneficiaries without first going through probate. The other choices are all ways of saying the same thing—an advance directive specifying end-of-life wishes)

The Uniform Prudent Investor Act identified a number of fundamental changes in the former criteria for prudent investing. Which of the following statements incorrectly states one of these changes? A) The standard of prudence is applied to each investment individually. B) Delegation of trust investment and management functions is permitted, subject to safeguards. C) The trade-off between risk and return in all investing is the fiduciary's central consideration. D) Prudent investing requires that fiduciaries diversify their investments.

A (Prior to the Uniform Prudent Investor Act, the focus was on individual investment choices, which made it very difficult to focus on the risk and return of the entire portfolio. The benefits of diversification have now been firmly established, and the standard of prudence is now applied to any investment as part of the total portfolio rather than to that investment individually. Another key change was the ability to delegate the portfolio management decisions to others (who must be qualified).)

Isabelle Burns is an investment adviser representative with Constructive Allocation Programs (CAP), a firm whose client base is composed of high net worth individuals. In her personal portfolio, Burns has an investment in Torex, a company that has developed software to speed up internet browsing. Burns has thoroughly researched Torex and believes the company is financially strong although currently, significantly undervalued. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, Burns may A) recommend Torex to a client, but she must disclose her investment in Torex to the client B) recommend Torex to a client without disclosing her position as long as the stock is suitable for the client C) not recommend Torex as long as she holds a position in the stock D) not recommend Torex to a client unless CAP gives written consent to do so

A (Securities professionals must act fairly in all situations and must fully disclose any actual or potential conflicts of interest to all affected parties. It could be that firm policies require consent before an IAR can recommend a security in which she has a position, but that is not part of the NASAA Model Rule.)

In order to qualify for the private fund adviser exemption, a domestic investment adviser must limit its assets under management in the United States to less than A) $150 million B) $25 million C) $100 million D) $110 million

A (The Dodd-Frank Act replaced the old "private adviser" exemption with narrower exemptions for advisers that advise exclusively venture capital funds and advisers solely to private funds with less than $150 million in assets under management in the United States.)

As a result of the Dodd-Frank Act of 2010, which of the following firms or individuals would be required to register with the federal regulatory authorities? A) Riverbend Partners, money managers with $110 million in assets under management B) J. Haines Investment Consultant, a sole proprietor with $75 million in assets under management C) Retirement Specialists, Inc., a firm offering consulting services to qualified pension plans with aggregate assets of $150 million D) Westlake Fund Managers, Inc., the manager of venture capital fund with $200 million under management

A (The NSMIA created a new category of investment adviser known as a federal covered adviser. Its purpose was to rid the industry of the duplication of efforts in registration and regulation of investment advisers. The Dodd-Frank Act of 2010 went further and requires a registered investment adviser with less than $100 million in assets under management to register with the individual states in which it wants to do business and not with the SEC. If a registered investment adviser has $110 million or more in assets under management, it is required to register with the SEC. If an adviser has at least $100 million but less than $110 million in assets under management, it may register with either the state or the SEC. Managers of venture capital funds are not required to register with the SEC.)

The assumptions underlying the efficient market hypothesis (EMH) lead its proponents to believe that stock market prices react rapidly to newly released information and, therefore, limit the ability of the investor to achieve abnormal gains. Which of the forms of EMH concludes that an investor cannot achieve abnormal gains using fundamental analysis? A) Semi-strong form B) Weak form C) Spring form D) Strong form

A (The semi-strong form of the EMH holds that security prices rapidly adjust to the arrival of all new public information. As such, current security prices fully reflect all publicly available information. The semi-strong form says security prices include all security market (price, volume) and non-market (financial statements) information to the public.)

A GTC order is entered to buy 500 LMN at 24.35. By the close, the firm has acquired 100 shares at 24.25 and 200 at 24.35. The remainder is unfilled. What is the outcome? A) The customer must accept the execution for 300 shares and the remainder of the order remains open until filled or canceled. B) The customer may reject the incomplete order unless the broker-dealer can guarantee filling the remainder by the end of the day. C) The customer may reject the incomplete order unless the remainder can be filled within two business days. D) The customer may demand that the firm deliver the remaining shares at 24.35.

A (The term GTC (good-till-canceled) is a delimiter to any order entered in to the market place. It indicates that the order should remain valid until it is entirely filled or is canceled by the entering party. If the order is not completed on the day it was entered, it will stay in effect for as many days as it takes to complete. This order is also a limit order in that the client is indicating that he is not willing to pay anything more than $24.35 per share. A total of 300 shares have been purchased at that price or better. The order will remain open until the final 200 shares are purchased within that price limit or until the client cancels the remainder of the order.)

When analyzing a company's financial position, an investor could determine which of the following from the company's balance sheet? A) The net worth of the firm at the end of the reporting period B) The average number of days it takes for inventory turnover C) Gross revenues for the year D) The amount of cash and cash equivalents expended during the first half of the fiscal year as opposed to the second half

A (Under balance sheet accounting: Assets = liabilities + net worth. Net worth can then be determined as assets minus liabilities. Although inventory is a balance sheet item, the turnover ratio requires knowing the annual sales, an income statement entry.)

Which of the following items would be found on a family balance sheet? A) Annual salary B) Spouse's engagement ring C) Dividends and interest received D) Income taxes paid

B (A balance sheet, whether for a family or a business, shows assets and liabilities, not income and expenses. The ring is certainly an asset; the others are income or expenses.)

Which of the following statements is NOT true of Regulation S-P? A) Customers may be provided privacy information on internet web pages. B) Customers must be given annual privacy disclosures on a separate piece of paper. C) Consumers need not be given an annual privacy notice. D) Consumers must be given an initial privacy notice.

B (A customer with an ongoing relationship with a member must receive both an initial and an annual privacy notice. It may be included in other documents but must be clear and conspicuous. Consumers have a one-off relationship, so there is no requirement to provide them or former customers with annual disclosures.)

Publicly traded corporations are subject to an annual audit of their financial records. Those audits must comply with GAAP (Generally Accepted Accounting Principles). When preparing to recommend a stock to a customer, you would most likely want to see that the auditor gave A) a certified opinion. B) an unqualified opinion. C) a comprehensive opinion. D) a qualified opinion.

B (An unqualified or "clean" opinion is the best type of report a business can get. The term qualified means that the auditor has some reservations about the information contained in the financial statements.)

It would be considered an unethical business practice for an agent of a broker-dealer to A) accept unsolicited orders from individual clients for unregistered nonexempt securities B) fail to disclose the amount of commission being charged on an exempt transaction involving an exempt security C) offer registered nonexempt securities to clients D) sell unregistered exempt securities

B (Any trade involving a commission, regardless of the type of security, must have that commission disclosed.)

Averaging techniques would include all of the following EXCEPT A) reinvesting all distributions from an open-end investment management company B) maintaining a constant ratio plan C) maintaining a DRIP with a stock listed on the NYSE D) dollar cost averaging

B (Averaging techniques involve some form of regular investing; a constant ratio plan involves buying and selling different asset classes to keep the ratio between them at a static percentage.)

Which of the following items will affect a corporation's cash flow? I. Cash II. Depreciation III. Net sales IV. Accounts receivable A) I and IV B) II and III C) III and IV D) I and II

B (Cash flow is basically net income plus depreciation. Net sales is the beginning of the company's income. Cash and accounts receivable are assets, and cash flow comes from the income statement, not the balance sheet.)

An analyst viewing a corporate income statement will review all of the following EXCEPT A) pre-tax income B) current ratio C) operating expenses D) net sales or net revenues

B (Current ratio is a balance sheet computation involving current assets and current liabilities.)

If an economist was describing defensive issues, he would probably not include companies that produce: A) clothing. B) building materials. C) food products. D) tobacco products.

B (Defensive issues are issues that are defensive against a downturn in the economy. Building materials are usually susceptible to downturns when the economy is bad.)

A bond's duration is A) equal to the maturity of the bond in most cases B) a measure of a bond's price sensitivity to a change in interest rates C) an explicit measure of the number of years to maturity D) a time-weighted measure of a bond's sensitivity to credit and default risk

B (Duration measures the number of years it will take for the bond's interest payments to equal the investment in present value terms. It is also used to determine the volatility of a bond's price when interest rate changes. The longer the duration, the greater the volatility for that bond. Zero-coupon bonds have the longest duration for any given maturity date because there is no current receipt of interest payments.)

An IAR is attempting to develop an investment plan for a client. The IAR decides to use 2 different mutual funds in an effort to provide appropriate diversification. Which of the following would offer the least diversification? A) Portfolio 5 & 6 with a correlation coefficient of -0.20 B) Portfolio 1 & 2 with a correlation coefficient of +0.90 C) Portfolio 3 & 4 with a correlation coefficient of +0.20 D) Portfolio 7 & 8 with a correlation coefficient of -0.90

B (If two portfolios have a high correlation coefficient, it means that their performance will be very similar. The purpose of diversification is to have some negative correlation so that losses in one portfolio are offset by gains in the other.)

The standard deviation of returns is the measure of the A) volatility of a security with respect to the overall market B) dispersion of a security's returns from its average return C) degree to which the returns of securities are correlated D) relationship of the co-movement of two securities with respect to each other

B (The standard deviation calculates the dispersion of a security's return from its own average return or mean. Around 68% of the average returns for a security are one standard deviation away from the mean in either direction. About 95% of the returns are two standard deviations away from the mean. And about 99% of the returns are three standard deviations.)

What does a bond's yield to maturity (YTM) indicate? A) Annual interest rate a bond purchaser receives B) Discounted rate that equates a bond's cash flow to its current price C) Annual interest rate an issuer pays on a bond relative to the issuer's dividend D) Interest an issuer pays on a bond issued at a premium

B (The yield to maturity is the discounted rate that educates (discounts) a bond's cash flow to its current price.)

Under certain conditions, investment advisers registered with the state must maintain a specified minimum net worth. Under NASAA's Model Rules, assets included in the computation of the net worth of an adviser structured as a sole proprietorship would exclude all of the following EXCEPT A) an automobile owned by the adviser B) the sofa in the office reception room C) goodwill D) the table in the owner's dining room

B (When it comes to individual advisers (sole proprietorships), home, home furnishings, automobile(s), and any other personal items not readily marketable are not included as assets in the net worth computation. However, office furnishings, such as a sofa in the reception room or a conference table, even though of questionable marketability, are considered assets of the business.)

Which of the following statements regarding a Roth IRA is TRUE? A) For the tax year 2021, a Roth IRA allows a maximum tax-deductible annual contribution of $6,000 per individual or $12,000 per couple as long as neither has reached the age of 50. B) Nonqualified distributions of earnings before the age of 59½ are subject to both penalty and taxation. C) The income and capital gains earned in the account are always taxed when withdrawn. D) Distributions without tax obligation must begin by the age of 72.

B (Unless qualifying for an exception (death, disability, and so forth), distributions representing earnings taken from a Roth IRA before the age of 59½ are subject to both penalties and taxation. Contributions to a Roth IRA are never deductible and there are no RMDs at any age.)

If a customer enters a market order to buy 100 shares of GFT, the trade will be executed at the A) lowest bid B) highest bid C) lowest offer D) highest ask

C (A market order mandates that a trade must be executed at the best execution (price) that can be attained for the client. This question is meant to find out your knowledge of the difference between a bid and an offer and what an inside market is. The inside bid is the highest price a dealer is willing to pay to someone who wants to sell this stock. The inside offer, usually referred to as the ask, is the lowest price made available by a dealer to those wishing to buy this stock.)

All of the following are reasons to consider investing in a variable annuity EXCEPT A) IRS Section 1035 transfers B) tax deferral of earnings in the account C) lower expenses than a mutual fund with similar objectives D) the ability to choose among sub-accounts offering equities, fixed income, or a combination of both

C (All annuities offer tax-deferral of earnings. Variable annuity separate accounts offer a number of sub-accounts enabling investors to participate in the equity, fixed income, or both markets. IRS Section 1035 permits investors to move their assets from one annuity to another without current taxation. However, these benefits come with a cost—and that is why the expense ratios of variable annuities tend to be higher than those of mutual funds with similar objectives.)

Which of the following is the holder of an ADR likely to receive? A) Tax-free dividends in U.S. dollars B) Tax-free dividends in foreign currency C) Taxable dividends in U.S. dollars D) Taxable dividends in foreign currency

C (An American depositary receipt is a form of equity ownership of a company that is not domiciled in the United States. Dividends will be taxable just as dividends are taxable when received from ownership of a domestically domiciled company although there may be a tax credit given for any foreign income tax paid. The purchase and sale of ADRs as well as the dividends paid to U.S. investors in ADRs will always be in U.S. dollars (U.S.D). ADRs trade on our domestic exchanges and OTC markets.)

The NSMIA allows State Administrators to A) require registered open-end investment companies wishing to offer securities in their state to coordinate their registrations with the SEC B) impose state registrations and net capital requirements on federal covered investment advisers C) enforce their antifraud provisions against federal covered advisers D) accept filing fees on behalf of the SEC

C (Antifraud provisions may be enforced by any regulatory agency or authority. If it has to do with securities, no one or nothing is exempt from the antifraud provisions. Registered investment companies do not register in the state, but may be required to notice file and pay fees.)

Under the Investment Company Act of 1940, a closed-end management investment company is required to do all of the following EXCEPT A) issue shares with voting privileges B) publish its management fees C) redeem its shares upon request D) have a stated investment objective

C (Closed-end management investment company shares trade in the open market (either listed or OTC) once the primary offering is done. The selling price is determined by supply and demand within the market. A redeemable share would be characteristic of an open-end management investment company (mutual fund).)

In the investment industry, the term "2&20%" most commonly refers to A) the sales commission paid on an equity index annuity B) a strategy involving buying and selling options on the same underlying asset C) the fees charged by hedge fund managers D) the minimum acceptable return in a bull market

C (Hedge funds are known for their higher management fees. A typical example is 2% of the assets under management plus 20% of the profits.)

The SEC has determined that sales literature regarding past recommendations made by investment advisers is misleading if results reflect the maximum deduction of fees actual market conditions during the referenced period are not disclosed the sales literature reflects performance for a minimum period of only 1 year the sales literature did not disclose that it applies to only a specific group of clients A) II, III, and IV B) I and II C) II and IV D) I, II, III, and IV.

C (If you are going to use historical recommendations in sales literature, you must provide full disclosure of conditions surrounding those recommendations.)

When an investment adviser prepares a financial plan and distributes research reports prepared by several different third parties, which of the following statements is TRUE? A) An adviser is required to disclose all sources of information used in making a recommendation to a client. B) An adviser must disclose the source of any information used in making a recommendation to a client whenever requested by the client. C) An adviser may not use specific research reports that are prepared by an outside third party without disclosure of the source. D) An adviser is prohibited from distributing someone else's work.

C (If you distribute reports prepared by outside sources when generating investment recommendations, disclosure as to the source of those reports is necessary.)

While passing by the water cooler, you hear one of the experienced representatives in your office talking to a client on the phone about money in a DDA. Having never heard the term and being a willing student, after the phone call is completed, you summon up the nerve to ask the definition of those initials. Proud of you for asking, this top producer informs you that they stand for A) digital deposit account B) donor directed account C) demand deposit account D) direct deposit account

C (In the banking business, a checking account (and sometimes a savings account) is referred to as a demand deposit account (DDA) because the funds are accessible on demand.)

Which of the following statements regarding REITs are TRUE? I. Investors receive flow-through benefits of income as well as loss. II. Hybrid REITs own properties as well as making loans on others. III. Equity REITs are prohibited from using leverage to acquire properties. IV. Most REITs are easily traded in the secondary market. A) I and III B) I and IV C) II and IV D) III and IV

C (It is not true that REITs offer flow-through of losses; they are not DPPs. As with most real estate purchasers, leverage, usually in the form of a mortgage, is used to acquire property. A hybrid REIT contains the features of both an equity REIT and a Mortgage (Debt) REIT and most REITs trade on the exchanges or Nasdaq.)

It would be most unusual to see which one of the following issued at a discount? A) Treasury bill B) Commercial paper C) Jumbo CD D) Zero coupon bond

C (Jumbo (negotiable) CDs are one of the few money market instruments issued at face value. Unlike those issued at a discount, they are interest bearing.)

When market conditions are such that a passively managed portfolio no longer meets its target allocation, the tool most commonly used to rectify the situation is A) tactical management B) sector rotation C) rebalancing D) re-targeting

C (Periodically, (sometimes quarterly, sometimes semi-annually, and sometimes annually) passive portfolio managers will rebalance the mix of assets in their portfolio to bring them back to the target allocation.)

Which of the following investors would be exempt from filing Form 144 when selling securities they own? A) An investor selling shares acquired in a Regulation D private placement. B) An employee of the company selling unregistered shares. C) An employee of the company selling registered shares purchased in the open market. D) An affiliated person selling unregistered shares.

C (Rule 144 regulates the sale of control or restricted securities. Securities bought in a registered public offering are not restricted and therefore an employee of the company selling registered shares need not file Form 144. Unregistered shares or securities purchased in a private placement are restricted and Rule 144 would apply.)

Under the Uniform Securities Act, the State Administrator has the authority to deny an investment adviser's registration for A) conviction for a nonsecurities-related misdemeanor 5 years ago B) being charged with for a securities-related felony 8 years ago C) violation of another state's securities law within the previous 5 years D) lack of experience as a broker-dealer

C (Statutory disqualification will be put into place if you have been found to be convicted of a securities-related misdemeanor or any felony within the past 10 years. If you were convicted over 10 years ago there is no longer a statutory disqualification even though the State Securities Commissioner could still deny the registration. However, being charged with a felony means nothing unless the charge was followed with a conviction. A nonsecurities-related misdemeanor (e.g., a traffic ticket) will not create a statutory disqualification.)

Providing liquidity in the over-the-counter (OTC) market is the primary function of A) the specialist B) two dollar brokers C) market makers D) floor brokers

C (The OTC market is driven by the use of market makers. Market makers are essentially broker- dealers all over the country who have come forward and said that they will maintain an inventory of a particular company's stock. They are said to be "making the market" in the stock of that company. A market maker must stand willing to buy at least one round lot of shares of the company for which it is a market maker at the current bid price that it has published. Market makers must also stand ready to sell at least one round lot of shares of the company for which they are a market maker at their current published ask price. Therefore, if as a client, you are a buyer or seller, there is a willing party representing the other side to your trade. This is the liquidity of the OTC market. Specialists (now DMMs), two dollar brokers, and floor brokers are found in the listed exchanges and within individual firms, but not in the OTC market.)

Under the Uniform Securities Act, which of the following is considered a place of business of a registered investment adviser representative? I. An office from which the representative regularly provides advisory services to clients II. A location published in a professional directory, indicated on business cards, or telephone book listing that identifies it as a place where the representative will be available to meet or communicate with clients III. A hotel or auditorium at which the representative has advertised to the public that he will be available to conduct advisory business at that site IV. A hotel meeting room identified only to current clients as a place the representative will be available to conduct advisory business A) I and II B) I, II, III, and IV C) I, II, and III D) I onl

C (The Uniform Securities Act defines a place of business as one where the IAR regularly provides investment advisory services, solicits, meets with, or otherwise communicates with clients, or any other location held out to the public as a location where the representative will do any of these activities. The frequency of use is not a factor. Publicly advertising a hotel location only used once makes it a place of business that year and will probably subject the representative to regulation by the Administrator of the state in which the hotel is located. A hotel room is not included when it is not advertised and only used with existing clients, presumably when the adviser is traveling through his state.)

An investor with a corporate bond portfolio wishes to rebalance his portfolio to protect against inflation. Historically, the best way to protect such a portfolio against inflation is to purchase A) Eurobonds B) fixed annuities C) common stock D) preferred stocks

C (The amount of interest paid on a bond does not change, it is fixed. To combat inflation, the most likely candidate for an investment for this portfolio would be an equity position (common stock). The idea is that the market value of the common stock will grow to keep up with inflation and will therefore be less subject to purchasing power risk. Preferred stocks, Eurobonds, and fixed annuities are fixed income securities.)

The technical analysis theory that believes the small investor is always wrong is A) the advance/decline theory B) the short interest theory C) the odd-lot theory D) the theory of unintended consequences

C (Those who trade in odd-lots (less than 100 shares) are usually those with less sophistication and investment knowledge. They tend to react more with emotion than with facts and are generally wrong about the future direction of the market.)

An investor has 1,000 shares of a JNS, Inc., a large-cap value stock purchased 5 years ago at $40 per share. It is currently trading at $52 per share. The investor believes that the current market for this stock is going to remain stable for the next 9 to 12 months. To increase his return on this investment, the representative should recommend that the customer A) sell 10 JNS 40 puts B) buy 10 JNS 40 puts C) sell 10 JNS 55 calls D) buy 10 JNS 55 calls

C (To generate income using option contracts against a long stock position, you will always sell the contract. In this context, the sale of call contracts would accomplish the objective. This is the covered call writing strategy. A rule of thumb is that those who are long a stock will sell calls for income while those who are short a stock will sell puts for income. There are two reasons why selling the 40 puts would not be the appropriate strategy. First of all, if the 10 options were exercised, the seller would be obligated to buy 1,000 shares of the stock. The investor already owns 1,000 shares and likely has no interest in buying more. The second reason is that with the stock currently selling for $52 per share, the premium on an option giving the owner of that option the opportunity to sell the stock for $40 per share would be very, very low so the income would be negligible.)

For those following the Capital Asset Pricing Model (CAPM), the Security Market Line (SML) uses all of the following EXCEPT A) the risk-free rate. B) the beta of the asset. C) the standard deviation of the asset. D) the expected return of the asset.

C (Unlike the Capital Market Line, the SML does not include the standard deviation of the asset.)

The basis of modern portfolio theory (MPT) depends on certain assumptions regarding investor behavior. Which of the following statements most accurately reflect the Markowitz assumptions about investor behavior? I. Given two investments with equal expected returns, investors prefer the one with the higher risk. II. Given two investments with equal risk, investors prefer the one with the greater expected return. III. Given two investments with equal expected returns, investors prefer the one with the lower risk. IV. Given two investments with equal risk, investors prefer the one with the lower expected return. A) I and II B) III and IV C) I and IV D) II and III

D (A primary concept behind MPT is that of risk aversion. That is, for any given quantity of risk, investors will select investments with the highest expect returns, and when the expected returns are the same, they'll go with the lowest risk option.)

An individual walks into the office of a broker-dealer wishing to open a new account. Which of the following information would NOT be required on the new account form? A) Citizenship B) Physical address C) Name of employer D) Marital status

D (Although most new account forms do ask for marital status, it is not a required item as are the other choices given here.)

Under Section 401 of the Uniform Securities Act, the term agent does not include an individual who represents an issuer in effecting transactions in a security A) issued by and representing an interest in or a debt of, or guaranteed by, any federal savings and loan association, or any building and loan or similar association organized under the laws of any state and authorized to do business in this state B) issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association C) issued or guaranteed by any federal credit union or any credit union, industrial loan association, or similar association organized and supervised under the laws of this state D) issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state

D (An individual representing an issuer in the sale of that issuer's security is not defined as an agent if the security is issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state; issued or guaranteed by the United States, any state, any political subdivision of a state, or any agency of the foregoing; any security issued or guaranteed by Canada, any Canadian province, any political subdivision of any such province, any agency of the foregoing, or any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor; a promissory note, draft, bill of exchange or bankers' acceptance that evidences an obligation to pay cash within 9 months after the date of issuance, is issued in denominations of at least $50,000, and receives a rating in one of the 3 highest rating categories from a nationally recognized statistical rating organization; or any investment contract issued in connection with an employees' stock purchase, savings, pension, profit-sharing, or similar benefit plan if the Administrator is notified in writing thirty days before the inception of the plan. It is not just any exempt security that qualifies the individual for the exemption—only the five listed above. A confusing point is that the individual is not an agent when the sales are made in any exempt transaction with no exceptions.)

The Investment Advisers Act of 1940 as further modified by SEC Release IA-1092, includes all of the following in the definition of an investment adviser EXCEPT A) a financial representative for a professional athlete B) a financial representative for a celebrity C) a pension consultant offering advisory services to employee benefit plans D) an adviser who only gives advice on U.S. government securities

D (If you are only giving advice concerning direct obligations of the federal government, you are excluded from the definition of a federal investment adviser. A major portion of SEC Release IA-1092 defined those advising celebrities and professional athletes and those acting as pension consultants as investment advisers.)

Holders of certain professional qualifications may be granted a waiver from taking the Series 65. However, that waiver would not apply to an individual holding which of the following designations? A) CFP® B) CFA® C) ChFC® D) CLU®

D (In addition to the 3 above, the CIC and PFS designations also qualify. However, none of them will waive the requirement to pass the Series 66.)

An investor in the 15% income tax bracket is considering purchasing either a 5.5% municipal bond or an 8.5% corporate bond. Which of the following statements regarding the two bonds' after-tax yields is TRUE? A) The yield difference cannot be determined. B) The municipal yield is higher than the corporate yield. C) The two bonds' yields are equivalent. D) The corporate after-tax yield is higher than the municipal yield

D (In questions such as this, you must have a method of making the yield on the two bonds equal on the basis of the same assumptions. This means you must either take a municipal bond's yield and translate it into an equivalent taxable yield or take the corporate yield and translate it into a tax- free equivalent yield. The corporate yield to tax-free equivalent = Corp % × (1 - tax bracket of investor). The tax-free yield to taxable equivalent = Muni % / (1 - tax bracket of investor). The tax-free yield = 5.5%, whereas the corporate tax-free equivalent = 8.5% × (1 - 0.15), or 8.5% × (0.85) = 7.22%. The corporate bond will offer a better return to this investor. The higher the taxpayer's tax bracket, the more likely the computation will result in a higher return on municipal bonds than on corporate bonds.)

Active government manipulation of the economy through tax and budget policies is referred to as A) classical economics B) supply side C) monetarist D) Keynesian

D (Keynesian economics is the body of economic thought that believes that active government intervention in the marketplace is the only method of insuring economic growth and stability, and that the government should manipulate the economy through adjusting levels of government expenditure and taxation.)

A popular strategy for income investors who wish to take advantage of potentially higher interest rates when reinvesting maturing securities is A) rebalancing B) bulleting C) barbelling D) laddering

D (Laddering involves investing a sum at one time, but with different maturities. As each bond (or CD) matures, it is reinvested at current rates and then becomes the longest maturity in the portfolio.)

Which of the following quantitative measurements would probably be the most important to an investor in high-quality fixed income investments? A) Annualized return B) Expected return C) After-tax return D) Inflation-adjusted return

D (One of the risks that an investor in fixed income securities (regardless of rating) incurs is the loss of purchasing power. To create a measure of a fixed income investor's return, you should take into account the impact of inflation through the calculation of inflation-adjusted return.)

Which of the following business structures is most appropriate for retaining money in the business? A) An S corporation B) An LLC C) A sole proprietorship D) A C corporation

D (Only in the case of a C corporation is money retained not subject to tax on the personal level. In all of the other choices, any income is passed through to the owners making it inefficient to accumulate funds in the business.)

A security has been registered in 23 states using the process known as coordination. When recommending this stock to a client, it would NOT be permitted to state that the security A) does not meet the NSMIA's definition of a federal covered security B) is registered on both a federal and state level C) is not a registered investment company D) has an additional level of safety because it is registered on both a federal and state level

D (Registration, regardless of the number of states and/or the SEC, has nothing to do with safety.)

A client interested in fixed income is viewing different bonds with the same rating and a coupon of 5%. Using the discounted cash flow method, which bond should have the lowest market value? A) 6 year maturity when the discount rate is 3% B) 12 year maturity when the discount rate is 3% C) 6 year maturity when the discount rate is 7% D) 12 year maturity when the discount rate is 7%

D (Remember, the discount rate is just another way of stating the current interest rate in the marketplace. If the discount rate is higher than the coupon rate, the present value, the expected market price, will be below par. Conversely, if the discount rate is lower than the coupon rate, the present value will be above the par value. As learned with duration, when interest rates change, the longer the time to maturity, the greater the effect on the market price of a bond.)

Reinvestment of mutual fund distributions has all of the following benefits EXCEPT A) compounding of returns B) reinvestment of capital gains at NAV C) reinvestment of dividends at NAV D) tax deferral until the acquired shares are sold

D (Taxes on reinvested distributions are due in the year received.)

Two brothers are interested in forming a business together. They have three initial concerns: (1) maximizing their benefits despite the fact that the business is expected to lose money for at least the first year or so, (2) making sure that the business will be able to continue in the event one of the brothers dies, and (3) minimizing their personal liability for the obligations of the business. On the basis of the brother's concerns, which form of business is appropriate for the situation? A) Limited partnership B) C corporation C) General partnership D) LLC

D (The LLC will allow losses to flow through to the brothers, continue in the event one brother should die, and have the same type of protection as that offered by a C corporation.)

A 57-year-old investor who earns $26,000 contributes $6,500 to an IRA for the year 2021. What amount of the contribution will be subject to the 6% penalty levied on excess contributions? A) $6,500 B) $1,000 C) $500 D) $0

D (The amount of contribution for 2021is limited to 100% of earned income, to a maximum of $6,000. To help people over the age of 49, EGTTRA of 2001 allows any person aged 50 years or older to contribute an additional $1,000 per year as a catch-up provision. Therefore, because the investor is 57 years old, the maximum contribution for the year 2021 without an excess contribution penalty is $7,000.)

The Prudent Investor Rule applies to I. an investment adviser representative with full discretionary authorization II. a client executing orders in a joint account with an adult son III. a court appointed guardian for an adult with dementia IV. an executor appointed by a court for a decedent's estate A) I and III B) II and IV C) II and III D) I, III, and IV

D (The prudent investor rule applies to those investment professionals who are acting as fiduciaries such as an investment adviser representative with investment discretion and a guardian with investment discretion over anyone's account and an executor appointed by a court.)

With regard to advisory clients, under the NASAA Brochure Rule Requirements for Investment Advisers, an investment adviser, unless qualifying for an exemption, must deliver A) at least 48 hours in advance of entering into the advisory contract, a copy of the adviser's brochure. B) within 90 days of the end of its fiscal year a free, updated brochure and related brochure supplements which include or are accompanied by a summary of material changes. C) a free, updated brochure and related brochure supplements every year even when there are no material changes. D) within 120 days of the end of its fiscal year a free, updated brochure and related brochure supplements which include or are accompanied by a summary of material changes.

D (The rule calls for delivery within 120 days of the end of the fiscal year. The 48-hour rule is not mandatory; if the adviser waits until the signing of the advisory contract, there is a five-day penalty-free withdrawal privilege granted to the customer. If there are no material changes, delivery of an annual brochure is not required. There is a 90-day requirement, but that is delivery to the regulators (the SEC for a covered adviser and the appropriate state(s) for a state-registered adviser).)

ABC Securities, Inc. is a broker-dealer providing services to a number of investment advisers in exchange for directed brokerage business. If any of those investment advisers are offered the opportunity to attend several cybersecurity fora held in various parts of the United States, under Section 28(e) of the Securities Exchange Act of 1934, it would A) be permitted only if the investment adviser paid all of the costs of attendance B) be permitted as long as the only payment made by the broker-dealer was travel and transportation costs C) not be permitted unless the broker-dealer was also registered as an investment adviser D) be permitted as long as the only payment made by the broker-dealer was the registration costs

D (The safe harbor provisions of Section 28(e) permit the payment of registration fees for seminars, but not any other associated costs.)

The dictator of a foreign nation, with whom the United States barely maintains diplomatic relations, has just placed an order for 25 armor plated limousines to be manufactured in Detroit. Upon completion and payment for this order there will be a I. credit to the foreign account balance of the United States II. debit to the foreign account balance of the United States III. positive impact on the U.S. GDP IV. negative impact on the U.S. GDP A) II and IV B) I and IV C) II and III D) I and III

D (This sale will result in foreign currency coming into the United States for goods manufactured here. That will result in a credit to our foreign account balance (good for us) and, because the production was on U.S. soil, an increase to our GDP.)

Relatively high portfolio volatility is least appropriate for investors with A) an indefinite time horizon B) an intermediate-term time horizon C) a long-term time horizon D) a short-term time horizon

D (Time horizon is one of the most often tested investment constraints. Remember that the longer the time horizon, the more risk that can be taken and vice versa. A person with a short-term investment horizon should not invest in volatile securities. Longer-term investors can sustain volatility because they have sufficient time to sit out highs and lows.)

The characteristics of an exchange-traded futures contract would include all of the following EXCEPT A) the delivery price and month of delivery B) the quantity and quality of the commodity C) the location of delivery of the underlying asset D) a high likelihood that the contract will be exercised

D (Unlike forward contracts, only a small percentage (some estimate only 2%) of futures contracts are ever exercised. All of the other items are part of a standard futures contract.)

Which of the following securities would be most likely to have the longest expiration date? A) Put option B) Right C) Call option D) Warrant

D (Warrants can have an expiration date of many years. Rights are always short term, options, whether puts or calls, expire in 9 months or less (unless the choice said LEAPs).)

Which of the following statements regarding registration requirements under the Uniform Securities Act is NOT true? A) An agent that does not live in a state can solicit business in that state if the agent and the broker- dealer are registered in that state. B) The revocation of a broker-dealer's registration in a state has no effect on the registration of agents employed by that broker-dealer. C) If an agent resigns from his employing broker-dealer and affiliates with another broker-dealer, both firms and the agent must notify the State Administrator of the change in employment. D) An agent may lawfully sell securities that have been registered in a state or that are exempt from registration in the state.

b (If a broker-dealer's registration within any given state is revoked, all agents that work under the supervision of that broker-dealer will also have their registration with the State terminated. They will not have their registrations revoked but will have the ability to reregister with another broker-dealer through a new registration process.)

Under the Uniform Securities Act, all of the following persons with no place of business in the state are exempt from registration as investment advisers EXCEPT A) advisers who deal exclusively with federal covered investment advisers located in the state B) advisers who have conducted business with no more than 6 individual clients in the state within the last 12 months C) advisers who deal exclusively with broker-dealers in the state D) advisers who deal exclusively with insurance companies located in the state

b (The de minimis rule for a registered investment adviser who has no place of business in the state is fewer than 6 individual clients (or 5 or fewer). Doing business with 14 or fewer clients within the last 12 months is the federal de minimis amount for foreign private advisers and, therefore, the state exemption from registration does not exist. All others listed as possible answers are institutional or professional type of investment clients. If a registered investment adviser works only with this type of client, an exemption from registration in that state exists as long as the registered investment adviser has no place of business in that state.)