Series 65 Midterm

When a corporation files for bankruptcy, heading the priority for payment would be A) employees for their wages B) common stockholders C) holders of secured debt D) taxing authorities

A

After an investigation, the Administrator wishes to have the registration of an investment adviser revoked. In order to do so, all of the following are true EXCEPT A) an appeal may be filed within 60 days of the final order B) the investment adviser may elect to withdraw its registration C) the investment adviser has a right to a hearing D) the Administrator must be able to point to specific facts of law violated by the investment adviser

B

The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents includes prohibitions against certain practices designed to manipulate market prices of securities. An activity that would fall within the spectrum of the prohibitions would be A) front running B) wash trades C) guaranteeing customers against loss D) churning customer accounts

B

Which of the following corporate actions would have an effect on the company's working capital? A) Borrowing money from the bank on a 90-date note B) Calling in a portion of a 20-year bond at par C) Declaring a 15% stock dividend D) Paying a utility bill

B

XYZ Securities, Inc., a FINRA member broker-dealer, is registered in all 50 states. XYZ has its principal office in State C and a branch office in State A. If the State U Administrator wished to examine certain financial records of XYZ's, the Administrator would be able to do all of the following EXCEPT A) do so during normal business hours without prior notice B) examine those records located in State U C) ask FINRA to perform the examination D) ask the State C Administrator to perform the examination

B

A corporate executive decides it is in the company's best interest to purchase a yacht. Over the years, the company has built up substantial retained earnings and will use accumulated funds to make the purchase. An analyst interested in how this purchase will affect the company's debt to asset ratio would examine A) the income statement B) the statement of cash flows C) the balance sheet D) the seaworthiness of the ship

C

An investment adviser reviewing the past performance of a portfolio observes that annual returns have been +6%, +11%, -5%, +8%, +14%, +1%, and +7%. From this information, the adviser would determine that the median value was A) 7.4% B) 7.0% C) 19.0% D) 6.0%

C

An investment adviser structured as a partnership lends money to a customer to buy recommended securities. Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, this activity is A) acceptable, provided the securities are used as collateral for the loan and the loan conforms to the provisions of Regulation T B) acceptable, provided the securities are used as collateral for the loan C) unethical D) acceptable, provided the loan is made under the provisions of Regulation T of the Federal Reserve

C

An investor would be unlikely to use internal rate of return to analyze the potential return for which of the following investments? A) Direct participation programs (DPPs) B) Treasury notes C) Common stock D) Municipal bonds

C

The Investment Advisers Act of 1940 requires that investment advisers make certain disclosures to their customers through the delivery of the adviser's brochure. However, there are instances where the act grants an exemption if the client is I. a broker-dealer II. an insurance company III. an investment company IV. a person receiving impersonal advice for which the annual fee is less than $500 A) I and II B) I, II, III and, IV C) III and IV D) I, II, and III

C

A sales agent who is only registered in State A works for a broker-dealer that is registered in all 50 states. A customer who is a resident of State B calls the agent in State A and offers to purchase securities. Under the Uniform Securities Act, the agent should A) accept the order because her broker-dealer is registered in all 50 states B) reject the order because she is not registered in State B C) accept the order because she received it in State A D) accept the order because it is unsolicited

D

An agent discovers that he has sold a customer an unregistered, nonexempt security that she thought was exempt. The broker-dealer offers to buy it back on behalf of the agent. Under the Uniform Securities Act, A) the offer also cannot include interest B) this cannot be done under any circumstances C) a customer rejecting the offer within 30 days forfeits the right to sue D) this is legal and is called rescission

D

The Uniform Securities Act considers which of the following to be investment advisers subject to registration in the state? I. An adviser with no place of business in the state who advises wealthy customers in the state on a fee basis only II. An adviser with a place of business in the state whose total fee income in the state amounts to $150 III. An adviser with no place of business in a state who only provides advice on fixed annuities IV. An adviser with a place of business in the state who only provides advice to open-end investment management companies registered under the Investment Company Act of 1940 A) I only B) I, II, and IV C) I, II, and III D) I and II

D

Which of the following pairs of assets provides the greatest level of diversification? A) Assets 3 and 4, with a correlation coefficient of 0.0 B) Assets 5 and 6, with a correlation coefficient of -0.42 C) Assets 7 and 8, with a correlation coefficient of +0.37 D) Assets 1 and 2, with a correlation coefficient of -0.78

D

Which of the following statements is CORRECT regarding an unsolicited trade in an unregistered nonexempt security? A) The transaction is exempt if the broker-dealer does not maintain an office in the state from which the order is received. B) The Administrator may, by rule, require that the customer acknowledge, upon a specified form, that the sale was unsolicited and that a signed copy of each such form be preserved by the broker-dealer for a specified period. C) The Administrator may, by order, require that the customer acknowledge, upon a specified form, that the sale was unsolicited and that a signed copy of each such form be preserved by the broker-dealer for a specified period. D) It is only an exempt transaction if it is an order to buy; orders to sell an unregistered, nonexempt security would not be an exempt transaction.

D

Under the Uniform Securities Act, which of the following would be least likely to be civilly liable for making false registration statements, using a prospectus that is untrue, or failing to meet the prospectus delivery requirements of the act? A) Every underwriter of the security B) Any and every person who has signed the registration statement C) Every expert who is named in the registration statement D) Every stockholder named in the registration statement

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A broker-dealer (BD) registered in multiple states must meet the record retention requirements of A) the SEC B) the state with the most stringent requirement C) the state where the BD is incorporated D) the state where the principal office of the BD is located

A

When registering a security under the Uniform Securities Act, the registrant must indicate all of the following EXCEPT A) the effective date of the offering B) the amount of securities to be offered in the state C) adverse rulings by a court, regulatory authority, or the SEC with respect to the offering D) all other states in which the security is to be registered

A

The term used to describe the processes and policies followed by a financial institution to protect firm and customer data in electronic form from criminal or unauthorized use is A) business continuity planning B) cybersecurity C) antivirus software D) identity theft

B

Whippet Bus Lines, Inc., serving most of the country, has just been informed by the Surface Transportation Board of the United States that all of its buses must be retrofitted with expensive safety equipment. The effect of this will be a significant drop in Whippet's net income. If one was an investor in Whippet Bus Lines, Inc., this would be an example of A) business risk B) regulatory risk C) country risk D) market risk

B

ABC Securities is a broker-dealer registered with the SEC and domiciled in State M. ABC Securities would not be defined as a broker-dealer in State N under the Uniform Securities Act if it had no offices in State N and I. its only clients were insurance companies II. it had contact with fewer than 6 State N residents in any 12-month period III. its only solicitation of State N residents was through radio advertisements originating in State M but received in State N IV. it occasionally engaged in firm commitment underwriting with issuers based in State N A) I and II B) III and IV C) I and IV D) II and III

C

An investment adviser may borrow from all of the following clients EXCEPT A) a commercial bank in conjunction with a mortgage on the office building from which the advisory operates B) a savings and loan association that has offered to finance new computers for the adviser's office C) a mortgage broker who helped the adviser negotiate mortgage terms for its office building D) a broker-dealer in conjunction with a margin account

C

Anyone who represents an issuer in effecting transactions between the underwriter and the issuer A) must be registered as an Administrator B) must be registered as an investment adviser C) must be registered as an agent D) is excluded from the definition of agent under the Uniform Securities Act

D

Which of the following statements best explains an agency cross transaction for an advisory client? A) A transaction in which an investment adviser offers securities in exchange for securities owned by another registered investment adviser B) A broker-dealer activity that involves selling securities from one client to another client of the firm C) A sales transaction where the investment adviser receives a commission rather than a fee D) An agency cross transaction for an advisory client means a transaction in which a person acts as an investment adviser in relation to a transaction in which the investment adviser, including an investment adviser representative, acts as a an agent for both the advisory client and another person on the other side of the transaction

D

The NASAA Model Rule dealing with business continuity plans is NOT concerned with A) office relocation in the event of temporary or permanent loss of a principal place of business B) assignment of duties to qualified individuals in the event of the death or unavailability of key personnel C) ensuring that the investment adviser continues to generate profits during a business interruption D) the protection, backup, and recovery of the investment adviser's books and records

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An agent of a broker-dealer is currently doing business in one state and would like to conduct business in another state. When checking with the firm's compliance department, the agent would be told which of the following? A) No registration is necessary if no commission or other remuneration is paid or given directly or indirectly. B) If the agent is a partner, officer, or director and held that position at the time the broker-dealer was registered in that state, the individual need not register separately. C) No registration is necessary in the other state provided the agent's activities are limited exclusively to effecting transactions in certain exempted securities. D) Registration is required only if an offer is directed, accepted, and paid for in that state.

B

A consent to service of process allows the Administrator to A) ensure that the legal appeal process is expedited as a result of the Administrator's access to information B) verify the accuracy and completeness of registration without obtaining the registrant's prior approval C) be the registrant's attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding against the registrant, or the registrant's successor D) terminate a registrant's application

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A stock traded on the Nasdaq Stock Market has a beta of 1.20. One could expect the stock's volatility compared to the S&P 500 would be A) 20% more volatile B) too variable to tell C) negatively correlated to the S&P D) 20% less volatile

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The Uniform Securities Act permits amendments to a registration statement after its effective date so as to change which of the following? A) The number of shares to be offered B) The underwriter's discounts and commissions C) The public offering price D) Changes may not be made by amendment; filing of a new registration statement is required.

A

The consumer price index is best described as A) a weighted average cost for a basket of goods and services B) a measure of transactions between a country and the rest of the world over a period of time, usually a year C) the inflation rate for a given period of time D) an unbiased estimate of changes in the cost of living

A

Under the Investment Advisers Act of 1940, which of the following would NOT meet the criteria of persons associated with an investment adviser? A) An individual whose only function is posting trades to client accounts B) An individual whose only connection to the firm is a position on the board of directors C) A manager in an investment advisory firm who supervises 5 investment adviser representatives D) The individuals responsible for bringing new clients to an advisory firm

A

Which of the following persons is required to register with the SEC as a federal covered adviser? A) An adviser that gives advice to registered investment companies only B) An adviser who gives advice only related to U.S. government securities C) A publisher that gives incidental investment advice only D) An adviser that manages assets of $90 million or more

A

An investment adviser representative may share in the profits and losses of a customer's account A) if the investment adviser representative deducts the advisory fee charged the customer from any profits earned B) under no conditions C) as long as both the customer and the representative's employer give written consent D) provided a written contract is executed between the investment adviser and the client

B

The registration requirements of the Securities Act of 1933 would NOT apply to which of the following? A) Securities issued by foreign governments with whom the United States has diplomatic relations B) Fixed annuities and other fixed insurance contracts C) Stocks listed on the New York Stock Exchange D) Stocks and bonds issued by insurance companies

B

Under the NASAA Model Custody Rule, an investment adviser would be permitted to take or have custody of any securities or funds of any client if A) customer permission was obtained prior to entering into the contract B) notification was given to the Administrator that he has or may have custody and custody was not prohibited by that state's rules C) permission was obtained from the Administrator and custody was not prohibited by that state's rules D) the IA maintained adequate net worth or a surety bond

B

Which of the following firm's earnings are likely to exhibit the greatest degree of sensitivity to the business cycle? A) Telecommunications provider B) Furniture producer C) Food and beverage producer D) Entertainment producer

B

Which of the following statements regarding investment risk is NOT correct? A) Investors expect to earn a higher rate of return for assuming a higher level of risk. B) Systematic risk may be reduced or eliminated by effective portfolio diversification. C) The beta coefficient measures an individual stock's relative volatility to the market. D) A stock's level of risk is a combination of market risk and diversifiable risk.

B

If the yield curve becomes inverted, a likely cause would be that the Fed has A) loosened short-term credit B) tightened long-term credit C) tightened short-term credit D) loosened long-term credit

C

Which of the following qualifies under the Section 28(e) safe harbor provisions for soft-dollar compensation? A) Rent-free use of unused space in the broker-dealer's office B) Reimbursement for travel expenses incurred to attend a seminar on the latest compliance trends for registered investment advisers C) Clearance and settlement services provided by the broker-dealer D) Providing access to the broker-dealer's computerized accounting system, allowing the investment adviser to prepare its financial statements

C

An investment adviser who has custody of customer funds and securities discovers that its net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must do which of the following? I. Notify the Administrator by the close of business on the day after discovery II. File a report of its financial condition with the Administrator no later than the close of business on the day after notification III. Cease doing business A) II and III B) I and III C) I, II, and III D) I and II

D

Federal covered securities, as defined under the Uniform Securities Act, A) would not include securities senior to a common stock listed on the NYSE B) must be registered in the state before they can be offered within the state C) must be registered with the SEC before they can be offered in the state D) include shares of an investment company registered with the SEC under the Investment Company Act of 1940

D

Following the rules of the Uniform Securities Act, an investment adviser ensures that all clients receive a written contract prior to the firm engaging in advisory activities in their accounts. The contract clearly states all of the account details, including the services to be provided, the fees to be charged, and the procedure for handling early terminations. Because the IA has a tendency to pursue some rather unorthodox methods of analysis, the contract provides that the clients waive their right to sue in the event that the IA violates any provision of the USA. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, A) the contract is misleading and could lead to action by the Administrator B) the contract is only enforceable if signed by the client C) the adviser has met the requirements of providing a written contract D) waivers of this type are never permitted

D

Seven years ago, Sarah Smith was convicted of possession of a controlled substance in a state where that violation is considered a felony. Sarah has just filed an application for registration as an agent with Kapco Securities, a registered broker-dealer in a state where that violation is only considered a misdemeanor. When viewing this agent's application, the Administrator will A) censure the broker-dealer for even thinking of employing this individual B) treat the crime as a financial misdemeanor C) treat the crime as a nonfinancial misdemeanor D) treat the crime as any felony

D

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

C

An agent employed at First XYZ Securities produces his own research reports and provides them to a select group of personal clients. The agent has written permission from his employer to engage in this activity, provided the time spent on the project is conducted after working hours. Under the Investment Advisers Act of 1940, if the agent does not charge fees for the research but receives commissions from his employing broker-dealer for trades executed through the firm, A) neither the agent nor his employing broker-dealer need register as an investment adviser B) the agent must register as an investment adviser because the research is being done after hours C) the agent must register as an investment adviser representative D) the broker-dealer must register as an investment adviser and the agent as an investment adviser representative

A

MT Securities is a broker-dealer registered in 42 states. MT Securities makes a market in over 100 different stocks and participates in the underwriting of approximately 22 IPOs per year. Which of the following actions would be prohibited under NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker-Dealers and Agents? A) Acquiring shares of an IPO as part of the underwriting syndicate and holding a small portion for the firm's investment account, hoping to gain from market appreciation B) Purchasing shares of a security in which it makes a market from a client at one price and then reselling those shares to another client at a higher price C) Purchasing shares of an IPO from the issuer and then reselling those shares to the public at a higher price D) Adding to its inventory of a stock in which it makes a market, hoping to gain from market appreciation

A

The Uniform Securities Act requires that broker-dealers and investment advisers maintain certain records relating to their business operations. If the firm wished to upgrade to a modern system, such as disk storage, A) it could do so if the system met certain requirements, including that the information on the disk could not be altered B) the most modern form currently permitted is microfilm or microfiche C) it must obtain approval from the Administrator prior to determining its method of record retention D) it must keep its records in paper form

A

The XYZ Corporation's income statement contains the following information: Total revenue $200,000 Cost of goods sold 60,000 Administrative expenses 30,000 Depreciation 10,000 Miscellaneous expenses 3,000 Taxes paid 5,000 Based on this information, XYZ's gross profit is A) $140,000 B) $110,000 C) $97,000 D) $100,000

A

Which of the following statements are TRUE? I. When an investment adviser representative begins or terminates employment with an adviser registered under the USA, only the investment adviser must notify the Administrator. II. When an investment adviser representative begins or terminates employment with a federal covered adviser, only the investment adviser representative must notify the Administrator. III. When an agent of a broker-dealer leaves the firm, only the broker-dealer must notify the Administrator. IV. When an investment adviser representative or a registered agent of a broker-dealer terminates employment, notice must be given to the Securities and Exchange Commission. A) I and II B) II and IV C) III and IV D) I and III

A

While searching for a suitable investment for your client, you narrow the choice to the following four companies: - Company A with returns over the past 4 years of 12%, 4%, 8%, and 6% - Company B with returns over the past 4 years of 7%, 8%, 9%, and 6% - Company C with returns over the past 4 years of 10%, 12%, -2%, and 10% - Company D with returns over the past 4 years of 15%, 20%, -8%, and 3% Which of these choices has the highest standard deviation? A) Company D B) Company C C) Company A D) Company B

A