Series 65 - Practice Exam
A U.S. Treasury bond's price moved from 96.18 to 96.22. An investor's account holding 10 of these bonds would show an increase of A) $12.50. B) $4.00. C) $1.25. D) $0.40.
A) $12.50.
Jonah purchased 100 shares of DEF common stock at a price of $25 per share on August 4, 2020. On December 1, 2021, with the stock selling for $29 per share, he gifted the stock to his daughter. She subsequently sold the stock nine months later for $32 per share. Her tax consequence is A) $700 long-term capital gain. B) $300 long-term capital gain. C) $300 short-term capital gain. D) $700 short-term capital gain.
A) $700 long-term capital gain.
Which of the following classes of mutual fund shares would be appropriate for an investor who doesn't mind paying some sales charges on a purchase but wants to minimize operating expenses over a long-term holding period? A) Class A shares B) No load shares C) Class B shares D) Class C shares
A) Class A shares
Section 529 plans differ from Coverdell ESAs in that Section 529 plans offer which of the following? I. Tax-free distributions when the funds are used for qualifying educational expenses II. Higher contribution limits III. No earnings limitations IV. Contributions that may be made by someone other than a parent or legal guardian A) II and III B) I and IV C) I and II D) II and IV
A) II and III
It would be reasonable to expect an increase in exports from the U.S. if which of the following happen? I. The dollar strengthened against the euro. II. The yen strengthened against the dollar. III. The Swiss franc weakened against the dollar. IV. The dollar weakened against the British pound. A) II and IV B) I and II C) III and IV D) I and III
A) II and IV
You are explaining to an advisory client that the U.S. economy goes through somewhat repeatable phases over a period of time. Which of these terms does not describe one of those business cycles? A) Inflation B) Expansion C) Contraction D) Peak
A) Inflation
Which of the following activities might result in a positive yield curve in the bond market? A) Investors buying short-term bonds and selling long-term bonds B) A parallel upward shift in interest rates C) Investors buying long-term bonds and selling short-term bonds D) A parallel downward shift in interest rates
A) Investors buying short-term bonds and selling long-term bonds
A client with a bearish outlook on a particular stock would be able to benefit from taking which of the following actions? A) Selling the stock short B) Entering a sell limit order C) Entering a market order to sell D) Buying the stock on margin
A) Selling the stock short
Which of the following actions by an agent would be an unethical practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents? A) Splitting commissions with a customer service representative who is not registered but works for the same firm B) Telling a customer that the investment being recommended will be sold from the inventory of the broker-dealer and indicating on the trade confirmation that the firm acted in a principal capacity C) Entering a buy order, with discretionary authority, for a security when its price is rising D) Recommending securities that result in major losses in the customer's account
A) Splitting commissions with a customer service representative who is not registered but works for the same firm
A portfolio manager looking to create alpha would most likely use which of the following? A) Tactical asset allocation B) Strategic asset allocation C) Indexing D) Buy and hold
A) Tactical asset allocation
A company with no operations that is formed to raise capital through an initial public offering for the purpose of acquiring a private company or business to be identified after the IPO is A) a special purpose acquisition company. B) a sponsored investment company. C) a direct participation program. D) an open-end investment company.
A) a special purpose acquisition company.
Increasing inflation is likely to accompany all of the following except A) an increase in purchasing power. B) an increase in interest rates. C) an increase in government spending. D) an increase in consumer prices.
A) an increase in purchasing power.
When comparing futures and forwards, it would be correct to state that A) futures are more commonly used by speculators than forwards. B) forwards are exchange listed, while futures are not. C) futures are considered securities, while forwards are not. D) forwards are more likely to be closed out prior to expiration.
A) futures are more commonly used by speculators than forwards.
One form of commodity investing is the purchase of precious metals. An investor in precious metals would be least likely to purchase A) molybdenum. B) platinum. C) palladium. D) gold.
A) molybdenum.
An investor reviewing a corporation's balance sheet will be able to determine the company's A) owners' equity. B) productivity. C) profitability. D) dividend payout ratio.
A) owners' equity.
Investors seeking current income would benefit from A) selling call options. B) buying periodic payment variable annuities. C) buying U.S. Treasury STRIPS. D) buying LEAPS.
A) selling call options.
Which of the following would offer your client check-writing privileges and FDIC insurance coverage? A) Negotiable certificate of deposit (CD) B) Demand deposit account (DDA) C) Government securities money market fund D) Guaranteed investment certificates (GIC)
B) Demand deposit account (DDA)
Your client has a long position in a security that has had considerable appreciation since the date of purchase. The client is concerned that speculation that the company's CEO may retire could have negative implications for the stock. Wishing to protect those unrealized gains, which of the following orders would be appropriate? A) Buy stop B) Sell stop C Sell limit D) Buy limit
B) Sell stop
Under the provisions of Regulation SP, a person who has an investment advisory contract with a registered investment adviser is known as A) a cohort. B) a customer. C) a client. D) a consumer.
B) a customer.
All of the following would decrease the U.S. balance of payments deficit except A) an increase in exports of domestic goods from the U.S. B) a decrease in purchases of U.S. securities by foreign investors. C) a decrease in imports of foreign goods into the U.S. D) a decrease in dividend payments by U.S. companies to foreign investors.
B) a decrease in purchases of U.S. securities by foreign investors.
An investment adviser wishes to advertise a proprietary charting system used to time the market. In order to be in compliance with the Investment Advisers Act of 1940, A) authorship of the system must be prominently disclosed. B) a statement reflecting the limitations and difficulties of using the system must be included in the ad. C) results obtained by using the system must be shown using a time period of no less than 12 months. D) the advertisement must be filed with the appropriate SRO within 10 business days of first use.
B) a statement reflecting the limitations and difficulties of using the system must be included in the ad.
An estate-planning technique often recommended for those with large, taxable estates is the use of A) a testamentary trust. B) an irrevocable life insurance trust (ILIT). C) the alternative valuation date. D) the capital needs analysis.
B) an irrevocable life insurance trust (ILIT).
To assist broker-dealers with compliance, NASAA prepared a fee disclosure template. Based on the template, all of the following broker-dealer charges would be disclosed except A) account transfer fees. B) brokerage commissions. C) fees for issuance of stock certificates. D) account maintenance fees.
B) brokerage commissions.
Under the Uniform Securities Act, an investment adviser would have to disclose that the firm was acting in a principal capacity when A) directing a securities transaction to an affiliated broker-dealer. B) selling shares from its proprietary account to an advisory client. C) engaging in an agency cross transaction. D) the trade was being executed by an officer or partner of the firm.
B) selling shares from its proprietary account to an advisory client.
The technical market theory that measures the breadth of the market is A) the short-interest theory. B) the advance/decline theory. C) the support/resistance theory. D) the odd-lot theory.
B) the advance/decline theory.
In the over-the-counter market, the person who performs the dealer function that a DMM is responsible for on an exchange is A) the floor broker. B) the market maker. C) the OTC trader. D) the broker-dealer.
B) the market maker.
One of the major goals of most hedge funds is to A) appeal to the sophisticated investor. B) use long and short strategies to provide a stable return in both up and down markets. C) generate liberal tax write-offs for their investors. D) generate higher fees for their advisers.
B) use long and short strategies to provide a stable return in both up and down markets.
John was convicted five years ago of failure to pay child support—a misdemeanor in his home state. John would now like to register as an investment adviser representative in a neighboring state where that crime is considered a felony. Under the Uniform Securities Act, the administrator of the neighboring state A) will determine John's status based upon the extent to which his child support payments are being paid. B) will disregard that conviction when determining John's qualifications for registration. C) will consider John to be statutorily disqualified since in this state, his crime is a felony. D) will consider granting registration to John but only if he receives heightened supervision.
B) will disregard that conviction when determining John's qualifications for registration.
Prudent Asset Construction Enterprises (PACE) has offices in States X, Y, and Z. On their last annual updating amendment, they reported assets under management (AUM) of $218 million. In which of the following instances would PACE be receiving a substantial prepayment of fees? A) $600, paid six or more months in advance B) $1,600, paid at the first of each quarter C) $1,600, paid one year in advance D) $10,000, paid monthly
C) $1,600, paid one year in advance
While reviewing the financial statements of the ABC Corporation, you notice that the company has $5 million in cash on hand and $6 million in inventory. If the current assets total $15 million, the total assets are $22 million, and the current liabilities are $6 million, the quick asset ratio is A) 2.66:1. B) 2.33:1. C) 1.5:1. D) 3.0:1.
C) 1.5:1.
Which of the following bonds would most likely be exposed to the greatest amount of interest rate risk? A) JKL 4s of 2022 B) GHI 7s of 2052 C) ABC 5s of 2050 D) DEF 6s of 2051
C) ABC 5s of 2050
In which of the following cases does exercise not involve the issuer of the underlying asset? A) A right B) A warrant C) An option D) A convertible bond
C) An option
An individual has just received an inheritance of $15,000 and has the goal of preservation of capital and income. The client is in a low tax bracket. Which of the following would be the most suitable choice? A) Newly issued U.S. Treasury bonds B) Public utility stocks C) Bank-insured CDs D) Insured municipal bonds
C) Bank-insured CDs
LMN, Inc., is preparing to report its net income for the past year. An increase in which of the following would not cause a decrease in the reported net income? A) Year-end bonuses to employees B) Corporate income tax rate increase C) Cash dividends D) Allowance for bad debts
C) Cash dividends
What is the term generally given by analysts to the number generated by the addition of a company's annual depreciation expense to its net income? A) Dividend payout ratio B) Working capital C) Cash flow D) Book value per share
C) Cash flow
Initial and renewal contracts between investment advisers and their clients must be in writing when the contract is under the jurisdiction of which of the following? I. The Securities Exchange Act of 1934 II. The Investment Company Act of 1940 III. The Investment Advisers Act of 1940 IV. The Uniform Securities Act A) I, II, and III B) II, III, and IV C) II and IV D) I and III
C) II and IV
Which of the following statements regarding an agent's registration is correct? A) Individuals whose only securities activity with a broker-dealer is trading for the firm's proprietary account are not required to register as agents. B) Agents may be licensed in a state even if their broker-dealer is not. C) Revocation of the registration of an agent's broker-dealer will result in placing that agent's effective registration in suspense. D) If the broker-dealer with which that agent is registered should have its registration revoked, the agent's license will be held by the administrator and the agent will be required to register with an active broker-dealer no later than 30 days following the revocation.
C) Revocation of the registration of an agent's broker-dealer will result in placing that agent's effective registration in suspense.
Upon reaching the age of 72, required minimum distributions (RMDs) must be taken by retired individuals who were participants in all of the following except A) Keogh plans. B) traditional IRAs. C) Roth IRAs. D) SEP IRAs.
C) Roth IRAs.
Which of these forms of business structure carries the greatest personal liability? A) LLC B) S corporation C) Sole proprietorship D) Limited partnership
C) Sole proprietorship
A life insurance policy with benefits tied to the performance of a separate account that allows the policyholder to skip premium payments is called A) a fixed premium variable life insurance policy. B) a universal life insurance policy. C) a flexible premium variable life insurance policy. D) a scheduled premium variable life insurance policy.
C) a flexible premium variable life insurance policy.
You have a 45-year-old client wishing to save for retirement. The client does not have a great deal of investment sophistication and inquires about the risks you have exposed him to by placing the majority of his portfolio in listed common stocks. You would respond that one risk he should not concern himself with is A) systematic risk. B) business risk. C) liquidity risk. D) inflation risk.
C) liquidity risk.
One would not typically place convertible bonds in the portfolio of an investor A) seeking capital gains. B) who is bullish on the future for a specific issuer's common stock. C) seeking to maximize current income. D) seeking a position senior to that of common stock.
C) seeking to maximize current income.
With regard to an SEC-registered investment adviser employing the services of a promoter to solicit on its behalf, it would be correct to state that A) referral fees may be paid only if the promoter is also registered with the SEC. B) cash referral fees may be paid pursuant to a written or oral agreement to which the investment adviser is a party. C) the investment adviser may not compensate a solicitor who is subject to a statutory disqualification. D) delivery of the solicitor's brochure must take place within five days after the entry into the advisory contract.
C) the investment adviser may not compensate a solicitor who is subject to a statutory disqualification.
One of your clients has a marginal tax rate of 32%. The 35% tax bracket begins in another $30,000 of income. Should the client receive a bonus of $50,000, the federal income tax due on that would be A) $15,600. B) $16,900. C) $17,500. D) $16,600.
D) $16,600.
An index annuity has no cap on gains but guarantees a minimum return of 3.35% with an 80% participation rate. If the index increases by 15%, what is the rate of return to the investor? A) 15.00% B) 18.35% C) 2.68% D) 12.00%
D) 12.00%
In order to comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must do which of the following? I. Offer plan participants at least three different investment alternatives II. Ensure that plan participants are insulated from control over their portfolios III. Allow plan participants to change their investment options no less frequently than quarterly IV. Permit immediate vesting of employer contributions A) I and IV B) II and IV C) II and III D) I and III
D) I and III
To be in compliance with the rules under the Investment Advisers Act of 1940, which two of the following statements are correct regarding a registered investment adviser's relationship with promoters engaged to solicit for advisory business? I. An individual who is subject to statutory disqualification from registration as an investment adviser representative may be compensated to solicit clients for the adviser when employed by a third-party promoter. II. If the compensation exceeds a de miminis amount, there must be a written agreement between the investment adviser and the solicitor. III. Although the sales script used may be written by the promoter, making sure that its content is fair & reasonable is the responsibility of the investment adviser. IV. Cash referral fees to promoters hired to solicit may be paid only in the case of impersonal advisory services. A) I and II B) III and IV C) I and IV D) II and III
D) II and III
You have a client who is interested in a preferred stock with guaranteed dividends. What is likely the reason for using the term guaranteed? A) As a fixed income security, the dividends are guaranteed to never increase. B) The issuer has a AAA rating that is tantamount to dividend payments being a sure thing. C) A previous investment adviser representative has improperly used that term in an effort to make a sale. D) Someone other than the issuer has guaranteed the payment of those dividends.
D) Someone other than the issuer has guaranteed the payment of those dividends.
The head of marketing for a regional broker-dealer spots an article in the local newspaper that is an excellent presentation of an investment strategy the firm recommends. If the firm posts a link to the article on its website, it would be known as A) endorsement. B) entanglement. C) plagiarizing. D) adoption.
D) adoption.
A balance sheet shows that a corporation builds its capital structure with all of the following except A) retained earnings. B) capital stock. C) long-term debt. D) cash.
D) cash.
A portfolio manager who follows the value style of investing would most likely focus her attention on A) 52-week highs and lows. B) moving averages. C) market capitalization. D) financial statements.
D) financial statements.
Historically, common stock has been shown to protect against A) business risk. B) systematic risk. C) market risk. D) inflation risk.
D) inflation risk.
Irving Wilson works for Wall Street Limited (WSL), a registered investment adviser. He limits his advice exclusively to equity securities listed on the NYSE. Under the Uniform Securities Act, Irving A) need not register as an IAR. B) is not covered by the antifraud rules, as these are federal covered securities. C) would need registration as a federal covered IAR. D) must register as an IAR.
D) must register as an IAR.
On the basis of IRS guidelines, which of the following is most likely eligible to contribute to a Keogh plan? A) A clerk who won $10,000 playing the state lottery while employed full time by a major department store B) A doctor who has formed a professional corporation with three other physicians C) A public school teacher who gets paid during her summer vacation to give motivational speeches to training directors at major brokerage firms D) The CEO of a listed corporation who receives a large bonus after an outstanding year
C) A public school teacher who gets paid during her summer vacation to give motivational speeches to training directors at major brokerage firms
Which of the following statements regarding REITs are true? I. Equity REITs offer possible income and capital appreciation. II. Investors receive interest and principal payments periodically. III. In order to receive favorable tax benefits, the REIT must pay out at least 90% of its taxable income in the form of dividends. IV. Interests in REITs offer the benefit of flow-through of income or loss. A) I and IV B) II and III C) I and III D) II and IV
C) I and III
The issuance of new common stock will affect which of the following balance sheet items? I. Total assets II. Current liabilities III. Retained earnings IV. Net worth A) II and IV B) II and III C) I and IV D) I and III
C) I and IV
The dividend discount model is A) a method of determining the appropriate relationship between the price of the corporation's common stock and its preferred stock. B) the complement of the dividend payout ratio. C) an analytical tool used to project the current value of a common stock using projected dividends. D) a function of the price-to-earnings ratio.
C) an analytical tool used to project the current value of a common stock using projected dividends.
Your client with a traditional IRA splits her annual $6,000 contribution into four quarterly investments of $1,500 into a broad market ETF. In so doing, she is taking advantage of the principle of A) tactical investing. B) rebalancing. C) dollar cost averaging. D) overfunding her IRA.
C) dollar cost averaging.
Gerald has been a client of yours for more than a decade. Over that period, the relationship expanded from business to socializing, including attending events with your spouses. One afternoon, Gerald's wife called, explaining that she just got off the phone with Gerald. Before hanging up, he asked her to contact you with a sell order in his account. You recognize her voice and know that their marriage is on strong footing. You should A) accept the order because you know the wife and understand that this is something that would be fine with Gerald. B) contact your compliance department, explain the relationship, and wait for further instructions. C) explain that you cannot accept an order from anyone other than the account holder without having written trading authorization. D) email a copy of the trading authorization form and ask her to sign electronically for Gerald and return it so that you can place the order.
C) explain that you cannot accept an order from anyone other than the account holder without having written trading authorization.
An investor would be entitled to a breakpoint on quantity purchases made together with all of the following accounts except A) a custodian account under UTMA for his child. B) shares of that fund held in his 401(k) that were purchased with employer-matching funds. C) his brother with whom he regularly shares investment ideas. D) his wife's personal account.
C) his brother with whom he regularly shares investment ideas.
An investor concerned about liquidity would be least likely to invest in A) common stock listed on the New York Stock Exchange. B) ADRs. C) stock subject to Rule 144. D) cumulative preferred stock.
C) stock subject to Rule 144.
A corporation with a 6%, $25 par cumulative preferred paid $0.50 to preferred stockholders last year. This year, the company wants to pay common dividends. How much must it pay each preferred share? A) $11.50 B) $2.50 C) $1.50 D) $0.50
B) $2.50
What is the current yield on ABC common stock that is selling for $60 per share with a semiannual dividend of $0.75 per share? A) 1.25% B) 2.50% C) 5.00% D) 7.50%
B) 2.50%
An investor has returns of 4%, 5%, and 9% over a three-year period. What is the investor's arithmetic mean? A) 7% B) 6% C) 18% D) 5%
B) 6%
Which of the following risks would most likely be minimized through portfolio diversification? A) Interest rate risk B) Credit risk C) Market risk D) Purchasing power risk
B) Credit risk
Which of the following forms of joint ownership is most associated with ownership of real estate? A) Tenants in common B) Joint tenants with right of survivorship C) Totten trust D) Tenancy by the entirety
D) Tenancy by the entirety
An investment adviser representative (IAR) is meeting with a potential advisory client. Which of the following are among the items of information the IAR needs to obtain about the prospect in order to develop the proper plan? I. Anticipated number of years until retirement II. Location of current bank and brokerage accounts III. Current savings and investments IV. College alma mater A) I and III B) I and II C) III and IV D) II and IV
A) I and III
Your client noticed that the listing for the CDL $100 par common stock in the Wall Street Journal indicated that the current yield of the stock was 4%. If the last trade was at $40 per share, more than likely, CDL is paying quarterly dividends of A) $4.00. B) $0.40. C) $1.00. D) $1.60.
B) $0.40.
In which of the following instances would an investment adviser representative (IAR) be exempt from the antifraud rules of the Uniform Securities Act (USA)? A) Since the IAR understands how nervous a particular client is, he never admits a loss in the account to that client. B) The IAR makes a presentation at a seminar where the only topic discussed is fixed annuities. C) The IAR is also an agent of a broker-dealer and, in that capacity, makes a recommendation to a nonadvisory client. D) In an effort to avoid possible conflicts of interest, the IAR only does personal trades through an account set up with a fictitious name.
B) The IAR makes a presentation at a seminar where the only topic discussed is fixed annuities.
Fiscal policy, as implemented by Congress and the administration, would entail all of the following except A) running a budget deficit. B) changing the discount rate. C) changing tax rates. D) increasing military spending.
B) changing the discount rate.
Most states have replaced the Uniform Gift to Minors Act (UGMA) with the Uniform Transfers to Minors Act (UTMA). One of the major advantages of UTMA is A) better tax benefits. B) greater flexibility in the choice of investments. C) reduced fiduciary exposure to the custodian. D) the beneficiary has access to the account at an earlier age.
B) greater flexibility in the choice of investments.
Which of the following is most commonly used when the author wants to express end-of-life wishes? A) A revocable trust B) A living trust C) A testamentary trust D) A living will
D) A living will
As defined in the Uniform Securities Act (USA), which of the following would be considered an exempt transaction? A) A purchase of bonds by a trustee of an irrevocable trust B) A sale of U.S. Treasury bonds to a retail investor C) A purchase of stock by an accredited investor under Rule 506(b) D) A sale of stock by an administrator of an estate
D) A sale of stock by an administrator of an estate
Which of the following would probably be the best indicator of where the economy is headed? A) Number of permits for construction of new housing units B) Rate of industrial production C) Average prime rate D) Average duration of unemployment
A) Number of permits for construction of new housing units
An investor indicates that her objective is long-term growth. Income is of secondary importance. While she is basically quite conservative, she feels her time horizon is long enough to give her a bit more risk tolerance. Which of the following common stock mutual fund selections would probably be most suitable? A) 50% large cap, 25% small cap, 25% investment-grade bonds B) 75% large cap, 25% small cap C) 100% small cap D) 100% large cap
B) 75% large cap, 25% small cap
The fiduciary handling a qualified retirement plan usually provides a written document that sets forth the objectives and constraints on a managed portfolio. This document is called A) the management agreement. B) the investment policy statement. C) the legal opinion. D) the statement of fiduciary responsibility.
B) the investment policy statement.
One of the purposes of filing the annual updating amendment to the Form ADV Part 1A is to A) provide updated information on those associated persons who are in charge of giving investment advice. B) ensure that full disclosure has been made in the adviser's brochure. C) disclose the amount and location of securities or funds of clients that are being held by the adviser or a qualified custodian. D) verify that the investment adviser still qualifies for SEC registration.
D) verify that the investment adviser still qualifies for SEC registration.
Each of the following would be exempt from the definition of an agent under the Uniform Securities Act except A) Violet, an employee of the Widget Spinners Corporation, who is paid a commission on sales of the company stock to fellow employees. B) Katrina, the administrator of the Widget Spinners Corporation pension plan, who is paid for making investment decisions for the portfolio. C) Florence, an employee of the First Fidelity Trust Company, who buys and sells securities to meet the needs of her trust clients. D) Beatrice, who was appointed by the other members of her investment club to make the portfolio decisions for the next quarter.
A) Violet, an employee of the Widget Spinners Corporation, who is paid a commission on sales of the company stock to fellow employees.
It would be considered an unethical business practice for a state-registered investment adviser to A) claim that advisory fees are negotiable but maintain a fixed fee schedule. B) deposit marketable securities or cash with the administrator in lieu of a required surety bond. C) notify the administrator that the adviser intends to maintain custody of customer securities. D) determine the price or time of execution of customer orders without written discretionary authority.
A) claim that advisory fees are negotiable but maintain a fixed fee schedule.
Which of the following statements regarding agent registration under the Uniform Securities Act is true? A) If, before the effective date of the registration, the administrator requires amendments to the application, the registration will be considered to have first been filed as of the original filing date. B) In the absence of any action by the administrator, the effective date of a registration is noon on the 30th day after the filing of a complete application. C) The administrator may request that the agent furnish a statement of assets and liabilities. D) The administrator may initiate a disciplinary action within two years of an agent's withdrawal of registration.
B) In the absence of any action by the administrator, the effective date of a registration is noon on the 30th day after the filing of a complete application.
Arguably, determining a client's risk tolerance is the most critical step before making any recommendations. Methods of doing that would include knowing all of the following except A) the client's prior investment experience. B) the name of other firms where the client has or has had an account. C) how much of a loss the client can tolerate emotionally. D) the investment time horizon: short term or long term.
B) the name of other firms where the client has or has had an account.
Which of the following statements is accurate when describing preferred stock? I. Owners of convertible preferred stock have an opportunity to participate in the growth of the company. II. Unlike any other securities the company may issue, the return on preferred stock is fixed. III. Issuing preferred stock confers certain tax benefits to the company. IV. In general, preferred stock does not have a maturity date. A) III and IV B) I and II C) I and IV D) II and III
C) I and IV
A corporation is capitalized with common stock, senior preferred stock, mortgage bonds, and subordinated debentures. Your client, who holds $10,000 of the debentures, is concerned about the future viability of the enterprise. You can inform the client that the debentures have a claim A) behind the bonds, the preferred stock, and the common stock. B) ahead of the common stock but after the preferred stock and the bonds. C) ahead of the common stock and the preferred stock but after the bonds. D) ahead of the common stock, the preferred stock, and the bonds.
C) ahead of the common stock and the preferred stock but after the bonds.
An investor contacts you to say he is somewhat puzzled over the fact that he saw a newspaper listing for the KAPLOW Fund where the net asset value per share was $10.27 and the asking price was $14.14 per share. He wants to know why the difference between the two is so great. You would respond, saying A) that this is probably an unregistered hedge fund not subject to SEC rules. B) the KAPLOW Fund is being investigated by the SEC for being sold with a sales charge in excess of the 8.5% maximum limit. C) the KAPLOW Fund is a closed-end company with a selling price based not on NAV, as is the case with an open-end fund. D) there is probably a misprint in the paper, and more than likely, the asking price is $11.22, making the sales charge 8.5%.
C) the KAPLOW Fund is a closed-end company with a selling price based not on NAV, as is the case with an open-end fund.
One of your customers purchased a TIPS bond three years ago. The bond's nominal yield is 4%, and inflation has averaged 6% over the holding period. The interest payment at the end of the three years would be closest to A) $33.78. B) $21.60. C) $47.76. D) $23.88.
D) $23.88.
An investor has many tax preference items. Computing the investor's income tax using the regular method results in a tax burden of $29,200 while computing the alternative minimum tax (AMT) results in a tax liability of $27,500. Based on this information, the investor's income tax liability for the year is A) $27,500. B) $56,700. C) $30,900. D) $29,200.
D) $29,200.
Under the provisions of the Uniform Securities Act, which of the following statements about unsolicited orders is true? A) Under certain conditions, an administrator may prohibit a broker-dealer registered in the state from accepting any unsolicited orders. B) If the order ticket is appropriately marked, the administrator may not challenge a broker-dealer's assertion that the order was unsolicited. C) A client may not purchase, at his own initiative, securities trading in the secondary market if the agent is otherwise prohibited from soliciting the order. D) An unsolicited order from a noninstitutional client for an unregistered, nonexempt security is considered a transaction exempt from the registration and advertising filing requirements of the act.
D) An unsolicited order from a noninstitutional client for an unregistered, nonexempt security is considered a transaction exempt from the registration and advertising filing requirements of the act.
Which of the following is required for annual renewal of the registration of an investment adviser representative affiliated with a federal covered adviser? A) Filling out Form U4 B) Sending a renewal notice to the SEC C) Filling out the consent to service of process D) Paying the state licensing fee
D) Paying the state licensing fee
A technical analyst who has been charting the common stock of Kloud Information Storage Systems (KISS) would most likely sell KISS stock short when the market price of the stock is A) above the resistance level. B) just below the resistance level. C) just above the support level. D) below the support level.
D) below the support level.
An investor is concerned that interest rates will be volatile over the next few years. Which of the following would eliminate interest rate risk? A) Cumulative preferred stock B) TIPS bonds C) Zero-coupon bonds D) Insured bank CDs
D) Insured bank CDs
When an investor who is reviewing a brokerage account asks what else she could have done with her money, the investor is asking about which risk? A) Market risk B) Inflation risk C) Credit risk D) Opportunity risk
D) Opportunity risk
When discussing the suitability of investing in direct participation programs, particular attention should be focused on which risks? I. Legislative II. Liquidity III. Market IV. Purchasing power A) I and IV B) II and III C) I and II D) III and IV
C) I and II
When a market maker publishes a quote, what prices will be shown? I. Bid II. Market III. Offer IV. Spread A) I and II B) II and IV C) I and III D) III and IV
C) I and III
The discounted rate that equates a bond's cash flow to its current price is known as the bond's A) duration. B) coupon rate. C) yield to maturity. D) current yield.
C) yield to maturity.
One of the differences between state & federal laws involving an investment adviser maintaining custody of customer funds &/or securities relates to the handling of client checks made payable to third parties such as broker-dealers. Which of the following properly expresses that difference? A) Under state law, receipt of check payable to unrelated third party is considered custody unless forwarded to the 3rd party within 3 business days of receipt. B) Under federal law, receipt of check payable to unrelated third party is considered custody unless forwarded to the 3rd party within 24 hours of receipt. C) Under state law, receipt of check payable to unrelated third party is considered custody unless forwarded to the 3rd party within 24 hours of receipt. D) Under federal law, receipt of check payable to unrelated third party is considered custody unless forwarded to the 3rd party within 3 business days of receipt.
A) Under state law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within three business days of receipt.
The Uniform Securities Act provides for civil penalties in the event of illegal activities of broker-dealers and their agents. Under the act, a purchaser would not be entitled to claim A) attorney's fees. B) the original consideration paid for the security or the current market value, whichever is greater. C) interest at the state's legal rate less any income received on the security. D) court costs.
B) the original consideration paid for the security or the current market value, whichever is greater.
Daphna works for Automated Asset Allocators (AAA), an investment adviser that has offices in States D, E, and F and is registered with the SEC. Daphna spends most of her time in an office in State D, but once every other week, she goes to the branch in State E. Daphna would be exempt from registration as an investment adviser representative (IAR) in which of the following states? A) Daphna would be exempt in State E, where she has no retail clients. B) Daphna would have to register in all three states. C) Daphna would be exempt in State F, where she has 227 retail clients. D) Daphna would be exempt in States E and F.
C) Daphna would be exempt in State F, where she has 227 retail clients.
When is an investment adviser representative (IAR) required to make disclosure to the client? I. When the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated II. When the IAR recommends a specific insurance policy for the client's overall financial plan where a commission will be received on that sale III. When transactions recommended to a specific client are inconsistent with those for other clients with objectives that are similar to that particular client IV. When transactions recommended to the client are inconsistent with those for the IAR's own account A) I, II, and III B) II, III, and IV C) I and III D) II and IV
D) II and IV
An investment adviser representative (IAR) is attempting to develop an investment plan for a client. The IAR decides to use two different mutual funds in an effort to provide appropriate diversification. Of the four pairs given below, which one would offer the most diversification? A) Portfolio 1 and 2, with a correlation coefficient of +0.90 B) Portfolio 5 and 6, with a correlation coefficient of -0.05 C) Portfolio 3 and 4, with a correlation coefficient of +0.20 D) Portfolio 7 and 8, with a correlation coefficient of -0.20
D) Portfolio 7 and 8, with a correlation coefficient of -0.20
When an investment adviser representative (IAR) terminates employment with a federal covered investment adviser and immediately accepts employment performing the same functions with a different federal covered investment adviser in the state where the individual resides, A) only the terminating investment adviser must notify the Administrator. B) the investment adviser representative and the employing adviser must notify the Administrator promptly. C) the investment adviser representative and each of the federal covered advisers must notify the Administrator promptly. D) only the investment adviser representative must notify the Administrator promptly.
D) only the investment adviser representative must notify the Administrator promptly.
