Series 65 Simulated Exam Test Review

An analyst uses a stock selection method that involves analyzing a specific corporation, followed by evaluation where it fits in its industry and then viewing the overall economy. What is this method?

BOTTOM-UP

Olga holds XYZ stock. The stock recently increased in value by 50%. She would like to preserve as much of this gain as possible and retain the potential for additional price increases. Which strategy best meets Olga's goal?

BUY A PUT OPTION -

An investor has $50,000 to invest in bonds. Currently, 10-year bonds are offering very attractive yields, but the client is concerned that in a few years, rates will be even higher. What would you suggest?

Barbell Strategy - the investor would place $25k into bonds maturing in 10 years and the other half into bonds maturing in two years. This makes the $25k available for reinvestment in two years enabling the investor to take advantage of higher rates if they materialize

A research analyst studying the performance of ABC industries compares that with reports from other analysts reviewing other companies in other industries. This is known as what?

Bottom-up analysis - starts by attempting to find superior performing companies regardless of industry.

The most common way in which to distinguish whether social media content is static or interactive is the ability for others to do what?

CHANGE IT

An analyst comparing revenues with expenses is most likely analyzing

Cash flow

The Canadian government is looking to create their own digital coin that will allow them to regulate digital assets safely and securely. What is the name of this developing stablecoin?

Central Bank Digital Currency

Who is obligated for the payment of taxes in an UTMA & UGMA account?

Child - they are custodial accounts. They are the responsibility of the beneficial minor (child).

Which of the following investment companies registered under the Investment Company Act of 1940, can include senior securities in its capital structure?

Closed-end management investment companies - only option under investment companies

All of the major equity indexes have been making new highs. A portfolio manager employing which of the following management styles would be the most likely to have significant short positions?

Contrarian - this style is to do the opposite of the rest of the market

An investment policy state would likely include

Expected returns of the recommended strategy and the expected range of these returns, recommended allocations among differing asset classes, strategies used for selecting specific stocks in the equity portion of the portfolio. Note - the fees an adviser may earn are not included in the policy statement, disclosed separately

What would be most useful information for an IAR attempting to determine the ability of a client to have the necessary funding to purchase an investment with a $25k minimum entry level?

Family balance sheet

Components of a company's net worth would include what?

Fixed assets, goodwill, and inventory

What are the four requirements to be considered a foreign private adviser in the Dodd-frank act?

Has no place of business in the United States, Has in total fewer than 15 clients and investors in the United States in private funds, Has an aggregate AUM attributable to clients in the United States in private funds by the adviser of less than $25 Million

The tendency of people to follow the actions of a larger group when making financial decisions, whether those actions are rational or not is known as

Herd mentality

Holding Period Return formula

Holding Period Return = Sale price - purchase price / purchase price

What accounts can be opened with a TOD designation?

Individual & JTWROS & TBE Accounts

The broker-dealer that operates on a fully disclosed basis is one that

Introduces it's customers to the broker-dealers clearing firm

A respected analyst reports that last week's T-bill rate at 6% is lower than the rate for the preceding week and lower than the average for the past month. Which of the following is TRUE?

Investors are paying more for T-Bills, when the rate is lower the price has gone up. This means that investors are paying more as interest rates are going down.

Under the Uniform Securities act, the administrator has the authority to do which of these?

Issue stop orders & review standard registration forms

Examples of derivatives

LEAPS & options

What is generally the most liquid investment?

Money market funds

What is a substantial prepayment of fees according to NASAA?

More than $500 six or more months in advance

A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened?

Options

What is an example of a stock valuation ratio

PRICE-EARNINGS - For example if the PE is 20, it means that the security is price 20 times earnings

A federal covered investment adviser registered with the SEC that has offices in five states must do what?

Pay state filing fees if required by the administrator & notice file in any of those states where required by the administrator

The concept of creating a model portfolio, through asset allocation principles, that both increases return and reduces risk is known as

Portfolio optimization

Securities analysts would agree that it makes sense to purchase a fixed-income security when its NPV is

Positive

Examples of an Issuer transaction

Preemptive rights offering Primary issue of corporate stock Private placement by an issuer

Nurturing growth of the enterprise would be the objective of which of the following types of investments?

Private fund

To assess the performance of a small-cap stock fund you compare its results against

RUSSELL 2000

If the CPI is down but consumer demand is up, the economy is likely in which stage of the business cycle?

Recovery to expansion

If an agent executes a transaction for a customer but uses the wrong account number, he should

Report the mistake to the manager - The rule is agents don't fix errors, they report them

What are some responsibilities of the FED?

Reserve requirements, The discount rate, and the activities of the federal open market committee. NOTE - The prime rate is not an option, its set by the banks

What is the contrast of rights and warrants?

Rights have intrinsic value and time value while warrants only have time value

What does the sharpe ratio measure?

Risk-adjusted return

Examples of an Nonissuer transaction

Secondary offering by an institutional seller

What are characteristics of a money market mutual fund?

Shares are offered without a sales charge & all purchasers must receive a copy of the prospectus

A man divorces his spouse after 10 years of marriage and remarries. If the man is the sole provider, what part of the workers social security benefits is the new spouse entitled to?

She is entitled to the same Social Security benefits as the ex-spouse. (As long as the previous marriage was 10 years)

The statistical measurement of the total risk of a security or portfolio is known as

Standard deviation

The statistical measurement of the total risk of a security or portfolio is known as

Standard deviation (total risk) is the key word

A banner on a broker-dealer's website is considered

Static Content

A mutual fund is generally prohibited by the Investment Company Act of 1940 from doing what?

Taking short stock positions

KPT, Inc., is preparing to report its net income for the past year. An increase in which of the following causes a decrease in the reported net income?

Tax Rate & Interest charged on bank loans

The term used to describe these items used to arrive at the taxpayer's AMT is

Tax preference items

The key component for the U.S. Fiscal policy is

Taxes and budgeting

All of the following ratios are measures of the liquidity of a corporation

The acid-test ratio /// The current ratio /// the quick ratio NOTE - The debt/equity ratio is a measurement of the leverage employed in a corporations capital structure

The final responsibility for ensuring that investment adviser representatives are adequately supervised is that of

The chief compliance officer

If the net present value of a series of discounted cash flows is less than zero, one could conclude that

The discounted cash flows are lower than the investment outlay

The difference between present value and net present value represents

The initial cash outlay

The total of the cash from operations, investing, and financing, as reported on the statement of cash flows, is

The net change in the cash position of the firm for the reporting period

To comply with Section 404(c) of ERISA

The plan must offer at least 3 different investment choices, such as a stable value option, an income option, and a conservative growth option

A popular tool used by analyst is discounted cash flow (DCF). Most use this tool to evaluate

The present value of future cash flows to determine an appropriate current value

The long party to a put option contract has

The right to sell the underlying asset Being long a put option means owning the option

Reinvestment risk is what?

The risk that proceeds available for reinvestment might be reinvested at a lower rate than that of the investment vehicle that generated the proceeds.

A popular technique that involves investing the same amount at regular intervals is known as dollar cost averaging. Participating in this funding approach tends to lessen which risk?

Timing

Which items change when a company pays a cash dividend?

Total Assets & Total Liabilities

What document must an existing customer sign to establish a discretionary account?

Trading authorization

YANKE BOND is described as

U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States

How do variable life separate account valuation?

Unit values are computed daily and cash values are computed monthly, death benefit is calculated annually

Which items would change if a company declared a cash dividend ?

Working capital, total liabilities, shareholders equity

When discussing a stock exchange, a specialist is

a member of the New York Stock Exchange who executes orders for other members and who also acts as a market maker charged with the responsibility of keeping an orderly market in designated stocks

Probable return is

an estimate of all of the possible returns an investment is expected to yield

Among the differences between an investment in a limited partnership offering and in a corporation is that

limited partnership offerings do not pay dividends; corporations do.

Under ERISA, a pension portfolio manager may engage in writing covered options

only if it fits with the objectives of the plan

Core inflation is best described as an inflation rate

that excludes certain volatile goods prices

A client has made both tax-deductible and nondeductible contributions to a traditional IRA. When distributions are taken from the IRA, how are they taxed?

they are taxed on a pro rata basis

Your client with $100,000 to invest is looking for maximum current income. What is the best choice?

$100k market value of corporate bonds selling at a premium and yielding 6% to maturity or $100k AA rated corporate bonds trading at par with a 6% coupon rate. The answer the one selling at a premium because the coupon/yield is higher than the 6% (7%) NOTE - If the bonds are the same and one is selling at a premium, the return will be higher than that of the other bond

Mid-Cap stocks are those with a market capitalization of

$2 billion - $10 billion

Alpha formula

(Actual return - RF Rate) - (Beta x [market return - RF Rate])

The Securities Exchange Act of 1934 gives the SEC the power to do what?

-Administer oaths -Subpoena witnesses, books and records -Take evidence NOTE - They can not set margin requirements

All of the following would flow through as a loss to limited partners

-Depletion -Interest payments on partnership debt -Accelerated depreciation NOTE - Principal repayment on partnership debt is not included

Differences between ISO and NSO (Stock options)

-ISO may only be granted to employees, while NSO's may be given to virtually anyone -The holder of an ISO can recognize capital gain (loss) as a result of exercise and sale, whereas ordinary income (loss) is the result with an NSO -There is a maximum 10-year limit for exercising an ISO; no such time limit exists for an NSO -There are no tax consequences to the receipent at the time fo grant for either (NSO & ISO)

Which of the following are characteristics of JUMBO CD's?

-Issued in amounts of $100,000 to $1M or more -Trade in the secondary market -They usually mature in 1 year or less

What are the most common characteristics of a REIT?

-It is traded on an exchange or over the counter -It is professionally managed

An investment adviser registered with the SEC could have all of the following as advisory clients

-The DEF Life Insurance Company -The XYZ Growth Fund -Mildred, an accredited investor Note- Unit Investment Trust are NOT allowed, do not have investment advisers

Among the differences between C Corporations and S Corporations is

-The number of allowable shareholders -The tax treatment of the corporations earnings -Residency requirements of shareholders

Which of the following is (are) true regarding qualified pension plans?

-They must not discriminate -They must have a vesting schedule -The must be in writing -Employer must update the status of all employees at least annually

The SRO's have instituted maintenance margin levels for those situations where the equity in a client's margin accounts is reduced to a dangerous level. Currently, those levels are

25% for a long account

For purposes of the maximum allowable annual contribution, an individual would have to aggregate contributions made to

401(k) and 403(b)

A broker dealer registered with State A created a website two years ago to promote its services. Recently, they hired a new media person who totally redesigned the site. Under the record keeping requirements of the Uniform Securities Act,

A copy of the original web page must be maintained for three years from the original use

One of the big differences between call options, rights, and warrants is that

A corporation can't issue call options on its own stock

Among the effects of a country devaluating its currency is that there will probably be

A credit to that nations trade account balance & An increase in that nations exports

An IAR is doing some research on a company. When viewing the corporation's financial statements, prepaid expenses would most likely be found

A current asset on the balance sheet - such as rent, insurance, and postage are considered current assets and are shown as such.

One of your customers would like to be able to reduce current taxable income. Contributions to which of the following would be an appropriate recommendation?

A donor-advised fund operates as a tax exempt organization under section 501(c)(3) of internal revenue code.

You have a client with a margin account at your broker dealer. If the market price of the securities in the client's account should fall to a point where your firm has to ask the client for additional funds, it is

A maintenance margin call

If the dollar weakens, what can the U.S. interest rates do?

A rise in U.S. interest rates might strengthen the dollar

Agency Cross Transaction can be described as

A transaction where a person acts as both an investment adviser and broker-dealer in the same transaction, this also requires prior approval from the client and special reporting requirements.

What is included in the current ratio computation?

Accounts payable, wages payable, and short-term debt NOTE- Current ratio is dividing assets by current liabilities, current assets include cash, accounts receivable and inventory

What is not included in the calculation of a mutual fund's NAV per share?

Accrued sales charges - have nothing to do with a mutual fund's NAV.

RISK ADJUSTED RETURN FORMULA

Actual return - risk free rate then divide by the standard deviation

What are true about a Coverdell ESA?

After-tax contributions of up to an indexed maximum per student per year are allowed & Unless a special needs beneficiary, contributions may not be made for students past their 18th birthday

If an investor was of the opinion that the market was going to have a bad day, to maximize that investor's gains, you might recommend?

An inverse leveraged ETF

A bond analyst is plotting a yield curve and notices that short-term maturities have higher yields than intermediate and long-term maturities. This is an example of

An inverted yield curve

Your client often makes irrational financial decisions because she bases her decisions on information that should have no influence on the decision at hand. The client's behavior is known as

Anchoring