Series 65 test 2 Part 1

If an investment adviser representative is engaged in criminal activity while violating a rule under the Uniform Securities Act, t had no knowledge of the rule violated, the maximum penalty that may be imposed is a: A) 3 years in prison and a fine of 3 times the amount of the loss. B) $5,000 fine. C) $10,000 fine and 2 years in prison. D) $5,000 fine and 3 years in prison.

$5,000 fine.

An investor has her agent enter a sell stop order at 60, limit 60, Following the order entry, trades occur at 62.12, 60, 59.95, 60.06, 61. More than likely, the investor received: A) 61 B) 60 C) 60.06 D) 59.95

60.06

Which of the following rates of return is used by investment professionals as the risk-free rate? A) 90-day Treasury bill rate. B) Prime rate. C) Discount rate. D) Federal funds rate.

90-day Treasury bill rate

Which of the following statements is TRUE? A) A futures contract has standardized terms. B) Unlike forwards, futures are not traded on an exchange. C) A futures contract does not involve obligations to buy or sell an asset. D) A futures contract always •requires delivery of an asset.

A futures contract has standardized terms.

In which of the following situations did an agent commit fraud? A) An agent knowingly sold a nonexempt, nonregjstered security to a retail client who could well afford the risk involved. B) A client claims an agent sold him unsuitable securities. C) An agent sold an excellent growth company to a client by omitting immaterial information during the discussion, so as not to distract the client from purchasing a suitable security. D) On review of his files, an agent discovered he had sold a nonexempt, unregistered security to a retail client.

A, Fraud requires the intent to deceive

To make a quantitative evaluation using the present value computation, which of the following is NOT needed? A) Time period involved. B) Account value at the end of the period. C) Anticipated rate of return of the portfolio. D) Account value at the beginning of the period.

Account value at the beginning of the period

Under certain conditions, the Uniform Securities Act provides that an Administrator may require a minimum net worth standarc be met by an investment adviser. Which of the following would be an allowable asset in the computation of an investment adviser's net worth? A) Advances or loans to partners in the case of an IA organized as a partnership. B) Accounts payable. C) Accounts receivable. D) Copyrights.

Accounts receivable.

Which of the following is defined as a security under the Uniform Securities Act? A) Fixed, guaranteed payments made for life or for a specified period. B) An investment contract. C) Commodity futures contracts. D) A guaranteed, lump-sum payment to a beneficiary.

An investment contract.

To comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401 (k) plan must: l. offer plan participants at least three different investment alternatives. Il. ensure that plan participants are insulated from control over their portfolios. Ill. allow plan participants to change their investment options no less frequently than quarterly IV. allow plan participants to purchase U.S. Treasury securities. A) I and IV. B) I and III C) Il and IV. D) II and III

I and III

Which of the following is among the most important reasons to form an S corporation? A) Enjoying the same legal status of a general partner in a partnership B) Ability to retain and reinvest earnings in a growing business C) Ability to enjoy corporate tax rates D) Avoiding the double taxation of dividends

Avoiding the double taxation of dividends

All the following securities are bought at a discount EXCEPT A) CDs B) zero coupon bonds C) commercial paper D) Treasury bills

CDs

If a natural person files an initial application for state registration on October 1, the registration will most likely expire: A) on the anniversary date of the fol}owing year. B) December 31 of that year. C) on a date set by the Administrator of that state. D) the registration does not expire until the person resigns, retires, or is expelled by the Administrator

December 31 of that year.

Which of the following is a direct obligation of the U.S. government? A) Bank for Cooperatives bonds. B) Fannie Maes. C) Government bond mutual funds. D) Ginnie Maes.

Ginnie Maes.

If a married couple establishes a JTWROS account with a balance of $1 million and the wife dies, what is the husband's estate tax liability? A) He pays federal and state taxes on $500,000. B) He pays federal taxes only on $500,000. C) He pays federal and state taxes on the entire balance. D) He pays no estate tax.

He pays no estate tax.

In 1940, Congress passed the Investment Company Act. Among the provisions of this sweeping law was the listing of the dassifications of investment companies. Included in that listing would be all of the following EXCEPT: A) unit investment trusts. B) management investment companies. C) face amount certificate companies. D) holding companies.

Holding Companies

KPTI 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? l. Tax rate. Il. Cash dividend. Ill. Interest charged on bank loans. A) I and ll. B) I only. C) lI only. D) I and Ill.

I and III

Under NASAAs Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, ar Federal Covered Advisers, which of the following constitute(s) authority to trade the clients account? I. John tells his adviser over the telephone to buy 200 shares of a certain security and when to purchase them. ll. John tells his adviser to be on the iookout for securities that seem likely to fit his investment objectives. Ill. John gives his adviser a written power of attorney to buy or sell securities for his account or to withdraw funds or securitie from his account. A) I and Ill. B) l, Il and Ill. C) Il only. D) Ill only.

I and Ill.

An efficient portfolio is one that offers: l. the most return for a given amount of risk. ll. the least risk for a given amount of return. Ill. the least return for a given amount of risk. IV. the most risk for a given amount of return. A) I or III B) Ill or IV C) II or IV D) I or II

I or II

Under the Uniform Securities Act, which of the following is (are) excluded from the definition of an investment adviser when providing investment advice solely incidental to the business? l. Lawyer. Il. Accountant. Ill. Engineer. IV. Teacher. A) I, II, III, and IV B) Il and IV. C) l and Ill. D) l, Il and IV.

I, II, III, and IV

NASAA holds that the most important duty of an investment adviser is the disclosure of all information relating to the relations between an adviser and a client. As far as the topic of compensation js concerned, which of the following must be disclosed? l. Transaction-based compensation, such as commissions on recommended securities. ll. 12b-1 trails on no-load mutual funds in the clients portfolio. Ill. Expenses reimbursed by 3rd party sources. IV. Compensation-sharing arrangements between the investment adviser and its representatives. A) IIl and IV. B) I, II, and III C) I, II, Ill and IV D) I and Ill.

I, II, and III

An agent's license could be revoked if he were: I. accused of murder in the first degree. II. convicted of a securities-related misdemeanor. III. declared insolvent. IV. convicted of a nonsecurities-related felony. A) III and IV B) II, III, IV C) I, II, III, IV D) II, and III

II, III, IV

An IAR handling the portfolio of a senior citizen with diminished mental capacity is deemed to be acting as a fiduciary and, therefore, bound by the provisions of the Uniform Prudent Investor Act. Compliance with the act would require the IAR to: l. make sure that the investment allocation is done prior to the renewal date of the contract. ll. use skill and caution in making investment recommendations. Ill. carefully consider the risks of all investments. IV. seek to meet the clients objectives with minimum risk. A) Il and IV. B) II, III, and IV. C) I, II, Ill and IV. D) III only.

II, III, and IV

Which of the following business entities has an income tax filing due date (disregarding possible extensions) of March 15th? l. Sole proprietorship Il. Single member LLC Ill. Multiple member LLC electing to be treated as a corporation IV. S corporation A) Il, Ill and IV B) I and II C) I and IV D) IIl and IV

III and IV

Which of the following powers are under the jurisdiction of the Administrator? A) Performing an annual audit of broker-dealers registered in the state. B) Performing an annual audit of investment advisers registered in the state. C) Issuing a cease and desist order to an agent without any prior notice. D) Issuing a final order suspending the registration of a person as long as, upon written request, a hearing will be granted in no more than 15 days.

Issuing a cease and desist order to an agent without any prior notice.

Your married customers are both 42 years old, have 2 children ages 14 and 12, and they have spent the last 10 years accumulating money to provide for their children's education. Their oldest child will enter college in 4 years, and the customer: are very cautious investors. If they need a safe investment that provides regular income to help them meet tuition payments, which of the following mutual funds is the most suitable for these customers? A) ABC Stock Index Fund. B) RST Balanced Fund. C) ATF Overseas Opportunities Fund. D) LMN Investment-Grade Bond Fund.

LMN Investment-Grade Bond Fund

An agent with a broker-dealer is suddenly called out of town on a personal family matter. While away, the agent's unregistere( sales assistant receives a phone call from an existing client wishing to purchase 200 shares of a listed stock. What would be t most appropriate action for the sales assistant to take? A) Accept and place the order because it is unsolicited. B) Accept the order because it is from an existing customer. C) Route the call to a licensed agent in the office. D) Explain that the agent is out of town and request the client to call back with the order next week.

Route the call to a licensed agent in the office.

What is the term used to describe a person on the floor of a stock exchange who stands ready to buy or sell shares of specific stocks? A) Floor broker. B) Arbitrageur. C) Market maker. D) Specialist.

Specialist

If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio? A) Fixed annuities issued by an insurance company with Best's highest rating. B) Tangible assets. C) Preferred stock. D) AAA bonds.

Tangible assets

Why does matched trading result in painting the tape? A) Matched orders will appear on the OTC Link. B) Matched orders generally result in meaningful profits for such traders. C) The phony trades make the stock appear more frequently on stock tickers. D) Matched orders are generally executed outside of normal trading hours.

The phony trades make the stock appear more frequently on stock tickers

A significant increase in importing of goods into the United States would have what effect on the strength of the U.S. dollar? A) No effect. B) weaken. C) Strengthen. D) Fluctuation both ways.

Weaken

Registration by qualification is effective: A) 20 days after the filing date. B) no earlier than 10 days after the filing date. C) when the federal registration becomes effective. D) when determined by the Administrator.

When determined by the Administrator

The use of futures to hedge against a price increase is best referred to as A) a long hedge B) a short hedge C) a trimmed hedge D) a neutral hedge

a long hedge

A transactional exemption would be offered when a sale is made by A) a broker-dealer. B) an attorney as an incidental part of her legal practice. C) a sheriff. D) an investment adviser.

a sheriff

ABC's stock has paid a regular dividend every quarter for the last several years. If the price of the stock has remained the same over the past year, but the dividend amount per share has increased, it may be concluded that ABC's: A) current yield per share has increased. B) current yield per share has been unaffected. C) current yield per share has decreased. D) yield to maturity has gone up.

current yield per share has increased.

All of the following activities could result in the revocation of an agent's registration EXCEPT: A) borrowing from retail customers. B) making recommendations based on material nonpublic inside information. C) failing to state all known facts about an investment when presenting it to a client. D) excessively trading for the purpose of generating commissions.

failing to state all known facts about an investment when presenting it to a client.

SYZ Corporation is having a rights offering that will enable existing shareholders to acquire 1 share of SYZ common stock for each 10 shares they currently own. Under the Uniform Securities Act, this would be considered: l. an offer of SYZ rights. Il. a sale of SYZ rights. Ill. an offer of SYZ common stock. IV. a sale of SYZ common stock. A) I and IV. B) l and Ill. C) Il and IV. D) Il and Ill.

l and Ill

Under the Uniform Securities Act, the Administrator may: A) relax the antifraud provisions for investment adviser representatives not residing in the state. B) make rules, orders, and forms the Administrator considers necessary to carry out the provisions of the act. C) waive any requirement of the act he deems inappropriate. D) waive only those requirements of the act that are nonbinding

make rules, orders, and forms the Administrator considers necessary to carry out the provisions of the act.

Bond prices are quoted as a percentage of: A) conversion value. B) par value. C) market value. D) stated value.

par value.

Greater Wealth Managers, (GWM) is an investment adviser registered in States A, B, C, and D. They have recently hired an individual to solicit new advisory accounts for the firm. This person will not be engaged in giving advice of any kind, and all activities will be closely supervised by senior personnel of the firm. Under Section 201 of the Uniform Securities Act, A) no registration is required, because this individual is not rendering investment advice B) no registration is required, because this individual is not rendering investment advice and is being closely supervised C) registration as an investment adviser representative is required for this individual D) registration as an investment adviser representative and as an agent is required for this individual

registration as an investment adviser representative is required for this individual

A client with a demand deposit account would expect the funds to be A) long-term with a high return B) short-term with a low return C) long-term with a low return D) short-term with a high return

short-term with a low return

All of the following statements are true EXCEPT: A) state securities Administrators do not have authority to issue injunctions and must submit requests to appropriate state courts to issue injunctions. B) there is no statute of limitations for criminal violations of the USA. C) under a civil violation of the USA, a cause of action survives the death of the plaintiff or defendant. D) upon appearance or likelihood that a violation will occur, the Administrator may issue a cease and desist order without a prior hearing.

there is no statute of limitations for criminal violations of the USA.

A fundamental analyst researching a stock is concerned with all of the following EXCEPT A) capitalization ratio B) the stock's market price as a multiple of the company's earnings C) volume of shares traded D) management efficiency

volume of shares traded

Final approval of the annual operating budget for the United States is given by the: A) Cabinet. B) President. C) Congress. D) Conference of Governors.

Congress.

Which of the following are federal covered securities? I. A security quoted on the Nasdaq Stock Market. ll. Shares of an investment company registered under the Investment Company Act of 1940. Ill. An offering in a security exempt from registration under the Securities Act of 1933. IV. A security that has a federally imposed exemption from state securities registration. A) I and Ill. B) I and ll. C) Ill and IV. D) I II, III, and IV.

I II, III, and IV.

The Administrator may deny an application for registration as an agent if: I. the applicant has been convicted of a misdemeanor involving securities fraud within the past 120 months. ll. the applicant js insolvent. Ill. the applicant has been convicted of a felony within 10 years of the date of application. IV. the applicant has filed an incomplete application A) I and IV. B) I and Ill. C) I, Il, III, and IV D) l, Ill and IV.

I, Il, III, and IV

Which of the following financial instruments are considered securities under the USA? I. Collateral trust certificates. ll. investment contracts, including interests in oil and gas drilling partnerships. Ill. Options listed on the Chicago Board of Options Exchange. IV. Foreign currency options contracts traded on the Philadelphia Stock Exchange. A) I, Il, Ill and IV. B) Il and Ill. C) Il, Ill and IV. D) I and II

I, Il, Ill and IV.

Which of the following statements regarding broker-dealer registration under the Uniform Securities Act are TRUE? I. In the absence of any action by the Administrator, the effective date of a registration is noon of the 45th day. II. The Administrator may initiate a disciplinary action within 2 years of a broker-dealer's withdrawal of registration. Ill. The Administrator may request that the broker-dealer furnish a statement of assets and liabilities. IV. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration v be considered to have first been filed upon filing of those amendments. A) III and IV B) I and IV. C) I and ll. D) Il and Ill.

III and IV

Which of the following statements is TRUE regarding the civil liability provisions of the Securities Act of 1933? A) The statute of limitations for civil suits is three years from the date of discovery. B) If the registration statement contains misrepresentations that were made deliberately, criminal penalties, in addition to civil ones, may be levied. C) Only those who actually signed the registration statement are exposed to potential liability. D) Purchasers may waive their rights to suit under the civil liability provisions if done so by the purchase contract.

If the registration statement contains misrepresentations that were made deliberately, criminal penalties, in addition to civil ones, may be levied.

A registration of an agent can be denied or revoked if it is in the public interest and: l. a registrant fails to include the fact that he had been convicted of a nonsecurities-related misdemeanor within the last 2 years. ll. a registrant has willfully violated the securities laws of a foreign jurisdiction. Ill. a registrant is qualified on the basis of knowledge and training but lacks requisite experience. IV. a registrant has engaged in dishonest or unethical practices jn the securities business A) Il and IV. B) Ill and IV. C) I and ll.

Il and IV

Which of the following statements regarding letters of intent used in connection with mutual fund purchases are TRUE? l. The letter can cover a period totaling 16 months. ll. The letter may be backdated 90 days. Ill. Some shares purchased are held in escrow until the letter is completed. IV. During the period covered by the letter, the customer may not redeem his shares. A) I and ll. B) l and IV. C) Il and Ill. D) IIl and IV.

Il and Ill.

Allen Richards is the next-door neighbor of Marc Terry, the CEO of a Nasdaq Stock Market security. Mr. Terry tells Mr. Richar that a major NYSE-listed corporation is in the process of submitting an offer to buy out his company at a very handsome premium over the current market price. Mr. Richards would be permitted to: l. immediately purchase shares of Mr. Terry's company. Il. immediately purchase shares of the NYSE-listed company. lll. purchase shares of Mr. Terry's company once the news becomes known to the investing public. IV. purchase shares in the NYSE listed company once the news becomes known to the investing public A) Il and Ill. B) I and ll. C) Ill and IV D) I and IV.

Ill and IV

Which of the following is NOT an exempt transaction as defined in Section 402 of the USA? A) Isolated sale of a corporate bond on behalf of the bonds issuer. B) Sale of XYZ common stock, traded on the OTC Bulletin Board, to an individual investor by the executor of an estate. C) Sale of common stock by the county sheriff at the request of the state securities Administrator. D) Corporate bond sale to an insurance company.

Isolated sale of a corporate bond on behalf of the bonds issuer.

Components of a company's net worth would include all of these EXCEPT: A) fixed assets. B) goodwill. C) operating income. D) inventory.

Operating Income

Securities of a nonexempt corporate issuer that are not registered with the SEC may only be registered with the Administrator which of the following ways? A) Coordination. B) Notification. C) Qualification. D) Condemnation.

Qualification.

Your client's wife retired as a 3rd grade teacher in 2009 where she was covered under the school system's 403(b) plan. If she resumes employment with a corporate employer, and that new employer has a 401(k) plan, is she entitled to defer RMDs fron the 403(b) plan past the regular age 70 1/2 date? A) RMDs may be deferred only if the current employer offered a 403(b) plan. B) RMDs may be deferred as long as the individual is employed on a full-time basis. C) RMDs may be deferred only from the plan sponsored by the current employer. D) RMDs may never be deferred for those who were participants jn a 403(b) plan

RMDs may be deferred only from the plan sponsored by the current employer.

When preparing a client's personal profile, it is generally accepted that there are both financial and non-financial consideratior evaluated in order to issue appropriately suitable recommendations. Which of the following would not be included in the list of financial considerations? A) Income from rental properties B) Vested interest in the employerts 401(k) plan C) The clients marginal tax bracket D) Risk tolerance

Risk tolerance

A senior citizen had the following scenarios presented to him by his (AR. Which one had the lowest volatility? A) Stock high return: +5%; low return: -1%; Standard Deviation: 3.6%. B) Stock high return: +12%; low return: -2%; Standard Deviation: 5.5%. C) Stock high return: +9%; low return: -2%; Standard Deviation: 4.9%. D) Stock high return: +18%; low return: -4%; Standard Deviation: 8%.

Stock high return: +5%; low return: -1%; Standard Deviation: 3.6%.

If the coupon rate on a bond increases, the duration of the bond will A) increase B) decrease C) change in an unpredictable fashion D) remain unchanged

decrease

A method of valuing an investment, particularly debt securities, by calculating what future cash returns will be worth at the time they are received, based on estimates of future inflation and interest rates is known as A) net present value B) dividend discount model C) discounted cash flow D) yield to maturity

discounted cash flow

When a bank that is a member of the Federal Reserve System borrows from another member bank, the rate that is charged is known as the A) federal funds rate B) call loan rate C) discount rate D) prime rate

federal funds rate

Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a clieni l. if the Administrator has not prohibited this practice. ll. if the investment adviser has notified the Administrator that it has custody. Ill. as long as the adviser does not also have discretionary authority over the account. A) I only. B) Il and Ill. C) l and ll. D) l and Ill.

l and ll.

An agent terminates his association with broker-dealer A and begins to work for broker-dealer B. Under the Uniform Securities: Act, which of the following must take place? l. Broker-dealer A must notify the Administrator. ll. Broker-dealer B must notify the Administrator. Ill. The agent must notify the Administrator. IV. The supervisor to which the agent reported must notify the Administrator A) l, Ill and IV. B) I, II, III, IV C) l, II and Ill. D) II, III and IV.

l, II and Ill.

Which of the following statements is(are) TRUE about the investigative power of the Administrator under the Uniform Securitie Act l. The Administrator may conduct public or private investigations to determine if violations are about to occur or have occurr ll. Persons could find themselves subject to contempt of court charges for failing to obey a subpoena issued by an Administrator. Ill. The Administrator may proceed against an entire firm for the actions of any principal of the firm. A) Ill only. B) I only. C) l, Il and Ill. D) II and Ill.

l, Il and Ill.

An agent is registered in Montana and North Dakota. While working in his North Dakota office, he places a call to the cell pho of one of his clients who happens to be on vacation in Wyoming. After describing the reasons for a particular stock recommendation, the client asks the agent to call back tomorrow. The agent does so and reaches the client in Idaho. The clie decides to purchase 100 shares of the stock. When the client arrives home, he notices that he has already received his stock certificate from the transfer agent located in Illinois. In this case, jurisdiction resides with the Administrator of: I North Dakota. ll. Idaho. Ill. Wyoming. IV. Illinois. A) l,II, Ill and IV. B) Il and Ill. C) I and IV. D) l, lI and Ill.

l, lI and Ill.

A client has just finalized her divorce and intends to sell her gold wedging band. Because the price of gold has risen significant since she married 20 years ago, she will be able to realize a profit on the sale, but she does not know what to use as the cost basis. You suggest she speak to a tax specialist who will tell her to A) use a cost basis of zero because it was a gift B) obtain an appraisal from a qualified jeweler and use that as the cost basis C) ignore the profit for tax purposes because precious metals are not subject to capital gains taxation D) use the original cost of the ring

use the original cost of the ring

Mrs. Beech, age 52, as the sole survivor of her mother, recently inherited, among other assets, an IRA. After the account was distributed to her, she dutifully rolled over 100% of the account value into a new rollover IRA. As a result, Mrs. Beech A) will only be liable for the 10% premature distribution penalty tax B) should have left the funds in her mother's IRA, because she js not yet 59% C) will be able to avoid taxation on the distribution until she begins to take distributions from the rollover IRA D) will have to declare the entire IRA value as ordinary income

will have to declare the entire IRA value as ordinary income

Which of the following is most likely to be excluded from the definition of an adviser under the Investment Advisers Act of 1941 A) An accountant who, as part of his practice, offers specific securities advice. B) A commercial bank that regularly handles the financial affairs of its customers. C) A teacher who makes reference to specific securities in a course on corporate finance and accepts compensation from those who seek his advice as a result of his course. D) An adviser who recommends government securities but also issues research reports on corporate securities.

A commercial bank

Which of the following is an improper activity under the Uniform Securities Act? A) A dealer charges commissions for securities it sells from its inventory and discloses the amount of the commission to the customer. B) An investment adviser collects a commission on the sale of insurance products that he recommended, disclosing that a commission would be earned. C) An investment adviser charges a customer a fee for advice leading to the sale of a security, receives a commission On the sale, and discloses the amount of the commission to the customer. D) An investment adviser charges two customers two different fees for a similar service.

A dealer charges commissions for securities it sells from its inventory and discloses the amount of the commission to the customer.

Which of the following statements regarding the use of a hedge clause by an investment adviser is CORRECT? A) A hedge clause that limits liability to acts done in bad faith or pursuant to willful misconduct but also explicitly provides that rights under state or federal law cannot be relinquished would generally be acceptable to the Administrator. B) A hedge clause that limits the investment advisers liability for losses caused by conditions and events beyond its control, such as war, strikes, and natural disasters generally would be acceptable to the Administrator. C) The adviser's brochure always must contain at least one hedge clause. D) A properly worded hedge clause may be used to minimize the investment adviser's fiduciary responsibility.

A hedge clause that limits the investment advisers liability for losses caused by conditions and events beyond its control, such as war, strikes, and natural disasters generally would be acceptable to the Administrator.

Which of the following would be considered unethical under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers? A) A loan is made to an investment adviser representative by one of her clients who happens to be the chief loan officer where she maintains her principal banking relationship. B) An investment adviser representative receives an order to buy XYZ stock from an advisory client and simultaneously recommends that another advisory client sell that stock in an agency cross transaction. C) An investment adviser discloses in its brochure that, from time to time, they may self securities recommended to clients directly out of the firm's inventory. D) An investment adviser varies the annual fee based upon each client's assets under management, charging less for those with higher balances and more for those meeting the account minimum.

A loan is made to an investment adviser representative by one of her clients who happens to be the chief loan officer where she maintains her principal banking relationship.