Series 66

The President of an investment club makes recommendations of securities to the club's members. The securities to be purchased are chosen by a majority vote of the club's members. The President is not paid for this; but does get to eat free snacks that are bought by the other members at the monthly meetings The President is: A defined as an investment adviser under IA-1092 B not defined as an investment adviser under IA-1092 C "in the business" of giving investment advice D "compensated" for giving investment advice

-B not defined as an investment adviser under IA-1092 -getting a "free snack" does not meet the compensation test to be considered to be "in the business" of giving investment advice under IA-1092

What mutual fund fee is based on an annual percentage of Net Asset Value? A 12b-1 B Load C Custodian D Redemption

A 12b-1

EFFE stock has a beta of +1.5. The expected market rate of return is 10% and the risk-free rate of return is 2%. The standard deviation of returns is 1%. Using the Capital Asset Pricing Model (CAPM), what is the expected rate of return for EFFE stock? A 14% B 16% C 18% D 20%

A 14% 1.5*(10-2) = 12 + 2 = 14

Equity options are: A American Style B European Style C Eastern Style D Western Style

A American Style -Index options are European

Which of the following is NOT defined as a federal covered adviser? A An adviser to insurance companies registered in the State B An adviser to investment companies registered with the Securities and Exchange Commission C An adviser that manages $100,000,000 or more of assets D An adviser that gives advice solely about U.S. Government securities

A An adviser to insurance companies registered in the State

Who would be defined as an investment adviser under the Investment Advisers Act of 1940? A An attorney who gives advice to clients about investments for an additional fee B An attorney who values securities holdings held in a deceased client's estate C An accountant who prepares a client's federal tax return for a fee D An accountant who gives advice to clients about tax saving strategies for an additional fee

A An attorney who gives advice to clients about investments for an additional fee -The rest are incidental acts or acts not related to securities

Which of the following would be defined as an "issuer" transaction? A An initial public offering of common stock by a corporation B The sale of closed-end fund shares in the NASDAQ market C The sale of a security effected on the New York Stock Exchange floor D The resale of limited partnership interests originally offered in a private placement

A An initial public offering of common stock by a corporation

Under the Investment Advisers Act of 1940, which of the following persons is exempt from registration with the SEC? A An investment adviser whose only clients are insurance companies B An investment adviser whose only clients are investment companies C An investment adviser whose only clients are pension plans D All of the above

A An investment adviser whose only clients are insurance companies -1940 Act, also exempts from registration advisers who only give advice on U.S. Government securities; and advisers who wholly operate within one State, trading securities only in that State

Which of the following securities trades in the market at a price that is different than NAV? A Closed-end fund B Open-end fund C Variable annuity D Hedge fund

A Closed-end fund

The formula for Total Return is: A Dividend yield plus growth divided by original investment B Dividend yield divided by average investment value C Ending investment value minus beginning investment value divided by number of years that the investment was held D Growth minus the inflation rate divided by ending investment value

A Dividend yield plus growth divided by original investment

An investment adviser has its model portfolio structured to match a blend of the major U.S. based equity indexes, using index ETFs as the investment vehicle. To further diversify the portfolio against market risk, the adviser could include an ETF based on which index? A EAFE B ADRs C S&P 500 D Russell 2,000

A EAFE -The EAFE Index stands for Europe, Australasia, and the Far East. It consists of companies of developed countries in these areas - so these are all companies outside of North America. Investing in an EAFE Index fund would give international exposure. The S&P 500 and Russell 2000 consist of U.S. companies. ADRs are American Depositary Receipts - the way in which foreign companies list their shares in the U.S. They are not Index Exchange Traded Funds

In order to register as a broker-dealer in the State, the Administrator can require filing of a: A Form BD B Form U-4 C Form U-5 D Form U-10

A Form BD -Form BD is Form Broker-Dealer, so it's in the name. This is used when applying federally and then again at the state level via a check-list of states where the BD wishes to register in

Index ETFs are: I passively managed II actively managed III negotiable IV redeemable A I and III B I and IV C II and III D II and IV

A I and III

If an investment adviser is recommending that a customer buy a security, that the adviser will sell to the customer out of its own inventory, which of the following statements are TRUE? I This is a "principal transaction" II This is an "agency cross transaction" III This transaction is permitted only if the customer is informed of the circumstances and consents to the transaction IV This transaction is prohibited A I and III B I and IV C II and III D II and IV

A I and III -Principal Transaction -{permitted if the customer is informed of the circumstances of the transaction

A private fund adviser must file: I Form PF with the SEC II Form BD with the SEC III Form ADV with the SEC IV Form RIA with the SEC A I and III B I and IV C II and III D II and IV

A I and III -ADV -PF (Private Fund)

Which of the following issuers MUST report to the SEC under the Securities Exchange Act of 1934? A Investment Companies B Federal Agencies C Federal Government D Municipalities

A Investment Companies

An investor buys land in rural North Dakota. He would be MOST concerned with which risk? A Liquidity risk B Regulatory risk C Inflation risk D Business risk

A Liquidity risk

An investor believes that interest rates will be flat or falling into the future; and that prices may deflate. The MOST appropriate investment is: A Long term U.S. Government bonds B Real estate C Gold D Large Capitalization stocks

A Long term U.S. Government bonds -Interest rates falling means bond prices will rise -With prices deflating, the fixed income from the bonds will buy more

The Uniform Securities Act is administered by: A NASAA B CFTC C FINRA D SEC

A NASAA

Which securities can be purchased on margin? A NASDAQ issues B Pink Sheet issues C Options D Open End Fund Shares

A NASDAQ issues

Rule 147 offerings under the Securities Act of 1933 are exempt from: A SEC registration B State registration C Both of the above D Neither of the above

A SEC registration -Intrastate offering exemption

An investment adviser has its principal office in State A. It also has offices in States B, C, and D. The recordkeeping requirements of States C and D are more stringent than that required by State A and the recordkeeping rules of State B are the most stringent of all. The investment adviser is required to maintain its records in accordance with the rules of: A State A B State B C State C D State D

A State A -Recordkeeping rules are based on the principal state location of the firm

Licensing of investment adviser representatives occurs at the: A State level only B Federal level only C Both the Federal and State level D Neither the Federal nor State level

A State level only

Which term BEST describes an ETF? A Stock B Mutual Fund C Derivative D Bond

A Stock

The person who prepares the Trust Agreement is the: A Trust Attorney B Grantor of the Trust C Beneficiary of the Trust D Trustee

A Trust Attorney

Which form of efficient market theory would be used by those who believe that future prices cannot be predicted by past performance? A Weak Form B Semi-Weak Form C Semi-Strong Form D Strong Form

A Weak Form

Which statement is TRUE about registration of directors as agents of a broker-dealer? A When a broker-dealer registers in a State, automatic registration as an agent occurs for any director B When a broker-dealer registers in a State, each director must apply separately for registration as an agent C The broker-dealer must apply for registration of each director as an agent D The broker-dealer must only apply for registration of a director if so directed by the Administrator

A When a broker-dealer registers in a State, automatic registration as an agent occurs for any director

If an individual works for either a broker-dealer or an issuer and sells securities of that issuer earning a commission, that individual is defined as a(n): A agent B broker-dealer C issuer D Administrator

A agent

An investment adviser is a private fund adviser that is not required to register with the SEC. It has a pool of qualified investors and wants to add to the pool to increase its customer base and assets under management. In order to retain its exempt pool status, the investment adviser: A can only solicit potential investors who are qualified B can solicit potential investors who are either qualified or non-qualified as long as the number of investors solicited is limited to a maximum of 50 persons C can solicit as many potential investors as desired as long as there are no more than 100 investors in the private fund D must start a new private fund

A can only solicit potential investors who are qualified -The max is 100, but it can't just be any investor. They must be qualified

An agent has received significant information that is not generally known about a publicly traded company. The agent: A cannot take any action B can tell his clients to trade the security C can tell his immediate family to trade the security D can tell anyone to trade the security

A cannot take any action

In order to establish a retirement financial plan to meet a customer's goals, the most important consideration is: A capital needs B investment objective C current income level D financial experience

A capital needs

An investment adviser is under the fiduciary responsibility to disclose all material facts in any: A communication to a customer that makes a recommendation B advertising intended for the general public that shows past performance C meeting with the State Administrator about the adviser's operations D phone conversation that employees of the adviser have with the public

A communication to a customer that makes a recommendation

A socially responsible customer would NOT invest in a(n): A defense company B food company C drug company D computer company

A defense company -Socially responsible investors typically will avoid investments in gambling, tobacco, alcohol, and weapons/military

The purchaser of an index stock fund believes in: A efficient market theory B active investment management C value stock selection D portfolio insurance

A efficient market theory

The best income tax filing status for a married couple where one spouse earns substantially all of the income is: A married filing jointly B married filing separately C head of household D single filing 2 returns

A married filing jointly

An open-end management company is a: A mutual fund B publicly traded fund C fixed unit investment trust D real estate investment trust

A mutual fund

If the mails or other means of interstate commerce are used to offer securities, then the Securities Act of 1933 requires that: A non-exempt securities be registered with the SEC B exempt securities be registered with the SEC C both non-exempt and exempt securities be registered with the SEC D the persons offering the securities be registered with the SEC

A non-exempt securities be registered with the SEC

Internal Revenue Code Section 1031: A permits a like-kind exchange of appreciated real estate for another investment property to defer capital gains tax due B values securities held in an estate at fair market value at the date of death, avoiding capital gains tax on appreciated positions C allows for the swap of an investment that has depreciated for another similar but not identical asset, with no disallowance of the capital loss D defers the generation skipping tax owed by an estate on assets left directly to grandchildren

A permits a like-kind exchange of appreciated real estate for another investment property to defer capital gains tax due

The term "issuer" applies to a: A person who proposes to sell a security B director of a company that is selling new shares to the public C trader executing trades off an exchange floor D market maker in a security traded over-the-counter

A person who proposes to sell a security -n "issuer" is defined as any person who issues, or proposes to issue, a security. Directors of companies that are selling new issues are not issuers. However they can be defined as "agents" of the issuer. Traders execute trades in the secondary market and have nothing to do with issuers

A bond investment strategy that minimizes interest rate risk by adjusting the portfolio duration to match the client's investment time horizon is called: A portfolio immunization B portfolio diversification C portfolio rebalancing D portfolio hedging

A portfolio immunization

Under the Uniform Securities Act, an Investment Adviser CANNOT be required by the Administrator to: A post a surety bond, if the Adviser will not take custody of customer funds or securities B furnish information to the Administrator, if this is in the public interest and for the protection of investors C file an amended Form ADV Part 2 promptly if the filing becomes incomplete or inaccurate in any material respect D retain customer records in the format required by the Administrator

A post a surety bond, if the Adviser will not take custody of customer funds or securities

The Internal Rate of Return of an investment is the: A return which discounts the net cash flows to a present value of "0" B current yield of the investment C excess of return over the risk-free rate of return D expected return based on probability of investment outcomes

A return which discounts the net cash flows to a present value of "0"

Prior to the filing of a registration statement, which activity is permitted? A member firm: A signing a syndicate agreement to become part of the underwriting group for the issue B distributing preliminary prospectuses for the issue to customers C taking indications of interest for the issue from customers D selling the issue to customers

A signing a syndicate agreement to become part of the underwriting group for the issue -Preliminary prospectus can be sent once the registration statement is filed

A futures contract contains: A specific amount and quality of a commodity with a specific delivery time and location B specific amount and grade of a commodity with a specific location and price C specific price and quality of a commodity with a specific delivery time and location D standardized amount of a commodity with a specific price and time of delivery

A specific amount and quality of a commodity with a specific delivery time and location

If a corporation issues new stock at a price above par value, the excess above par is termed: A surplus capital B retained earnings C earned surplus D adjusted par value

A surplus capital

If the State Administrator determines that a securities offering has been made on unfair terms, he or she may do all of the following EXCEPT: A suspend the registration statement without providing an opportunity for a hearing B suspend the registration statement only if an opportunity for a hearing is provided C notify the issuer of any proposed action D take any actions based on findings of fact and conclusions of law

A suspend the registration statement without providing an opportunity for a hearing -Opportunity for a hearing must be given

If a customer purchases in a 200% inverse leveraged ETF, the customer can lose: A the investment amount B more than the investment amount C two times the investment amount D an unlimited amount

A the investment amount -The value changes at a greater rate, but you can't lose more than the original investment

Under NASAA rules, investment advisers must annually: A update the Form ADV disclosure document and send it to existing customers if there is a material change B compute the total fees charged to each customer and disclose them in writing C send customers account statements, if the adviser takes custody, or intends to take custody, of client assets D update customer account profiles and suitability information and change investment allocations accordingly

A update the Form ADV disclosure document and send it to existing customers if there is a material change -Can be sent as a summary and not as the entire brochure

A customer would sell call contracts because: A the customer is bullish on the underlying security B the customer is bearish on the underlying security C the customer wishes to generate earned income D the customer wishes to defer taxation of gains on the underlying stock

B the customer is bearish on the underlying security

If an investment adviser has generated a 20% return for investors annually over the last 10 years, he is permitted to say which of the following to clients? A "You will not lose money, as you can see from my investment performance in prior years" B "I can guarantee you at least a 10% investment return per year, since this is only ½ as good as my prior performance" C "As you can see, in prior years, I have been successful at making money for my clients" D "My performance in prior years shows you what investment return can be expected in the future"

C "As you can see, in prior years, I have been successful at making money for my clients"

Which recommendation is appropriate for a client who is subject to the AMT (Alternative Minimum Tax)? A "You should invest in an existing housing real estate limited partnership for stable income sheltered by depreciation deductions" B "A private activity municipal bond investment is suitable for you because of its tax-free income" C "Don't exercise any incentive stock options granted by your employer" D "You should be making investments in foreign corporations"

C "Don't exercise any incentive stock options granted by your employer" -All of these options are deductions that get added back into the AMT and therefor recommending them wouldn't be right. Suggesting to not take the stock options prevents that possible taxable scenario

A broker-dealer is suspended by FINRA for rule violations. The officers of the broker-dealer are also the officers of an investment adviser registered with the SEC. Which statement is TRUE? A FINRA's action has no impact on the investment adviser registration B FINRA can suspend the investment adviser registration as well C The SEC can suspend the investment adviser registration based upon FINRA's action D The SEC can only suspend the investment adviser's registration if the FINRA suspension is for longer than 1 year

C The SEC can suspend the investment adviser registration based upon FINRA's action -If a SRO takes action against a BD, then the SEC can take similar action against an affiliated IA

Under SEC rules, an "access person" must report personal securities: A transactions and positions quarterly within 30 calendar days of quarter end B transactions and positions annually within 45 calendar days of year end C transactions quarterly within 30 calendar days of quarter end and all positions annually within 45 calendar days of the date of the statement used to prepare the report D transactions annually within 45 calendar days of year end and all positions quarterly within 30 calendar days of the statement used to prepare the report

C transactions quarterly within 30 calendar days of quarter end and all positions annually within 45 calendar days of the date of the statement used to prepare the report -Transactions quarterly within 30 calendar days of quarter end -All positions annually within 45 days of the statement used to prepare report

The person that administers a trust is the: A grantor B beneficiary C trustee D conservator

C trustee

A registered investment adviser has hired several investment adviser representatives and wishes to print up business cards for these individuals. Each business card will have the IAR's name, followed by "Registered Investment Adviser." Under the provisions of the Investment Advisers Act of 1940, the investment adviser has: A not violated the Act B violated the Act because the business card implies that the SEC approves of the representative C violated the Act because the business card implies that the representative is registered with the SEC D violated the Act because representatives may not have business cards under the provisions of the Act

C violated the Act because the business card implies that the representative is registered with the SEC -Only investment advisers register with the SEC; their representatives do not register with the SEC. The wording on the business card implies that the representatives are registered, which is not the case. Only the advisory firm would be registered with the SEC. -IARs file at the state level

Criminal violations of the Investment Advisers Act of 1940 are punishable by: A $5,000 fine and 3 years in jail B $10,000 fine and 3 years in jail C $5,000 fine and 5 years in jail D $10,000 fine and 5 years in jail

D $10,000 fine and 5 years in jail

Under NASAA rules, all of the following records must be retained for at least 5 years by a Registered Investment Adviser EXCEPT: A Cash receipts and disbursements B Order tickets C Written communications D Articles of incorporation

D Articles of incorporation

What is included when calculating the benefit on a variable annuity contract? A Assumed Interest Rate B Actual Investment Return and Expected Mortality C Assumed Interest Rate and Expected Mortality D Assumed Interest Rate, Actual Investment Return and Expected Mortality

D Assumed Interest Rate, Actual Investment Return and Expected Mortality

Which of the following records of an investment adviser that takes custody of customer funds is NOT required to be retained under the provisions of the Investment Advisers Act of 1940? A Cash receipts and disbursements journal B Statement of financial position C Customer account statements D Beneficiary designations for each customer account

D Beneficiary designations for each customer account -Beneficiary typically named in the will when the customer dies

What formula finds the "expected return" of an investment? A Beta B Duration C Sharpe Ratio D CAPM

D CAPM

Which statement is NOT true about enforcement of the Investment Advisers Act of 1940? A The SEC has the power to collect evidence, subpoena witnesses and to take oaths and affirmations B The SEC can issue orders denying or revoking registration of an investment adviser C Orders of the SEC may be appealed by filing a motion in the U.S. Court of Appeals D The State Court in which the defendant is located has primary jurisdiction in both criminal and civil suits brought under the Act

D The State Court in which the defendant is located has primary jurisdiction in both criminal and civil suits brought under the Act -The SEC is a federal agency, and any prosecution that comes under the Securities Exchange Act of 1934 would be pursued in federal court

Which statement concerning term life insurance is TRUE? A The cash value is invested in the insurer's general account B The representative must have a Series 6 or Series 7 license to sell the policy C The policy owner can skip premium payments in some years D The premium is much lower than for whole life while the insured is young

D The premium is much lower than for whole life while the insured is young

A broker-dealer participates in the distribution of a new issue on a firm commitment basis, receiving a spread for selling the issue. The broker-dealer is: A acting as agent for the issuer and as an investment adviser to the purchasers B acting as principal for the issuer and as an investment adviser to the purchasers C acting as agent for the issuer and as an underwriter of the securities D acting as a principal for the issuer and as an underwriter of the securities

D acting as a principal for the issuer and as an underwriter of the securities -Firm commitment means the BD posses the the whole issue to sell from its account -New issue means underwriting

All of the following can be the same person in a trust EXCEPT: A grantor B trustee C beneficiary D executor

D executor

ADAP Advisors is a State-registered adviser with 7 IARs. One of the IARs, Mark, leaves the employ of ADAP to join another advisory firm. His accounts are assigned by ADAP to the remaining 6 IARs at ADAP. By taking this action, ADAP: A is required to notify each of Mark's customers of the change of IAR and get the customer's approval B is required to send a negative consent letter to each of Mark's clients and if no response is received, the assignment is permitted C has violated the Investment Advisers Act of 1940 because advisory contracts cannot be assigned D is not required to take any further action

D is not required to take any further action -This is a changing of IAs but just IARs within the same firm which is not an assignment to another IA. Customers do not need to be notified in this case

All of the following are included in the 10K report filed by corporate issuers with the SEC EXCEPT: A income statement B balance sheet C retained earnings statement D net capital computation

D net capital computation

A new client of yours is age 25, with limited investing experience. You have guided him when making his initial investments based on his investment objectives, risk tolerance, financial resources and financial needs. He has just returned from a long vacation, where he tells you that while on the airplanes, he has read 2 investing books and now wants to manage his account without your input. This is an example of: A frame dependence B illusion of control C false uniqueness D overconfidence

D overconfidence

Under the Investment Advisers Act of 1940, the term "investment counsel" may only be used by an investment adviser if the: A adviser is also a bank located in that State B adviser is also a broker-dealer registered in that State C primary business of the adviser is recommending the brokerage services of another firm D primary business of the adviser is the rendering of investment advice

D primary business of the adviser is the rendering of investment advice

All of the following terms are synonymous EXCEPT: A capital in excess of par B capital surplus C additional paid in capital D retained earnings

D retained earnings

An investment advisory contract states that the annual fee will be "½% of the market value of all assets under management," payable quarterly. All of the following statements are true under the Investment Advisers Act of 1940 EXCEPT: A this statement cannot be made orally; it must be in writing B the arrangement cannot be changed without customer consent C a brochure must be delivered to the customer at, or prior to, entering into the contract D the customer has the right to rescind the contract for 30 days

D the customer has the right to rescind the contract for 30 days

Investment advisers with assets of $110,000,000 or more must register: A only with the State in which the investment adviser is incorporated B in all of the States in which the investment adviser does business C with the SEC and all of the States in which the investment adviser does business D with the SEC only

D with the SEC only

Which form(s) MUST be signed by the customer in order to open a margin account? A New Account Form B Hypothecation Agreement C Loan Consent Agreement D All of the above

B Hypothecation Agreement

The Internal Rate of Return computation assumes that cash flows will be reinvested at the: A Real Interest Rate B Internal Rate of Return C Risk Free Interest Rate D Nominal Interest Rate

B Internal Rate of Return

If an investment company is trading in the market at a price that is higher than NAV, this signifies that the fund is: A efficient B priced at a premium C profitable D distributing dividends

B priced at a premium

Form PF is required to be filed with the SEC by: A state-registered advisers B private fund advisers C exempt reporting advisers D non-exempt reporting advisers

B private fund advisers -Form PF = Form Private Fund -Must also file Form ADV parts 1 and 2, and update annually

A company has quarterly earnings of $3.00 per share. At the end of the year, it retained $9.00 per share. The company's dividend payout ratio is: A 25% B 33% C 66% D 75%

25% -A quarterly dividend of $3 = a $12 annual dividend -$12-$9=$3 -> 3/12 = 25%

Under the NASAA Statement of Policy on unethical practices, which of the following orders may be accepted in a customer's account without a written trading authorization from that customer? A An order entered by the customer B An order entered by an immediate family member of the customer C An order entered by the customer's investment adviser D An order entered by the customer's attorney

A An order entered by the customer

Which of the following are exempt securities under BOTH the Securities Act of 1933 and under State Blue Sky Laws? I U.S. Government bonds II Municipal bonds III Commercial paper IV Listed stocks A I and III B II and IV C I, II, III D I, II, III, IV

C I, II, III

The formula for Return on Investment (ROI) is: A Average Annual Cash Flow / Initial Investment Outlay B Initial Investment Outlay / Average Annual Cash Flow C Average Annual Cash Flow X Initial Investment Outlay D Initial Investment Outlay X Average Annual Cash Flow

A Average Annual Cash Flow / Initial Investment Outlay

Which of the following derivatives is NOT defined as a security? A Calls B Puts C Swaps D Options

C Swaps

Over the course of 10 years, a customer has accumulated a position of 5000 shares of ABC stock, purchased in 100 and 200 share lots. The stock has appreciated greatly in the last year and the customer places an order to sell 1,000 shares. The customer would minimize any capital gains tax liability by using which method for determining the cost basis of the shares sold? A "Specific identification" allowing the customer to select the shares with the highest cost basis B LIFO (Last-In/First Out) accounting, requiring the customer to use the cost basis of the last shares acquired C FIFO (First-In/First Out) accounting, requiring the customer to use the cost basis of the first shares acquired D The average per share cost of all 5,000 ABC shares acquired by the customer

A "Specific identification" allowing the customer to select the shares with the highest cost basis

A hedge fund wishes to make a seed capital investment in a start-up company under Rule 504 of Regulation D. The maximum permitted investment by the hedge fund is: A $10,000,000 B $20,000,000 C $30,000,000 D $50,000,000

A $10,000,000 -Rule 504: Covers offerings of up to $10,000,000. For such very small offerings, the rule does not specify required investor disclosures, and does not place any limit on the number of investors. Also, there is no audit requirement for the issuer's financial statements. While there is no Federal registration required, the State(s) where the issue is offered can still require State registration.

A married couple buys a house for $150,000. After living in the house for10 years, they sell it for $750,000. The taxable gain is: A $100,000 B $250,000 C $350,000 D $500,000

A $100,000 -When a residence is sold, the first $500,000 of gain (for a married couple) is excluded from tax ($250,000 is excluded for an individual). The sale of this residence resulted in a capital gain of $600,000 ($750,000 sale proceeds - $150,000 cost basis). Since $500,000 of the gain is excluded from tax, $100,000 is taxable

An individual buys stock from a distant family member for $2,000. The family member paid $1,000 for the stock and held it for many years before selling it. A short while later, the same individual inherits $3,000 of the same stock. 6 months later the stock has doubled in value, and the individual sells all the shares. The tax consequence is: A $2, 000 short-term capital gain; $3,000 long-term capital gain B $2,000 long-term capital gain; $3,000 short-term capital gain C $5,000 short-term capital gain D $5,000 long-term capital gain

A $2, 000 short-term capital gain; $3,000 long-term capital gain -The holding period of inherited assets is always considered long term -The stock that was purchased at $2,000 was held for about 6 months and then sold for double that amount, or $4,000, for a $2,000 short-term capital gain

A customer buys 1 ABC Feb 40 Call @ $2 when the market price of ABC is $39.50. The customer's maximum potential loss is: A $200 B $3,950 C $4,200 D unlimited

A $200

The measure of incremental return earned for taking on incremental risk is: A (Total Return - Risk Free Return) / Standard Deviation B (Sum of All Cash Flows / # of Years) / Investment Amount C (Annual Income + Annual Accretion - Annual Amortization) / Average Life D (Total Return - Risk Free Return) / Duration

A (Total Return - Risk Free Return) / Standard Deviation

An active portfolio manager generates a return of 18.80% on her equity portfolio that has a beta of 1.40. The expected return of the benchmark market index (beta of 1) is 12%. Assuming that the risk-free rate of return is zero, what is the alpha achieved by the manager? A +2% B -2% C +6% D -6%

A +2% 1.4*12% = 16.8% 18.80 - 16.80 = 2%

Investment A requires a $13,000 initial investment with a 3 year investment time horizon. It is expected to generate $5,000 of positive cash flow in Year 1, $5,000 of positive cash flow in Year 2, and $5,000 of positive cash flow in Year 3. Assuming that the market rate of return for investments of similar risk and investment time horizon is 10%, the NPV of this investment is: A -$565.75 B +$666.66 C +$2,000.00 D +$3,000.00

A -$565.75 The NPV is -$13,000 + $4,545.45 + $4,132.23 + $3,756.57 = -$565.75

Compute the non-compounded annualized inflation adjusted rate of return for the following investment held for 2 years. Initial Investment Value: $5,000 Ending Investment Value: $4,800 Dividends Received Over The Period: $400 Inflation Rate Over The Period: 7% A -1.50% B 2.00% C 3.00% D 4.00%

A -1.50% -The original investment is $5,000. Over 2 years, the customer lost $200 on the investment and received $400 in dividends, for a net return of $200, earned over 2 years. Annualized, the customer earned $100 per year on $5,000 invested = 2% -However, the rate of inflation over 2 years was 7%, or 3.50% per year (ignoring compounding). Therefore, the inflation adjusted rated of return over the 2 year period is 2% - 3 1/2% = -1.50%

Which theory explains why markets are not necessarily "efficient" in pricing securities? A Behavioral finance theory B Rational investment theory C Modern Portfolio Theory D Monte Carlo Theory

A Behavioral finance theory

A customer purchases 100 shares of ABC stock valued at $100 per share. After 13 months, the customer sells the stock at $130 per share. During this period, the stock paid $2.00 in cash dividends. If the average long-term capital gains tax rate is 20% and the investor's marginal tax rate is 37%, what is the customer's approximate after-tax rate of return? A 23% B 25% C 26% D 32%

A 23% -This stock has a $30 long term capital gain, earned over 13 months. Since 20% of the gain is paid in tax, 80% is kept after tax. 80% of $30 = $24. Furthermore, since the gain was earned over 13 months, to annualize the gain, 12/13ths of $24 = $22.15. Regarding the cash dividend received, current law taxes cash dividends at the long term capital gains rate. Of the $2.00 in cash dividends received, 20% goes to tax and 80% is kept after tax. $2.00 x 80% = $1.60. The total after-tax return is $22.15 + $1.60 = $23.75 / $100 invested = 23.75%

A client is in the 30% combined federal and state tax bracket. The client purchased $10,000 of ABCD stock. The ABCD position has appreciated to $10,500 within a few months, at which point the investment was sold. In addition, ABCD has paid the client a $500 dividend. What is the investment's after-tax yield? A 3.50% B 7.00% C 8.00% D 11.00%

A 3.50% -An investment's yield is based only on income received - dividends and interest. An investment's return, also called total return, includes both income and capital gain (or loss). This question is asking for yield. $500 of dividends were received, and because the client is in the 30% tax bracket, only $350 is retained after tax. $350 / $10,000 invested = 3.50% yield

Under the Investment Advisers Act of 1940, after receiving an investment adviser application, the SEC must grant a registration to an investment adviser; or start a proceeding denying registration, within how many days? A 45 B 90 C 120 D 180

A 45

Which security would be expected to have the smallest duration? A 5 year; 5% coupon bond B 5 year; zero-coupon bond C 20 year; 6% coupon bond D 20 year; zero-coupon bond

A 5 year; 5% coupon bond -Duration is a measure of a bond's price volatility in response to changes in market interest rates. The bonds that are least volatile are those with short maturities and higher coupons

To be defined as a diversified management company, the maximum percentage of the portfolio's assets that can be invested in a single issuer is: A 5% B 10% C 25% D 75%

A 5% -75% in securities at least -No more than 5% of assets in one issuer -No more than 10% of the voting stock of an issuer

Which of the following persons with no place of business in a State, is EXCLUDED from the definition of an "Investment Adviser"? A A bank that receives special compensation for rendering advice about securities B A person who gives advice for a fee about investment grade corporate bonds C A person who gives advice for a fee about municipal securities D A person who gives advice about securities for a fee solely to lawyers and accountants

A A bank that receives special compensation for rendering advice about securities

A written customer complaint is received by mail that the firm resolves to the customer's satisfaction. Which statement is TRUE regarding keeping this record? A A copy of the original complaint along with its resolution must be retained in the file of the agent by the broker-dealer B A copy of the original complaint along with its resolution must be retained at the firm's supervisory office C A copy of the original complaint along with its resolution must be retained by the State Administrator D There is no requirement to retain a copy of the complaint because it was resolved to the customer's satisfaction

A A copy of the original complaint along with its resolution must be retained in the file of the agent by the broker-dealer

Which of the following would be defined as "being in the business" of giving investment advice? A A market timing service that does not recommend securities but which gives customers "buy" and "sell" signals on heavily traded ETFs based on technical factors B A newsletter that discusses in general terms, the advisability of investing in securities, as part of a broad discussion of the future direction of the U.S. economy C A lecturer that is hired to give an annual talk to the employees of an investment adviser, where the merits of specific Blue Chip stocks are discussed D A consultant, who, on a rare and isolated basis, prepares reports or analyses on asset allocation across various asset classes

A A market timing service that does not recommend securities but which gives customers "buy" and "sell" signals on heavily traded ETFs based on technical factors

Which of the following is an accredited investor under Regulation D? A A trust with over $5 million under management B An individual with $2 million in securities C An investment adviser with over $40 million under management D A limited partnership with over $5 million to invest formed of individuals where each has a net worth of $500,000

A A trust with over $5 million under management -For an investment adviser to be "accredited," each of the customers whose monies are being invested in the private placement would need to be accredited

Which statement is FALSE about the purchase of a non-qualified annuity? A Amounts contributed are tax-deductible B Earnings are tax-deferred until withdrawal C Contributions may be invested entirely in mutual funds D There is no limit on the amount contributed each year

A Amounts contributed are tax-deductible

An investment adviser that is registered with the SEC under the Investment Advisers Act of 1940 moves to a new location. Which statement is TRUE? A An amendment to Form ADV must be filed promptly with the SEC B An amendment to Form ADV must be filed with the SEC within 90 days C A Form ADV-W must be filed promptly with the SEC D No filing with the SEC is required for this change

A An amendment to Form ADV must be filed promptly with the SEC -NASAA state rules require an amendment to be filed within 30 days in contrast to the SEC "promptly"

If an investor believes that inflation rates will be rising in the foreseeable future, he might rebalance his portfolio to include: A Fixed annuities B 5 year certificates of deposit C Tangible assets D U.S. Government bonds

C Tangible assets

Under the Uniform Securities Act, which of the following practices by an investment adviser is permitted? A Being compensated based upon the total value of funds being managed B Assigning the advisory contract to another investment adviser without the customer's prior consent C Changing the management of an investment adviser formed as a partnership without notifying each customer D Taking custody of customer funds without giving prior notice to the Administrator

A Being compensated based upon the total value of funds being managed

Which of the following is considered to be non-public information about a customer? A Customer medical information collected by a physician to be used by a life insurance company selling a variable annuity contract to that customer B Customer names and addresses that a financial institution wishes to send a solicitation mailing obtained from property tax records of a wealthy town C Customer telephone numbers obtained from the telephone book that will be used by an investment adviser to "cold call" potential new accounts D Customer information collected by cookies in the financial institution's web-site that is aggregated and disclosed as aggregated information to marketing firms that pay for this information

A Customer medical information collected by a physician to be used by a life insurance company selling a variable annuity contract to that customer

When comparing an ETN to a structured product, which statement is TRUE? A ETNs can be traded at any time while structured products cannot B ETNs offer current income while structured products do not C ETN income is taxable at higher rates than income from structured products D ETNs are equity securities that are exchange listed

A ETNs can be traded at any time while structured products cannot -ETNs trade on an exchange, structured products are non-negotiable -ETNs don't make fixed income payments, so B is wrong -ETNs are more tax-favorable than structured products (refer back to S7) -ETNs are debt securities fully backed by the bank issuing them, not equity

A bond is rated Aaa by Moody's. The bond is: A Highest Quality Investment Grade B High Quality Investment Grade C Low Quality Investment Grade D Highest Level Speculative Grade

A Highest Quality Investment Grade

An agent of a broker-dealer has hired a sales assistant who is not registered. The sales assistant will answer the telephone, handle customer queries, and perform other clerical duties. What arrangement is acceptable for compensating the unregistered sales assistant under this employment arrangement? A Hourly wage plus a bonus based on an annual performance evaluation B Base salary plus a percentage of the agent's gross commissions C Base salary plus a percentage of any increase in the agent's gross commissions from the time the sales assistant was hired D Percentage of commissions based on the agent's average commissions prior to hire date; and a higher percentage of the agent's average commissions from the time the sales assistant was hired

A Hourly wage plus a bonus based on an annual performance evaluation -Unregistered employees cannot share in commissions

Which of the following are prohibited practices under NASAA guidelines? I An investment adviser lending money to a customer II An investment adviser lending money to a customer that is a relative III An investment adviser lending money to a customer through a bank affiliate IV A broker-dealer lending money to a customer where securities are collateral under Regulation T A I and II B III and IV C II, III, IV D I, II, III, IV

A I and II

Under the Uniform Securities Act, if an agent hears material inside information, the agent: I should not transmit the information to others II should not trade based upon the information III must wait 1 year before trading that security IV must notify the Federal Bureau of Investigation within 1 business day A I and II B III and IV C I, II, III D I, II, III, IV

A I and II -No requirement to wait a year (what if that info becomes public next week?) -FBI??? Not relevant

An investment adviser has decided to change its fee structure and will begin charging a prepaid advisory fee for new clients, but will keep its pre-existing fee structure for its existing clients. Under the requirements of the Investment Advisers Act of 1940, which statements are TRUE? I A revised brochure must be provided to new clients II Prompt amendment of Form ADV filed with the SEC is required III Approval of the investment adviser's existing clients must be obtained IV Filing with the SEC of the fee change must be completed within 30 days A I and II B III and IV C I and IV D II and III

A I and II -Revised Brochure for new clients -PROMPT amendment of Form ADV with SEC

Under the Uniform Securities Act, which of the following securities is (are) considered to have an issuer? I Collateral trust certificate II Equipment trust certificates III Fractional interests in oil and gas programs IV Certificates of interest in a gravel mining program A I and II only B III only C III and IV only D I, II, III, IV

A I and II only

An agent attends a conference where officers of publicly held companies give talks about their companies to increase investor awareness and to put a "positive face" on the company for the investing public. While taking a break from the lectures, the agent overhears an officer of a company, who is next up to give a speech, talking on his cell phone in the hotel lobby, where he says: "You are telling me that we have just received a Wells notice from the SEC!" The agent knows that this is new information that is not public. The agent would be permitted to: I talk about the conversation with a compliance officer of his firm II ask the individual some questions after his speech and then tell his clients about the phone conversation III accept unsolicited trades from customers in the company's stock IV recommend that investors sell the stock in his personal blog but not through his firm in his agent capacity A I and III B II and IV C I, II, III D I, II, III, IV

A I and III

An agent is prohibited from: I making an offer of a non-exempt unregistered security to a customer II making an offer of an exempt unregistered security to a customer III soliciting a customer to make an offer to buy a non-exempt unregistered security IV soliciting a customer to make an offer to buy an exempt unregistered security A I and III B I and IV C II and III D II and IV

A I and III

The beneficiary of a Section 529 account may: I be the beneficiary of a custodial account under UGMA as well II not be the beneficiary of a custodial account under UGMA as well III be the beneficiary of a Coverdell Education Savings Account as well IV not be the beneficiary of a Coverdell Education Savings Account as well A I and III B I and IV C II and III D II and IV

A I and III -Beneficiaries of Section 529 Education Plans can also be beneficiaries of Coverdell Education Savings Accounts and Custodial Accounts.

Pension Benefit Guaranty Corporation covers: I defined benefit plans II defined contribution plans III corporate pension plans IV government pension plans A I and III B I and IV C II and III D II and IV

A I and III -Defined Benefit Plans -Corporate Pension Plans

Which statements are TRUE regarding the following? "The adviser shall not be liable for any loss or depreciation in the value of the account unless it shall have failed to act in good faith or with reasonable care." I This is an example of a hedge clause in an investment advisory contract II This is an example of a fiduciary clause in an investment advisory contract III This clause is misleading and fraudulent IV This clause does not misstate the adviser's fiduciary obligations to its clients A I and III B I and IV C II and III D II and IV

A I and III -Hedge Clause -Fraudulent and Misleading -Investment advisers have attempted to use contractual language that seeks to limit or entirely avoid civil liability - these are known as "hedge clauses." Generally speaking, such hedge clauses are prohibited. Under both Federal and Uniform State Law, an investment adviser that is a fiduciary may be subject to civil liability - even if he or she acted in good faith and with reasonable care

An individual, for a fee, prepares a custom financial plan for a client that includes a section covering life insurance needs. In order to do so, the individual: I must be a licensed insurance agent in the State II is not required to be a licensed insurance agent in the State III must be a licensed investment adviser representative in the State IV is not required to be a licensed investment adviser representative in the State A I and III B I and IV C II and III D II and IV

A I and III -Register both as an IA and Insurance Agent -By including the life insurance, it's suggesting that the IA is offering to sell the insurance plan which requires registration separate from the IA

Which statements are TRUE about the applicability of recordkeeping rules to investment advisers? I SEC recordkeeping rules apply to Federal Covered advisers II SEC recordkeeping rules do not apply to Federal Covered advisers III NASAA recordkeeping rules apply to State-registered advisers IV NASAA recordkeeping rules do not apply to State-registered advisers A I and III B I and IV C II and III D II and IV

A I and III -SEC applies to federal -NASAA applies to state

Which of the following statements are TRUE regarding the actions of an investment adviser and its accounts? I The transfer of a customer account to another investment adviser due to the acquisition of the advisory firm must be approved by the customer of the acquired firm II The transfer of a customer account to another investment adviser due to the acquisition of the advisory firm does not have to be approved by the customer of the acquired firm III The transfer of a customer account due to the retirement of the investment adviser must be approved by the customer whose account is being transferred IV The transfer of a customer account due to the retirement of the investment adviser does not have to be approved by the customer whose account is being transferred A I and III B I and IV C II and III D II and IV

A I and III -When a clients account is transferred to another IA, the customer must give permission. They have a say on who manages their money!

The weak form of efficient market theory states that: I historical stock prices have no validity for predicting future stock price movements II historical stock prices have a strong correlation to future stock price movements III technical analysis cannot be used to improve investment returns IV fundamental analysis cannot be used to improve investment returns A I and III B I and IV C II and III D II and IV

A I and III -historical stock prices have no validity for predicting future stock price movements -technical analysis cannot be used to improve investment returns

Under the Investment Advisers Act of 1940, which of the following statements are TRUE about the acceptance of prepaid advisory fees by an investment adviser? I The fees must be detailed in writing in the advisory contract II The fees cannot amount to more than 6 months' payment in advance III Prepaid fees in excess of $1,200 require that the adviser's balance sheet be included in the "Brochure" IV Acceptance of a prepaid fee constitutes taking "custody" of customer funds A I and III only B II and IV only C I, II, III D I, II, III, IV

A I and III only -Acceptance of prepaid fees in NOT the same as taking custody of funds

A customer wishes to place a buy order for a security that has not been registered with the SEC. The security may be purchased if the security: I is exempt from SEC registration II is traded by at least 2 market makers III has been trading in the market for at least 1 year A I only B II and III C I, II, III D None of the above

A I only

Under the Investment Advisers Act of 1940, which of the following person(s) is (are) exempt from registration with the SEC? I An investment adviser whose only clients are insurance companies II An investment adviser whose only clients are investment companies III An investment adviser whose only clients are pension plans A I only B I and II C II and III D I, II and III

A I only

Which of the following can accompany the delivery of a prospectus for a new issue offering to a customer? I A tombstone for that issue II An advertisement for that issue III A discount coupon for that issue A I only B I and II C II and III D I, II, III

A I only

Which of the following investment companies can adopt a 12b-1 plan? I Mutual fund II Closed end fund III Unit trust IV Face amount certificate company A I only B I and II only C III and IV only D I, II, III, IV

A I only -Only Open end (Mutual) funds can charge 12b-1 fees

All of the following are "critical" pieces of information that must be collected from a customer to open a new account EXCEPT: A Name B Date of Birth C Telephone Number D Social Security Number

C Telephone Number

What is the difference between Joint Tenancy and Tenants in Common when referring to a brokerage account? A Joint Tenancy gives each owner an undivided interest in the account while Tenants in Common gives each owner a divided interest in the account B Joint Tenancy does not give each owner rights of survivorship while Tenants in Common gives each owner rights of survivorship C If a tenant dies, assets held Joint Tenancy are included in the deceased's estate while assets held as Tenants in Common are excluded from the deceased's estate D Joint Tenancy has a limit on the number of individuals who may be owners while there is no limit on the number of owners in an account held as Tenants in Common

A Joint Tenancy gives each owner an undivided interest in the account while Tenants in Common gives each owner a divided interest in the account -In a Joint Tenancy, each person owns 100% of the account. If one dies, the other 100% owns the account. This is the typical ownership option for a husband and wife. Each one has "rights of survivorship" to all account assets

Which of the following investment companies can adopt a 12b-1 plan? A Mutual fund B Closed end fund C Unit trust D Face amount certificate company

A Mutual fund

Which of the following investments is NOT categorized into an "asset class"? A Mutual funds B Real estate C Fixed income securities D Commodities

A Mutual funds -These are investment vehicles Asset Classes include: -Cash/Money Market Instruments -Fixed Income Securities -Equities -Commodities -Real Estate

A compliance officer is informed by a representative that he has found a forged customer signature in the account papers that were returned by mail by a new customer who is opening an account. How quickly must the compliance officer report the incident? A Promptly B Within 7 business days C Within 30 calendar days D By the end of the fiscal quarter

A Promptly

If an agent terminates his employment with a broker-dealer, when must the agent and the broker-dealer notify the State Administrator? A Promptly B Within 5 days C Within 10 days D Within 30 days

A Promptly

Which of the following is NOT an accredited investor under Regulation D of the Securities Act of 1933? A Registered Investment Adviser B Registered Investment Company C State Regulated Insurance Company D State Regulated Banking Institution

A Registered Investment Adviser

"Small Dollar Offerings" are given an exemption from registration under the Securities Act of 1933 under the provisions of: A Regulation A B Regulation B C Regulation C D Regulation D

A Regulation A

A manager of a small cap portfolio wishes to use an index to establish a benchmark rate of return. The most appropriate index to use is the: A Russell 2000 Index B Standard and Poor's 400 Index C Dow Jones Industrial Average D NASDAQ 100 Index

A Russell 2000 Index -The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index (which consists of the largest 3,000 companies incorporated in the United States and its territories). -It is a "Small Cap" index

Which order is NOT required to be retained as a record by a broker-dealer? A Subscription order pursuant to a rights offering B Market-not held order C Unexecuted order that is subsequently canceled D Market order that is immediately filled

A Subscription order pursuant to a rights offering -A subscription order arises from a rights offering, where a corporation is attempting to raise additional funds from its existing shareholders by offering them subscription rights to new shares at a discount from the current market price. These orders happen directly between the issuer and the shareholder, so there is no broker-dealer record of these. All orders placed by customers with a broker-dealer, whether executed, unexecuted or canceled, must be retained as a record by broker-dealers

A federal covered adviser with its only office in State A conducts business with three clients in State B. Who is permitted to audit the investment adviser? A The Administrator of State A B The Administrator of State B C Both the Administrators of State A and State B D Only the SEC because the adviser is "federal covered"

A The Administrator of State A

Under ERISA rules, the IPS for a qualified retirement plan does which of the following? A The IPS establishes the plan's investment objectives, asset allocations, performance projections and risk limitations B The IPS identifies the transactions that are prohibited under the plan's investment policies C The IPS identifies anyone who is a party-in-interest and related prohibitions on self-dealing using plan assets D The IPS identifies the investment alternatives offered under Rule 404(c) that, when combined with each other, tend to minimize risk through diversification

A The IPS establishes the plan's investment objectives, asset allocations, performance projections and risk limitations

A Registered Investment Adviser plans on offering options strategies as part of his services. For this added investment strategy, he will charge .6% of assets monthly. This information is added to the RIA's disclosure statement and the RIA tells all of his clients of the fees orally in seminars. Each of his clients signs an agreement regarding the options strategies and fees. Which statement is TRUE? A The actions taken by the RIA are permitted because clients got full disclosure of all strategies and fees and agreed to such in writing B The actions taken by the RIA are permitted because the fees charged to clients do not exceed 10% annually C The actions taken by the RIA are prohibited because clients cannot be charged separately for options transactions D The actions taken by the RIA are prohibited because options strategies are prohibited in managed accounts unless they conform to ERISA standards

A The actions taken by the RIA are permitted because clients got full disclosure of all strategies and fees and agreed to such in writing

An agent of a broker-dealer is told by a wealthy, well-connected client that "I just talked to the president of ABCD Corp. (an NYSE listed company) and was told that this quarter's results are going to be lousy." Which statement is TRUE? A The agent can discuss this phone conversation with his branch manager B The agent can discuss the phone conversation with his spouse C The agent can discuss the phone conversation with anyone who is registered as an agent in that State D The agent cannot discuss this phone conversation with anyone

A The agent can discuss this phone conversation with his branch manager -Inside information that has been leaked should be reported back to the regulators, and this can be done by reporting the conversation to the branch manager who can report it to compliance who can report it to the regulators who can inform the exchange

A customer places an order to sell 500 shares of ABCD stock at the best price possible, so that the customer can use the funds from the settlement in 2 business days to pay for a new car purchase. The agent notices that the price of the stock is dropping rapidly and decides to sell 200 out of the 500 shares that day - since he believes that the price will rebound. The next day the price rises and the agent sells the remaining 300 shares. Which statement is TRUE regarding the agent's actions? A The agent has violated the Uniform Securities Act because he or she exceeded the discretionary authority that was granted by the customer B The agent has not violated the Uniform Securities Act because he or she executed the transactions in a manner that was consistent with the customer's best interests C The agent has violated the Uniform Securities Act because any order placed by a customer must be executed in its entirety as soon as possible after the order is placed D The agent has not violated the Uniform Securities Act because the order was executed at the best possible prices for the customer

A The agent has violated the Uniform Securities Act because he or she exceeded the discretionary authority that was granted by the customer

A customer that typically buys NYSE-listed stocks places an order to buy a very thinly traded stock that is quoted only in the Pink Sheets. Because of the extra work involved in handling this transaction, the firm imposes an extra $150 charge in addition to the regular commission. Which statement is TRUE? A The extra charge must be disclosed to the customer at the time that the order is placed B The extra charge must be disclosed to the customer no later than on the confirmation of the transaction C The extra charge must be disclosed to the customer no later than on the next account statement D There is no requirement to disclose the extra charge

A The extra charge must be disclosed to the customer at the time that the order is placed -Unusual charges or fees involved with a transaction must be disclosed to the customer at the time that the order is placed. Disclosure cannot be made "after the fact" - which would be the case if the fee were disclosed on the trade confirmation or on the next account statement

Under the Uniform Securities Act, which of the following would be defined as a "sale"? A The gift of an assessable security B The distribution of a stock dividend to shareholders C A corporate reorganization caused by the vote of shareholders resulting in a merger D A judicially approved corporate reorganization

A The gift of an assessable security -Stock dividend, mergers, and reorganizations are exempt from the definition of sale

An insurance agent refers potential clients to an investment adviser and receives a referral fee from the adviser for each client that signs an advisory contract. Which statement is TRUE? A The insurance agent must disclose the fact that he or she will receive a referral fee at the time of the referral B The investment adviser must disclose the fact that the insurance agent received a referral fee after the customer signs the advisory contract C The insurance agent is only required to disclose that he or she will receive the referral fee if the customer has purchased an insurance policy from that agent D The investment adviser is not obligated to disclose that a referral fee was paid to the insurance agent

A The insurance agent must disclose the fact that he or she will receive a referral fee at the time of the refer

Which statement about variable life insurance is FALSE? A The policy value may be reduced to zero by poor performance of the separate account B The policy value is included in the estate of the deceased individual C The policy value is not taxable to the beneficiary D In lieu of taking the death benefit as a lump sum, the beneficiary can choose to take it as an annuity

A The policy value may be reduced to zero by poor performance of the separate account -Variable life gives a guaranteed minimum insurance coverage, regardless of performance in the separate account -With any life insurance, the proceeds go to the beneficiary without tax due -With any life insurance, the policy value is included in the deceased's estate -With a variable life policy, the beneficiary can choose to take the death benefit as annuity payments instead of as a lump sum

An individual is a registered representative with a broker-dealer. With the broker-dealer's approval, when not working for the broker-dealer, this individual prepares financial plans at night, at no fee to the customer. The individual recommends that any transactions that result from the plan be effected through the broker-dealer, where the registered representative will earn a commission. Which statement is TRUE under the Uniform Securities Act? A The registered representative is a statutory investment adviser that must register B The broker-dealer is a statutory investment adviser that must register C Both the registered representative and broker-dealer are statutory investment advisers that must register D Neither the registered representative nor the broker-dealer are statutory investment advisers and need not register

A The registered representative is a statutory investment adviser that must register

A customer has a free credit balance at a broker-dealer. The customer makes a verbal request over the phone that the broker-dealer pay the amount of the balance immediately, in check form. Which statement is TRUE? A The request should be honored as given B The broker-dealer cannot honor the request unless it is in writing C The broker-dealer cannot honor the request unless the customer makes it in person D The request cannot be honored since free credit balances are not payable to the customer

A The request should be honored as given -The best answer is A. A free credit balance is an uninvested cash balance. The customer can request that the firm pay this amount at any time - there is no need for a written request. The firm must make the payment promptly to the customer, if a request is made

Information received by the Administrator in a private investigation: A can be provided to the officers and employees of the Administrator B can be provided to the general public on request C cannot be used by the Administrator as the basis for issuing a cease and desist order D are made available to the public upon the conclusion of the investigation

A can be provided to the officers and employees of the Administrator

A consumer goods company has a Debt/Equity Ratio of 10. Which statement is TRUE? A This company might not be able to generate enough cash to pay its debts B A high ratio is preferred by investors because it shows that the company is investing in itself C This company is at lower risk if there is an economic downturn D The ratio correlates with the P/E ratio of the company

A This company might not be able to generate enough cash to pay its debts

A company is formed with 120 shareholders and $20,000,000 of capital with the purpose of investing in securities. Which statement is TRUE? A This company must be registered as an investment company under the 1940 Act B This company must be registered with the Securities and Exchange Commission under the 1933 Act C This company is exempt from registration under the Investment Company Act of 1940 D This company is exempt from registration under the Securities Act of 1933

A This company must be registered as an investment company under the 1940 Act -Initial net assets of $100,000 or more -100 shareholders or more

An investment adviser has an institutional customer that wishes to sell 5,000 shares of ABC Stock. The adviser believes that ABC Stock would be a suitable investment for another institutional client. The adviser wishes to arrange a trade between the 2 institutions at the current market price, for which the adviser would charge a token fee. Because there will be no brokerage commissions, the institutional customers will get a better execution price. Which statement is TRUE about this? A This is permitted only if the adviser discloses that it is acting as a broker, discloses its fee and gets written consent from each client B This is not permitted because of the conflict of interest that exists if an investment adviser that recommends a transaction as a fiduciary then acts as the broker, executing that transaction for a fee C This is permitted because both of the customers are getting a better execution than if they went to the market for a fill D This is not permitted because a fee is being charged

A This is permitted only if the adviser discloses that it is acting as a broker, discloses its fee and gets written consent from each client -This is a agency cross transaction that requires disclosure to the clients

Why would an individual purchasing life insurance establish an ILIT? A To exclude the death benefit from the decedent's estate B To maintain control over the policy until death C To eliminate the possibility of a lawsuit filed by an heir D To defer the taxation of the death benefit until the heir dies

A To exclude the death benefit from the decedent's estate -An ILIT is an Irrevocable Life Insurance Trust. -Life insurance proceeds are excluded from one's gross estate - the big benefit of having a life insurance policy (many individuals use this exact benefit to provide funds to pay their estate tax bill upon death) - AS LONG AS the life insurance is held in a non-revocable trust or is owned by someone other than the decedent.

The manager of a broker-dealer is discussing investment strategies with her in-house research assistant. The conversation leads to a discussion about a client for whom the broker-dealer is negotiating to underwrite a common stock offering. The research analyst tells the manager that she is preparing a report indicating that the company is having sales difficulties and is going to downgrade the stock from "Accumulate" to "Hold." What should the research analyst do? A Wait until the status of the underwriting contract is resolved before taking any further action B Issue the report as scheduled after changing the recommendation back to "Accumulate" C Issue the report immediately D Sell short the stock and then issue the report

A Wait until the status of the underwriting contract is resolved before taking any further action

Which of the following is essentially the "Internal Rate of Return?" A Yield to Maturity on a bond B Current Yield on a stock portfolio C Risk-Adjusted Rate of return on an investment D Real Rate of Return on a bond

A Yield to Maturity on a bond

The purchaser of an immediate 15-year period certain annuity will receive payments for: A a 15-year time frame following annuitization, even if the purchaser dies before the end of the 15-year term B a minimum 15-year time frame, or the life of the annuitant, if this is shorter C the life of the annuitant, but will pay for a minimum of 15 years if the annuitant dies before this period elapses D any selected 15-year time frame, even if the purchaser dies before the end of the 15-year term

A a 15-year time frame following annuitization, even if the purchaser dies before the end of the 15-year term

An investment adviser can hold all of its customer securities in a single brokerage account without identifying the individual customers to the brokerage dealer: A in an omnibus account B in a joint account - tenants in common C in a prime brokerage account D under no circumstances

A in an omnibus account

In an advertisement, an investment adviser offers "free" investment advice as long as the customer buys life insurance. Which statement is TRUE? A This is permitted B This is an unethical practice C Such an advertisement must be prefiled with the SEC D Such an advertisement must be dated

B This is an unethical practice

An investment adviser representative obtains a list of all 263 members of the local Kiwanis Club and sends a coupon to 52 leads on the list, along with a letter, offering a 20% discount on services to new clients that are club members. Aside from retaining a copy of the letter, under the provisions of the Investment Advisers Act of 1940, the investment adviser MUST keep: A a memorandum describing the list and the source of the list B a record of the names and addresses of the persons to whom the offer was made C the worksheets that estimate the net worth of leads and the standards used to determine which leads were to receive the offer D a record of the names and addresses of all of the Kiwanis Club members on the list

A a memorandum describing the list and the source of the list

A registered securities agent solicits a customer to buy mutual fund shares. The customer buys 200 shares, sending a check made out to the fund's custodian bank to the agent. The agent does not record the trade on the books of the broker-dealer. Under the Uniform Securities Act, this action is: A a prohibited business practice B allowed, since the transaction is recorded on the books of the mutual fund C allowed, since mutual funds are exempt from the requirement to record all transactions on the books of the broker-dealer D allowed as long as no commission is taken on the trade

A a prohibited business practice -Private transactions are prohibited; all transactions must be reported on the books

An investment adviser has developed 11 different investment strategies that use a combination of fundamental and technical factors to make investment decisions among both equity and fixed income investments. Based on the customer account profile, the adviser then uses one of 7 different algorithms that allocates the client's funds using these 11 investment strategies. The adviser has implemented a fee structure that charges a 1.10% annual management fee on assets invested, plus the adviser charges a fee of .50% of assets annually for use of the algorithms. The adviser provides each client with a flyer covering the adviser's 11 different investment strategies with disclosure of the 1.10% annual management fee. Under the NASAA Rule on Unethical Business Practices of Investment Advisers, this is: A a violation of the prohibition on charging unreasonable advisory fees, because the client is being double charged for these services B a violation of the prohibition on charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser C not a violation of the prohibition on charging unreasonable advisory fees, because the management fee was disclosed to the client D not a violation of the NASAA Rule on Unethical Business Practices of Investment Advisers because the advisory fees are based on assets under management

A a violation of the prohibition on charging unreasonable advisory fees, because the client is being double charged for these services -The adviser is really charging 2 layers of management fees for providing a single service of managing the customer's investment portfolio. This is unethical. Note that if the adviser is truly providing 2 separate services (e.g. receiving the management fee and also receiving brokerage commissions on trade executions), there can be 2 separate charges, as long as this is disclosed in writing to the client

Modern portfolio theorists would make investments in securities that lie: A above the efficiency frontier B below the efficiency frontier C on the beginning of the efficiency frontier D at the end of the efficiency frontier

A above the efficiency frontier -Modern Portfolio Theory states that the best investments are those that lie on or above the "efficiency frontier." These are the investments that give the highest return per unit of risk assumed

All of the following activities are prohibited during the "cooling off" period EXCEPT: A accepting an indication of interest from the customer for part of the issue B recommending the purchase of the issue to potential investors C selling the issue to an investor D advertising the issue to the public

A accepting an indication of interest from the customer for part of the issue

A capital needs analysis is performed in order to determine the: A amount of life insurance that should be purchased to meet a future financial goal if the client should die prematurely B liquid net worth of the client, which represents funds that are available for current investment C minimum net capital required by a client that wishes to start a business D income level needed by a customer to have a comfortable retirement

A amount of life insurance that should be purchased to meet a future financial goal if the client should die prematurely -It is most often used when determining the amount of life insurance that a person should purchase based on the "capital needs" of the surviving family members. It is also used in financial planning to determine the amount of money needed for such capital needs as a kid's college education or the amount of money (capital - not income, so Choice D is incorrect) that must be accumulated by retirement to be comfortable

An investment adviser is a private fund adviser that is not required to register with the SEC. All of the following would be permitted investors in order to retain its exempt pool status EXCEPT: A an individual who is an accredited investor under Regulation D B an individual who has at least $5 million of assets available for investment C an hedge fund with at least $25 million of assets under management D a trust with at least $5 million of assets available for investment

A an individual who is an accredited investor under Regulation D To be a private fund, all of the investors must be qualified purchasers which are: -Individual with $5,000,000 of assets available -Trust with $5,000,000 of assets available -Investment manager or company with $25,000,000 of assets available -Accredited investors under REG D don't qualify -To be a private fund, the shares cannot be offered to the public -A private fund must have 100 or fewer shareholders or beneficial owners of its securities

Portfolio Total Return A4% B9% C12% D3% E7% If the "mean" of the 5 portfolio returns is calculated as 7%, this is: A arithmetic mean B geometric mean C harmonic mean D weighted mean

A arithmetic mean -The arithmetic mean is the simple "average" of the 5 returns. 4% + 9% + 12% + 3% + 7% = 35 / 5 = 7% mean or an average return

Which of the following stocks would be considered cyclical? A automobile manufacturer B pharmaceutical manufacturer C gold mining company D computer software developer

A automobile manufacturer -The performance of cyclical stocks follows the business cycle. In times of GDP expansion, they do well; in times of recession, they do poorly. The classic cyclical stocks are home building, automobile manufacturers and durable goods producers. All of these purchases are deferrable in hard times.

The States in which an investment adviser is registered would: A be found in Form ADV Part 1 B be found in Form ADV Part 2 C be found in both Form ADV Part 1 and Form ADV Part 2 D not be found in either Form ADV Part 1 or Form ADV Part 2

A be found in Form ADV Part 1 ADV Part 1 includes: -IA Name -Location -Fiscal Year -Form of Business -Owners of Business -Names of Officers -Number of Employees -Total amount of Assets -States Registered in

To protect against rising prices before a future purchase, one would: A buy a futures contract B sell a futures contract C establish a spread D establish a straddle

A buy a futures contract

Many years ago, a customer opened a Coverdell ESA for his son, who is now age 16, and a savings account for his daughter, who is now age 18. The 18-year old daughter is entering college and does not have enough money in the savings account to pay for tuition. To pay the tuition bill, the customer: A can change the beneficiary on the Coverdell ESA from the son to the daughter B can use funds from the Coverdell ESA with the written approval of the son C can use funds from the Coverdell ESA with the written approval of the IRS D cannot use the funds in the Coverdell ESA

A can change the beneficiary on the Coverdell ESA from the son to the daughter -The beneficiary can be changed in a Coverdell Education Savings Account, so the funds from the 16-year old's Coverdell account can be transferred over into an account in the name of the daughter to help pay for the daughter's education costs. There is no approval of the 16-year old son required because the account is controlled by the donor - plus, minors cannot give approval

An Investment Adviser Representative (IAR) is also a commissioned agent at a brokerage firm. The IAR has a young client who has a $250,000 account. The client has been trading the account aggressively himself and has been successful in the strategy. The customer now wants the IAR to take over the management of the account, with the IAR to be compensated on a performance basis. The IAR should tell this young client that the account: A cannot be traded on a performance basis B can be traded on a performance basis C can be traded based only on a per trade commission charge D must be closed

A cannot be traded on a performance basis -Not $1,100,000 AUM (Only $250,000)

The practice of buying a put and selling a call against a long standing stock position is called a: A collar B strangle C spread D condor

A collar

Broker-dealers may charge: A commissions on recommended transactions B advisory fees on recommended transactions C both commissions and advisory fees on recommended transactions D commissions, advisory fees and performance fees on recommended transactions

A commissions on recommended transactions -If a BD wants to charge advisory fees, then they are no longer excluded from separately registering as an investment advisor because the advice is no longer incidental to their work as a BD -Performance fees aren't charged; fees are usually based on a flat/wrap/annual fee or a fee based on assets under management

A Statement of Investment Policy prepared for distribution to a client that purchases asset allocation services covers all of the following EXCEPT: A compensation of the investment manager for providing either active or passive portfolio management B customer's investment objectives financial needs and financial goals C guidelines regarding investments that are permitted and those that are prohibited D guidelines regarding investment diversification or concentration

A compensation of the investment manager for providing either active or passive portfolio management

A call option is "out the money" when the: A current market value of the stock is less than the option contract strike price B strike price of the option contract is below the current market value of the stock C option contract premium exceeds the option contract time value D option contract time premium is less than the option contract premium

A current market value of the stock is less than the option contract strike price

Under the provisions of Rule 147 of the Securities Act of 1933, all of the following would be prohibited when making an intrastate sale of securities EXCEPT: A directly negotiating with the client in the State where the offering is being made B only offering the securities over the telephone to potential clients in the State C soliciting clients in the State by telephone, followed by mailing a prospectus to each potential client D using the Internet as the means of making the offering to clients in the State

A directly negotiating with the client in the State where the offering is being made -The Act of 1933 prohibits the "use of the mails or other means of interstate commerce" to offer or sell securities unless the securities are either registered with the SEC or are exempt from registration.

A customer has a stated investment objective of safety of principal and a moderate level of income. The customer calls the agent, and tells the agent to buy a speculative new issue investment. The agent informs the customer that he believes that this transaction would be unsuitable. The customer says "Do it!" The agent should: A do it B refuse the transaction C obtain prior approval of the Administrator before effecting the transaction D obtain a written power of attorney from the customer before effecting the transaction

A do it

If a broker-dealer receives an unsolicited customer order to buy a security for a customer, this is a(n): A exempt transaction B non-exempt transaction C exempt security D non-exempt security

A exempt transaction -Unsolicited customer orders are defined as an "exempt transaction" under the Uniform Securities Act, whether the securities involved are exempt or non-exempt

Investment companies, as defined under the Investment Company Act of 1940 are: A face amount certificate company, unit investment trust and management company B open-end fund, closed-end fund, and diversified fund C bond fund, stock fund, and balanced fund D diversified fund, non-diversified fund and unit investment trust

A face amount certificate company, unit investment trust and management company

Details of the dollar amount of a corporation's estimated future legal liability would be found in the: A footnotes to the company's financial statements B company's FOCUS report C Blue Sheets filed by company D income statement of the company

A footnotes to the company's financial statements

A value fund manager has decided that her position in ABCD stock should be liquidated. This decision to liquidate was determined by the manager using: A fundamental analysis B technical analysis C a combination of both fundamental and technical analysis D a Monte Carlo simulation

A fundamental analysis -Fundamental analysis is used to decide which stocks to buy or sell, based on "fundamental" factors such as earnings, dividends, products, etc. -Technical analysis uses stock price chart patterns to identify a market "top" or a market "bottom."

An adviser that charges a performance fee to clients MUST disclose that such a fee arrangement: A gives the adviser the incentive to be more aggressive with the customer's asset management than if a fixed fee were charged B negates the fiduciary duty that the adviser has to the customer C better aligns the customer's interests with those of the investment adviser D is only permitted if the customer signs a liability waiver in the advisory contract

A gives the adviser the incentive to be more aggressive with the customer's asset management than if a fixed fee were charged

Under NASAA rules, each Registered Investment Adviser must establish, implement and maintain a Business Continuity and Succession Plan that is based on the: A investment adviser's business model including the size of the firm, types of services provided, and number of business locations B itemized list provided by NASAA in the Model Rule C requirements of the PATRIOT (Providing Appropriate Tools to Restrict, Interdict and Obstruct Terrorism) Act D demographics of the Investment Adviser Representatives employed by the Investment Adviser

A investment adviser's business model including the size of the firm, types of services provided, and number of business locations

The purpose of the Uniform Securities Act is to protect investors from: A investment fraud B aggressive sales pitches C financial loss D moral turpitude

A investment fraud

A broker-dealer offers 4 summer passes to an amusement park to each of its agents who sell at least $10,000 of bonds during the month of June. This action: A is allowed B is not allowed C may trigger a "pay to play" disclosure to customers D may trigger a "soft dollar" disclosure to customers

A is allowed

When the market price of a security has reached equilibrium, transaction costs will be: A lower B higher C volatile D stable

A lower -When a stock has found its equilibrium price in the market, this means that there is active trading occurring and that the number of buyers and sellers is balanced. In such a market, the spread is minimized, and this is a cost of trading

During a period of steep economic decline, equity investments fall out of favor with investors, who rotate their investments out of equities into safe investments such as Treasury Bills. This is an example of: A market risk B business risk C regulatory risk D opportunity cost

A market risk

A young single dentist earning $75,000 per year meets a single chef who also makes $75,000 per year. They fall in love and decide to get married. When they do their first joint tax return as a married couple, they find that they are paying more income tax than the amount paid on their 2 individual tax returns the previous year, even though their income has not changed. This is known as the: A marriage penalty B marriage tax C nuptial trap D couple's curse

A marriage penalty

A customer will have positive financial leverage if: A money borrowed at a 4% rate of interest is used to make an investment yielding 5% B money borrowed at a 5% rate of interest is used to make an investment yielding 4% C one can borrow in a margin account at the broker loan rate to buy recommended investments D one can borrow on a home equity line and use the proceeds to make valuable home improvements

A money borrowed at a 4% rate of interest is used to make an investment yielding 5%

To determine the "loan value" of marginable equity securities, one would: A multiply the market value by 50% B divide the market value by 50% C multiply by the Rule of 72 D divide by the Rule of 72

A multiply the market value by 50%

An investment adviser to a hedge fund with $250 million of AUM has invested 100% of fund assets in gold, anticipating a steep stock market decline and flight to safety by investors. The investment adviser: A must register with the SEC B must register with the CFTC C must register with both the CFTC and the SEC D is neither required to register with the SEC nor the CFTC

A must register with the SEC -More than $150,000,000 of assets under management requires a private fund to register with the SEC; a hedge fund falls under this

Which of the following statements is TRUE regarding an investment adviser who renders advice solely to investment companies? The investment adviser: A must register with the SEC only B must register with the State only C must register with the SEC and State D is exempt from registering as it renders advice to "professional investors"

A must register with the SEC only -Only dealing with investment companies excludes the firm from state registration

An agent of a broker-dealer with discretionary authority has a customer that currently is invested in ABC Speculative Fund. The agent enters an order to sell the ABC Speculative Fund holding and, using the proceeds, enters another order for the client to buy XYZ Speculative Fund. The agent: A must show that there is a marked difference between the two funds and that the trade was justified B must show that the commissions earned on the transactions were not a factor in the investment decision C has committed an unethical practice because the account is being churned D will be ordered by the Administrator to reverse the trades and refund commissions earned to the client

A must show that there is a marked difference between the two funds and that the trade was justified

A market maker in ABCD stock is currently quoting the stock at:$42.00 Bid (500 shares); $43.00 Ask (1,000 shares) If the market maker receives a customer order to buy 800 shares of ABCD at $42.50, the market maker: A must update its quote to: $42.50 Bid (800 shares); $43.00 Ask (1,000 shares) B must update its quote to: $42.00 Bid (500 shares); $42.50 Ask (800 shares) C must send the order to a stock exchange floor for execution D is not required to take any action

A must update its quote to: $42.50 Bid (800 shares); $43.00 Ask (1,000 shares)

The Investment Advisers Act of 1940 EXEMPTS from registration: A persons who give advice solely to insurance companies B persons who give advice solely to investment companies C persons who give advice solely to depository institutions D All of the above

A persons who give advice solely to insurance companies

An investment adviser representative (IAR) prepares an investment plan for a customer and explains to the customer that he places trades through ABC broker-dealer with whom the IAR has a soft dollar relationship. The customer tells the IAR that he wants ½ of the trades placed through DEF broker-dealer. The IAR should: A place ½ the trades with ABC broker-dealer and ½ the trades with DEF broker-dealer B place all of the trades through ABC broker-dealer since the customer has no say in which broker performs the IAR's trades C place all the trades though DEF broker-dealer since such an arrangement is a conflict of interest D close the account and refund all monies to the customer

A place ½ the trades with ABC broker-dealer and ½ the trades with DEF broker-dealer

An investment adviser to a hedge fund with $200 million of AUM has invested 50% of fund assets in gold, anticipating a stock market decline and flight to safety by investors. The investment adviser must register: A with the SEC B with the CFTC C in the State where the IA is physically located D with the SEC, CFTC and the State where the IA is physically located

A with the SEC

An investor knows that he must pay back the principal of a $50,000 loan that he got from a close relative to buy a house. The loan matures in 10 years. To make sure that the client has the funds to pay back the loan in 10 years, you recommend that the customer buy 50M of 10-year Treasury STRIPS. This is an example of: A portfolio immunization B portfolio diversification C portfolio rebalancing D portfolio hedging

A portfolio immunization -Portfolio immunization is the strategy of managing a portfolio to make it worth a specific amount at a stated date in the future. This strategy is typically used to fund a known future liability

The Net Present Value of an investment is greater than "0." This means that the: A rate of return from the investment is greater than the discount rate used in the computation B rate of return from the investment is lower than the discount rate used in the computation C investment will produce a return that is greater than the rate of inflation D investment will produce a return that is lower than the rate of inflation

A rate of return from the investment is greater than the discount rate used in the computation

A 20-year, 5% bond is quoted by a dealer on a 6% basis. The bond is callable in 10 years at par. To calculate the dollar price for the bond, the dealer would use the: A redemption date to find the number of years over which the discount would be earned B call date to find the number of years over which the discount would be earned C redemption date to find the number of years over which the premium would be lost D call date to find the number of years over which the premium would be lost

A redemption date to find the number of years over which the discount would be earned

An individual who works for a corporation is terminated at age 56. He is finding it hard to get another job and wants to use funds in his 401(k) to pay for living expenses. Any distributions from the 401(k) will be: A subject to ordinary income tax only if installments are taken over the individual's life expectancy B subject to a 10% penalty tax only if installments are taken over the individual's life expectancy C subject to both ordinary income tax and a 10% penalty tax since the individual is under age 59 1/2 D exempted from any taxes as long as a "hardship exemption" is claimed

A subject to ordinary income tax only if installments are taken over the individual's life expectancy -little known rule for both 401(k) and 403(b) plans is that if an employee quits or is terminated between the ages of 55 to 59 1/2, the "Rule of 55" can be applied. This IRS rule allows the terminated employee to take payments in equal installments over his or her life expectancy and avoid the 10% penalty tax. Note that regular income tax must still be paid

A Chartered Financial Analyst (CFA) wishing to register in a State as an investment adviser is exempt from: A taking a proficiency examination in the State B filing a registration document Form U-4 in the State C from paying an annual registration fee to the State D all of the above

A taking a proficiency examination in the State -CFA can skip the Series 65 exam -Form U-4 is required for all registered reps -They still must pay the same annual fees

The payments received from a bond can be used to determine a bond's theoretical market price by: A taking the present value of the payments and adding them up B taking the future value of the payments and adding them up C finding the geometric average value of the payments D finding the arithmetic average value of the payments

A taking the present value of the payments and adding them up -The proper way to find the value of a bond is to take each payment received and discount it by the market rate of interest to today's present value. Adding up the present value of the payments gives the bond's theoretical market price

A customer would sell put contracts because: A the customer is bullish on the underlying security B the customer is bearish on the underlying security C the customer wishes to generate ordinary income D the customer wishes to defer taxation of gains on the underlying stock

A the customer is bullish on the underlying security

The directors of a company decide to offer shares of the company from the company's unissued stock directly to company employees. The proceeds of the sale go to the company, but the directors take a commission from the employees on these sales. All of the following statements are true EXCEPT: A this is a non-issuer transaction B the directors are defined as agents of the issuer C the directors must be registered D the securities must be registered

A this is a non-issuer transaction -Because the company is issuing these shares and the proceeds are going to the issuer, this is an issuer transaction. Because an agent is defined as an individual who effects securities transactions for either a broker-dealer OR an issuer, the directors are considered to be agents of the issuer and must be registered. Since common stock is a non-exempt security, it also must be registered to be sold in the State

A company has a lower P/E ratio than similar companies with similar growth prospect in the same industry. This is a possible indication that the stock is: A undervalued B overvalued C underweighted D overweighted

A undervalued

Standard deviation measures the: A variability of investment returns B growth of investment returns C duration of investment returns D level of investment returns

A variability of investment returns

An adviser that charges a performance fee to clients must disclose that such a fee arrangement: A will give the adviser increased compensation based on realized and unrealized appreciation of the customer's securities B better aligns the customer's interests with those of the investment adviser C is only permitted if the customer signs a liability waiver in the advisory contract D negates the fiduciary duty that the adviser has to the customer

A will give the adviser increased compensation based on realized and unrealized appreciation of the customer's securities

A broker-dealer that is registered in New York and that is not registered in any other State may effect transactions in securities: A with any existing customer that is a New York resident that is vacationing anywhere in the United States B with any new customer that is a New York resident that is vacationing anywhere in the United States C with any New York resident located in any part of the United States D only in New York and not in any other State

A with any existing customer that is a New York resident that is vacationing anywhere in the United States -Vacation exemption does not apply to new clients

The Administrator can be under the obligation to file a U-6 Form if a(n): A written complaint about an investment adviser representative is received from a customer that alleges a felony B oral complaint about an investment adviser representative is received from a customer that alleges a suitability violation C written complaint is received about an investment adviser representative from a whistleblower D oral complaint is received about an investment adviser representative from the representative's spouse

A written complaint about an investment adviser representative is received from a customer that alleges a felony -Complaints must be written -Whistleblowing doesn't go on U6?

Michael Michaelson has an MBA in finance and has taught classes at a local college for the past 15 years. He has decided to use his knowledge and acumen in the private sector and registers in the State as an investment adviser. His business will be creating financial plans and implementing them for clients. Michael requests a waiver from the State Administrator from having to pass the Series 65/66 exam based on his educational and teaching background and receives it. He registers as an IA in the State. He wishes to publish an advertisement for his new business. Michael can state which of the following in the advertisement? A "Because of my extensive finance background, I have been approved by the State to sell financial plans without having to take the examination required of other advisers" B "My fee schedule, which is non-negotiable, is comparable to that charged by other advisers that do not have my extensive finance background" C "As a registered investment adviser in the State, I have been certified to create financial plans" D "I have 15 years of experience as an investment adviser in the State"

B "My fee schedule, which is non-negotiable, is comparable to that charged by other advisers that do not have my extensive finance background" -Cannot say "certified" or "approved" because he got an exemption to the exams and technically never got certified or approved -15 years of experience as an IA is misleading because his 15 years is in teaching and not as an IA

Reports of cash transactions must be made to the Department of Treasury if the amount of cash received or paid exceeds: A $5,000 B $10,000 C $25,000 D $100,000

B $10,000

To be registered as a broker-dealer, the Administrator typically requires the posting of a surety bond in the amount of: A $5,000 B $10,000 C $25,000 D $50,000

B $10,000

A customer buys a new issue TIPS with a 3% coupon rate. If the CPI during the first year increases by 2%, the customer will receive annual interest the next year of: A $30.00 B $30.60 C $50.00 D This cannot be determined from the information given

B $30.60 1000*2% = 1,020 1,020 * 3% = 30.60

If a 13d filing is required, notice must be filed with the Securities and Exchange Commission within: A 1 business day B 10 business days C 15 business days D 20 business days

B 10 business days

Which security's price would fluctuate the MOST due to a change in interest rates? A 10 year GNMA with an 8% coupon and a 9% yield to maturity B 10 year zero-coupon Treasury Note with a 7% yield to maturity C 10 year AA rated corporate bond with an 8.5% coupon and a 9.3% yield to maturity D 10 year junk-rated corporate bond with a 9% coupon and a 10% yield to maturity

B 10 year zero-coupon Treasury Note with a 7% yield to maturity

If an individual accumulates a 5% or greater equity holding in a publicly traded company with the intention of exercising control, which form must be filed with the Securities and Exchange Commission? A 10K B 13d C 10C D 13f

B 13d

A customer has invested in a Direct Participation Program and is a limited partner with a 20% interest. In November of that year, the partnership sold assets and realized a gain. It made a cash distribution to the partners using the proceeds generated from the asset sale in January. How is this reported for tax purposes on the K-1 distributed to the customer/partner? A 20% of the gain is reported as ordinary income in the year realized B 20% of the gain is reported as a capital gain in the year realized C 20% of the gain is reported as ordinary income in the year distributed D 20% of the gain is reported as a capital gain the year distributed

B 20% of the gain is reported as a capital gain in the year realized -Under partnership taxation rules, each item of income and loss to the partnership "flows through" directly on a pro-rata basis onto the partner's tax return for that tax year. Because the partnership realized the gain on the sale of the asset in November, it will be reported on the K-1 sent to the limited partner by the partnership for that year ending December 31st. Because this was a gain from the sale of an asset, it is a capital gain. The fact that a cash distribution resulting from the gain was made in the next tax year is irrelevant

Customers must exercise their right of rescission within how many days of written notice by the offerer? A 10 days B 30 days C 90 days D 1 year

B 30 days

Under the Investment Company Act of 1940, which statement is TRUE regarding the composition of a management company's Board of Directors? A 40% of the Board of Directors can be affiliated persons; 60% of the Board of Directors must be unaffiliated persons B 40% of the Board of Directors must be unaffiliated persons; 60% of the Board of Directors can be affiliated persons C 100% of the Board of Directors must be unaffiliated persons D 100% of the Board of Directors can be affiliated persons

B 40% of the Board of Directors must be unaffiliated persons; 60% of the Board of Directors can be affiliated persons -No more than 60% of the BOD can be affiliated

The statute of limitations for filing a claim alleging a criminal violation of the Uniform Securities Act is: A 3 years B 5 years C 10 years D Unlimited

B 5 years

The Regulation T requirement to buy stock is 50% and the Minimum Maintenance Margin requirement is 25%. The "loan value" of the stock is: A 25% B 50% C 75% D 100%

B 50%

An Investment Adviser obtains a list of the 30 members of the local rotary club and sends each a letter that includes a coupon that gives a 20% discount to club members if they purchase the adviser's services. Which statement is TRUE under the provisions of the Investment Advisers Act of 1940? A This is a fraudulent and prohibited practice B A adviser must keep a record of the letter and a memorandum describing the mailing list C The adviser is only required to keep a record of any rotary club members that use the coupon D The adviser is not required to keep copies of prospecting letters

B A adviser must keep a record of the letter and a memorandum describing the mailing list

Under the Uniform Securities Act, which of the following is a non-exempt security? A A warrant issued by a NYSE traded company B A stock issued by an industrial corporation C A bond issued by the Canadian Government D A bond issued by a province of the Canadian Government

B A stock issued by an industrial corporation -Know that stocks issued by industrial companies are NON-EXEMPT

When looking at the Net Worth of a corporation, this is best described as: A Intrinsic Value B Accounting Value C Market Value D Liquidation Value

B Accounting Value

Under the Investment Advisers Act of 1940, which statement is TRUE about copies of all advertising, notices and circulars? A Advertising, notices and circulars must be retained as a record for 5 years if distributed to 5 or more people. B Advertising, notices and circulars must be retained as a record for 5 years if distributed to 10 or more people. C Advertising, notices and circulars must be retained as a record for 10 years if distributed to 5 or more people. D Advertising, notices and circulars must be retained as a record for 10 years if distributed to 10 or more people.

B Advertising, notices and circulars must be retained as a record for 5 years if distributed to 10 or more people.

Which State-registered investment adviser MUST report that it takes custody on Form ADV? A An adviser that is affiliated with a parent bank or trust company B An adviser that directly deducts management fees each quarter from client accounts C An adviser that has discretionary authority over client accounts under a limited power of attorney D An adviser that receives payments from clients at the time that services are rendered

B An adviser that directly deducts management fees each quarter from client accounts -Taking custody means that the adviser is holding customer funds or securities or has the ability to access customer funds or securities. If an adviser is permitted to directly deduct fees from client accounts, it meets this definition. A limited power of attorney limits the adviser to trading the customer account, but the adviser has no power to withdraw funds from the client account. Thus, a limited power of attorney is not taking custody. In contrast, if the adviser has a full power of attorney over an account which allows the adviser to withdraw funds, this is considered to be taking custody

Which of the following is NOT an accredited investor under Regulation D? A An individual with a $3 million net worth B An individual with $2 million in securities C An employee benefit plan with $7 million to invest D A couple that has $400,000 per year of annual income

B An individual with $2 million in securities

Under the Investment Advisers Act of 1940, which of the following is NOT required to be disclosed to customers by an investment adviser? A An investment adviser takes $1,750 of prepaid advisory fees, 9 months in advance of services rendered, is having financial difficulties B An investment adviser that does not take custody of client funds; have discretionary accounts; or accept prepaid advisory fees; is having financial difficulties C An investment adviser that takes $1,750 of prepaid advisory fees, 9 months in advance of services rendered, is the subject of a disciplinary or legal action D An investment adviser that does not take custody of client funds; have discretionary accounts; or accept prepaid advisory fees; is the subject of a disciplinary or legal action

B An investment adviser that does not take custody of client funds; have discretionary accounts; or accept prepaid advisory fees; is having financial difficulties

To be registered with the SEC as an investment adviser, filing of which of the following is required? A Form ADV Part 1 only B Form ADV Part 1 and Part 2 C Consent to service of process D Registration information for each representative

B Form ADV Part 1 and Part 2

Investment "A" is purchased in May and sold at a gain in the July following. Investment "B" is purchased in June and sold at a gain in the October following. In order to compare the return of investment "A" to investment "B," which measure should be used? A Dollar weighted return B Annualized return C Holding period return D Total return

B Annualized return -Investment A has been held for 2 months and then sold at a gain; while Investment B has been held for 4 months and then sold at a gain. To compare them, their returns must be annualized.

Under the provisions of the Securities Exchange Act of 1934, margin on securities is set by the: A Securities and Exchange Commission B Board of Governors of the Federal Reserve System C Federal Deposit Insurance Corporation D Department of Treasury

B Board of Governors of the Federal Reserve System

Which of the following investments trades in the market independent of NAV? A Limited partnership B Closed-end fund C Variable annuity D Hedge fund

B Closed-end fund

The term "discount fund analysis" would apply to a(n) A Open-end management company B Closed-end management company C Unit investment trust D Face amount certificate company

B Closed-end management company -"discount fund analysis" applies to investors who believe that closed end funds trading at a discount to NAV are undervalued and will eventually move back up to NAV. They are like "value" investors, and seek to find funds trading at discounts to NAV. As they place buying pressure on the fund's price, it will tend to move up back towards NAV!

All of the following information must be recorded on an order ticket EXCEPT: A Customer name B Customer social security number C Order size D Execution Price

B Customer social security number

A customer who has a portfolio invested in stocks and bonds would achieve what benefit from investing in a real estate limited partnership that owns and rents commercial office buildings? A Lower expenses associated with holding the investment B Diversification of the customer's investment portfolio C Lower probability of suffering investment losses D Higher level of liquidity of investment holdings

B Diversification of the customer's investment portfolio

An exchange traded debt security is a(n): A ETF B ETN C ADR D CMO

B ETN

Which statement is TRUE about the education of investment adviser key employees who establish investment strategy or manage client accounts? A Education standards are established by the SEC B Education and work background are disclosed on Form ADV Part 2B C Higher education standards are required for advisers that will take custody of client funds than for those that do not D Minimum education standards are established for advisers that will exercise discretion over customer accounts

B Education and work background are disclosed on Form ADV Part 2B -No minimum standards for education

An investment adviser is ready to open an account for a new customer. In the advisory contract, the adviser has included a clause that the customer has 48 hours to rescind the contract. The adviser gives the customer the brochure, takes payment from the customer, but forgets to have the customer sign the contract. Which statement is TRUE? A Even though the customer did not sign the contract, he or she still has 48 hours to rescind the contract B Even though the customer did not sign the contract, he or she has 5 business days to rescind the contract C The contract is null and void D The contract is binding and the customer cannot rescind the contract

B Even though the customer did not sign the contract, he or she has 5 business days to rescind the contract

Which of the following is the LAST step in opening a new account for a customer? A Completing the new account form B Executing the first transaction C The manager signing new account form D Completing the order ticket for first order

B Executing the first transaction 1. Complete new account form 2. Qualifying the customer 3. Completing the order ticket for first order 4. The manager receives both of these (Manager signing new account form) and must approve the opening of the account prior to the first trade. It is prohibited for the agent to execute the trade before the manager approves the account opening.

The portfolio return measure that calculates a mean rate of return from a probability distribution of all potential rates of return is: A Total return B Expected return C Internal rate of return D Holding period return

B Expected return -Expected return assigns a probability percentage to each possible investment outcome (yield); multiplies that percentage by the yield; and then adds up the total. The result is the average (mean) expected yield

A $1,000 par zero coupon bond with 5 years to maturity can be purchased for $750. How is the bond's rate of return calculated? A Find the Internal Rate of Return that discounts that bond's final payment to "0" in 5 years B Find the Internal Rate of Return that discounts the bond's final payment to $750 in 5 years C Multiply the initial cost of the bond by the discount rate D Divide the $1,000 redemption price of the bond by the discount

B Find the Internal Rate of Return that discounts the bond's final payment to $750 in 5 years

If a person accumulates a 5% or greater holding in a publicly held company with the intention of being a passive investor: A Form 13d must be filed within 10 business days B Form 13g must be filed within 45 calendar days of year end C Form 10K must be filed within 90 days of year end D Form S-l must be filed promptly

B Form 13g must be filed within 45 calendar days of year end -For passive ownership

Under the Securities Act of 1933, commercial paper is an exempt security if: I the security represents the non-convertible debt obligation of the issuer II the security is issued with a maximum maturity of 9 months III no commissions or other compensation is taken in the transaction A I only B I and II C II and III D I, II, III

B I and II

Under the Uniform Securities Act, an investment adviser who has no place of business in a State is exempt from registration if the: I firm's clients consist solely of institutional investors in the State II firm has no more than 5 clients other than financial or institutional investors within a 12 month period III firm's advice relates solely to municipal securities A I only B I and II C II and III D I, II, III

B I and II -Advice solely about municipal securities is not exempt like U.S. gov securities are, and would still require registration

The SEC is permitted to pursue persons for violations of: I FINRA rules II MSRB rules III State securities rules A I only B I and II C II and III D I, II, III

B I and II -Excludes state securities rules where the administrator has jurisdiction

Under the Investment Advisers Act of 1940, which of the following persons managing assets of at least $100,000,000 MUST be registered with the SEC? I A person who gives advice solely about listed securities II A person who gives advice solely about municipal securities III A person who gives advice solely about U.S. Government securities A I only B I and II C II and III D I, II, III

B I and II -Remember that for IA, municipal securities are not exempt from registration with the SEC when at $100,000,000 or more

Under the Uniform Securities Act, an investment adviser is prohibited from taking custody of a client's funds if the: I Administrator prohibits this by rule II firm fails to notify the Administrator that it has custody or may take custody III firm is registered as a broker-dealer as well as an investment adviser A I only B I and II C II and III D I, II, III

B I and II -The fact that a broker-dealer can also be registered as an investment adviser has no bearing on whether an investment adviser can take custody of a customer's securities. An investment adviser can take custody of a customer's securities, if the firm notifies the Administrator that it has custody or may take custody. However, if the Administrator prohibits taking custody, then obviously the firm cannot do so

An issuer has filed a registration statement with the SEC, but the registration is not yet effective. The issuer subsequently files additional documentation with the SEC to meet its "full and fair disclosure" obligation. Any agent that is contacting a potential customer to buy the issue must provide the customer with the: I Preliminary prospectus II Prospectus supplement III Offering price and spread A I only B I and II only C II and III only D I, II, III

B I and II only

Under the Uniform Securities Act, which of the following individuals must file a registration application as an agent of a broker-dealer? I A person who only accepts orders from customers II A person who only trades securities for the firm's trading account III A person who is a silent partner in the broker-dealer IV A person who is a partner, officer, or director of a broker-dealer A I only B I and II only C III and IV only D I, II, III, IV

B I and II only

Under the provisions of the Sarbanes-Oxley Act of 2002, the annual audited 10K report filed with the SEC MUST be certified by the: I chief financial officer of the issuer II chief executive officer of the issuer III chief compliance officer of the issuer IV chief information officer of the issuer A I only B I and II only C III and IV only D I, II, III, IV

B I and II only

If an investment adviser wishes to take custody of client funds or securities: I the investment adviser must be audited, on a surprise basis, at least annually II customers must receive account statements at least quarterly III prior permission from the SEC must be obtained A I only B I and II only C II and III only D I, II, III

B I and II only -Annual surprise audits -Quarterly account statements -Do not need SEC permission to take custody of funds

Which of the following is (are) violations of the Uniform Securities Act that can result in civil liability? I An investment adviser recommends the purchase of a non-exempt security that was unregistered, even though an exemption is not available II An investment adviser recommends the purchase of an exempt security that was unregistered to a customer III An investment adviser recommends a non-exempt security that is unregistered to a customer after being informed by his manager that the security was registered A I only B I and III C II and III D I, II, III

B I and III -Civil liability applies when it's not intentional as well

With regard to closed-end investment companies, which statements are TRUE? I An initial offering must be made with a prospectus II The issuer redeems shares at NAV III Once issued, shares trade on the secondary market at prevailing market prices IV The portfolio of securities is fixed and is not managed A I and II B I and III C III and IV D I, III, IV

B I and III -Issued with prospectus -Trade in secondary market (Negotiable, NOT redeemable) -Open and closed end funds are both managed

A Registered Investment Adviser is also a registered representative that manages a client's account. The customer is paying a fixed annual advisory fee and is paying a commission for each execution of a recommended trade, both of which have been disclosed to the customer. Which statements are TRUE? I The account may be charged both the advisory fee and a commission on each trade II The account may not be charged an advisory fee and a commission on each trade III This is an unethical practice IV This is not an unethical practice A I and III B I and IV C II and III D II and IV

B I and IV

Which statements are TRUE about Regulation D? I The maximum permitted offering under Rule 504 is $10,000,000 II The minimum permitted offering under Rule 504 is $10,000,000 III The maximum permitted offering under Rule 506 is $10,000,000 IV The minimum permitted offering under Rule 506 is $10,000,000 A I and III B I and IV C II and III D II and IV

B I and IV -504 Max=$10,000,000 -506 Minimum=$10,000,000

Which of the following statements are TRUE about the Investment Company Act of 1940's requirements for management companies? I At least 40% of the Board of Directors must be "non-interested" persons II At least 60% of the Board of Directors must be non-interested III To establish a fund, a minimum of $10,000 of Total Net Assets is required IV To establish a fund, a minimum of $100,000 of Total Net Assets is required A I and III B I and IV C II and III D II and IV

B I and IV -At least 40% must be uninterested -Minimum of $100,000

Which statements are TRUE regarding the post-registration requirements of the Uniform Securities Act? I Broker-dealers are subject to post-registration requirements II Broker-dealers are not subject to post-registration requirements III Agents of broker-dealers are subject to post-registration requirements IV Agents of broker-dealers are not subject to post-registration requirements A I and III B I and IV C II and III D II and IV

B I and IV -BD are subject to post-reg reqs -Agents are NOT subject to post-reg reqs

Under the provisions of the Sarbanes-Oxley Act of 2002, the annual audited 10K report filed with the SEC MUST be certified by the: I chief financial officer of the issuer II chief legal officer of the issuer III chief compliance officer of the issuer IV chief executive officer of the issuer A I and III B I and IV C II and III D II and IV

B I and IV -CEO -CFO

Which of the following statements are TRUE regarding customer consent for certain actions taken by an investment adviser? I If the investment adviser and its accounts are acquired by another investment advisory firm, consent of the adviser's existing customers is required II If the investment adviser and its accounts are acquired by another investment advisory firm, consent of the adviser's existing customers is not required III If the investment adviser were to acquire another advisory firm, consent of the adviser's existing customers is required IV If the investment adviser were to acquire another advisory firm, consent of the adviser's existing customers is not required A I and III B I and IV C II and III D II and IV

B I and IV -Customer's firm acquires another firm = No consent needed -Customer's firm is acquired by another firm = consent needed

Under NASAA recordkeeping rules for investment advisers, any advertisement, circular or other communication: I must be retained if it is circulated to 2 or more persons II must be retained if it is circulated to 5 or more persons III cannot recommend the purchase or sale of a specific security IV can recommend the purchase or sale of a specific security and if it does not state the reasons for the recommendation, a memo must be retained indicating the reasons for the recommendation A I and III B I and IV C II and III D II and IV

B I and IV -NASAA recordkeeping requires the retention of advertising and communication if it is sent to more than 1 person -It can recommend the purchase or sale of a specific security, and if the reasoning behind the recommendation is not given, then a memo must be retained indicating the reasoning behind the recommendation

NASAA Model Rule 502 (c) applies to: I State registered advisers in its entirety II State Covered advisers only to the extent that the conduct is fraudulent or deceptive III Federal Covered advisers in its entirety IV Federal Covered advisers only to the extent that the conduct is fraudulent or deceptive A I and III B I and IV C II and III D II and IV

B I and IV -State covered in their entirety -Fed covered only to the extent that their conduct is fraudulent or deceptive

Mutual fund performance charts show: I Time Weighted Average Return II Dollar Weighted Average Return III a return that is affected by investor cash inflows and outflows IV a return that is not affected by investor cash inflows and outflows A I and III B I and IV C II and III D II and IV

B I and IV -Time Weighted Average Return -a return that is not affected by investor cash inflows and outflows -Dollar Weighted Average Return is the same as the Internal Rate of Return. It is the discount rate that takes all of the cash flows from the investment. Dollar Weighted Return takes into account the impact of cash inflows and outflows from purchases and sales as well as growth in assets

A sales representative who intentionally embezzles funds from a customer: I has committed a felony II has committed a fraudulent and misleading Act III is subject to civil liability IV is subject to possible fines and/or imprisonment A I and III only B I and IV only C II and III only D II and IV only

B I and IV only Intentional Embezzlement: -A Felony (If funds are replaced or not) -Subject to possible fines and/or imprisonment

Under the Investment Advisers Act of 1940, if an investment adviser wishes to effect an agency cross transaction for a customer, which of the following statements are TRUE? I Agency cross transactions cannot have been recommended to both the buyer and seller by the investment adviser II Each client must be sent an annual statement identifying the total number of agency cross transactions effected; and the remuneration received by the adviser for these transactions III Each client must be sent a monthly account statement detailing activity in the account for that period IV To effect an agency cross transaction, written consent from the client must be obtained A I and III B I, II, IV C II, III, IV D I, II, III, IV

B I, II, IV

Which statement is TRUE regarding the use of social media by an Investment Adviser Representative (IAR) who wishes to advertise his or her services? A IARs are prohibited from placing advertisements in social media B IARs can place advertisements in social media, as long as they disclose their affiliation with an Investment Adviser and their credentials C IARs can only place advertisements that consist of unpaid testimonials from satisfied clients D IARs can only place advertisements that consist of paid testimonials from satisfied clients

B IARs can place advertisements in social media, as long as they disclose their affiliation with an Investment Adviser and their credentials -NO Testimonials for IAs and IARs

A broker-dealer's agent that is registered in State A, wishes to sell a security in State B. Which of the following may be sold in State B without the agent being registered in State B? I U.S. Government Agency Issues II Commodity Futures III Fixed Annuities IV Limited Partnership interests investing solely in securities of U.S. Government Agencies A I only B II and III only C I and IV only D I, II, III, IV

B II and III only

An exempt reporting adviser must file: I Form PF with the SEC II Form BD with the SEC III Form ADV with the SEC IV Form RIA with the SEC A I only B III only C I and III D II and IV

B III only -Form ADV

2 years ago a woman leased a new car by putting $2,000 down and signing a 48 month lease at $500 per month. She has received a letter from the lease company saying that she can complete the lease right now by making a single $10,000 payment and keep the car for 2 more years; or she can finish the lease by making the remaining 24 monthly payments of $500. Assuming that this customer can earn 6% by investing in Treasury securities, and ignoring any tax consequences, to determine the best option, the method to be used is: A Rule of 72 B Internal Rate of Return C Expected Return D Future Value

B Internal Rate of Return

A registered representative is appointed as a trustee to manage the assets on behalf of a beneficiary. The State where the trust is established only permits investments in government guaranteed bonds or investment grade corporate bonds. The limitations placed on the investments made by the trustee are established by the: A Prudent Man Rule B Legal List C Uniform Securities Act D Investment Advisers Act of 1940

B Legal List -Each State usually has a "prudent man rule" that applies to fiduciaries that manage assets for beneficiaries. However, many States go beyond this and establish a "Legal List" of permitted investments for fiduciaries. The legal list typically consists of ultra-safe securities - generally U.S. Government bonds, government agency bonds, and AAA rated corporate and municipal securities

Which investment will generate passive income? A General partnership B Limited partnership C Real estate investment trust D Hedge fund

B Limited partnership

Which of the following is prohibited in an advisory contract under NASAA rules? A Custody Provision B Liquidated Damages Provision C Non-Assignment Provision D Discretionary Authority Provision

B Liquidated Damages Provision -A "liquidated damages provision" in an advisory contract would state that if the customer suffers a loss, the adviser is responsible. This is no different than a prohibited guarantee against loss and thus is not permitted

For the technique of dollar cost averaging to work, what must the mutual fund investor do? A Time the market by investing more in a fund when prices are depressed B Make investments to a fund at regular intervals even when the market is down C Invest regularly in a fund except when the market is at peaks or troughs D Shift investments into income funds when the market is in a down trend

B Make investments to a fund at regular intervals even when the market is down

A portfolio characterized by high growth and low dividend paying stocks would be invested in the stocks in the: A S&P 500 Index B NASDAQ Composite Index C NYSE Composite Index D Wilshire Index

B NASDAQ Composite Index -The NASDAQ Index is heavily weighted in younger high tech growth companies, with smaller market capitalizations (aside from some notable large cap issues like Microsoft, Intel and Apple)

Which of the following is defined as sales literature? A Prospectus B Password-Protected Website C Letter to a Client D Internet Chat Room

B Password-Protected Website

Which of the following is defined as an investment adviser under the Investment Advisers Act of 1940? A Dealers in U.S. minted gold coins B Pension consultants C Broker-dealers in securities D Managed commodity fund advisers

B Pension consultants Others include: -Financial Planners -Advisers to athletes and entertainers

What would be the best stock recommendation during a period of recession? A Consumer goods stock B Pharmaceutical stock C Oil services stock D Defense stock

B Pharmaceutical stock

Which security is MOST affected by interest rate risk? A Common stock B Preferred stock C Treasury bill D Commercial paper

B Preferred stock

A divorced man, age 58 has 2 adult children. He is going to marry a widow, age 45, who also has 2 adult children. They decide that when each dies, the assets of that individual will go to that person's children. In addition, the husband wants to make sure that the wife has sufficient income for her remaining life, since she is considerably younger. What type of trust should be established? A Testamentary trust B QTIP trust C Bypass trust D Revocable trust

B QTIP trust -A QTIP trust is a Qualified Terminable Interest Property Trust. It allows the grantor to provide for the surviving spouse, and to also determine how the assets are distributed after the surviving spouse dies. Commonly used in second marriages, this is an irrevocable trust. The surviving spouse receives the income from the trust, and upon his or her death, the remaining assets are distributed to the named beneficiaries of the trust (which would be the children from both (now dead) parents)

Which action taken by the Administrator is the most severe? A Suspension B Revocation C Cease and Desist D Cancellation

B Revocation -Of these, revocation is the most serious, since it is permanent - the individual or firm is prohibited from doing business in the State. A suspension has a fixed life and then is lifted. A cease and desist order basically is telling the registrant to stop doing something specific - such as distributing misleading advertising. A cancellation is cancelling a registration after year end if it is not renewed - there is no violation here

Under the provisions of the Uniform Securities Act, required records for broker-dealers must be kept in accordance with the provisions of the: A Securities Act of 1933 B Securities Exchange Act of 1934 C Investment Advisers Act of 1940 D Uniform Securities Act as adopted in that State

B Securities Exchange Act of 1934 -Since the SEC sets broker-dealer recordkeeping rules under the Securities Exchange Act of 1934, the State can only have a rule requiring that records be kept in conformity with the Act of 1934's requirements

Which of the following options strategies provides a gain equal to the premium in a bear market? A Long Call B Short Call C Long Put D Short Put

B Short Call -Bear market=market declining; we are earning the premium for the best strategy in the bear market meaning we are writing an option. The option to write in a bear market is a call i.e. short the call

Investment advisers that manage under $100,000,000 of assets are subject to: A Federal registration only B State registration only C Both Federal and State registration D Neither Federal nor State registration

B State registration only

A registered investment adviser lives in State X. The adviser does business with 1 client in State A and 1 client in State B. The adviser gives seminars about investing to groups of potential customers in State C. The adviser is required to register in: A State X only B States X and C only C States X, A, and C D States, X, A, B, and C

B States X and C only -The IA is located in state X, so they must be registered in state X -The IA and any IARs providing seminars to potential customers must be registered in the state were the seminar is located -De Minimis rules apply to states A and B because the IA is not physically located there and there are 5 or fewer clients in the state over a 12-month period

An investment adviser that claims that it is a "fee only" adviser could NOT be compensated based on: A a percentage of assets under management B a flat annual or hourly fee for all work performed C 12b-1 fees paid by mutual funds D a performance based fee for wealthy investors

C 12b-1 fees paid by mutual funds

What is the most tax advantaged investment return? A Cash dividend B Stock dividend C Interest payment received D Long term capital gain

B Stock dividend -Stock dividends (and stock splits) are not taxable - the tax basis per share is reduced and the number of shares is increased. So these are the most tax advantaged of the choices offered, since no tax is due

All of the following are "preference" items included in the alternative minimum tax computation EXCEPT: A Excess intangible drilling costs B Straight line depreciation C Excess depletion D Excess depreciation

B Straight line depreciation

What type of joint account can only be opened by married couples? A Joint Tenants With Rights of Survivorship B Tenants By Entireties C Tenants In Common D Any of the above

B Tenants By Entireties -Tenants By Entireties is a method of joint ownership that is only available to a married couple and which is only available in a limited number of states. Like JTWROS, if one dies, the surviving spouse becomes the sole owner of the property. The transfer of ownership bypasses the will and probate -The big difference is that Tenants By Entireties treats the ownership of the account as one entity

An IAR is preparing a financial plan for a young married couple with 2 small children. They both work and have sufficient income to pay their current bills, including the large mortgage on their house. They have a small emergency reserve and, after paying expenses, have an extra $500 per month that they can put towards investments. They currently have no life insurance, and if one dies, the remaining spouse would not have enough income to meet monthly expenses. The IAR recognizes that they need to buy insurance as part of the plan, but the IAR is not a licensed insurance agent in the State. Which statement is TRUE? A The IAR is not permitted to tell the customers about any aspect of insurance because she is not a licensed insurance agent in the State B The IAR cannot prepare a financial plan that includes life insurance needs unless another IAR licensed as an insurance agent in the State co-authors the plan C The IAR must follow the "Don't Ask Don't Tell" rule in this situation; if the clients don't ask about life insurance coverage, she can't talk about it or include it in the plan D The IAR can prepare a plan that includes life insurance, since life insurance is a security

B The IAR cannot prepare a financial plan that includes life insurance needs unless another IAR licensed as an insurance agent in the State co-authors the plan

In order to promote its services, an investment adviser that normally charges a $100 initial consultation fee wishes to publish an advertisement offering "an initial consultation and a free evaluation of the tax status of the customer's portfolio for $150." Which statement is TRUE? A Prior to publishing the advertisement in the news media, a copy must be filed with the State Administrator B The advertisement can be published if the word "free" is removed from the statement C The advertisement can be published if the terms of the offer are made to the adviser's existing customers as well as to new customers D The advertisement can only be published if the date when the offer becomes void is prominently displayed

B The advertisement can be published if the word "free" is removed from the statement -The firm typically charges $100 for consults, making this "free" tax service really $50 and it needs to be advertised as such

Which statement is TRUE about the participation of an agent of a broker-dealer in an Internet Chat room about investing? A The agent is prohibited from participating in the Chat room B The agent can only make general statements about investing in the Chat room C The agent can make recommendations of registered securities in the Chat room D The agent can make recommendations of both registered and unregistered securities in the Chat room

B The agent can only make general statements about investing in the Chat room

An agent hears from a friend who works at a publicly traded company that the Chairman is being sent to the Betty Ford Clinic and may be relieved of his responsibilities. The agent calls each of his clients with a position in that company and tells them to sell. Which statement is TRUE? A The agent has used material inside information, which is a violation under the Act B The agent has used a rumor to induce customer trading, which is a violation under the Act C If the agent discloses the source of the information to his customers, there is no violation of the Act D This action is permitted under the Act

B The agent has used a rumor to induce customer trading, which is a violation under the Act -only heard, it's a rumor and not inside information

An individual represents a broker-dealer in a State selling fee-based brokerage accounts as an independent contractor. This individual is not an employee of the broker-dealer. Which statement is TRUE regarding registration of the independent contractor and the broker-dealer in the State? A The broker-dealer must register in the State but the independent contractor is excluded from registration because he is not an employee of the broker-dealer B The broker-dealer must register in the State and the independent contractor must register in the State as an agent of the broker-dealer C The independent contractor must register as an agent of the broker-dealer in the State but the broker-dealer is excluded from registration in the State D Neither the broker-dealer nor the independent contractor are required to register in the State because the account is fee-based and not commission based

B The broker-dealer must register in the State and the independent contractor must register in the State as an agent of the broker-dealer

Which statement describes a variable life insurance policy? A A policy owner has flexibility in skipping some premium payments B The cash value increases based on equity investments C The death benefit is fixed and guaranteed for the insured's entire life D Premium payments are low for a young insured individual and increase with age

B The cash value increases based on equity investments

A customer has brought a civil suit against a broker-dealer and an agent for violating the Uniform Securities Act. Two weeks before the court date, the plaintiff dies. Which statement is TRUE? A The civil suit is terminated upon the death of the plaintiff B The civil suit survives the death of the plaintiff C The civil suit must be settled within 60 days of the plaintiff's death D The Administrator decides whether the suit is terminated or survives upon the plaintiff's death

B The civil suit survives the death of the plaintiff -Lawsuits survive both the plaintiff and defendant

Under the Investment Advisers Act of 1940, which of the following statements is FALSE about the acceptance of prepaid advisory fees by an investment adviser? A The fees must be detailed in writing in the advisory contract B The fees cannot amount to more than 6 months' payment in advance C Prepaid fees in excess of $1,200 require that the adviser's balance sheet be included in the "Brochure" D A refund of prepaid fees must be given if the contract is cancelled prematurely

B The fees cannot amount to more than 6 months' payment in advance

An issuer has filed a registration statement in a State for a new issue of securities that is effective and sale of the issue has started. The issuer finds that there is great demand for the offering and wishes to increase the offering size. In order to do this, which statement is FALSE? A A registration amendment must be filed with the State, if it is within 6 months of the date of sale B The offering price can be increased C An additional filing fee must be paid D A late registration fee must be paid

B The offering price can be increased

Which of the following persons is LEAST likely to be defined as an investment adviser? A A Certified Public Accountant who makes recommendation to customers of portfolio allocations in their 401(k) accounts after preparing their tax returns B The publisher of an investment newsletter specializing in making small cap stock recommendations that is distributed to paid subscribers monthly C A lawyer who offers financial planning services only to its existing customers at a discounted rate as compared to the rate charge to the customers for legal services D A financial planner that sets up a website that includes a retirement calculator that, based on customer input to a series of questions, creates a basic financial plan at no charge to the customer; the site includes advertisements placed by brokerage firms and insurance companies.

B The publisher of an investment newsletter specializing in making small cap stock recommendations that is distributed to paid subscribers monthly -Not based on specific client situations

The agent of a broker-dealer registered in State A, sells unregistered non-exempt securities to customers in State A. These customers lose a substantial sum of money on the investment. Which statement is TRUE? A The Administrator of State A can arrest the agent within the boundaries of State A for violating the provisions of the Uniform Securities Act B The purchasers of the issuer can initiate a civil lawsuit in a court of law in State A to recover their losses C The Administrator can initiate a criminal lawsuit in a court of law in State A to recover investor losses D No violation of the Uniform Securities Act has occurred as long as no sales of this security occurred outside of the boundaries of State A

B The purchasers of the issuer can initiate a civil lawsuit in a court of law in State A to recover their losses

If the alternative minimum tax computation is less than the regular income tax computation, which statement is TRUE? A The alternative amount is due B The regular amount is due C The alternative amount is added to the regular amount, with the combined amount due D The taxpayer selects the computation he wishes to use for that year, but must continue using that method in future years

B The regular amount is due

A solicitor for a Registered Investment Adviser is compensated by earning a percentage of the advisory fee. Which statement is TRUE? A The solicitor is required to be registered with the SEC as either an investment adviser or an investment adviser representative to receive such a payment B The solicitor is required to be registered in the State as either an investment adviser or an investment adviser representative to receive such a payment C The solicitor must be registered with both the SEC and the State as either an investment adviser or an investment adviser representative to receive such a payment D The solicitor is neither required to be registered with the SEC nor the State as an investment adviser or investment adviser representative to receive such a payment

B The solicitor is required to be registered in the State as either an investment adviser or an investment adviser representative to receive such a payment

A trustee for a trust account wants to make an investment in a privately held limited partnership that manufactures flight simulators. The trustee has previously invested in other limited partnerships and has made money in some of the ventures and lost money on others. The trustee is also a pilot and will get a discount if he uses the company's flight simulators for required annual flight training. Which statement is TRUE? A The trustee is prohibited from making the investment because of the potential for a total loss B The trustee is prohibited from making the investment because he will derive a personal benefit C The trustee is prohibited from making the investment because limited partnerships are not publicly traded D The trustee is permitted to make the investment if this is in the best interests of the beneficiary

B The trustee is prohibited from making the investment because he will derive a personal benefit

Which statement is TRUE? A The current yield of a bond is the same as the bond's yield to maturity B The yield to maturity of a bond is the same as the internal rate of return C The nominal yield of a bond is the same as net present value D The yield to call of a bond is the same as the yield to maturity

B The yield to maturity of a bond is the same as the internal rate of return

An investment adviser is looking to offer advisory services to new clients. Which statement is TRUE regarding delivery of Form ADV Parts 2A and 2B? A They must be delivered only if the individual becomes a client of the investment adviser B They must be delivered regardless of whether the individual becomes a client of the investment adviser C They must be delivered only upon written request of the individual that is considering becoming a client D They must be delivered only upon receiving a check for the initial investment amount from the client

B They must be delivered regardless of whether the individual becomes a client of the investment adviser

An individual is considering leasing a new automobile. Which quantitative method is used to calculate the monthly payment? A Rule of 72 B Time value of money C Net present value D Internal rate of return

B Time value of money

A customer wishes to open an account at a bank and name her son as beneficiary. She has $4,500 to deposit and wishes to maintain control of the account and be able to use the funds as she wishes. What type of account can be opened? A POD brokerage account B Totten trust account C Demand deposit account D Intervivos trust account

B Totten trust account

The portfolio construction most suitable for a pension fund seeking current income and safety of principal is: A Treasury bonds, General Obligation bonds and covered call writing B Treasury bonds, Corporate bonds and covered call writing C Corporate bonds, Time deposits and naked call writing D Treasury STRIPs, Corporate bonds and naked call writing

B Treasury bonds, Corporate bonds and covered call writing -DON'T PUT MUNIS IN PENSIONS

To register as an Investment Adviser Representative in a state, which form is filed? A U-2 B U-4 C U-6 D U-8

B U-4

Which statement is TRUE? A Universal variable life insurance was derived from the fixed annuity B Variable life insurance was derived from whole life insurance C Term life insurance was derived from variable life insurance D Whole life insurance was derived from universal variable life insurance

B Variable life insurance was derived from whole life insurance

If an omission or misstatement of material fact is found in a filing made with the Administrator: A no correcting amendment is required unless the Administrator so orders B a correcting amendment must be filed promptly C a correcting amendment must be filed within 45 days of discovery D a correcting amendment must be filed at registration or notice renewal

B a correcting amendment must be filed promptly

Under the Uniform Securities Act, an "offer" or "offer to sell" include all of the following EXCEPT: A an offer of a security B a sale of a security C the solicitation of an offer to buy a security D an offer of an interest in a security

B a sale of a security

All of the following must be disclosed by an investment adviser to a customer EXCEPT: A the President of the advisory firm pleaded "nolo contendere" in a civil action taken by a State Administrator B an investment adviser representative of that firm was fined $1,500 by FINRA for making unsuitable recommendations C a partner in the firm was suspended by FINRA for 1 year from engaging in the securities business D a partner in the firm was convicted of misappropriation of funds 8 years ago

B an investment adviser representative of that firm was fined $1,500 by FINRA for making unsuitable recommendations -Fines of $2,500 or more; $1,500 doesn't qualify for disclosure

A broker-dealer uses summer interns who answer the telephone, give stock quotes, and take messages from clients. The summer interns: A are not required to be registered in the State as agents because of their temporary status B are not required to be registered as agents in the State because they are performing clerical functions C must be registered in the State because they are transacting securities business with the public D must be registered in the State because they are working for a broker-dealer

B are not required to be registered as agents in the State because they are performing clerical functions

When computing standard deviation of returns against the mean, the measure used for the mean is: A geometric mean B arithmetic mean C weighted average mean D moving average mean

B arithmetic mean

The State Administrator is permitted to do all of the following EXCEPT: A withhold registration of a security B arrest an individual for violating State law C request that the state Attorney General file criminal charges against an individual for willfully violating State law D request that the state Attorney General file civil charges against an individual for violating State law

B arrest an individual for violating State law

Under the Investment Advisers Act of 1940 to satisfy the requirements of the "Brochure Rule," customers who wish to buy advisory services must receive a copy of the brochure: A at least 48 hours prior to entering into an advisory contract B at, or prior to, entering into an advisory contract C within 48 hours of entering into an advisory contract D within 10 days of entering into an advisory contract

B at, or prior to, entering into an advisory contract

If an investment adviser is appointed by a trustee to manage the financial assets of the trust, the adviser has a fiduciary responsibility to the: A trustee B beneficiary C grantor D donor

B beneficiary

The measure of stock price volatility relative to the market is: A alpha B beta C delta D sigma

B beta

One of the benefits of a global fund is that it includes: A international stocks B both domestic and international stocks C options writing strategies D a market weight of non-correlated investments

B both domestic and international stocks

An analyst evaluates individual companies within an industry focusing on the company's business model, management, product line, growth prospects and historical performance, to accumulate information that will be used to make recommendations of investments to be included in customer portfolios. This is an example of: A top-down investment strategy B bottom-up investment strategy C macro investment strategy D micro investment strategy

B bottom-up investment strategy

An investment adviser wishes to participate in the gains of the accounts that he administers. Under the Investment Advisers Act of 1940, the investment adviser: A can only enter into advisory contracts with accredited investors as promulgated under Regulation D of the Securities Act of 1933 B can only enter into advisory contracts with individuals that place at least $1,100,000 under management C can only enter into advisory contracts with QIBs as defined under Rule 144A as promulgated under the Securities Act of 1933 D is prohibited from entering into advisory contracts that permit participation in profit and loss

B can only enter into advisory contracts with individuals that place at least $1,100,000 under management -Participate in gains as in make money of performance, and this can only be done id the clients are high net worth individuals

The Standard and Poor's 500 Index is: A an average of 500 different stock prices B capitalization weighted C based on 500 mid-cap securities D one-on-one weighted

B capitalization weighted -Based on the market cap of the 500 largest companies headquartered in the US

To find the future value of an investment, the annual investment returns must be: A discounted B compounded C amortized D accreted

B compounded

An existing customer of an agent who is registered in State Z contacts the agent to inquire about selling 1,000 shares of ABCC Corp. - a thinly traded stock that is sometimes quoted in the Pink Sheets. The agent attempts to locate a buyer for the shares for the customer, but cannot find one. One week later, a new customer contacts the agent, asking him to buy 1,000 shares of ABCC Corp. The agent contacts the existing client to see if he is interested in selling these shares. This action is: A a violation of the Uniform Securities Act B considered to be an offer to buy made by the agent C a conflict of interest that must be disclosed to the existing customer D defined as a contract to sell the shares

B considered to be an offer to buy made by the agent

Under SEC rules regarding taking custody of client funds: A custody can only be taken for clients who have at least $1,100,000 under management; or a net worth of at least $2,200,000 B customers must be notified of the location where the funds are being held C customers must receive semi-annual account statements D the advisory firm must be audited, on a surprise basis, at least semi-annually

B customers must be notified of the location where the funds are being held

A father is writing his will (the testator) and is naming as beneficiaries his 3 adult sons. Each one will get an equal share "per capita" of the father's estate upon the father's death. Each of the sons has 2 children (the grandchildren of the testator) who are not yet adults. If one of the sons predeceases the testator, then the: A deceased son's share goes into the son's estate B deceased son's share passes to his brothers C deceased son's shares passes to his children D deceased son's share reverts back to the father's estate

B deceased son's share passes to his brothers -When it is "per capita," (Latin for "by the head") each NAMED beneficiary gets an equal share of the estate. In this will, there are 3 named beneficiaries - the 3 living sons. Assume they are Son A, Son B and Son C - each gets an equal 1/3rd of the father's estate upon the father's death. If Son A dies before the father, the estate is now divided among the 2 remaining living beneficiaries, Son B and Son C, who will now get 1/2 of the estate each upon the father's death. Because the grandchildren are not named, they get nothing -If the testator had NAMED both the 3 adult sons and their children "per capita," things work out differently. Assume that the 3 adult sons had 2 children each. Then there would have been 9 names (the 3 sons and their 6 children), with each getting 1/9th of the estate

A 7% coupon bond is being offered on an 8% basis. If interest rates for similar bonds fall below 8%, the basis for this bond will: A increase B decrease C be unaffected D be volatile

B decrease

A Federal Covered Adviser (FCA) located in State A advertises in State B. The Administrator of State B can: A require the FCA to submit its advertising to the State B Administrator before use B do nothing C only require the adviser to meet Federal guidelines for advertising D require the FCA to submit its advertising to the State B Administrator 10 days prior to use

B do nothing -Federal Covered advisor is only subject to SEC regulation and not subject to state regulation

All of the following must be disclosed by an investment adviser to a customer under the Investment Advisers Act of 1940 EXCEPT an investment adviser who: A takes custody of client funds is having trouble paying its bills B does not take custody of client funds is 6 months late paying the rent on the office space C takes custody of client funds is expelled by FINRA D does not take custody of client funds was convicted of embezzlement 7 years ago

B does not take custody of client funds is 6 months late paying the rent on the office space

An Investment Adviser wants to change its approach and management style, focusing more on growth funds and emerging company stocks and less on strategies that provide stable income. In order for the Investment Adviser to do this: A prior approval must be obtained from the Administrator B each customer must approve the change by signing a new advisory agreement C no action need be taken by the Investment Adviser D the IA must be a Federal Covered Adviser

B each customer must approve the change by signing a new advisory agreement

A market maker is defined as a person that: A engages in the business of effecting transactions in securities for the account of others B engages in the business of effecting transactions in securities for his or her own account C either engages in the business of effecting transactions in securities for the account of others or for his or her own account D represents a broker-dealer or issuer in effecting, or attempting to effect, purchases or sales of securities

B engages in the business of effecting transactions in securities for his or her own account

The tax rate on the last dollar of income earned is called the: A effective tax rate B marginal tax rate C statutory tax rate D average tax rate

B marginal tax rate -Income taxes are progressive, meaning that the tax rate increases along with increases in income. The marginal tax rate is defined as the rate imposed on the last dollar of income earned. The higher one's income, the higher the marginal rate

When the market price of a share of stock is multiplied by the number of shares that the company has outstanding, this is known as: A market weight B market capitalization C common equity D net worth

B market capitalization

Tactical asset allocation is a method of: A stock selection B market timing C portfolio rebalancing D portfolio diversification

B market timing

Monte Carlo simulation: A is used to determine the expected value of an investment's return based on the probability of a specific result occurring B establishes a frequency distribution of investment returns over a range of different conditions C predicts the variability of return that can occur relative to the mean or median return D establishes the asset allocation percentages applied to each asset class based upon an investor's objectives, risk tolerance, and time horizon

B establishes a frequency distribution of investment returns over a range of different conditions -this method assesses the outcome of the investment's return under an extremely broad range of varying conditions, creating thousands of computer calculated scenarios to converge on the most probable outcome. Thus, it creates a frequency distribution of investment returns, with the most likely result being the investment returns that are generated with the greatest frequency

An investment in a Real Estate Limited Partnership: A exposes the limited partner to unlimited risk B exposes the limited partner to capital risk of the amount invested C limits the risk of loss to the limited partner's proportional share of any recourse debt on the real property owned by the partnership D limits the risk of loss to the limited partner's proportional share of tax assessments levied by the IRS on the partnership

B exposes the limited partner to capital risk of the amount invested

All of the following statements about the Securities Exchange Act of 1934 are true EXCEPT the: A general provisions of the Act apply to non-exempt securities B general provisions of the Act apply to exempt securities C anti-fraud provisions of the Act apply to non-exempt securities D anti-fraud provisions of the Act apply to exempt securities

B general provisions of the Act apply to exempt securities

The essential difference between the arithmetic mean return and the geometric mean return is: A arithmetic mean return considers compounding while geometric mean return does not B geometric mean return considers compounding while arithmetic mean return does not C arithmetic mean return considers probability while geometric mean return does not D geometric mean return considers probability while arithmetic mean return does not

B geometric mean return considers compounding while arithmetic mean return does not

A client has a large position of 30-year Treasury Bonds is concerned that interest rates may start to rise. To protect against this, the customer could: A go long a 30-year T-Bond futures contract B go short a 30-year T-Bond futures contract C buy 30-year T-Bond calls D sell 30-year T-Bond puts

B go short a 30-year T-Bond futures contract

Income in a revocable trust is taxed at the: A corporate rate B grantor rate C trust rate D AMT rate

B grantor rate -Income in a non-revocable trust is taxed at the trusts schedule, not the grantor

If it is in the public interest, the State Administrator may deny the registration of a person for all of the following reasons EXCEPT the applicant: A has willfully violated the Act B has insufficient experience C is financially insolvent D has failed to pay required fees

B has insufficient experience

Under the provisions of the Uniform Securities Act, the determinant of whether an investment adviser can take custody of client funds is whether the RIA: A is named as the trustee of a client trust account B has taken out a surety bond C has a signed power of attorney D has at least $25 million of assets

B has taken out a surety bond -Surety bond must have coverage of at least $35,000

Prior to effecting a transaction for a customer, an agent is obligated to disclose: A the amount of commission to be charged B if the commission to be charged will be higher than normal C the bid-ask spread on that security D the last reported trade in that security

B if the commission to be charged will be higher than normal -The only requirement for disclosure of commission costs is that if a transaction will result in unusually high commission costs, this must be disclosed to the customer prior to executing that trade.

An investment adviser would be permitted to charge a 2% fee to clients based on all of the following EXCEPT: A average assets under management over the calendar year B increase in assets under management over the calendar year C highest value of assets over the calendar year D assets under management at the end of the year

B increase in assets under management over the calendar year -Increase in assets suggests a performance-related fee which isn't allowed

Under the Investment Advisers Act of 1940, all of the following can be considered to be compensation received by an investment adviser EXCEPT: A a commission received on the sale of a life insurance policy to an advisory client B interest paid on a margin loan by an advisory client C a fee for creating a financial plan that is refundable if the client purchases an annuity contract D shares of stock received from a client for creating an asset allocation plan

B interest paid on a margin loan by an advisory client -Interest on margin loans is not compensation

Bond portfolio immunization protects the portfolio against: A default risk B interest rate risk C purchasing power risk D liquidity risk

B interest rate risk

An IAR has opened an account for a new customer. The customer is "on the road" for 3-4 weeks per month and has given the IAR verbal authorization to trade her account on a discretionary basis. The IAR sends the customer a written power of attorney for signature and return. 1 week after opening the account, the IAR hears of a good investment opportunity and buys 500 shares of the XYZ stock at $50 for the customer's account. 3 weeks later, the stock declines and the IAR sells the stock at $30 per share. The customer never returned the signed power of attorney. Liability for the loss rests with the: A customer B investment advisory firm C investment adviser representative D all of the above

B investment advisory firm

The person named as the executor over an estate would be found in the: A affidavit of domicile B letters testamentary C proof of domicile D certificate of incumbency

B letters testamentary

Disability insurance coverage should be part of a customer's financial plan if the customer is concerned about the possibility of: A uncovered medical expenses B loss of income due to illness or injury C long-term health care costs D insufficient income in retirement

B loss of income due to illness or injury

A customer signature is needed to open a: A cash account B margin account C both of the above D neither of the above

B margin account -No customer sig needed on new account form -Margin accounts require a customer signature on the rehypothecation agreement

Past performance: A may not be shown in an investment adviser advertisement B may only be shown in an investment adviser advertisement if it reflects the deduction of advisory fees, brokerage commissions and any other expenses that a client would pay C may only be shown in an investment adviser advertisement if a comparison is made to a relevant market index D may only be made in an investment adviser advertisement if the advertisement is filed in advance with the SEC

B may only be shown in an investment adviser advertisement if it reflects the deduction of advisory fees, brokerage commissions and any other expenses that a client would pay

A variable universal life (VUL) insurance policy has all of the following characteristics EXCEPT: A flexible premium payment B minimum cash value C variable cash value D variable death benefit

B minimum cash value

All of the following would be found on a client's personal balance sheet EXCEPT: A cash in savings accounts B mortgage interest paid C equity in a brokerage firm account D mortgage loan payable

B mortgage interest paid -Expenses are shown on the income statement, not the balance sheet

Under the Investment Advisers Act of 1940, all of the following statements about investment advisory contracts are true EXCEPT investment advisory contracts: A must be in writing B must be filed with the SEC 10 days in advance of their effective date C must provide for notification to customers if there is a change in the composition of the advisory partnership D may provide for a fee that is partially based upon capital gains for customers who have at least $1,100,000 of assets invested; or who have a net worth of $2,200,000

B must be filed with the SEC 10 days in advance of their effective date

An exempt reporting adviser: A must file Form PF with the SEC B must file Form ADV with the SEC C must file both Form PF and Form ADV with the SEC D is neither required to file Form PF nor Form ADV with the SEC

B must file Form ADV with the SEC

An individual who is a registered representative with a broker-dealer prepares financial plans for customers under the supervision of the broker-dealer and does not charge for the plans. The individual takes commissions on transactions that result from the implementation of the recommendations included in the plans. Under SEC Release IA-1092: A both the individual and the broker-dealer must register with the SEC as an investment adviser representative and an investment adviser, respectively B neither the individual nor the broker-dealer need register with the SEC as an investment adviser representative and an investment adviser, respectively C the individual must register with the SEC as an investment adviser representative; the broker-dealer is not required to register with the SEC as an investment adviser D the individual need not register with the SEC as an investment adviser representative; the broker-dealer is required to register with the SEC as an investment adviser

B neither the individual nor the broker-dealer need register with the SEC as an investment adviser representative and an investment adviser, respectively

A fee payment is NOT required to be made when a(n): A agent of a broker-dealer registers in a State for the first time B new broker-dealer files as a successor to a firm that has ceased operations C renewal registration is filed by an investment adviser by December 31st of that year D notice filing is made in the State by a Federal Covered Adviser

B new broker-dealer files as a successor to a firm that has ceased operations -No new registration when merging/acquiring a firm

Investor likes and dislikes that must be taken into account when making a recommendation to a customer is an example of: A financial considerations B non-financial considerations C investment horizon D investment style

B non-financial considerations

A Registered Investment Adviser has been in business for 15 years. The adviser, who trades options, uses graphs and charts during a presentation to a client that show that the adviser made a 30% return over the past 5 years. The adviser tells the client that because of this, it is probable that he will make at least a 15% return for any new accounts. The statement by the adviser is: A permissible because the adviser's past performance backs up this claim B not permitted because it is misrepresenting that there is no risk in trading options C not permitted because advisers are prohibited from showing past performance of recommendations in advertising D not permitted because the adviser is making a performance guarantee to the client

B not permitted because it is misrepresenting that there is no risk in trading options

An agent receives a complaint from a customer. The agent should: A attempt to resolve the complaint prior to notifying his or her supervisor B notify his or her supervisor of the receipt of the complaint C notify the Administrator of the receipt of the complaint D take no action until the customer provides evidence of wrongdoing

B notify his or her supervisor of the receipt of the complaint

A person makes an initial application for State registration on March 1st. The registration expires: A at such a date as set by the Administrator B on December 31st of that year C on March 1st of the following year D only upon withdrawal by the applicant

B on December 31st of that year

The Administrator may deny or revoke a securities registration by: A rule B order C edict D subpoena

B order

Royalties received from an oil and gas program are: A partnership income B passive income C earned income D portfolio income

B passive income

Under NASAA rules, if a customer wishes to trade a margin account prior to returning the signed margin agreement, such an action is: A prohibited B permitted only if the customer returns the signed margin agreement promptly C permitted only if the customer returns the signed margin agreement within 1 day of the first transaction in the account D permitted only if the customer returns the signed margin agreement within 3 days of the first transaction in the account

B permitted only if the customer returns the signed margin agreement promptly

Cash value of a universal life insurance policy is: A premium payments plus cost of insurance B premium payments minus cost of insurance plus interest C premium payments, plus or minus growth or loss in the separate account, plus the cost of insurance D premium payments, plus or minus growth or loss in the separate account, minus the cost of insurance

B premium payments minus cost of insurance plus interest

Duration is a measure of a bond's: A income yield B price volatility C credit quality D risk of early redemption

B price volatility

A broker-dealer is offering an IPO to the public that is "hot." The broker-dealer withholds 15% of the shares to set aside for its future use. This action is: A permitted because broker-dealers have discretion over IPO allocations B prohibited because the broker-dealer is "free riding and withholding" C permitted because the broker-dealer takes financial liability when performing an underwriting D prohibited because the broker-dealer is not allowed to own stock in companies that go public

B prohibited because the broker-dealer is "free riding and withholding" -BDs and their agents are prohibited from buying IPO shares at the offering price in the underwriting, but they can buy in the secondary market

An investment adviser makes presentations to existing and prospective clients using a chart that determines when to buy or sell securities. In order to do this, the adviser must: A prominently disclose its performance history over the time period used in the chart B prominently disclose the limitations of using the chart and the difficulties regarding its use C prominently disclose the fact that past performance does not predict future results D show a comparison of performance to the relevant benchmark index for the preceding 1-year, 5-year, and 10-year time periods

B prominently disclose the limitations of using the chart and the difficulties regarding its use -prohibits an investment from publishing or circulating an advertisement that "makes any direct or indirect representation that a graph, chart, formula, or other device can, in and of itself, determine which securities to buy or sell or when to buy or sell securities, or can assist an individual in making such determinations without disclosing the limitations of the device

An investment adviser is a private fund adviser that is not required to register with the SEC. In order to maintain its exempt adviser status, it can only solicit investors who are: A sophisticated B qualified C accredited D registered

B qualified

Under the provisions of the Investment Advisers Act of 1940, if an adviser takes custody of customer funds or securities, account statements MUST be sent to the customer: A monthly B quarterly C semi-annually D annually

B quarterly

Under the Investment Advisers Act of 1940, if an adviser accepts prepaid advisory fees of $1,200 or more, 6 months or more in advance of services rendered, each new client MUST: A give discretionary authority to the adviser B receive a copy of the adviser's balance sheet C be provided with a "Brochure" at least 5 days in advance of signing a contract D be reported to the Securities and Exchange Commission

B receive a copy of the adviser's balance sheet

An individual who invests in a limited partnership unit has the right to: A make management decisions for the partnership B receive payouts from the partnership C liquidate the partnership investment at will D audit the books and records of the partnership

B receive payouts from the partnership -Inspect, not audit

An investor has a broadly diversified portfolio of blue chip stocks. The use of index options to hedge the portfolio: A reduces non-systematic risk B reduces systematic risk C reduces both systematic and non-systematic risk D cannot be used to reduce any risk since the portfolio is fully diversified

B reduces systematic risk

The Administrator can require all of the following regarding federal covered securities offered in a State EXCEPT: A notice filing for the issue in the State B registration of the issue in the State C filing of documents relating to the issue in the State D payment of a filing fee in the State

B registration of the issue in the State

Modern Portfolio Theory (MPT) states that: A risk-averse investors should construct non-diversified portfolios that maximize their returns without unacceptable levels of risk B risk-tolerant investors should construct diversified portfolios that maximize their returns without unacceptable levels of risk C risk-averse investors should construct diversified portfolios to average their returns for a given level of risk D risk-tolerant investors should construct non-diversified portfolios that maximize their returns in return for accepting high levels of risk

B risk-tolerant investors should construct diversified portfolios that maximize their returns without unacceptable levels of risk

A farmer who is worried about declining corn prices should: A buy a futures contract B sell a futures contract C sell a put option on a futures contract D buy a call option on a futures contract

B sell a futures contract -One way to hedge (protect) against a future price decline is to sell a futures contract - the farmer has a contract that protects him against a price decline, since the future sale price is established in the contract. If the price of the commodity declines, either the farmer can close the contract at a profit since the price of the commodity has fallen or can deliver the commodity for the higher contract price.

Mutual funds must send their financial statements to shareholders: A annually B semi-annually C quarterly D monthly Review

B semi-annually

A company's stock trades at a P/E ratio of 30. It is expected that the P/E ratio will go to 15 over the coming months. This means that the: A stock price will likely rise B stock price will likely fall C company's sales are likely to grow D company's sales are likely to decline

B stock price will likely fall -Choice C is incorrect because increasing sales does not necessarily mean that earnings are increasing.

A call option is "in the money" when the: A current market value of the stock is less than the option contract strike price B strike price of the option contract is below the current market value of the stock C option contract premium exceeds the option contract time value D option contract time premium is less than the option contract premium

B strike price of the option contract is below the current market value of the stock

A man invested $20,000 in a variable annuity purchased in a non-qualified account. At age 62, the account has grown to $35,000 and the man withdraws $3,000. The amount of the withdrawal is: A tax-free B subject to ordinary income tax but no penalty tax C subject to penalty tax but not to ordinary income tax D permitted to be rolled over to an IRA, if completed within 60 days

B subject to ordinary income tax but no penalty tax

Under the Investment Company Act of 1940, an investment adviser's contract is initially set for: A 1 year; and is subject to renewal every year thereafter B 1 year; and is subject to renewal every 2 years thereafter C 2 years; and is subject to renewal every year thereafter D 2 years; and is subject to renewal every 2 years thereafter

C 2 years; and is subject to renewal every year thereafter

A client purchases 1,000 shares of ACME Growth Fund in July of 20XX. In December of 20XX, the fund distributes a capital gain to its shareholders. This distribution is: A taxable as a short-term capital gain based on the length of time that the client held the fund shares B taxable as a long-term capital gain based on the length of time that the fund held underlying securities C a tax-free return of invested capital D exempt from taxation at the State level but not at the Federal level

B taxable as a long-term capital gain based on the length of time that the fund held underlying securities -Based on the time tat the fund has held the security paying the dividend, not how long the client has owned shares of the fund

A registered investment adviser is contacted by a local newspaper reporter who requests personal information about one of the RIA's clients who has purportedly invested in "stocks in pornographic businesses" and wants to disclose this to the public. The RIA should: A disclose all of the customer's stock holdings to the reporter B tell the reporter that all client information is confidential C tell the reporter about such stock holdings only if the allegations are true D tell the Securities and Exchange Commission about the incident

B tell the reporter that all client information is confidential

An advantage of a variable annuity over a fixed annuity is: A minimum guaranteed rate of return on investment B the ability to allocate funds across multiple subaccounts C protection of initial investment from potential loss D tax deductibility of investment made into the contract

B the ability to allocate funds across multiple subaccounts

If an investment adviser wishes to charge a performance fee that allows it to share a percentage of capital gains in a customer account, then under the Investment Advisers Act of 1940: A such an arrangement is prohibited because of the inherent conflict of interest between the investor and the adviser B the adviser must disclose to the customer that such an arrangement can give the adviser an incentive to increase the portfolio's risk exposure C the adviser must disclose that if a fixed fee were charged, the customer would be paying a lower fee, but the adviser would have to make this up by increasing its charges D such an arrangement is permitted as long as all fees are disclosed to customers

B the adviser must disclose to the customer that such an arrangement can give the adviser an incentive to increase the portfolio's risk

A father is writing his will (the testator) and is naming as beneficiaries his 2 adult sons - Son A and Son B. Each one will get an equal share "per stirpes" of the father's estate upon the father's death. Each of the sons has children (the grandchildren of the testator) who are not yet adults. Son A has 2 children - A1 and A2. Son B has 1 child - B1. Son B predeceases the testator. This means that: A Son A gets 100% of the assets of the estate upon the death of the testator B the grandchild B1 gets 50% of the assets of the estate upon the death of the testator C the grandchildren A1, A2, and B1, each get 33% of the assets of the estate upon the grandfather's death D no assets will be distributed upon the death of the testator until the grandchildren become adults

B the grandchild B1 gets 50% of the assets of the estate upon the death of the testator -"Per stirpes" is Latin for "by the branch." What this means is that each family branch gets an equal share of the estate. So if the father has 2 sons, Son A and Son B, each gets 1/2 of the father's estate upon the father's death. If Son B dies before the father, the 1/2 share now goes to the children of Son B- since there is only 1 child - B1 - he or she gets the 50% share

An investment in common stock can provide a lower tax liability than a corporate bond investment because: A the capital gains tax rate on a realized gain from an appreciated common stock position is lower than the rate on a realized gain from a appreciated bond position B the income tax rate on qualified cash dividends received from common stock is lower than the rate on interest payments received from corporate bonds C common stock dividend yields are lower than corporate bond interest yields D all dividends and capital gains on common stock are taxed at a lower rate than the tax rate applied to all interest and capital gains on corporate bonds

B the income tax rate on qualified cash dividends received from common stock is lower than the rate on interest payments received from corporate bonds

A customer buys an annuity requiring an initial payment of $20,000. The annuity offers a 3% Bonus Credit. This means that: A the customer is only required to make an initial payment of $19,400 B the insurance company will pay an extra $600 into the contract on top of the customer's $20,000 payment C the insurance company will issue a check to the customer for $600 upon acceptance of the contract D the customer will receive a $600 credit from the insurance company that can be used to buy an additional life insurance policy offered by that company

B the insurance company will pay an extra $600 into the contract on top of the customer's $20,000 payment

Under partnership democracy provisions, the partnership agreement must give detailed disclosure of all of the following EXCEPT: A the procedures for allocating profits from investments to the limited partners B the procedures for allowing limited partners to assign specific properties C the general partner's compensation arrangement D the limited partners' claim to assets upon dissolution

B the procedures for allowing limited partners to assign specific properties

When comparing an Exchange Traded Fund to a Unit Investment Trust, the customer should be made aware that: A expense ratios tend to be higher for ETFs than for UITs B the secondary market for UITs is limited while ETFs are actively traded C UIT portfolios are actively managed while ETF portfolios are passively managed D cash dividends received from UITs do not qualify for the lower 15% tax rate, while cash dividends received from ETFs do qualify for the lower rate

B the secondary market for UITs is limited while ETFs are actively traded -both are typically passively managed -both have low expense ratios -cash dividends received from both qualify for the lower 15% tax rate if the portfolio holds equity securities

A registered agent that oversees discretionary accounts for many clients has been trading the accounts with increasing frequency. It is unlikely that the agent would be accused of "churning" these accounts if: A each transaction is approved by the branch manager promptly B these are wrap accounts charging a flat annual fee C the transactions are suitable for the customers D the securities being traded are exempt

B these are wrap accounts charging a flat annual fee -Wrap accounts charging flat fees take away the incentive to churn because there aren't fees on each trade -Excessive trading, even if it is suitable, is still unethical

An investment adviser that makes investment decisions by first selecting industries that are likely to outperform the market based on the current economic environment and then selecting specific companies within those industries based on product lines, market share, management strategy, etc., is using the: A bottom up approach to investing B top down approach to investing C dynamic selection approach to investing D efficient market approach to investing

B top down approach to investing

All of the following terms apply to mutual fund shares EXCEPT: A continuously issued B tradeable C redeemable D non-negotiable

B tradeable

An agent recommends that a customer should "Send $10,000 of cash to the agent, which he will personally keep in a safe place to pay for any purchase orders placed by the customer." This recommendation is: A prudent and appropriate for the customer B unethical and prohibited C allowed only if the Administrator is given notice that the agent may take custody of client funds D allowed only if the Administrator is given a quarterly report by the agent of funds and securities held for customers

B unethical and prohibited -Client funds should never be held onto by an agent or advisor for safe keeping; there are policies in place to handle the custody of funds if the client wishes to have a broker-dealer take custody

An investment adviser representative (IAR) personally owns 100,000 shares of DEF stock. He believes that the stock is a good long term investment, but that the price will remain flat for the next 18 months. He recommends the purchase of the stock to one of his best customers, who has an investment objective of capital gains, and when the customer agrees, arranges to have his 100,000 shares sold to that customer. This action is: A unethical because the recommendation does not correspond to the customer's investment objective B unethical because the IAR has a conflict of interest that must be disclosed to the customer at the time the recommendation is made and the customer must given written permission to the transaction C unethical because the IAR cannot sell his own personal position to a customer D permitted without restriction

B unethical because the IAR has a conflict of interest that must be disclosed to the customer at the time the recommendation is made and the customer must given written permission to the transaction

The sale of a put has all of the same characteristics as buying stock EXCEPT: A limited loss potential in a falling market B unlimited gain potential in a rising market C low liquidity risk if the position is to be liquidated D both are bull market strategies

B unlimited gain potential in a rising market

An individual has purchased a 10-year level premium life insurance policy. The insurance company would be required to pay a claim: A when the cash surrender value of the policy reaches a pre-established level B upon the death of the insured within the 10 year period C after the final premium payment is made according to the terms of the contract D within 90 days of the date that a certified copy of the death certificate is provided to the insurer

B upon the death of the insured within the 10 year period

The P/E ratio of a stock measures: A profitability B valuation C liquidity D price trend

B valuation

Level premium and permanent are terms associated with: A term insurance B whole life insurance C universal life D fixed index universal life

B whole life insurance

All of the following are "federal covered" advisers EXCEPT an adviser: A with $400,000,000 of assets under management B with $40,000,000 of assets under management C to an investment company with $400,000,000 of assets D to an investment company with $40,000,000 of assets

B with $40,000,000 of assets under management

What is the highest credit rating that can be assigned to a high-yield bond? A AAA B BBB C BB D B

C BB -High yield bonds are not investment grade, so it's looking for the best possible speculative grade

Which statement may be made by an agent about a new securities issue that is being registered by qualification? A "Because this is the most difficult registration process, you are guaranteed that the issue is safe" B "The Administrator has approved of the offering once registration is effective" C "The security is being registered in the State" D "The issue is selling out fast to knowledgeable investors"

C "The security is being registered in the State" -State admin don't "approve" registrations, they just state that they have become effective

A customer is dollar cost averaging by investing $400 per month into a mutual fund. Over 4 months, the customer has made purchases at $13 per share, $10 per share, $8 per share, and $9 per share. By using this method, the customer has an average cost per share that is how much lower than the average price per share? A 0 B $.25 C $.32 D $.50

C $.32 Month Investment Price # of Shares 1 400 / 13 = 30.769 2 400 / 10 = 40.000 3 400 / 8 = 50.000 4 400 / 9 = 44.444 ------- -------------- 1600 165.213 Average Cost Per Share = 1600/165.213 = 9.68 Average Price Per Share = (13+10+8+9)/4 = 10

The maximum permitted dollar amount that can be raised in a Private Placement under Rule 504 of Regulation D is: A $1,000,000 B $5,000,000 C $10,000,000 D Unlimited

C $10,000,000

A customer wants an equity investment with a required rate of return of 3.50% and wants to receive a yearly dividend payment of $3.50. To meet the customer's requirements, the security must cost: A $10.00 B $35.00 C $100.00 D $350.00

C $100.00 If the $3.50 dividend payment is divided by the required rate of return (3.50%), this give a per share price of $3.50/.035 = $100.00

Which investment adviser MUST register with the SEC? An investment adviser with assets of: A $1,000,000 B $100,000,000 C $110,000,000 D all investment advisers must register with the SEC, regardless of their assets

C $110,000,000 -Between $100,000,000 and $110,000,000 can choose to register at the state level or federal level, but $110,000,000 and above must register federally with the SEC

A customer invests $100,000 in an Equity Indexed Annuity contract tied to the Standard and Poor's 500 Index. The contract has a 90% participation rate; a 15% cap and a 3% floor. Interest is credited to the contract under the annual reset method and is compounded annually. The performance of the Standard and Poor's Index over the next 3 years is: Year 1:+10% Year 2:-5% Year 3:-10% At the end of year 3, the customer will have a principal balance of approximately: A $95,000 B $100,000 C $116,000 D $121,000

C $116,000 With Annual Reset Method compounded annually: - A 10% increase with 90% participation rate gives year 1 a $9,000 (100,000 + 9,000 = 109,000) -The 3% floor for year 2 means 109,000 x 1.03 = 112,270 -The 3% floor for year 3 means that 112,270 x 1.03 = 115,638

A customer invests $100,000 in an Equity Indexed Annuity contract tied to the Standard and Poor's 500 Index. The contract has a 90% participation rate and a 15% cap. Interest is credited to the contract under the annual reset method and is compounded annually. The performance of the Standard and Poor's Index over the next 3 years is: Year 1:+20% Year 2:-5% Year 3:+10% At the end of year 3, the customer will have a principal balance of: A $100,000 B $115,000 C $125,350 D $128,620

C $125,350 -The first year increase in the index of 20% with a 90% participation means that 18% would be credited to the account - however, because of the 15% cap, this is the first year credit, so the $115,000 balance is worth $115,000 after the first year. Because this is an insurance product, the customer does not bear investment risk, and the "floor" rate is 0% (unless the product offers a higher floor rate). Because of the 0% floor, the balance stays at $115,000 as of the end of year 2. In year 3, the $115,000 balance will grow by 9% (90% of the 10% growth rate) for a balance of $125,350 at the end of year 3

A customer, age 65, is in the 30% tax bracket. The customer has a non-tax qualified variable annuity separate account to which he contributed $12,000 that has a current market value of $30,000. The customer takes a distribution of $10,000 from the account. The tax that will be due on this distribution is: A 0 B $1,000 C $3,000 D $4,000

C $3,000

A market maker's quote for a stock is: $15.50 $15.80 10 x 10 The spread is: A $3 B $30 C $300 D $3,000

C $300 -market maker is willing to buy 1,000 shares (10 round lots of 100 shares) at $15.50 and is willing to sell 1,000 shares at $15.80. If the market maker does a round turn trade (a buy and a sell at the stated size), the market maker will earn $.30 on 1,000 shares = $300

Compute the non-compounded annualized inflation adjusted rate of return for the following investment held for 4 years. Initial Investment Value: $4,000 Ending Investment Value: $3,600 Dividends Received Over The Period: $800 Inflation Rate Over The Period: 4% A -1.00% B +1.00% C +1.50% D +2.50%

C +1.50% -Lost 400 on investment, made 800 in dividends for a total of 400 made over the 4 years = 100 per year 100/4000 = 2.5% 4% inflation / 4 years = 1% 2.5-1 = 1.5%

In an initial public offering, a member who acted as manager or co-manager CANNOT issue a research report on that company within how many days following the effective date? A 2 calendar days B 5 calendar days C 10 calendar days D 15 calendar days

C 10 calendar days -10 Calendar days for IPO -3 Calendar days for secondary offering

Under the Investment Advisers Act of 1940, copies of all advertising, notices and circulars must be retained if distributed to at least: A 1 person B 5 people C 10 people D 15 people

C 10 people

A customer is considering investing in a private partnership that is currently being formed to buy an office building. The certificate of limited partnership places a life of 9 years on the partnership, after which the office building will be sold and the proceeds distributed to the limited partners. The customer is evaluating the annual cash flow projections included in the Private Placement Memorandum using a CAPM approach. When doing so, the interest rate that would be used as the minimum "hurdle rate" for the project would be the: A 90 day Treasury Bill rate B 5 year Treasury Note rate C 10 year Treasury Note rate D 20 year CD rate

C 10 year Treasury Note rate -The risk free rate of return would be the rate for a Treasury security with a maturity that approximates the life of the investment - which is 9 years - so the 10 year Treasury Note is closest in maturity. This would be the minimum return necessary to make the investment (also called the "hurdle rate"

A bond portfolio consists of: $100,000 par value of 2-year zero coupon bonds$100,000 par value of 6-year zero coupon bonds$100,000 par value of 10-year zero coupon bonds$100,000 par value of 22-year zero coupon bonds The duration of the portfolio is: A 2 years B 8 years C 10 years D 22 years

C 10 years -Take the average duration

DEFF stock has a beta of +1.5. The expected market rate of return is 8% and the risk-free rate of return is 2%. The standard deviation of returns is 3%. Using the Capital Asset Pricing Model (CAPM), what is the expected rate of return for DEFF stock? A 6% B 8% C 11% D 12%

C 11% 1.5 * (8-2) = 9 9+2=11 standard deviation is irrelevant

A 20-year Zero-Coupon Treasury bond has a duration of: A 0 B 10 C 20 D This cannot be determined

C 20 -Duration is the number of years until the $1,000 par principal of a bond is paid back. Since a zero-coupon bond makes no interest payments, the entire $1,000 par principal amount is paid back at the maturity date, making the duration of a 20-year zero coupon bond equal to 20

An agent's registration becomes effective: A immediately when filed in the State B 10 days after filing in the State C 30 days after filing in the State D 90 days after filing in the State

C 30 days after filing in the State

Under the Investment Company Act of 1940, violations are punishable for up to how many years in jail? A 1 year B 3 years C 5 years D 10 years

C 5 years

A corporation buys the stock of another company. Which percentage of dividends received from the investment in the acquired company's shares are excluded from tax to the corporate purchaser of those shares? A 0% B 30% C 50% D 100%

C 50%

A client invests in an equity indexed annuity that has a guaranteed 3% annual return, a 10% cap and an 80% participation rate. In a year when the reference index increases by 9%, the investor will be credited with interest at the rate of: A 2.4% B 3.0% C 7.2% D 9.0%

C 7.2% -80% participation in 9% = 7.2%

An investor buys a security at $95 per share. The stock rises to a high of $105 and ends the year at $99 per share. The stock paid a $3 dividend during the year. What is the investor's total return? A 2.86% B 3.16% C 7.37% D 12.38%

C 7.37% $3 Dividend + $4 Capital Gain ---------------------------------- = 7.37% $95 per share

A customer buys a TIPS at par with a 3½% coupon. Inflation stays at 4% over the life of the security. What is the total return on the investment? A 3½% B 4% C 7½% D This cannot be determined from the information presented

C 7½% -Treasury Inflation Protection Securities (TIPS) give a fixed coupon rate (3½% in this example), but they also adjust the principal value of the bond up each year for inflation (4% per year in this example). At maturity, the investor gets the inflated principal amount. The Total Return on this TIPS would be 3½% annual income + 4% annual gain = 7½%

Which of the following individuals will be denied federal registration as an investment adviser? A A person who was convicted of misappropriation of funds 12 years ago B A person who has been imprisoned for 3 months for "DUI" - driving under the influence C A person who, 11 years ago, was imprisoned for 18 months for counterfeiting D None of the above

C A person who, 11 years ago, was imprisoned for 18 months for counterfeiting -NSMIA of 1996 will deny registration to a person who has a criminal record and who has been imprisoned for more than 1 year

Which statement is TRUE when comparing a foundation to a charitable trust for estate planning purposes? A A foundation has a fixed lifespan while a trust does not B A contribution into a charitable trust allows for a tax deduction while a contribution into a foundation does not C A trust allows the donor to maintain complete control over the assets contributed while a foundation does not D A trust allows for contributions from multiple donors while a foundation does not

C A trust allows the donor to maintain complete control over the assets contributed while a foundation does not

Which item is used when computing a corporation's Current Ratio? A Net Working Capital B Net Worth C Accounts Receivable D Long-Term Debt

C Accounts Receivable

If an investment adviser is an individual, which of the following items would be included in the computation of adviser's net capital? A Goodwill B Automobile C Accounts receivable D Copyright

C Accounts receivable -If it wasn't an individual, but a firm, then the automobile would also count

Which State-registered adviser is considered to have taken custody of client funds? A An adviser that accepts $300 of advisory fees as a prepayment covering the upcoming 5 months B An adviser that accepts $400 of advisory fees as a prepayment covering the upcoming 4 months C An adviser that accepts $500 of advisory fees as a prepayment covering the upcoming 6 months D All of the above

C An adviser that accepts $500 of advisory fees as a prepayment covering the upcoming 6 months -Must be funds covering at least the next 6 months or more

Which of the following is NOT allowed under the Uniform Securities Act? A An agent registered with a broker-dealer also is a licensed insurance agent at a life insurance company B An agent registered with a broker-dealer also is a licensed real estate agent at a real estate company C An agent registered with a broker-dealer also is licensed as an agent for a mutual fund dealer D An agent is registered with two affiliated broker-dealers who have an office in the same location

C An agent registered with a broker-dealer also is licensed as an agent for a mutual fund dealer

A portfolio of securities with a beta of 1.2 has produced an average annual return of 12%. Which investment should the portfolio manager NOT consider adding? A An investment with a 7.8% growth rate and a beta of .6 B An investment with a 15.4% growth rate and a beta of 1.2 C An investment with a 20% growth rate and a beta of 2.2 D An investment with a 26% growth rate and a beta of 2.1

C An investment with a 20% growth rate and a beta of 2.2 Choice A: 7.8% /.6 Beta = 13% risk adjusted return Choice B: 15.4% /1.2 Beta = 12.833% risk adjusted return Choice C: 20% /2.2 Beta = 9.09% risk adjusted return Choice D: 26% /2.1 Beta = 12.38% risk adjusted return

The formula for Total Return is: A Annual Income / Original Investment B Annual Capital Gain / Original Investment C Annual Income + Annual Capital Gain / Original Investment D Annual Income - Annual Capital Gain / Original Investment

C Annual Income + Annual Capital Gain / Original Investment

An investment adviser representative has been given the financial assets of a large estate to manage. What should be the IAR's IMMEDIATE concern? A The monetary needs of the beneficiaries of the estate B The investment objectives outlined in the will or trust document C Any upcoming liquidity needs to pay obligations as they are due D Compliance with the Prudent Investor Act when making investment decisions

C Any upcoming liquidity needs to pay obligations as they are due -The immediate concern of a large estate is any potential estate tax liability. The tax payment is due 9 months from date of death, so this is the immediate concern of the IAR. The other choices are all considerations as well, just not the immediate one

Why are European style options considered to be derivatives? A Because they can be traded at any time prior to expiration B Because they can only be exercised during a stated period just prior to expiration C Because their value is determined by the movements in the value of an underlying security D Because greater returns can be derived when trading options as compared to trading the reference asset

C Because their value is determined by the movements in the value of an underlying security

An agent is conducting securities activities on the premises of a bank. Which statement is TRUE? A Oral disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal B Written disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal C Both oral and written disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal D This is an unethical business practice

C Both oral and written disclosure is required that the products offered are not FDIC insured; are not deposits; and are subject to risk of loss of principal NOT-NOT-MAY Rule -Securities are NOT bank products -Securities are NOT FDIC insured -Securities MAY lose value -Must be disclosed both verbally and orally, and the agent should try to get them to sign a statement that they understand this

Which of the following is a capital need for a medical student? A Paying off student loans B Setting aside money to pay for medical school tuition C Buying medical imaging equipment 5 years from now D Borrowing money to pay for living expense while in school

C Buying medical imaging equipment 5 years from now

What is the difference between Class A and Class B stock in a pooled investment vehicle? A Class A stock distributes dividends only while Class B stock distributes capital gains only B Class A stock is negotiable while Class B stock is redeemable C Class A stock offers breakpoints while Class B stock does not D Class A stock is more marketable than Class B stock

C Class A stock offers breakpoints while Class B stock does not

All of the following are needed to calculate the Sharpe Ratio EXCEPT: A Risk measured by variability of return B Actual rate of return on an investment C Compound value of a sum D Rate of return on an investment with zero risk

C Compound value of a sum -(Actual - Risk Free) / SD

How is the market value of a zero coupon bond calculated? A Multiply the final payment by the market rate of return B Divide the final payment by the market rate of return C Discount the final payment by the market rate of return D Compound the final payment by the market rate of return

C Discount the final payment by the market rate of return

Which of the following would NOT be included in Adjusted Gross Income on a tax return? A Social security payments B Foreign bond interest C Distributions from non-qualified retirement plans attributable to cost basis D Distributions from mutual funds subject to Subchapter M

C Distributions from non-qualified retirement plans attributable to cost basis -Excluded from Adjusted Gross Income is municipal bond interest (which is not federally taxable) and retirement plan distribution amounts from non-qualified plans attributable to the cost basis (non-deductible investment dollars) in the plan

All of the following statements are true about ETNs EXCEPT: A ETNs can be traded in the market like any other stock B ETNs offer an investment return tied to a benchmark index C ETNs are an equity security D ETNs are tax-advantaged

C ETNs are an equity security

An exempt reporting adviser must file: A Form PF with the SEC B Form BD with the SEC C Form ADV with the SEC D Form RIA with the SEC

C Form ADV with the SEC -Exempt from filing Form PF, but is still required to file and annually update Form ADV

Which of the following can be purchased on margin? A Mutual fund shares B Options C Futures D OTC issues

C Futures

The person who donates the assets into the trust is the: A Custodian B Fiduciary C Grantor D Trustee

C Grantor

Under the Investment Advisers Act of 1940, when a Registered Investment Adviser is renewing its annual contract with customers, which is NOT required to be disclosed? A Business Address B Fees C History of RIA D Type of clients

C History of RIA

Which of the following MUST notify the Administrator if an agent of a broker-dealer is terminated? I Agent II Ex-employer III FINRA A I only B II only C I and II D I, II, III

C I and II -The Agent must notify the state admin -The Ex-employer must notify the state admin

Which statements are TRUE about registration as an agent? I Registration becomes invalid if the agent terminates employment with the broker-dealer II Registration is valid immediately after passing the Uniform Securities Exam III Registration is valid until December 31st of that year A I only B I and II C I and III D II and III

C I and III -Registration becomes valid within 30 days of registration

In order for an investment adviser to charge a "performance fee" under the Investment Advisers Act of 1940, the customer must have: I at least $1,100,000 of assets to invest II a net worth of at least $1,100,000 III at least $2,200,000 of assets to invest IV a net worth of at least $2,200,000 A I and II only B III and IV only C I and IV only D II and III only

C I and IV only

Under the Investment Advisers Act of 1940, which of the following statements are TRUE regarding advisory contracts? I Advisory fees cannot be based upon capital gains in the account II Advisory fees for clients with at least $1,100,000 of assets under management; or $2,200,000 net worth; can have a fee that is partly based upon capital gains III Advisory contracts must be filed with the SEC if they allow for $1,200 or more of prepaid advisory fees, 6 or more months in advance of services rendered IV Advisory contracts cannot contain provisions that violate Federal law A I and II only B III and IV only C I, II and IV D I, II, III, IV

C I, II and IV

An Investment Adviser can give advice on: I NYSE listed securities II Options III Commodity futures IV Variable annuities A I only B II and III only C I, II and IV D I, II, III, IV

C I, II and IV -Investment Advisers and IARs give advice about securities, not commodities or futures contracts. Choice I, II and IV are all securities. Commodities futures are not securities

Which statements are TRUE about the recordkeeping requirements for communications sent to potential clients under the provisions of the Investment Advisers Act of 1940 I A record of the name and address of each person to whom the communication is sent must be retained II A record of the name and address of each person to whom the communication is sent is not required for communications sent to more than 10 persons III For communications sent to a list of individuals, a memorandum describing the list and its source must be retained IV Proof of mailing in the form of a postal receipt must be retained for each printed communication that is distributed A I and III only B II and IV only C I, II, III D I, II, III, IV

C I, II, III

An insurance company that sells an Equity Indexed Annuity (EIA) could use which of the following methods to credit the change in investment value? I Annual reset II Point-to-point III High-water mark IV Moving average A I and II only B III and IV only C I, II, III D I, II, III, IV

C I, II, III -Annual Reset -Point-to-Point -High-Water Mark

State "blue sky" laws provide for: I Registration of broker-dealers II Registration of agents III Registration of investment advisers IV Registration of issuers A I and II only B III and IV only C I, II, III D I, II, III, IV

C I, II, III -Blue Sky laws apply to the registration of BDs, Agents, IAs, IARs and securities -NOT ISSUERS

Which of the following actions by an investment adviser are prohibited under the Investment Advisers Act of 1940? I Making a cash payment to a solicitor that is undisclosed to the customer for signing that customer as an advisory client II Using an advertisement that includes a testimonial from a famous personality without disclosure of payment III Entering into an oral advisory contract with the customer IV Accepting a prepaid advisory fee from a client A I and II only B III and IV only C I, II, III D I, II, III, IV

C I, II, III -Fees must be disclosed in the brochure -Testimonials are prohibited under IA Act of 1940 -Contracts must be in writing

Which of the following statements are TRUE? I Investment advisers with assets of less than $100,000,000 are required to register in each State II Investment advisers with assets of $100,000,000 are required to be registered with the SEC III Investment adviser representatives associated with advisers with assets of less than $100,000,000 can be required to be registered in each State IV Investment adviser representatives associated with advisers with assets of more than $100,000,000 are required to be registered with the SEC A I and II B III and IV C I, II, III D I, II, III, IV

C I, II, III -IARs aren't required to register at the federal level

Which of the following conditions must be met in order for an agent to share in the gains and losses of a customer's account? I The agent and customer must enter into a written agreement to share in the account II The agent can only share to the extent of capital contributed by the agent, and must share in both gain and loss III The agreement must be approved by the broker-dealer before it takes effect A I only B II only C I, II, III D None of the choices, since sharing in a customer's account is a prohibited practice

C I, II, III -IAs can never share in gains and losses of a customer account

Under the Investment Advisers Act of 1940, which of the following are requirements for a family office to be excluded from the definition of an Investment Adviser? I The family office must only provide investment advice to clients who are part of that family II The family office must be wholly owned by family clients and exclusively controlled by family members or entities III The family office cannot hold itself out as an investment adviser IV The family office must have less than $100 million of assets under management A I and III B II and IV C I, II, III D I, II, III, IV

C I, II, III -Key employees can invest, but not part owners -No asset size test for the exclusion

When comparing the Alternative Minimum Tax calculation to the Regular income tax calculation, which deductions are ONLY permitted in the Regular income tax calculation? I Personal exemption II State and local tax deduction III Miscellaneous itemized deductions IV Medical expense deduction A I and II only B III and IV only C I, II, III D I, II, III, IV

C I, II, III -Medical expenses are deducted from both regular and AMT

Which of the following can be required by the Administrator to register as a broker-dealer? I Minimum dollar amount of net capital II Minimum dollar amount of surety bond coverage III Passing a written examination by the firm's officers IV Meeting minimum experience standards A I and II only B III and IV only C I, II, III D I, II, III, IV

C I, II, III -NO minimum experience standards exist

Filing of advertising with the Administrator is NOT required for: I U.S. Government securities II Municipal securities III Investment company securities IV Options Clearing Corporation securities A I and II only B III and IV only C I, II, III D I, II, III, IV

C I, II, III -OCC covers non-exempt securities(options) that are not federally covered thus requiring the filing of advertisements with the state administrator

A customer enters a bank branch where he has a savings account and is approached by the branch manager who asks: "Are you interested in earning a higher rate of return than we offer on our savings accounts? Let me introduce you to our securities representative." If the customer opens a securities account, which disclosures are required to be made? I Securities products are not insured by the Federal Deposit Insurance Corporation II Securities products are not deposits or other obligations of financial institution III Securities products are subject to investment risks, including possible loss of principal IV Securities products are subject to taxation of income and capital gains A I and II only B III and IV only C I, II, III D I, II, III, IV

C I, II, III -The taxation of income and capital gains does not need to be disclosed

Under the Investment Advisers Act of 1940 which of the following is (are) disclosed in an investment adviser registration? I The approximate number of advisory clients II The approximate market value of the portfolios managed III The names and addresses of the adviser's clients IV The compensation basis to the adviser A IV only B I, II, III C I, II, IV D I, II, III, IV

C I, II, IV -NOT the names and addresses of clients

Investment advisers that have a broker-dealer entity are permitted to accept which of the following compensation items? I Commissions on trades effected for clients II Annual fees based on a percentage of assets under management III Monthly fees based on performance in the account IV Annual fees based on a fixed dollar amount A I and IV B I, II, III C I, II, IV D II, III, IV

C I, II, IV -No performance-based compensation unless the client qualifies ($1,100,000 AUM or $2,200,000 Net Worth)

Which of the following are NOT required to register as investment advisers under the Investment Advisers Act of 1940? Persons who give advice: I on U.S. Government securities II solely to insurance companies III solely to investment companies IV to customers within one State, where the investment adviser is a resident of that State A II and III B III and IV C I, II, IV D I, II, III, IV

C I, II, IV -U.S. Gov securities -Just Insurance Companies -To customers in 1 state where the IA is a resident

A customer that wishes to open a new account with an investment adviser gives the sales agent $6,000 in cash and tells the agent to "Buy securities that meet my investment objective." Which statements are TRUE? I Accepting cash from a customer is considered to be "taking custody" II The cash receipt must be reported to FinCEN III A written power of attorney is needed giving the agent discretion over the account IV A statement of any free credit balance must be sent to the customer at least quarterly A I and II B III and IV C I, III, IV D I, II, III, IV

C I, III, IV

Under the provisions of Regulation D, which of the following are accredited investors? I Bank II Individual with a $100,000 annual income III Individual with $1,000,000 net worth exclusive of residence IV Investment company A I and IV B II and III C I, III, IV D I, II, III, IV

C I, III, IV

Which of the following are covered under the Securities Exchange Act of 1934? I Registration of broker-dealers II Registration of investment advisers III Registration of insiders IV Registration of securities information processors A I and II only B III and IV only C I, III, IV D I, II, III, IV

C I, III, IV -Investment Advisors Act of 1940 covers IA registration

Which statements are TRUE about the solicitor's brochure under the Investment Advisers Act of 1940? I It must disclose the specific dollar fee, or percentage of advisory fee paid by the customer, that the solicitor will earn for referring the customer II It can be incorporated into the investment adviser's brochure, so that only one document is provided to the customer III It must disclose that the solicitor will be compensated for referring the client to the investment adviser IV The customer must sign that he or she received the solicitor's brochure A I and II only B III and IV only C I, III, and IV D I, II, III, IV

C I, III, and IV -Advisor brochure and solicitor brochure must be SEPERATE

Misstatements of material fact in a securities registration are violations of the Act for which of the following persons? I Broker-dealer underwriting the securities II Agents of the broker-dealer underwriting the securities III Issuer of the securities IV Directors of the issuer of the securities A I and III only B II and IV only C I, III, and IV D I, II, III, IV

C I, III, and IV -Agents can't be liable for their firm omitting material information in a securities registration

Which of the following statements are TRUE regarding an investment adviser rendering advice solely to an investment company? The investment adviser: I must register with the State II is exempt from registering with the State III must register with the SECIV is exempt from registering with the SEC A I and III B I and IV C II and III D II and IV

C II and III

Which of the following statements concerning a universal life insurance policy are TRUE? I The policy owner has a choice of investments for the cash value II The policy owner can change the amounts of premium payments III The policy owner can change the amount of the death benefit IV The policy owner receives a guaranteed, fixed rate of return on cash value A I and III B I and IV C II and III D II and IV

C II and III

Which statements are TRUE regarding the statute of limitations imposed under the Uniform Securities Act for actions that will cause denial of registration by the Administrator? I The statute of limitations for conviction of securities-related offenses that occurred in the U.S. is 5 years II The statute of limitations for conviction of securities-related offenses that occurred in the U.S. is 10 years III The statute of limitations for conviction of securities-related offenses that occurred in a foreign jurisdiction is 5 years IV The statute of limitations for conviction of securities-related offenses that occurred in a foreign jurisdiction is 10 years A I and III B I and IV C II and III D II and IV

C II and III -10 Years for U.S. -5 Years for Foreign -This is specifically for denial of registration, don't associate all statutes of limitation with these answers

The Securities Exchange Act of 1934 requires that: I there are 3 SEC Commissioners II there are 5 SEC Commissioners III SEC Commissioners have no outside work and cannot trade their own accounts IV SEC Commissioners cannot be affiliated with any political party A I and III B I and IV C II and III D II and IV

C II and III -5 SEC commissioners; 5 year terms -SEC commissioners cannot have outside work or trade their won accounts -No more than 3 commissioners from a single political party

An updating amendment to Form ADV must be filed by an investment adviser with the SEC: I within 45 days II within 90 days III of the firm's fiscal year end IV of the calendar year end A I and III B I and IV C II and III D II and IV

C II and III -Annual updating of Form ADV with the SEC must be done within 90 days of the end of the firms Fiscal Year

An investment adviser is opening that day's mail and receives a check from a customer for $5,000; however there is no payment due from the customer. The customer mailed the check in error. The same day, the investment adviser mails the check back to the customer. Under NASAA rules, the investment adviser: I is deemed to have taken custody of the customer's funds II has not taken custody of the customer's funds III must keep a record of the check received IV is not required to keep a record of the check received A I and III B I and IV C II and III D II and IV

C II and III -Did not take custody (Would have to have held the check for at least 3 BUSINESS days) -Must keep a record regardless of whether or not they took custody

Exchange Traded Funds (ETFs) are: I registered under the Investment Company Act of 1940 as closed-end management companies II registered under the Investment Company Act of 1940 as open-end management companies III regulated by the SEC and FINRAIV regulated by FDIC and the Department of Treasury A I and III B I and IV C II and III D II and IV

C II and III -ETFs are registered as Open-End management companies under ICA of 1940 -Regulated by SEC and FINRA

Under NASAA rules, the Form ADV filed with the State must be updated: A quarterly within 30 days of quarter end B quarterly within 90 days of quarter end C annually within 30 days of fiscal year end D annually within 90 days of fiscal year end

D annually within 90 days of fiscal year end -30 days for correcting an error

If an investment adviser, for the first time, takes a $1,200 prepaid advisory fee, more than 6 months in advance of services rendered: I an audited balance sheet must be filed with the SEC along with Form ADV Part 1 II an audited balance sheet must be filed with the SEC along with Form ADV Part 2 III promptly IV within 90 days A I and III B I and IV C II and III D II and IV

C II and III -Form ADV part 2 and Promptly

A customer that is long crude oil (a physical commodity): I can hedge by buying an oil futures contract II can hedge by selling an oil futures contract III typically plans on selling the crude oil at a future date in the cash market IV typically plans on selling the crude oil by making delivery on the contract delivery date A I and III B I and IV C II and III D II and IV

C II and III -Hedge your long position by selling futures contracts -Plans on selling the crude oil at a future date in the cash market

Which of the following are unethical practices by an investment adviser under the NASAA Statement of Policy? I An adviser exercising discretion under verbal authority from a customer given 5 business days ago II An adviser placing an order to sell a position that is dropping rapidly in price without discretionary authority III An adviser selling all of a security position when the customer authorized the sale of only part of the position IV An adviser selecting the best time to sell a position when the customer authorized the sale A I and III B I and IV C II and III D II and IV

C II and III -NASAA allows for 10 days to get written power of attorney, so 5 days falls within this -Authorized sale where the adviser picks the best time is allowed

A broker-dealer MUST maintain physical possession of which of the following? I Fully paid customer securities II Customer securities that are collateral for a margin loan III Securities held as collateral for derivative trading components IV Bearer bonds that have remaining interest coupons attached A I and III B I and IV C II and III D II and IV

C II and III -The BD holds onto margined securities

If an investment adviser wishes to hire an individual to solicit business for the advisory firm: I the solicitor must be registered as an agent of that investment adviser in the State II the adviser must be registered with either the SEC or the State as appropriate III there must be a written agreement between the adviser and the solicitor IV there must be a written agreement between the adviser and the SEC or the State Administrator, as appropriate A I and III B I and IV C II and III D II and IV

C II and III -The adviser must be registered with either the SEC or state -Must be written agreement between adviser and solicitor

Which of the following statements are TRUE regarding Regulation A offerings? I Offerings of a maximum of $25,000,000 or under are given an exemption from SEC registration II Offerings of a maximum of $75,000,000 or under are given an exemption from SEC registration III The dollar limitation is based upon any sales by that issuer within a 12 month time frame IV The dollar limitation is based upon any sales by that issuer within a 24 month time frame A I and III B I and IV C II and III D II and IV

C II and III -Tier 2 max is $75,000,000 (Tier 1 max is $25,000,000) -12 Month time frame

Under NASAA's rules on Unethical Business Practices for Registered Investment Advisers and Investment Adviser Representatives, which of the following client information is permitted to be disclosed to a third party without first obtaining client consent? I Account information directed to be disclosed by the client's CPA in a written letter signed by the CPA II Aggregated and averaged account information that the adviser wants to use in an advertisement III Account information directed to be disclosed by the investment adviser by the State Administrator IV Account information directed to be disclosed by the investment adviser by the client's spouse A I and III only B II and IV only C II and III only D I, II, III, IV

C II and III only -Aggregated information for ad use -Info requested by state regulators -A spouse cannot get their info without their permission -A CPA cannot get their info without their permission

The provisions of the Securities Exchange Act of 1934 apply to which of the following activities? I Trading rules for exempt securities II Trading rules for non-exempt securities III Anti-fraud rules for exempt securities IV Anti-fraud rules for non-exempt securities A I and II B III and IV C II, III, IV D I, II, III, IV

C II, III, IV

Under the Uniform Securities Act, which of the following are defined as securities? I Mortgages II Mortgage Bonds III Investment Contracts IV Variable Annuity Contracts A I and II only B III and IV only C II, III, IV D I, II, III, IV

C II, III, IV

Which of the following would be defined as a "sale" or "offer" under the Uniform Securities Act? I A stock dividend given to existing shareholders II A bonus of stock that is given for completing a securities purchase III Stock warrants given to purchasers of a debt offering IV Subscription rights given to existing shareholders for a different class of securities than originally purchased A I and II only B III and IV only C II, III, IV D I, II, III, IV

C II, III, IV -Stock dividends paid to existing shareholders are specifically EXCLUDED from the definition of sale or offer (aggregate value of holdings DOESN'T CHANGE)

Which of the following information MUST be included on a customer confirmation? I Whether the transaction was solicited or unsolicited II Whether a payment for order flow was made III The customer name and account number IV The price of execution A I and II B III and IV C II, III, IV D I, II, III, IV

C II, III, IV -Whether or not the order was solicited or unsolicited appears on the order ticket, not the confirmation

If a representative that transacts business in a State terminates employment with a federal covered adviser, notice must be given to the Administrator by the: I federal covered adviser II officer or director of the federal covered adviser III investment adviser representative A I and III B II and III C III only D I, II, III

C III only -For a Federal covered advisor, the IAR(Individual) is responsible for notifying the state (Think of it like this, why would a Fed covered advisor need to notify a state when the firm isn't registered at the state level? The IAR is the one registered at the state level.) -An investment advisor(Firm) is required to notify the state when an IAR is terminated (A difference between a FCA and IA)

An investment generates the following annual returns: Year 1:10% Year 2:4% Year 3:2% Year 4:10% Year 5:8% The mode return is A 2% B 4% C 8% D 10%

D 10% -Given a sequence of returns, the "mode" is the return that occurs most often. If the returns are arranged in ascending order, they are: 2%, 4%, 8%, 10% and 10%. Since the 10% return occurs 2 times, while the other 3 returns only occur once, 10% is the mode return

Under the Uniform Securities Act, an unregistered agent would be permitted to sell: I ownership interests in real estate limited partnerships II fractional ownership interests in a mining company III certificates of deposit issued by a federally chartered bank IV shares of a federally chartered credit union A I and II only B III and IV only C III only D I, II, III, IV

C III only -Need to be registered to sell securities; CDs are not a security, they're a bank product

When is a bank considered to be a broker-dealer? A Never, because banks are excluded from the definition of a broker-dealer under the Uniform Securities Act B If an assistant manager at the bank solicits a customer to obtain a mortgage from the bank, which the bank then sells to Fannie Mae, which packages the mortgage into a pass-through certificate C If a teller of the bank, when assisting a customer that is making a deposit of a payroll check, offers the customer a money market mutual fund that is primarily invested in Treasury Bills D If a customer service representative at a bank call center offers a bank certificate of deposit of a customer that asks about an investment that is FDIC-insured and that cannot lose value

C If a teller of the bank, when assisting a customer that is making a deposit of a payroll check, offers the customer a money market mutual fund that is primarily invested in Treasury Bills

When comparing an options contract to a futures contract, which statement is FALSE? A Both are exchange traded B Both are standardized C If not closed by trading, both require delivery of the underlying asset D Both are regulated

C If not closed by trading, both require delivery of the underlying asset -The principal difference between the 2 is that futures contracts actually require a delivery of the underlying asset at the delivery date unless they are closed by trading while an options contract gives the holder the "option" to exercise at expiration (or before)

Key features of Donor Advised Funds are: A Immediate tax deduction and immediate donation to chosen charities B Deferred tax deduction and immediate donation to chosen charities C Immediate tax deduction and deferred donation to chosen charities D Deferred tax deduction and deferred donation to chosen charities

C Immediate tax deduction and deferred donation to chosen charities

All of the following accounts avoid probate upon death of an owner EXCEPT: A Totten trust B JTWROS C Individual D Payable on Death

C Individual -If an account is opened as an Individual account without the TOD feature, then on death, the account goes to the deceased's estate, is passed by will and must go through probate (where someone could contest the transfer)

When an investment adviser files a registration application in a State, which of the following is automatically registered at the same time? A Individuals employed by the investment adviser as representatives B Individuals employed by the adviser to perform clerical or ministerial duties C Individuals who are officers or partners of the investment adviser that will act as representatives D Shareholders of the investment adviser that will act as representatives

C Individuals who are officers or partners of the investment adviser that will act as representatives

The primary risk of investing a large sum of money in a fixed annuity as a retirement vehicle is: A Interest rate risk B Obsolescence risk C Inflation risk D Credit risk

C Inflation risk -Because the benefit payments are fixed once the annuity payments start, the purchasing power of those fixed payments will fluctuate depending on the rate of inflation.

Under the Securities Act of 1933, all of the following signatures are obtained and found in a registration statement for a new issue offering EXCEPT the signature of the: A Chief Executive Officer of the issuer B Chief Financial Officer of the issuer C Initial purchasers of the issue D Lawyers for the issuer

C Initial purchasers of the issue

Which of the following persons can use the term "investment counsel"? A Investment advisers who are also attorneys admitted to the Bar in that State B Investment advisers who are also broker-dealers registered in that State C Investment advisers whose primary business is the rendering of investment advice D Any investment adviser registered with the SEC under the Investment Advisers Act of 1940

C Investment advisers whose primary business is the rendering of investment advice -Cannot call itself investment counsel unless the advisor's principal business is rendering investment supervisory services

A company that has a market capitalization of between $11 billion and $15 billion is considered to be: A Small Cap B Mid Cap C Large Cap D Nano Cap

C Large Cap -Micro Cap (Market Capitalization) stock is one with a market cap of up to $300 million -Small Cap stock is one with a market cap between $300 million and $2 billion -Mid Cap stock is one with a market capitalization between $2 billion and $10 billion -Large Cap stock is one with a market capitalization over $10 billion

Which action taken regarding a universal variable life insurance policy will NOT result in tax liability? A Cash surrender B Partial withdrawal C Loan of up to 95% D Payout of death benefit

C Loan of up to 95%

A customer has placed an order to buy 1,000 shares of ABC stock at the closing market price. In order to get the customer a lower execution price, the agent places an order to sell 100,000 shares of ABC at the end of the day. This is known as: A Front running B Block trading C Marking the close D Unauthorized trading

C Marking the close

Which of the following is a computer-driven analysis of possible portfolio returns that can be achieved based on varying factors? A Efficient Market Theory B Time Value of Money C Monte Carlo Simulation D Duration

C Monte Carlo Simulation

Under the Securities Exchange Act of 1934, which of the following is a national securities exchange that MUST register with the SEC? A FRB B TVA C NASDAQ D GNMA

C NASDAQ

Which statement is TRUE regarding mutual funds? A That day's opening price is the basis for fund purchase price and redemption computations B The next day's opening price is the basis for fund purchase price and redemption computations C That day's closing price is the basis for fund purchase price and redemption computations D The next day's closing price is the basis for fund purchase price and redemption computations

C That day's closing price is the basis for fund purchase price and redemption computations

The formula for the dividend yield on a common stock is: A Quarterly Dividend / Cost Basis Per Share B Annual Dividend / Cost Basis Per Share C Quarterly Dividend / Current Share Price D Annual Dividend / Current Share Price

D Annual Dividend / Current Share Price

The President of an investment advisory firm is also a registered representative of a broker-dealer. This fact is disclosed in the adviser's disclosure document. The President buys 50 partnership units for his clients who are suitable. The President does not disclose to the clients that he receives a commission on each partnership unit purchased by his clients. Under NASAA Rules on Unethical Business Practices for Investment Advisers and Federal Covered Advisers, is this permitted? A Yes, because the President is properly registered as an agent of a broker-dealer and this fact is disclosed in the adviser's disclosure document B Yes, because the adviser determined the suitability of the investment for each of his clients C No, because the adviser should have specifically informed each client that he would earn a commission on each limited partnership unit sold D No, because officers of investment advisers are not permitted to receive commissions on recommended transactions in addition to collecting an advisory fee

C No, because the adviser should have specifically informed each client that he would earn a commission on each limited partnership unit sold

Under the Investment Advisers Act of 1940, a person would have to register as an investment adviser if she gave investment advice for a fee about which of the following? A Commodities B Futures C Options D Real estate

C Options

Which of the following are attributes of Equity Indexed Annuities? A Participation rate and market cap B Index crediting method and market cap C Participation rate and floor D Market cap and dividends

C Participation rate and floor -Equity Indexed Annuity (EIA) features include interest credited yearly based on the return of a reference equity index (such as the S&P 500 Index), but the annual credit is subject to a cap and a floor. In addition, the interest is credited based on a "participation rate." -Say that it is an EIA linked to the S&P 500 Index, with a cap of 10% and a floor is 1%. Assume that the participation rate is 80%. If the S&P 500 Index rises by 5% in a year, the interest earned will be credited at 80% participation = 4%. In a year when the S&P 500 Index declines, there will still be a 1% interest credit because of the floor. Therefore, the participation rate, cap, and floor are all attributes of an EIA.

POD account registration stands for: A Pay on Date specified by customer B Pay on Disability of customer C Pay on Death of customer D Pay on Direction of customer

C Pay on Death of customer -TOD is transfer on death

Under the Uniform Securities Act, an agent may engage in which of the following transactions? A Effecting transactions in a State where he is not registered, but where the broker-dealer is registered B Effecting transactions in a State where the broker-dealer is not registered, but where he is registered C Performing investment advisory services for customers as long as they are solely incidental to his work as a broker and no fees are charged D Soliciting orders for non-exempt unregistered securities if he is registered in the State

C Performing investment advisory services for customers as long as they are solely incidental to his work as a broker and no fees are charged

The financial leverage of a broker-dealer would be measured by its: A Net Capital amount B Aggregate Loan amount C Ratio of Loans to Net Capital D Ratio of Income to Net Capital

C Ratio of Loans to Net Capital

A customer wishes to invest in real estate, believing that current market prices are depressed and that they are ready for a major rebound. The customer wishes to make an investment that offers diversification and liquidity. Which type of real estate investment would be a suitable recommendation? A Real Estate Limited Partnership B Real Estate General Partnership C Real Estate Investment Trust D Real Estate Time Share

C Real Estate Investment Trust

When considering investing in a DRIP, the benchmark rate of return that should be used for comparison is the: A 1 Year T-Bill rate B Long-Term Treasury Bond Rate C S&P 500 Index D S&P 500 Bond Index

C S&P 500 Index

Broker-dealer registration is required under: A the Securities Act of 1933 B Section 10 of the Securities Exchange Act of 1934 C Section 15 of the Securities Exchange Act of 1934 D the Investment Advisers Act of 1940

C Section 15 of the Securities Exchange Act of 1934

A broker-dealer MUST maintain physical possession of which of the following? A Securities issued by municipalities B Securities traded in an omnibus trading account C Securities held as collateral for derivative trading components D Securities that are unregistered and non-exempt

C Securities held as collateral for derivative trading components -If a customer buys a derivative security, he or she cannot get the underlying physical security - it must be held in custody.

"An investment in a common enterprise for profit, with management provided by a third party" is the definition for a(n): A Agent B Investment Adviser C Security D Broker Dealer

C Security

Which customer would have the greatest difficulty obtaining disability insurance? A Owner of a small manufacturing business B Orthopedic surgeon C Self-employed roofer D UPS delivery driver

C Self-employed roofer

Which of the following create a collar on ABC stock, priced at $60? A Buy 1 ABC 65 Call; Buy 1 ABC 55 Put B Sell 1 ABC 55 Call; Sell 1 ABC 65 Put C Sell 1 ABC 65 Call; Buy 1 ABC 55 Put D Buy 1 ABC 55 Call; Sell 1 ABC 65 Put

C Sell 1 ABC 65 Call; Buy 1 ABC 55 Put -Buy a Put, Sell a Call

Which form of efficient market theory states that stock prices respond rapidly to publicly available information, so that no potential gains can be made by trading on that information? A Weak Form B Semi-Weak Form C Semi-Strong Form D Strong Form

C Semi-Strong Form

A broker-dealer headquartered in State X has an agent that is located in State Y. The agent accompanies a customer to State Z on a golf outing, where the agent makes an offer of securities to the customer. Which State(s) has (have) jurisdiction over the offer? A State X only B State Y only C State Z only D States X, Y and Z

C State Z only -The offer was made and received in state Z, so it is the only state that has jurisdiction

The Administrator of State Z receives a complaint about an advertisement placed by an investment adviser. The complaint claims the advertisement stated that: "Any investment made with IZZI Advisers would double in 5 years." IZZI Advisers is located in State X and the advertisement was created in State X and distributed in States X and Z. Which statement is TRUE? A The Administrator of State Z has no jurisdiction because the adviser is located in State X B The Administrator of State Z will refer the complaint to the Administrator of State X C The Administrator of State Z will investigate the complaint D The Administrator of State Z will enjoin IZZI Advisers from the publication of future advertisements in the State Z

C The Administrator of State Z will investigate the complaint -IZZI is offering securities transactions to people in state Z, and would have to register in state Z. Both states here have jurisdiction, but state Z can investigate this matter without state X since the complaint took place in state Z

A Federal Covered Adviser registered with the SEC holds a meeting with its employees and verbally warns them about the prohibited practice of trading ahead of large customer orders that are likely to have a market impact. The firm has not yet included this prohibition in its policies and procedures manual, but intends to do so in the near future. Which statement is TRUE? A There is no violation of the Investment Advisers Act of 1940 "insider trading" rules because the employees participated in the meeting B There is no violation of the Investment Advisers Act of 1940 because the firm intends to include "trading ahead" restrictions in the next version of its policies and procedures manual C The Investment Advisers Act of 1940 has been violated because the firm did not have written policies and procedures covering "front running" by its employees D There is no violation of the Investment Advisers Act of 1940 because "front running" is not covered by the Act

C The Investment Advisers Act of 1940 has been violated because the firm did not have written policies and procedures covering "front running" by its employees

A Registered Investment Adviser (RIA) headquartered and registered in State X gives advice only to insurance companies, pension plans and investment companies. The RIA has no office in any other State. The adviser does business in State Y and receives a letter from the Securities Commissioner of State Y which explains that State Y believes that the adviser is required to be registered there, along with a questionnaire to be completed and returned to State Y. Which statement is TRUE? A The RIA will be required to be registered in State Y because it is doing investment advisory business there B The RIA will be required to be registered in State Y because it is not a Federal Covered Adviser C The RIA will not be required to be registered in State Y because it has no office there and it only deals with professional investors D The RIA will not be required to be registered in State Y because it can only be required to be registered in one State and it is already registered in State X

C The RIA will not be required to be registered in State Y because it has no office there and it only deals with professional investors

A Registered Investment Adviser has a client who is the chief executive of a publicly traded company. The client tells the adviser that the firm is going to have a "big" announcement about sales and that it is a secret. The RIA immediately buys 1,000 shares of the company's stock for his personal account. Which statement is TRUE? A The RIA's action is ethical because the information was given to the RIA by an officer of the company B The RIA's action is ethical because the information was given to the RIA in a confidential manner C The RIA's action is unethical because the information is not publicly available D The RIA's action is unethical because the information can only be used to buy that company's stock for the RIA's clients

C The RIA's action is unethical because the information is not publicly available

Which statement is TRUE regarding the ability of the Securities and Exchange Commission to suspend trading on a national securities exchange? A The SEC can suspend trading if a majority of the Commissioners approve B The SEC can suspend trading with the advice and consent of the Senate C The SEC can suspend trading with prior notification to the President D The SEC cannot suspend trading

C The SEC can suspend trading with prior notification to the President

An independent investment adviser is talking to a brokerage firm's research analyst about XYZ company. The analyst tells the adviser that she is going to issue a report stating that the company will miss its revenue projections. The adviser was planning to add the stock to her portfolio. What should the adviser do? A The adviser cannot act on the information because it is "inside information" B The adviser must purchase the stock as planned C The adviser can change her mind about buying the stock D The adviser must report the conversation to the State Administrator

C The adviser can change her mind about buying the stock

A customer invests $100,000 and opens a discretionary account with an agent specifying an investment objective of long-term growth. The agent decides that it is best to diversify and spreads the monies among a number of income funds within the same fund family. Which statement is TRUE? A The agent acted prudently as it is best to diversify a portfolio to reduce risk B The agent acted prudently as long as the manager approves of the transaction C The agent acted inappropriately and fraudulently D The agent's actions are acceptable if there is a profit on the investments made

C The agent acted inappropriately and fraudulently -Customer wants GROWTH not Income

A person makes an initial application for State registration on March 31st. Which statement is TRUE regarding the filing fee? A The fee will be pro-rated and only 3/12ths of the annual fee must be paid B The fee will be pro-rated and only 9/12ths of the annual fee must be paid C The annual fee is not pro-rated and the full year filing fee must be paid D No filing fee is due until the annual December 31st renewal

C The annual fee is not pro-rated and the full year filing fee must be paid

Which of the following can cause the Administrator to deny an application for registration? A The applicant was convicted of a Driving Under the Influence misdemeanor 4 years ago B The applicant plead guilty to a minor traffic violation 2 years ago C The applicant is the subject of an order from a Canadian court suspending registration as a securities representative D The applicant declared bankruptcy in another State 5 years ago

C The applicant is the subject of an order from a Canadian court suspending registration as a securities representative

Bid and ask quotes in a dark pools are A publicly displayed to retail investors B accessible for trading through retail broker-dealer websites C only shown to subscribing institutional investors D accessible for trading 24 hours a day

C only shown to subscribing institutional investors

An investment adviser representative's friend provides him with a list of 10 prospective clients. The representative agrees to pay his friend a referral fee for each person on the list that opens an account with the adviser. Which statement is TRUE? A The arrangement is permitted without restriction B The arrangement is permitted only if it is in writing between the investment adviser and the friend C The arrangement is permitted only if it is in writing between the investment adviser and the friend and the arrangement is disclosed in writing to any customer opening an account D The arrangement is prohibited

C The arrangement is permitted only if it is in writing between the investment adviser and the friend and the arrangement is disclosed in writing to any customer opening an account

Which statement is TRUE regarding delivery of the "Brochure" to existing customers, under the Investment Advisers Act of 1940? A The brochure, if revised, must be sent to customers quarterly B The brochure, if revised, must be sent to customers semi-annually C The brochure, if revised, must be sent to customers annually D The brochure, if revised, must be sent to customers bi-annually

C The brochure, if revised, must be sent to customers annually

Under the Investment Advisers Act of 1940, if an investment adviser wishes to renew an advisory contract which will allow it to start taking prepaid advisory fees of $1,200 or more, 6 months in advance of rendering services, which of the following statements is TRUE? A A revised "Brochure" must be sent to each of the adviser's customers B The adviser's customers must be given a "Brochure" at least 48 hours prior to contract renewal; and then decide during that time frame whether or not they wish to accept the terms of the new contract. C The investment adviser must file a Form ADV 2A and balance sheet with the SEC promptly, and must make the revised "Brochure" available to its customers D The investment adviser is prohibited from changing the terms of the advisory contract.

C The investment adviser must file a Form ADV 2A and balance sheet with the SEC promptly, and must make the revised "Brochure" available to its customers

An investment adviser in State A has an investment adviser representative who gives advice to his client, a bank, in State B. When would the investment adviser representative (IAR) be required to be registered in State B? A The investment adviser representative would never be required to register in State B because the investment adviser representative is already registered in State A B The investment adviser representative would have to register in State B when the firm has 3 other clients in State B C The investment adviser representative would have to register in State B when the investment adviser opens an office in State B D The investment adviser representative would have to register in State B if he or she has 3 clients in State A and 3 clients in State B

C The investment adviser representative would have to register in State B when the investment adviser opens an office in State B

Which statement is TRUE about convertible bonds? A The parity price of the bond is fixed and the conversion price changes as the market value of the common stock moves B The par value of the bond is fixed and the conversion price changes as the market value of the common stock moves C The par value of the bond is fixed and the parity price of the bond changes as the market value of the common stock moves D Both the parity price and par value of the bond change as the market value of the common stock moves

C The par value of the bond is fixed and the parity price of the bond changes as the market value of the common stock moves

A securities analyst employed by a major regional brokerage house tells a portfolio manager at a mutual fund managed by that firm to look for him on television being interviewed on CNBC that afternoon. He tells the portfolio manager that he will be putting a "buy" recommendation on ABCD stock, which the portfolio manager has been considering purchasing for the fund that he manages. Which statement is TRUE? A Because the analyst and the portfolio manager are employed by the same broker-dealer, the portfolio is permitted to buy the stock immediately B The portfolio manager is permitted to buy the stock immediately because he had previously been considering the purchase of ABCD shares C The portfolio manager is prohibited from buying the stock immediately under the "trading ahead of research" prohibition but can buy the stock once the television interview has been broadcast D The portfolio manager is prohibited from buying the stock immediately unless he contacts all of his customers that own shares in the fund that he manages and discloses the information to them

C The portfolio manager is prohibited from buying the stock immediately under the "trading ahead of research" prohibition but can buy the stock once the television interview has been broadcast

Two individuals own a joint account as tenants in common. One dies without a will. What happens? A The survivor now 100% owns the account B The provisions of common law are followed C The rules of intestate succession are followed D The state takes the deceased's share as unclaimed property

C The rules of intestate succession are followed

5 brothers wish to form a company as a Subchapter S Corporation, along with other outside shareholders. Which statement is TRUE about this? A There can only be 1 family member owner per Subchapter S corporation, so this is not permitted B They are permitted to be owners of the Subchapter S Corporation and count as 5 separate shareholders against the limit of 100 shareholders in a Subchapter S Corporation C They are permitted to be owners of the Subchapter S Corporation and count as 1 shareholder against the limit of 100 shareholders in a Subchapter S Corporation D They are permitted to be owners of the Subchapter S Corporation but they have no voting rights because of the family relationship

C They are permitted to be owners of the Subchapter S Corporation and count as 1 shareholder against the limit of 100 shareholders in a Subchapter S Corporation -For purposes of counting towards the 100 shareholder limit in a Subchapter S Corporation, family members are aggregated and count as "1" shareholder

An investment adviser wishes to include a clause in its advisory contract that "all controversies that may arise between the customer and us shall be determined by binding mediation." Which statement is TRUE? A This clause is permitted in advisory contracts under NASAA rules B This clause is permitted because mediation is a negotiated settlement process that avoids the adversarial nature of litigation C This clause is prohibited because it requires the customer to waive his or her right to reject the mediator's settlement proposal that is permitted under Federal and State law D This clause is prohibited because only a mandatory arbitration requirement is permitted in a broker-dealer's or investment adviser's contract with a customer

C This clause is prohibited because it requires the customer to waive his or her right to reject the mediator's settlement proposal that is permitted under Federal and State law -Mediation is NOT binding!

A broker-dealer is a subsidiary of a company that is listed on the New York Stock Exchange. An agent of the broker-dealer believes that the parent company's stock is a good investment and wants to recommend it to her customers. Which statement is TRUE about this? A This is permitted because the company qualifies for a "blue chip" exemption under the Uniform Securities Act B This is an unethical business practice and is prohibited C This is permitted only if the agent discloses the existence of the relationship verbally when making the recommendation and it is disclosed in writing on the confirmation D This is permitted only if the agent opens a joint account with the customer to purchase the recommended stock of the parent company

C This is permitted only if the agent discloses the existence of the relationship verbally when making the recommendation and it is disclosed in writing on the confirmation

An agent of a broker-dealer maintains accounts for immediate family members, including an account for his brother-in-law. The agent is having a bad year, and his brother-in-law offers to lend him $20,000 until things get "better." Which statement is TRUE regarding this offer? A As long as the loan amount is documented in writing and has a fixed repayment date and fixed interest rate, this is permitted B As long as the terms of the loan are the same as would be offered in an arm's length transaction by an unaffiliated third party lender, this is permitted C This offer cannot be accepted because borrowing money from a customer is an unethical business practice D This offer cannot be accepted because borrowing money from family members that are customers is only permitted from direct family members - not from "in-laws"

C This offer cannot be accepted because borrowing money from a customer is an unethical business practice -An agent cannot borrow money personally from a customer - nor can an agent lend money personally to a customer. It makes no difference if the customer is a family member. Note, however, that the agent could borrow money from, or lend money to, family members that are NOT customers. Also note that NASAA has a different interpretation than FINRA on this matter. FINRA permits borrowing between a representative and a customer that is an immediate family member, as long as the loan is documented in writing and approved by the firm; NASAA takes the stance that some of the worst abuses occur when money is borrowed from a family member that is a customer and outright prohibits it

A registered representative with a broker-dealer makes recommendations of securities to a customer, and charges a commission on each trade. Which statement is TRUE? A This person must register with the State as an investment adviser representative B This person must register with the State as an investment adviser C This person is excluded from the definition of an investment adviser D This person is defined as an investment adviser, but is exempt from registration

C This person is excluded from the definition of an investment adviser -BDs and their reps are exempt from the IA definition as long as they do not charge separately for advisory services

The method for computing return as shown in a mutual fund performance chart is: A Internal Rate of Return B Dollar Weighted Average Return C Time Weighted Average Return D Expected Rate of Return

C Time Weighted Average Return

When must a Registered Investment Adviser (RIA) send a notice of change in ownership? A To each client, when the RIA changes its business form from a sole proprietorship to a partnership B To the State Administrator, when the RIA changes its business form from a sole proprietorship to a partnership C To each client, when the RIA changes its business form from a partnership to a sole proprietorship D To the State Administrator, when the RIA changes its business form from a partnership to a sole proprietorship

C To each client, when the RIA changes its business form from a partnership to a sole proprietorship -The rule on notifying clients of a change of ownership of an investment adviser only applies to investment advisers organized as partnerships. If there is a change in the majority of the partners (as would be collapsing a partnership into a sole proprietorship), then each client who has signed an advisory contract must be notified of the change. This is a requirement of NASAA Rule 502(c) for State-registered advisers and also is a requirement of the Investment Advisers Act of 1940 (for Federal covered advisers)

Under the provisions of the Prudent Investor Act, a Registered Investment Adviser should consider all of the following when investing and managing trust assets EXCEPT: A General economic conditions B Possible effect of inflation C Trading patterns of plan beneficiaries D Investment tax consequences

C Trading patterns of plan beneficiaries

Which type of insurance requires a fixed annual premium, pays a variable death benefit, provides protection for the entire life of the insured, and gains cash value? A Whole life B Universal life C Variable Life D Term Life

C Variable Life

Which security would suffer the largest adverse price movement due to a rise in interest rates? A Commercial Paper B T-Bill C Zero-Coupon Bond D Treasury Bond

C Zero-Coupon Bond

Under the Uniform Securities Act, if an agent withdraws his or her registration, the withdrawal becomes effective: A immediately B after 10 days C after 30 days D only when the Administrator so allows

C after 30 days -Same as when a registration is filed

All of the following statements are true for both limited partnerships and corporations EXCEPT both limited partnerships and corporations: A limit liability for the business owners B have centralized management C allow for "flow-through" of gain and loss D are formed with business intent

C allow for "flow-through" of gain and loss

A portfolio manager at an investment advisory firm buys 100,000 shares of ABCD stock in a private placement for his personal account. One year later, the company goes public and the portfolio manager purchases 2,000,000 shares of the IPO for the adviser's customers. This action is a violation known as: A free riding and withholding B insider trading C an undisclosed conflict of interest D churning the accounts of customers

C an undisclosed conflict of interest

All of the following statements are true regarding the requirement that an independent public accountant verify the amount of customer funds and securities held in custody by an investment adviser, as required by the Investment Advisers Act of 1940, EXCEPT the: A audit must be conducted at least annually B audit must be completed on a surprise basis C auditor must choose the same date for making a periodic examination D auditor must file a Form ADV-E with the SEC within 120 days of completing the exam

C auditor must choose the same date for making a periodic examination

Management companies are permitted to: A buy securities on margin B sell securities short C borrow from banks D lend monies to shareholders

C borrow from banks

The "Brochure Rule" applies to: A oral advisory contracts only B written advisory contracts only C both of the above D none of the above

C both of the above

At the initial registration of a broker-dealer, which of the following individuals would automatically be registered as an agent of that broker-dealer? A officer of the broker-dealer B director of the broker-dealer C both of the above D none of the above

C both of the above -Any Principals named in the initial registration of a BD are registered as agents granted they have the proper credentials

An investor owns a portfolio of large capitalization blue chip stocks, each of which happens to be in the Dow Jones Industrial Average. He wishes to protect his portfolio from a market downturn without selling the positions. The best recommendation is to: A buy a narrow based index put B sell a narrow based index put C buy a broad based index put D sell a broad based index put

C buy a broad based index put

A portfolio manager would: A sell puts to enhance portfolio return when market prices are declining B buy puts because he or she anticipates rising equity prices C buy calls in times of rising prices to lock in a lower purchase price D sell calls against an existing portfolio in times of rising equity prices

C buy calls in times of rising prices to lock in a lower purchase price

An agent of a broker-dealer: A is prohibited from taking a second job B can only take a second job if he or she gives written notice to the State Administrator C can only take a second job if he or she gives written notice to the employer D is permitted to take a second job as long as it is not with another registered broker-dealer

C can only take a second job if he or she gives written notice to the employer

All of the following statements concerning universal life insurance are correct EXCEPT the: A policy owner can skip some premium payments after cash value builds B cash value is invested in the insurer's general account C cash value increases at a fixed and guaranteed rate of return D policy owner can use cash value to increase the death benefit

C cash value increases at a fixed and guaranteed rate of return -With a universal life policy, any cash value is invested in the insurer's general account, and the policy owner's account is credited for the interest income earned on the general account. This rate of return can vary from year to year.

An investment approach where an active bond fund manager will switch to a defensive strategy if the portfolio falls below a predetermined point is known as: A portfolio immunization B portfolio rebalancing C contingent portfolio immunization D contingent portfolio rebalancing

C contingent portfolio immunization

Inertial inflation is: A demand driven B money supply based C contractually based D employment driven

C contractually based -Inertial inflation is a situation in which all prices in an economy are continuously adjusted with relation to a price index by force of contracts

The stock market has reacted negatively to the release of strongly negative economic indicators and has fallen by 15% over a 2 week time window. An investor that believes that this is a buying opportunity would be called a(n): A opportunist B fundamentalist C contrarian D technician

C contrarian -A "contrarian" is a person that goes against the conventional wisdom. Thus, when the market is rising rapidly, the contrarian believes that it is ready for a fall and will sell; and when the market has declined precipitously, the contrarian believes that the market will rise, and will buy

When borrowing money, the interest rate charged measures the: A inflation rate B consumption rate C cost of money D opportunity cost

C cost of money

All of the following are included in the Form ADV filed with the SEC under the Investment Advisers Act of 1940 EXCEPT a list of the: A officers of the advisory firm B shareholders of the advisory firm C customers of the advisory firm D States in which the advisory firm is registered

C customers of the advisory firm

All of the following terms are synonymous EXCEPT: A agent B broker C dealer D middleman

C dealer -Dealer trades for their own account on a principal basis

All of the following are synonymous EXCEPT: A salesman - agent B broker - agent C dealer - agent D salesman - broker

C dealer - agent -Agent=Salesman=Broker=Always a middleman! -A dealer is someone who trades for their own account and acts as a principal

All of the following actions by an investment adviser are violations of the Uniform Securities Act EXCEPT the adviser: A makes misleading statements to a client, but the client profits from the advice B makes misleading statements to a client, but no transaction results from the advice C discloses the risks of the investment, but the client loses as a result of the advice D makes misleading statements to a client, but the client is an accredited investor

C discloses the risks of the investment, but the client loses as a result of the advice

All of the following are fixed on a convertible bond EXCEPT: A par value B conversion ratio C parity price D conversion price

C parity price

For initial registration as an agent in a State, all of the following are required EXCEPT: A Consent to Service of Process B Filing Fee C Registration Application D Government Issued Photo I.D.

D Government Issued Photo I.D.

A young couple has $300,000 that they have used to aggressively trade growth stocks. They place their account with a Registered Investment Adviser and direct the adviser to continue the strategy. After 2 years, the value of the account is down to $100,000 and the couple complains to the adviser about the investment performance. The investment adviser should: A refund the annual management fee to the customers to partially make up the loss B refund the $200,000 loss in the account to the customers to fully make up the loss C do nothing, since he acted in accordance with the directions of the customers D submit the complaint to binding arbitration

C do nothing, since he acted in accordance with the directions of the customers -Doesn't say anything about the complaint being written, and the adviser acted in accordance with the direction of the couple

All of the following statements are true about "agency cross transactions" under the Investment Advisers Act of 1940 EXCEPT: A to effect an agency cross transaction, written consent from the client must be obtained B agency cross transactions cannot have been recommended to both the buyer and seller by the investment adviser C each client must be sent a quarterly account statement detailing activity in the account for that period D each client must be sent an annual statement identifying the total number of agency cross transactions effected; and the remuneration received by the adviser for these transactions

C each client must be sent a quarterly account statement detailing activity in the account for that period

A "market maker," as defined under the Securities Exchange Act of 1934: A effects securities trades for the account of others on an agency basis B effects securities trades for the account of others on a principal basis C effects trades with others out of his or her own account D effects trades on a discretionary basis for the account of customers

C effects trades with others out of his or her own account

A customer buys stock and wants to buy call options on the stock. The customer would do this to: A hedge the stock position from an adverse market move B generate additional income against the stock position as a covered call writer C enjoy the certainty of a fixed price for a future purchase D speculate on the possibility of a price decline

C enjoy the certainty of a fixed price for a future purchase

The Assumed Interest Rate (AIR) associated with variable annuities is the: A rate at which the annuity payments are scheduled to increase each year B interest rate paid to the annuitant C estimated future earnings rate needed to maintain level payments to the annuitant D average of past and assumed future rates of return earned by the annuity

C estimated future earnings rate needed to maintain level payments to the annuitant

An index fund manager is expected to generate a return that: A is lower than that of the benchmark index B matches the benchmark index C exceeds the benchmark index D at a minimum, pays for the expenses of selling the fund

C exceeds the benchmark index

If any information filed with the State Administrator is discovered to be incomplete or inaccurate in any material respect, the registrant MUST: A withdraw from registration and re-file with the State Administrator B cease business operations until an amended registration has been filed with the State Administrator C file a correcting amendment promptly with the State Administrator D file an updating amendment with the State Administrator no later than 30 days from discovery

C file a correcting amendment promptly with the State Administrator

Variable Universal Life Insurance (VULI) policies provide policy owners with: A guaranteed minimum cash values B variable premiums and the guarantees of term insurance C flexibility with respect to premium payments, investment options, and death benefits D the guarantees of whole life insurance plus the investment flexibility of variable life insurance

C flexibility with respect to premium payments, investment options, and death benefits

A food manufacturer has entered into a contract to buy 5,000 bushels of corn at $4.23 per bushel, to be delivered at the firm's place of business, 6 months from now. The firm has entered into a(n): A options contract B futures contract C forward contract D delivery contract

C forward contract -Forward contracts are custom, unregulated, OTC contracts entered into between a buyer and a seller that specify that the underlying asset be delivered at the contract price at a stated date in the contract. These are non-standardized contracts that are not exchange traded. In contrast, futures and options contracts are standardized, are exchange traded, and are regulated. Delivery contract is a meaningless term in the context of this question

The settlor of a trust is the: A trustee B beneficiary C grantor D fiduciary

C grantor

All of the following are tests that are considered to determine if one is defined as an "investment adviser" that must register with the SEC EXCEPT whether that person: A gives advice about securities B is compensated for giving advice about securities C has previously been registered with the SEC D is "in the business" of giving investment advice

C has previously been registered with the SEC

Under the Securities Exchange Act of 1934, the SEC: A has the power to suspend trading on an exchange floor B has the power to suspend trading on an electronic market C has the power to suspend trading in any market located in the United States D does not have the power to suspend trading of securities

C has the power to suspend trading in any market located in the United States -With presidential approval

When comparing dollar-weighted average return to time-weighted average return for a mutual fund investor, the returns will be the same: A if the same dollar amount is invested periodically B if dividends are not reinvested in additional fund shares C if no withdrawals are made and dividends are reinvested D under all circumstances

C if no withdrawals are made and dividends are reinvested

An investment adviser is permitted to identify the names of clients in communications to potential new customers: A if the clients are compensated by the investment adviser B if the clients are public figures C if the clients have consented D under no circumstance

C if the clients have consented

If an investment adviser acquires a 5% or greater holding in a publicly held company, it MUST file a 13d report: A only if the purchases were for its proprietary account and it intends to exercise control over that issuer B only if the purchases were for its customer accounts and it intends to exercise control over that issuer C if the purchases were for either its proprietary account or its customer accounts and it intends to exercise control over that issuer D if the purchases were for either its proprietary account or its customer accounts and it intends to remain a passive investor

C if the purchases were for either its proprietary account or its customer accounts and it intends to exercise control over that issuer

An investment adviser is permitted to use a solicitor to sell that adviser's services to customers: A under no circumstances B only if no fees are paid to the solicitor by the adviser C if there is an agreement in writing between the solicitor and the adviser D if the solicitor has registered as an investment adviser with the SEC or that State

C if there is an agreement in writing between the solicitor and the adviser

If a non-resident agent engages in conduct prohibited under the Uniform Securities Act, that individual can be subpoenaed: A only in the Administrator's State B only in the agent's State of residence C in either the agent's or Administrator's State D only in the State where the violation occurred

C in either the agent's or Administrator's State

Under the Uniform Securities Act, an investment adviser is prohibited from taking custody of a client's funds unless: A the Administrator has issued a rule that permits such an action B the investment adviser gives 10 days' advance notice to the Administrator of such an action C in the absence of a rule prohibiting custody, the adviser gives the Administrator notice that it may take custody D the investment adviser is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940

C in the absence of a rule prohibiting custody, the adviser gives the Administrator notice that it may take custody

Federal securities laws supersede the provisions of the Uniform Securities in all of the following areas EXCEPT: A registration requirements applicable to securities offerings B registration requirements applicable to investment advisers C investigation and bringing of enforcement actions with respect to unlawful broker-dealer conduct D broker-dealer capital, custody, financial responsibility and recordkeeping requirements

C investigation and bringing of enforcement actions with respect to unlawful broker-dealer conduct

All of the following statements about Time Weighted Average Return are true EXCEPT that Time Weighted Average Return: A is the return measure used for mutual fund performance charts B assumes investment of a fixed amount, ignoring additional deposits or withdrawals of cash at different points in time C is the same as Dollar Weighted Average Return D allows for accurate comparison of one fund's performance to that of other funds

C is the same as Dollar Weighted Average Return

The SEC would revoke the registration of a federal covered adviser for all of the following reasons EXCEPT the adviser: A has been convicted of violating the Securities Exchange Act of 1934 five years ago B has been convicted of a misdemeanor involving securities nine years ago C is the subject of an adverse ruling in State Supreme Court in a civil lawsuit with a client D has been enjoined in a court of law of another state from being in the commodities business

C is the subject of an adverse ruling in State Supreme Court in a civil lawsuit with a client -Losing a lawsuit is not reason for revocation Reasons for Revocation: -Securities-related misdemeanor or felony in the last 10 years -Suspended or expelled by any SRO over securities or commodities markets -Violating federal securities laws

Hedge funds are generally set up as: A management companies B general partnerships C limited partnerships D S corporations

C limited partnerships

The dividend discount model can be used to value: A start-up companies B growth companies C mature companies D all companies

C mature companies -Doesn't work for companies that don't pay dividends consistently or at all like growth companies and start-ups

A money manager that believes that a company that reports higher than expected earnings will continue to generate superior returns and stock price appreciation is a follower of: A value investing B growth investing C momentum investing D efficient market theory

C momentum investing

If a company has 100 shareholders and $100,000 of initial capital with the purpose of investing in securities, this company: A is exempt from registration under the Investment Company Act of 1940 B is exempt from registration under the Securities Act of 1933 C must be registered as an investment company under the Investment Company Act of 1940 D must be registered with the Securities and Exchange Commission under the Securities Act of 1933

C must be registered as an investment company under the Investment Company Act of 1940

When comparing a fixed annuity to a variable annuity, a variable annuity has: A a guaranteed income stream B no allocation of funds among subaccounts C no fixed rate of return D no investment risk

C no fixed rate of return

In order to revoke a registration, the Administrator must do all of the following EXCEPT: A find that the action is in the public interest B cite a cause for the action found in the Uniform Securities Act C obtain a court order revoking registration D provide an opportunity for the aggrieved person to have the order reviewed

C obtain a court order revoking registration

If an investment adviser maintains an account that will hold customer securities positions at a broker-dealer, but the broker-dealer does not know who the individual customers are, this is a(n): A violation of Federal law B prime brokerage account C omnibus account D discretionary account

C omnibus account

When preparing a financial plan for a client, you should inquire whether the client has considered the purchase of disability insurance if the customer tells you that: A the office where she works is a very stressful workplace B she works in a hospital as a nurse with patients that very ill C on weekends, she stays in shape by rock climbing in the nearby mountains D her husband's family has a history of heart disease on his father's side

C on weekends, she stays in shape by rock climbing in the nearby mountains

An annuitized account in a variable annuity is most similar to: A a mutual fund B a whole life insurance unit C pension payments D an individual retirement account

C pension payments -Once a variable annuity separate account interest is "annuitized," the holder gets a fixed number of annuity units. Each month, the holder gets a payment equal to the fixed number of units x the unit value (which varies based upon the performance of the underlying investments). The payments continue for life. Thus, an annuitized account is most similar to pension payments

An IAR discusses a trading strategy with one of her clients, who tells the IAR to sell her ABC stock position whenever you see an opportunity. After this conversation, the client leaves the IAR's office for a vacation. Two days later, the IAR sees that ABC stock has risen in price and believes that this is an opportune time to sell the position. The IAR should: A not place the order and try and contact the client B place the trade and notify the client in writing within 2 business days C place the trade and get written discretionary authority from the customer within 10 business days D get approval from his or her direct manager before placing the trade

C place the trade and get written discretionary authority from the customer within 10 business days -This is NASAA rule for IAs, where the FINRA rules for BDs requires a written power of attorney to exercise discretion

Investment advisers, without exception, are prohibited from: A disclosing private customer account information to an unaffiliated third party B charging advisory fees based on account performance C placing the interests of the advisory firm ahead of those of the customer when making recommendations D having conflicts of interest when dealing with customers

C placing the interests of the advisory firm ahead of those of the customer when making recommendations -Violates the fiduciary responsibility

An agent of a broker-dealer has a customer that is a loan officer at ACME Savings and Loan. The agent is purchasing his first house and needs to get a mortgage. The agent only has 10% for a down payment and ACME Savings and Loan only gives mortgages with a 20% down payment. The loan officer wants to make sure that the loan is approved and offers to lend the agent the 10% extra needed for the down payment as a personal loan, as long as the agent agrees in writing that the loan will be repaid with interest within 10 years, plus if the house is sold during this time, the loan officer will get 10% of any gain on the house. This agreement is: A permitted because the loan officer is sharing in profits if the house is sold in an amount that is proportional to the capital that he committed for the purchase of the house B permitted because the loan officer is an existing customer of the agent C prohibited because the agent is borrowing money from the customer D permitted because the customer is a loan officer of a bank

C prohibited because the agent is borrowing money from the customer

An agent has heard from a good friend that "ACME Fund has taken a large position in ABC stock." Based on this, the agent calls all of her customers with the recommendation that ABC stock be purchased immediately. This action is: A permitted without restriction B permitted only if the agent files a disclosure form with the Administrator C prohibited, since this recommendation was made based upon a rumor D prohibited, since this recommendation was made based upon inside information

C prohibited, since this recommendation was made based upon a rumor

Under the provisions of the Investment Advisers Act of 1940, if an adviser takes custody of customer funds or securities, account statements MUST be sent to the customer: A upon written request B monthly C quarterly D semi-annually

C quarterly

Internal Revenue Code Section 1031 permits the like-kind exchange of: A tangible assets B intangible assets C real assets D any of the above

C real assets -Section 1031 of the Internal Revenue Code allows investment real estate that has appreciated to be sold and the proceeds invested in another piece of investment real estate, without capital gains tax being due at that point. This is known as a "like-kind" exchange. To qualify for this treatment, the replacement investment property must be purchased within 6 months of the sale date of the appreciated property. And also note that a "like-kind" exchange is not available for personal use real property - it is only available for investment property

An investment adviser that has filed a Form ADV with the SEC may say that he or she is: A approved by the Securities and Exchange Commission B certified by the Securities and Exchange Commission C registered with the Securities and Exchange Commission D endorsed by the Securities and Exchange Commission

C registered with the Securities and Exchange Commission

The principal benefit of establishing a living trust is: A tax deferred build-up of earnings in the trust B elimination of estate taxes upon the death of the grantor of the trust C removal of assets held in the trust from the decedent's estate, avoiding probate D increasing investment returns because asset selection in the trust is exempt from the "Prudent Man" rule

C removal of assets held in the trust from the decedent's estate, avoiding probate

An Investment Adviser Representative is employed by IZZI Advisers, a Federal Covered adviser. IZZI Advisers has its only office in State Y, and has made a notice filing with State Y's Administrator. The IAR gives a seminar to potential clients in State Z. The IAR is: A is required to be registered in State Y only B required to be registered in State Z only C required to be registered in State Y and also in State Z if an offer is made to more than 5 non-institutional clients D not required to be registered in either State Z or State Y

C required to be registered in State Y and also in State Z if an offer is made to more than 5 non-institutional clients

All of the following are needed to determine tax filing status EXCEPT: A marital status on the last day of the year B whether the filer has a dependent child C residency of the filer D cost of home upkeep

C residency of the filer

A trader uses a predetermined strategy where investment funds are moved from one sector to another based on a calendar schedule, using the following sectors as the asset classes: utilities, retailers, consumer staples, technology, and transportation stocks. This is an example of: A portfolio rebalancing B tactical asset allocation C rotational investing strategy D strategic asset allocation

C rotational investing strategy

The fiduciary engaged in the administration of a trust finds that, under the directions of the trust document, there is a conflict of interest relating to a proposed investment. Under the provisions of the Prudent Investor Act, the fiduciary: A should do nothing and permit the investment to be made B is permitted to allow the investment as long as it is made in accordance with the Prudent Investor rule C should ask the settlor of the trust to amend the trust document by express provision, expanding or restricting the provisions of the trust document for this investment D should not permit the investment, otherwise the fiduciary is subject to liability for breach of fiduciary responsibility

C should ask the settlor of the trust to amend the trust document by express provision, expanding or restricting the provisions of the trust document for this investment

An investment adviser has been asked by many of his customers to help with preparation of their tax returns. The adviser does not have much experience with tax preparation. The adviser: A can take on the tax preparation work if he discloses his lack of competence to the client B can take on the tax preparation work if he educates himself in the applicable tax laws C should refer the client to a qualified tax preparer D can take on the tax preparation work if he includes this service in his advertising

C should refer the client to a qualified tax preparer

Strategic portfolio management is the selection of the: A securities in which to invest B asset classes in which to invest C target asset allocation for each asset class selected for investment D variation permitted in target asset allocation for each asset class selected for investment

C target asset allocation for each asset class selected for investment

When managing the assets of a trust, an investment adviser would NOT be concerned with the: A financial needs of the trust beneficiary(ies) B investment limitations specified in the trust document C tax considerations of the trust settlor D anticipated market movements that could affect trust investments

C tax considerations of the trust settlor

All of the following are considered to be compensation to an investment adviser EXCEPT: A commissions earned on recommended trades that are effected through a broker-dealer affiliate of the investment adviser B markups earned on recommended trades that are effected through a broker-dealer affiliate of the investment adviser C tax preparation fees that are paid to an advisory firm that is also a certified public accountant D commissions earned on life insurance sales through an insurance company that is an affiliate of the investment adviser, that result from the implementation of an overall financial plan prepared by the investment adviser

C tax preparation fees that are paid to an advisory firm that is also a certified public accountant

If an unregistered agent effects transactions for a registered broker-dealer, all of the following statements are true under the Uniform Securities Act EXCEPT: A the broker-dealer may be subject to disciplinary action B the purchaser may recover the full purchase price plus interest on unprofitable investments, while retaining those investments that are profitable C the agent is only subject to disciplinary action if a customer complains D the Administrator may deny a future registration application of that agent

C the agent is only subject to disciplinary action if a customer complains

Payments made on fixed annuities are: A based on a formula that is linked to the market as a whole B based on the market value of the securities held in the separate account C the same after annuitization occurs D fixed as to minimum but not as to maximum

C the same after annuitization occurs

Under the Uniform Securities Act, the financial records of a broker-dealer must be retained for: A 5 years, with the prior 2 years records readily accessible for audit B any time period specified by the State Administrator C the time period specified by the Securities Exchange Act of 1934 and if the record is not specified in the 1934 Act, then the time period specified by the Administrator D the lesser of the time period specified by the State Administrator or the time period specified in the Securities Exchange Act of 1934

C the time period specified by the Securities Exchange Act of 1934 and if the record is not specified in the 1934 Act, then the time period specified by the Administrator

The risk that a portfolio's return will underperform the benchmark return is called the: A duration shift B standard deviation C tracking error D correlation coefficient

C tracking error -The deviation between a portfolio's return and the benchmark return is known as the "tracking error"

The Administrator can be under the obligation to file a U-6 Form for all of the following EXCEPT: A a cease and desist order entered by the Administrator against an investment adviser representative B an injunction entered by a court of law in the State against an investment adviser representative C written complaint received about an investment adviser representative from a whistleblower D written complaint received from a client of the investment adviser alleging that the adviser stole $150,000

C written complaint received about an investment adviser representative from a whistleblower

All of the following can be filed electronically with the State EXCEPT: A registration application information B signature requirement C payment of fees D answer to a subpoena

D answer to a subpoena

A representative is making a presentation to a married couple, ages 75 and 77, about their need for continuing income as the expected life spans of the general population have increased. The representative is strongly recommending that the couple buy an equity indexed annuity (EIA). Which statement made by the representative would NOT be misleading and fraudulent? A "EIAs guarantee a minimum rate of return that is equal to the Standard and Poor's 500 Index" B "EIAs can be redeemed at any time without penalty if you have an emergency cash need" C "EIAs are tax qualified, allowing you to reduce your taxable income by deducting any contribution that you make" D "EIAs provide a minimum guaranteed rate of return that is guaranteed by the issuing insurance company"

D "EIAs provide a minimum guaranteed rate of return that is guaranteed by the issuing insurance company" -The minimum set is a floor created by the insurance company and wouldn't necessarily be equal to the S&P Index

An investment adviser representative has recently passed her Series 7 and Series 66 exams. Which of the following statements can she make to potential clients regarding these registrations? A "The State Administrator approves of my doing business in each of the States in which I am registered." B "Because I only recommend investment grade securities, the SEC endorses my activities in each of the States in which I am registered." C "The SEC or State Administrator views all of the recommendations that I make to be suitable, as long as an investment profile has been completed for each new customer." D "I am now registered with FINRA and the State"

D "I am now registered with FINRA and the State" -cannot be stated that "registration" means that the SEC, FINRA or the State Administrator approves of the adviser, or endorses, recommends, or certifies the adviser. It can be stated that the adviser is "registered"

Under the Securities Exchange Act of 1934, an investment manager is required to report to the SEC if the manager exercises discretion over: A $100,000 of customer assets B $1,000,000 of customer assets C $10,000,000 of customer assets D $100,000,000 of customer assets

D $100,000,000 of customer assets

A customer invests $100,000 in an Equity Indexed Annuity contract tied to the Standard and Poor's 500 Index. The contract has a 90% participation rate; a 15% cap and a 3% floor. Interest is credited to the contract under the annual reset method using the simple interest method. The performance of the Standard and Poor's Index over the next 3 years is: Year 1:+20% Year 2:-5% Year 3:+10% At the end of year 3, the customer will have a principal balance of: approximately: A $100,000 B $105,000 C $124,000 D $127,000

D $127,000 With Annual Reset Method using simple interest: -Year 1 is 100,000 + 15,000 = 115,000 (90%*20% = 18% which is over the 15% cap) -Year 2 is 100,000 + 3,000 (floor of 3%) Year 3 is 100,000 + 9,000 (10%*90% = 9%) 100,000+15,000+3,000+9,000 = 127,000 -Simple interest doesn't compound, and always uses initial amount

A customer, age 50, is in the 35% tax bracket. The customer has a non-tax qualified variable annuity separate account to which he contributed $15,000 that has a current market value of $35,000. The customer takes a distribution of $10,000 from the account. The tax that will be due on this distribution is: A 0 B $1,000 C $3,500 D $4,500

D $4,500 -10% penalty for taking a distribution before 59 1/2 -35% tax bracket =$1,000+$3,500 = $4,500 of tax

A husband and wife with 2 adult children have established an irrevocable trust to remove assets from their taxable estate. After doing so, they find that they are $100,000 over the estate tax exclusion that qualifies for the maximum unified tax credit. In order to reduce the size of their taxable estate by $100,000, they can donate: A $50,000 to each of their children B $50,000 to each other C $50,000 to a charity and $50,000 to a child D $50,000 to a charity and $50,000 to another charity

D $50,000 to a charity and $50,000 to another charity -Any charitable contributions reduce the size of the taxable estate. In this case, if the estate were valued at $12,160,000 and $100,000 of charitable contributions were made, the taxable estate becomes $12,060,000 and the unified credit covers the entire estate tax liability

A customer has a younger brother with severe learning disabilities who is unable to work. The customer wishes to invest enough money to provide $2,500 a month in perpetuity to pay for the brother's ongoing living expenses. Upon the death of the disabled brother, the intact principal amount will be given to the customer's children. Assuming that the principal can be invested at a 5% annual rate of return, the required principal amount is: A $30,000 B $60,000 C $300,000 D $600,000

D $600,000 $600,000 * 5% = $330,000 annually $300,000 / 12 months = $2,500 per month

A customer buys 100 shares of ABC stock at 39 and sells 1 ABC Jan 45 Call @ 2 on the same day in a cash account. The customer's maximum potential gain until the option expires is: A $200 B $300 C $700 D $800

D $800

An investment adviser is NOT required to keep a record of each person to whom a communication is sent if the communication is sent to more than how many persons? A 2 B 5 C 8 D 10

D 10

Under NASAA rules for State-registered advisers, transactions must be recorded in customer account records no later than: A trade date B settlement date C 10 business days following the end of the month in which the transaction was effected D 10 business days following the end of the quarter in which the transaction was effected

D 10 business days following the end of the quarter in which the transaction was effected

The Securities Exchange Act of 1934 requires the registration of all of the following EXCEPT: A clearing agencies B securities information processors C national securities exchanges D securities attorneys

D securities attorneys

An investment in common stock provides dividends equal to 4% per year and expected long term capital gains equal to 8% per year. For a lower-earning investor in the 30% tax bracket, the after-tax rate of return is: A 8.40% B 9.00% C 9.60% D 10.20%

D 10.20% -Dividends and long-term capital gains are taxed at a maximum rate of 15% for lower earners and 20% for the highest earners. Thus, the after-tax rate of return on the dividends is 4% (100% - 15% Tax Bracket) = 3.4%; and capital gains is 8% (100% - 15% Tax Bracket) = 6.8%. Thus, the after-tax rate of return is 3.4% + 6.8% = 10.2%

An adviser that takes custody must file a copy of its surprise audit results with the State Administrator within: A 60 days of year-end B 60 days of completion of the examination C 120 days of year-end D 120 days of completion of the examination

D 120 days of completion of the examination -NASAA custody rules dictate that if an adviser takes custody of funds, they are to be audited on a surprise basis annually. The report is to provided to the administrator within 120 of the completion of the audit -This is form ADV-E

In order for a money market fund to be called "no load" it cannot charge any of the following EXCEPT: A front-end load B contingent deferred sales charge C back-end load D 12b-1 fees

D 12b-1 fees

Under the Investment Advisers Act of 1940, after receiving an investment adviser application, the SEC must grant a registration to an investment adviser; or start a proceeding denying registration, within how many days? A 5 B 20 C 30 D 45

D 45

Under the Investment Advisers Act of 1940, required records must be retained for: A 1 Year B 2 Years C 3 Years D 5 Years

D 5 Years -NASAA has same 5 year rule -Act of 1934 is only 3 years

Under the Investment Advisers Act of 1940, records MUST be retained for: A 1 year B 2 years C 3 years D 5 years

D 5 years

An investment adviser that has no office in State A would be required to be registered in State A if a representative associated with that firm sells advisory services in State A to: A a mutual fund and 3 officers of the mutual fund B another investment advisory firm and 2 individuals C a mutual fund and 6 private individuals, of which 3 are officers of the mutual fund D 6 immediate family members of the representative offering the adviser's services

D 6 immediate family members of the representative offering the adviser's services

A customer buys a corporate bond with a 5% coupon priced to yield 9%. If the inflation rate is currently 3%, the customer's real rate of return on this investment is: A 2% B 3% C 5% D 6%

D 6% -The real rate of return is the yield to maturity of the investment adjusted for inflation. This investment is yielding 9%. Since inflation is running at 3%, the real rate of return on this investment is 6%. Note that the nominal yield, which is a percentage of par value, is irrelevant, since the customer bought the bond at a discount price to yield 9%.

If a person disagrees with a final order of the Administrator, he or she must petition the appropriate court within how many days? A 1 day B 30 days C 45 days D 60 days

D 60 days

A yield quote change of 5 basis points on municipal bonds with a 6.25% nominal yield will result in the greatest dollar price change for bonds quoted at: A 8.20% with 3 years to maturity B 8.30% with 3 1/2 years to maturity C 8.40% with 4 years to maturity D 8.50% with 4 1/2 years to maturity

D 8.50% with 4 1/2 years to maturity -all of the bonds listed are discount bonds (the only way for the yield to be higher than the fixed coupon rate is for the bond to be selling at a discount). As a general rule, the deeper the discount, the more volatile the bond's price movements in response to market interest rate changes. Also, the longer the maturity, the more volatile the bond's price movements in response to market interest rate changes. The 6.25% bond quoted on an 8.50% yield with 4 1/2 years to maturity has both the longest maturity and deepest discount

In connection with a new issue offering, a broker-dealer would be permitted to send which of the following to a customer if it were accompanied by a copy of the final prospectus? A An internal report prepared by the issuer that projects increasing product line market share over the next 3 years B Copies of advertisements used by the issuer to promote its products during the past year C An advance copy of the broker-dealer's research report on that issuer that will be released after the restriction period ends D A copy of the tombstone announcement prepared by the underwriter in connection with the offering of the issue

D A copy of the tombstone announcement prepared by the underwriter in connection with the offering of the issue

Which of the following is most likely to be subject to the Alternative Minimum Tax? A A married couple with $73,000 of combined income and no itemized tax deductions B A head of household with $146,000 of income and no itemized tax deductions C A married couple with $73,000 of combined income that itemizes that deductions D A head of household with $146,000 of income that itemizes tax deductions

D A head of household with $146,000 of income that itemizes tax deductions -Married couple = $75,900 -HOH = $118,000 Qualifies for AMT if they exceed this level AND itemize

Under the Uniform Securities Act, which of the following persons with no place of business in a State is EXCLUDED from the definition of an "Investment Adviser"? A A person who gives advice for a fee about public utility mortgage bond issues B A person who gives advice for a fee about municipal securities C An insurance company that renders advice about securities for a fee to its clients D A trust that receives special compensation for rendering advice about securities

D A trust that receives special compensation for rendering advice about securities

An Investment Adviser must inform a client about all of the following EXCEPT: A Change of address B Addition of new partners to the advisory partnership C Change of phone number D Addition of client accounts from another advisory firm that was "bought out"

D Addition of client accounts from another advisory firm that was "bought out"

Which of the following are deductible from a taxable estate? A Funeral and administrative expenses B Claims against the estate and mortgages against real property owned by the estate C State death taxes D All of the above

D All of the above -A "taxable" estate is one that is valued over $12.06 million (in 2022 - the limit is adjusted for inflation annually) -the executor gets to deduct funeral and the executor's administrative expenses, as well as the cost of the estate attorney. Also deductible are any claims made against the estate (for example, unpaid bills) and mortgages on property owned by the estate. Finally, any state estate tax bill is deductible from the federally-taxable estate

A customer makes the following purchases of ABC stock: February$200 Purchase Stock Price: $25 March$200 Purchase Stock Price: $16 April$200 Purchase Stock Price: $27 The average price of the stock over this time period and the average purchase price per share for this customer are: A Average Price: $16.00; Average Purchase Price Per Share: $16.00 B Average Price: $22.67; Average Purchase Price Per Share: $16.00 C Average Price: $16.00; Average Purchase Price Per Share: $22.67 D Average Price: $22.67; Average Purchase Price Per Share: $21.50

D Average Price: $22.67; Average Purchase Price Per Share: $21.50 -The average price per share is: $25 + $16 + $27 = $68/3 = $22.67 -The average purchase price per share is: February Purchase: $200 / $25 per share =8 shares March Purchase: $200 / $16 per share =12.5 shares April Purchase: $200 / $27 per share =7.41 shares Total:27.91 shares 600/27.91 = 21.50 average purchase price

Under the Uniform Securities Act, who must notify the State Administrator when an agent disassociates from his or her broker-dealer? A Agent B Broker-dealer C Neither of the above D Both of the above

D Both of the above -Both the Agent and the BD

Which item is used when computing a corporation's Current Ratio? A Net Working Capital B Net Worth C Sales D Cash

D Cash

All of the following are defined as investment companies under the Investment Company Act of 1940 EXCEPT: A Management Companies B Face Amount Certificate Companies C Unit Investment Trusts D Collateralized Mortgage Obligation

D Collateralized Mortgage Obligation

In connection with a new issue offering, a broker-dealer would be permitted to send which of the following to a customer if it were accompanied by a copy of the final prospectus? A An internal report prepared by the issuer that projects increasing product line market share over the next 3 years B Copies of advertisements used by the issuer to promote its products during the past year C An advance copy of the broker-dealer's research report on that issuer that will be released after the restriction period ends D Copies of the issuer's audited financial statements showing performance over the prior year

D Copies of the issuer's audited financial statements showing performance over the prior year -Delivery of prospectuses CANNOT be accompanied by promotional material of any type Only things allowed would be: -Tombstone -Information filed with SEC such as audited financial reports

A customer is invested in a diversified portfolio of small-cap, mid-cap and large-cap stocks of companies based in the United States. Which index fund could the customer use to further diversify this portfolio? A S&P 500 B Russell 2000 C DJIA D EAFE

D EAFE -he EAFE Index stands for Europe, Australasia, and the Far East. It consists of companies of developed countries in these areas - so these are all companies outside of North America

Which statement is FALSE about Exchange Traded Funds (ETFs)? A ETFs are registered under the Investment Company Act of 1940 B ETFs are typically structured as open-end management companies C ETFs hold the underlying shares of companies included in a stock index D ETFs permit individual investors to buy creation units

D ETFs permit individual investors to buy creation units

Which of the following is NOT considered to be unethical under the Uniform Securities Act? A Taking an order from the spouse of a customer who has an individual account, only when the customer is traveling and is out of the country B Telling a customer that wishes to invest in a speculative stock that the agent believes to be unsuitable, that the prospects for the company are considerably more bearish than the agent believes C Telling a customer to sell a security based on material negative non-public information that an agent has obtained, as long as the agent does not sell the stock for his or her personal account D Executing a customer's order to buy at the market at the current ask price when the bid price is lower

D Executing a customer's order to buy at the market at the current ask price when the bid price is lower -A customer's order to sell would be filled at the ask price anyway, the bid would be used if the customer was selling.

Under ERISA Rule 404(c), a 401(k) plan fiduciary would be relieved from liability resulting from the plan participant's investment directions if the plan offered which investment options? A Money Market Fund; Equity Fund; Growth Fund B Capital Preservation Fund; Money Market Fund; Fixed Income Fund C Government Bond Fund; Fixed Income Fund; Money Market Fund; Capital Preservation Fund D Fixed Income Fund; Growth Fund; Capital Preservation Fund

D Fixed Income Fund; Growth Fund; Capital Preservation Fund -It requires that the plan sponsor offer at least 3 investment alternatives that are diversified; that have materially different risk and return characteristics; and that when combined with each other, tend to minimize risk through diversification (e.g., an equity fund, a fixed income fund, and a capital preservation fund)

The independent auditor's annual report of verification of customer funds held in custody by an investment adviser, as required by the Investment Advisers Act of 1940, is filed with the SEC on: A Form ADV Part I B Form ADV Part 2 C Form ADV-W D Form ADV-E

D Form ADV-E

The financial news media quote Goofy Fund with a bid price of $8.10 and an ask price of $8.75; and Chipmunk Fund at a net asset value per share of $11.05 and a market price of $10.20. Which statement concerning these funds is most likely correct? A Goofy Fund is a unit investment trust and Chipmunk Fund is a mutual fund B Both funds are open-end investment companies but Chipmunk Fund is a no-load fund C Goofy Fund is a closed-end investment company and Chipmunk Fund is a mutual fund D Goofy Fund is an open-end investment company and Chipmunk Fund is a closed-end investment company

D Goofy Fund is an open-end investment company and Chipmunk Fund is a closed-end investment company -Closed-End can have the NAV be higher than the market price; negotiable

Which of the following would be defined as an investment adviser under the Uniform Securities Act? A U.S. Trust Corp. B Washington Savings and Loan Corp. C AIM Investment Advisers, a firm with $400,000,000,000 of assets under management D Greenwich Investment Counsel, a firm that offers research and asset allocation services to accredited investors

D Greenwich Investment Counsel, a firm that offers research and asset allocation services to accredited investors

Past performance, if shown by an investment adviser in an advertisement, must be based on: A Gross investment income B Gross investment income, reduced by advisory fees paid C Gross investment income, reduced by commission paid D Gross investment income, reduced by advisory fees, commissions and expenses paid

D Gross investment income, reduced by advisory fees, commissions and expenses paid

A Federal covered investment adviser will take prepaid advisory fees of $2,000 1-year in advance of rendering services. Which of the following MUST be included in the investment adviser brochure? I the balance sheet of the investment adviser II any conflicts of interest that the investment adviser may have III information on advisory fees charged A I only B I and II C II and III D I, II, III

D I, II, III

An agent may be associated with more than 1 broker-dealer at the same time if: I all broker-dealers with whom the agent is associated are under common control II the State Administrator allows the "dual registration" III the agent files a registration application through each broker-dealer, and discloses any other broker-dealer employers on the application A I only B II only C II and III only D I, II, III

D I, II, III

An investment adviser is selling a Wrap Account where the assets are held in custody of the advisory firm. The Wrap Fee Brochure must include: I information on investment advisory fees II information on participation or interest in client transactions III the balance sheet of the investment adviser A I only B III only C I and III D I, II, III

D I, II, III

If a solicitor works for an investment adviser, selling that firm's advisory services to customers, then the customer MUST: I be given the investment adviser's brochure II be given the solicitor's brochure III sign an acknowledgment of receipt of the brochure(s) A I and III B II and III C I and II D I, II, III

D I, II, III

Under the Investment Advisers Act of 1940, which of the following are included in the Form ADV Part 1 filed with the SEC? I A list of the officers of the advisory firm II A list of the shareholders of the advisory firm III The States in which the advisory firm is registered A I only B I and II C III only D I, II, III

D I, II, III

Under the Securities Act of 1933, which of the following sign a registration statement for a new issue? I CEO of the issuer II CFO of the issuer III Members of the Board of Directors of the issuer A I only B II only C II and III D I, II, III

D I, II, III -The party that doesn't need to sign the registration statement is the managing underwriter

Total Return is an appropriate measure of performance for: I Common stocks II Preferred stocks III Bonds A I only B I and II C II and III D I, II, III

D I, II, III -Total return is the total of income from the investment and capital gains or capital losses on the investment. It is relevant for any security that generates income and that is subject to market risk

Which of the following is (are) defined as "affiliated persons" under the Investment Company Act of 1940? I Officer of the management company II Employee of the management company III A 5% holder of the management company's shares A I only B II only C I and III D I, II, III

D I, II, III Affiliated persons include: -Officers -Employees -5% shareholders

The anti-fraud provisions of the Securities Exchange Act of 1934 apply to: I Individuals trading exempt securities II Individuals trading non-exempt securities III Investment adviser firms trading exempt securities IV Investment adviser firms trading non-exempt securities A II and IV B I and II C III and IV D I, II, III, IV

D I, II, III, IV

Under the Investment Advisers Act of 1940, an investment adviser's advertising: I can show past performance as long as it is not deliberately selective in which clients' results are shown II cannot use specific client names when showing performance unless the client approves III must make reference to market conditions during the period shown IV must have a disclaimer stating that past performance does not predict future results A I and II only B III and IV only C II, III, IV D I, II, III, IV

D I, II, III, IV

Under the Investment Company Act of 1940, an affiliated person is prohibited from doing which of the following? I Borrowing monies from the fund II Borrowing securities from the fund III Buying securities personally from the fund's portfolio IV Selling securities personally to the fund's portfolio A I and II B III and IV C I, II, III D I, II, III, IV

D I, II, III, IV

Under the Securities Act of 1933, signatures will be obtained by which of the following persons involved in an underwriting? I Chief Executive Officer of the issuer II Chief Financial Officer of the issuer III Accountants of the issuer IV Lawyers of the issuer A I and II B III and IV C I, II, III D I, II, III, IV

D I, II, III, IV

Under the Uniform Securities Act, which methods of storage are permitted to retain required records? I Microfilm II Microfiche III Digital Storage IV Computer Tapes A I and II B III and IV C II, III, IV D I, II, III, IV

D I, II, III, IV

Under the provisions of the Prudent Investor Act, a Registered Investment Adviser should consider which of the following when investing and managing trust assets? I General economic conditions II Possible effects of inflation or deflation III Investment tax consequences IV Expected total return A I and II only B III and IV only C I, II, III only D I, II, III, IV

D I, II, III, IV

Which of the following are exempt issues under the Securities Act of 1933? I Government Bonds II Municipal Bonds III State Chartered Bank Issues IV Small Business Investment Companies A I and II only B III and IV only C I, II, III D I, II, III, IV

D I, II, III, IV

Which of the following are included in the Form ADV filed to register as an investment adviser with the SEC? I Compensation to be received II Conflict of interest disclosure III Whether the adviser has discretion IV The firm's business history A I and II only B III and IV only C I, II, III only D I, II, III, IV

D I, II, III, IV

Which of the following records of an investment adviser that takes custody of customer funds are required to be retained under the provisions of the Investment Advisers Act of 1940? I Cash receipts and disbursements journal II Customer trade confirmations III Customer account statements IV Purchase and sales blotter A I and III B I and IV C II and III D I, II, III, IV

D I, II, III, IV

Which statements are TRUE about civil suits brought under the provisions of the Uniform Securities Act? I A civil suit may be brought by any person who has been damaged by the actions of a broker-dealer, investment adviser or their agents II If the plaintiff wins the suit, the seller is liable to the buyer for the cost of the securities, any interest earned, legal fees, and court costs III The seller will not be held liable by the court if, in the exercise of reasonable care, he or she could not have known about the untrue statement or misleading omission of fact IV Third parties that have a financial interest in the seller's actions can also be held liable under the Act A I and II B III and IV C I, II, III D I, II, III, IV

D I, II, III, IV

Which statements are TRUE about structured products? I The bond component pays interest based on an index rate such as the performance of the NASDAQ 100 Index II The interest rate paid is typically capped to an annual maximum rate III The derivative component establishes the payment at maturity and protects principal IV The security may be listed on a national securities exchange, but trading is typically very thin A I and II only B III and IV only C I, II, III D I, II, III, IV

D I, II, III, IV

Which statements are TRUE when comparing cash forward contracts to futures contracts? I Forward contracts are non-standardized private contracts while futures contracts are subject to the rules and regulations of a futures exchange II Forward contracts are not subject to federal regulation while futures contracts are subject to federal regulation III Forward contracts are not priced in open competitive bidding while futures contracts are competitively priced in the market IV Forward contracts are traded OTC while futures contracts are exchange traded A I and II only B III and IV only C I, II, III D I, II, III, IV

D I, II, III, IV

A broker-dealer that has a place of business in State A would be required to register in State A if it: I sold securities to customers in State A II made an offer to sell securities to customers in State A III effects securities transactions solely with institutional investors in State A IV effects securities transactions solely with issuers in State A A I and II only B III and IV only C I, II, III D I, II, III, IV

D I, II, III, IV -The BD has a place of business in state A, so it would have to register in that state no matter what.

An investment adviser is permitted to borrow money from which of the following clients? I An affiliated bank II An unaffiliated bank III An affiliated broker-dealer IV An unaffiliated broker-dealer A I and II only B II and IV only C I and III only D I, II, III, IV

D I, II, III, IV -cannot borrow from customers unless they're a bank or BD

Disclosure of which of the following is made in a Form ADV Part 2 that is filed with the SEC under the Investment Advisers Act of 1940? I Description of how fees are assessed II Method of analysis used III Educational background of applicant IV Balance sheet of applicant if the firm takes custody of client funds or accepts $1,200 or more of prepaid advisory fees A I and II only B III and IV only C I, II and IV D I, II, III, IV

D I, II, III, IV Form ADV Part 2 includes: -Adviser's Business -Analytic Methods -Types of Clients -Assets under Management -Fees -Conflicts of Interest -Balance sheet of the firm if it will take custody of funds or securities -If it accepts $1,200 or more of prepaid fees 6 months or more in advance of services rendered

During the annuity period of a fixed annuity, the insurance company assumes which of the following risks? I Mortality II Morbidity III Expense IV Investment A I & II only B II & III only C III & IV only D I, III & IV only

D I, III & IV only -The insurance company does not assume morbidity (the risk of getting sick), which only applies to various types of health insurance

Bid and ask quotes in a dark pools are: I publicly displayed II not publicly displayed III for 100 share round lots IV for 10,000 share or greater block trades A I and III B I and IV C II and III D II and IV

D II and IV

Which statements are TRUE? I Traditional 401(k) plans require mandatory annual employer matching contributions II Safe harbor 401(k) plans require mandatory annual employer matching contributions III Traditional 401(k) plans require 100% vesting of employer-paid benefits IV Safe harbor 401(k) plans require 100% vesting of employer-paid benefits A I and III B I and IV C II and III D II and IV

D II and IV

Under the Investment Advisers Act of 1940, copies of all advertising, notices and circulars must be retained: I if distributed to at least 1 person II if distributed to at least 10 people III for a minimum of 3 years IV for a minimum of 5 years A I and III B I and IV C II and III D II and IV

D II and IV -10 people -5 Year retention

Under the provisions of the Investment Advisers Act of 1940, which statements are TRUE about sending account statements to customers? I Account statements must be sent monthly by advisers that take custody of customer funds or securities II Account statements must be sent quarterly by advisers that take custody of customer funds or securities III Account statements must be sent quarterly by advisers that do not take custody of customer funds or securities IV There is no account statement mailing rule for advisers that do not take custody of customer funds or securities A I and III B I and IV C II and III D II and IV

D II and IV -Custody of customer funds requires quarterly account statements

Which records MUST be retained in a state-registered investment adviser's principal office? I Financial reports II Customer securities positions III Investment adviser's bank statements IV Records of customer purchases and sales orders A I and III B I and IV C II and III D II and IV

D II and IV -Customer securities positions -Records of customer purchases and sales orders

Under the Investment Advisers Act of 1940, if the SEC suspends or revokes the registration of an investment adviser, an appeal may be filed: I in State Court II in Federal Court III within 30 days IV within 60 days A I and III B I and IV C II and III D II and IV

D II and IV -Federal Court -60 Days

Forward contracts: I can be closed by trading on an exchange II cannot be closed by trading on an exchange III are standardized IV are not standardized A I and III B I and IV C II and III D II and IV

D II and IV -NOT closed by trading -NOT standardized

Under NASAA rules, which of following are unethical practices when recommending a mutual fund to a customer? I Recommending a letter of intent if the customer does not have the immediate funds to reach a breakpoint II Not disclosing to a customer the sales charge discount if a purchase is made at the breakpoint level III Not disclosing to a customer that dividends can be automatically reinvested without any sales charge imposed IV Recommending the purchase of shares which results in the customer simultaneously holding shares in different investment company portfolios with similar investment objectives A I and III B I and IV C II and III D II and IV

D II and IV -Not disclosing a breakpoint level -Recommending the simultaneous holding of shares in different investment companies that have similar objectives which prevents the customer from benefitting from family of funds

Institutional investment managers MUST file a Form 13F with the SEC: I Monthly II Quarterly III Within 10 business days of the due date IV Within 45 calendar days of the due date A I and III B I and IV C II and III D II and IV

D II and IV -Quarterly -45 Calendar Days

Under the Investment Company Act of 1940, an Open End Management Company: I can buy securities on margin II cannot buy securities on margin III can sell short securities IV cannot sell short securities A I and III B I and IV C II and III D II and IV

D II and IV Mutual Funds cannot: -Buy on margin -Sell securities short

A sales representative who knowingly misappropriates customer securities for personal use: I has committed a fraudulent and misleading Act II has committed a felony III is subject to civil liability IV is subject to possible fines and/or imprisonment A I and III only B I and IV only C II and III only D II and IV only

D II and IV only -Committed a Felony -Subject to fines and possible imprisonment -The rep stole the clients funds -Know that civil penalties is never the right answer

All of the following are components of common stockholders' equity EXCEPT: A Common at Par B Capital in Excess of Par C Retained Earnings D Intangibles

D Intangibles

What rate would NOT be used to find the present value of a TIPS? A Real Rate of Return at the time the bond was issued B Nominal Rate of the bond C Coupon Rate of the bond D Internal Rate of Return of the bond's cash flows

D Internal Rate of Return of the bond's cash flows

Which is a passive investment? A Making investments in an Individual Retirement Account B Making investments in a 401(k) Account C Investing in 100 shares each of 10 different companies D Investing in shares of a S&P 500 Index Fund

D Investing in shares of a S&P 500 Index Fund -Passive asset managers select investments into a portfolio to match the return provided by a "benchmark" portfolio (such as a comparable index fund)

All of the following are defined as "access persons" under SEC rules EXCEPT: A President of the Investment Adviser B Investment Adviser employee who makes recommendations to clients C Investment Adviser employee who places client transactions with executing broker-dealers D Investment Adviser employee who prepares marketing materials used to solicit new clients

D Investment Adviser employee who prepares marketing materials used to solicit new clients -Access persons are those who have access to non-public information

The Federal law that requires the registration with the SEC of management companies is the: A Securities Act of 1933 B Securities Exchange Act of 1934 C Investment Advisers Act of 1940 D Investment Company Act of 1940

D Investment Company Act of 1940

A Registered Investment Adviser uses past performance in an advertisement. The results shown must be based on: A Gross investment income before any deductions B Investment income after the deduction of expenses C Investment income after the deduction of management fees D Investment income after the deduction of management fees and expenses

D Investment income after the deduction of management fees and expenses

Which statement concerning the AIR of a variable annuity contract is TRUE? A It is the insurer's best estimate of the future performance for accumulated income retained in the separate account B It applies during the accumulation period C It must be adjusted annually for inflation D It applies only during the annuity period

D It applies only during the annuity period

Which of the following securities is NOT exempt from the registration requirements of the Uniform Securities Act? A U.S. Government Bonds B Debentures of a New York Stock Exchange listed company C Stock issued by a charitable corporation D Limited Partnership Interests

D Limited Partnership Interests

Under the Securities Exchange Act of 1934, all of the following are defined as "securities information processors" EXCEPT: A NYSE TRF B NASDAQ TRF C Pink Sheets D MSRB

D MSRB

What is an example of a 12(b)-1 fee? A Cost of administrative services provided to shareholders B Cost of office rent for the staff of a mutual fund C Management fees paid to the fund adviser D Marketing fees paid for advertising the fund

D Marketing fees paid for advertising the fund

All of the following may be required by the Administrator to be licensed as a broker-dealer EXCEPT: A Minimum Net Capital B Minimum Surety Bond Coverage C Minimum Competency As Demonstrated By Passing An Examination D Minimum Time Periods Of Securities Business Experience

D Minimum Time Periods Of Securities Business Experience

Under a variable annuity, what is the charge made by the insurer for guaranteeing that the annuitant will receive annuity payments for as long as the annuitant lives? A Investment management fee B Administrative expense fee C Expense risk charge D Mortality risk charge

D Mortality risk charge

Under the Securities Exchange Act of 1934, all of the following issuers must report to the SEC EXCEPT: A Corporations B Investment Companies C Master Limited Partnerships D Municipalities

D Municipalities

In order for an agent to share in the gains and losses of a customer's account, all of the following statements are true EXCEPT the: A client must approve in writing B agent must approve in writing C broker-dealer must approve in writing D agent cannot invest any of his own funds into the account

D agent cannot invest any of his own funds into the account -Each participant must share in a level of gain and loss proportionate to their contribution to the account. How can an agent do this if they can't invest any of their own money?

The vice president of a publicly traded company casually tells a close friend over dinner that the company's results are looking very weak this quarter. The friend offers some comforting words to the vice president and does not tell anyone else about the news. Which statement is TRUE? A The vice president has violated the insider trading laws B The friend has violated the insider trading laws C Both the vice president and the friend have violated the insider trading laws D Neither the vice president nor the friend have violated the insider trading laws

D Neither the vice president nor the friend have violated the insider trading laws -tipper-tippee" doctrine applies only to cases where the tipper "intentionally" gives the information to the "tippee," who then trades on it. In this case, the "tippee" never traded, so there is no violation.

Which of the following activities are allowed prior to the filing of a registration statement? I Solicitations of indications of interest II Solicitations of orders III Sending a preliminary prospectus IV Publishing a tombstone announcement A I and II B III and IV C I, II, III, IV D None of the above

D None of the above

An agent of a broker-dealer is opening a new client account. The agent has completed the new account application and the suitability determination. The customer has an investment objective of safety of principal and income. The agent makes an initial recommendation of a conservative blue chip stock with a track record of paying a consistent cash dividend. The customer accepts the recommendation. When must the commission charged on the transaction be disclosed to the customer? A At the time that the order is placed B At the time when the order is filled C At the time when the account is opening D On the confirmation of the transaction

D On the confirmation of the transaction -There is no requirement to disclose the commission charged to customers at the time of the trade or at the time of account opening. The only requirement is that the commission be disclosed on the trade confirmation. Also remember that any commission charged must be "fair and reasonable."

Filing of advertising with the Administrator is required for which one of the following? A U.S. Government securities B Municipal securities C Investment company securities D Options Clearing Corporation securities

D Options Clearing Corporation securities

An Investment Adviser Representative (IAR) is helping a client structure a portfolio to pay for the higher education costs of their child. All of the following are items that should be considered in determining the amount of funding needed in the portfolio EXCEPT: A Tuition cost B Housing cost C Anticipated inflation rate D Parent's income level

D Parent's income level -The goal here is to fund a portfolio to pay for higher education expenses - for tuition, housing, board, books, computers, etc. The anticipated inflation rate is relevant to determine how much this will cost at the estimated future date that schooling will start. Once the amount needed is determined (which is what the question is asking), then how the funding will occur is the next question. This is where the parent's income is relevant

Which of the following is NOT found in the IPS? A Investment objectives B Investment time horizon C Asset allocation percentages D Portfolio holding list

D Portfolio holding list -The specific investments that will be made by the adviser are not known at this point and are not part of the IPS.

Which statement concerning variable universal life policies is correct? A Premium amounts are fixed and coverage amounts can vary B Premium amounts can vary and coverage amounts are fixed C Premium and coverage amounts are fixed D Premium and coverage amounts can vary

D Premium and coverage amounts can vary

Which recommendation is suitable for an investor who believes that the economy will experience an extended period of inertial inflation? A Growth equities B Value equities C Long Term Government Bonds D Real Estate

D Real Estate

The Administrator CANNOT require which of the following regarding federal covered securities offered in a State? A Filing of documents relating to the issue in the State B Notice filing for the issue in the State C Payment of a filing fee in the State D Registration of the issue in the State

D Registration of the issue in the State

Under the provisions of the Uniform Securities Act, an unregistered agent is permitted to do which of the following in the State? A Effect transactions in exempt securities with customers B Effect transactions in non-exempt securities with customers C Trade securities for the broker-dealer's own account D Report completed trades of securities to customers

D Report completed trades of securities to customers -Clerical!

A business entity that has the legal protections of a corporation and the tax benefits of a partnership is a: A general partnership B limited partnership C C Corporation D S Corporation

D S Corporation -S Corporation gives its shareholders limited liability (liability limited to the investment made), along with the flow-through tax benefits of a partnership because the corporation itself is not taxable

Which one of the following items would be included in the computation of an individual investment adviser's net capital? A Copyright owned by the adviser B Franchise right owned by the adviser C Home furnishings owned by the adviser D Securities owned by the adviser

D Securities owned by the adviser -If this was a corporation or a partnership (Not an individual) then the furniture would also count towards net capital

Under IA-1092, a person is "in the business" of rendering investment advice if that person: A advertises that it gives advice B is compensated for giving advice about securities C regularly gives advice about securities D all of the above

D all of the above

A broker-dealer is required to register with: A the SEC B FINRA C the state where it is located or does business with the public and the SEC D all of the above

D all of the above -Form BD

Which of the following is NOT an exempt security under the Securities Act of 1933? A Shares in a federal credit union B Municipal bonds C Treasury bonds D Shares in a bank holding company

D Shares in a bank holding company

Under the Investment Advisers Act of 1940, an investment adviser is prohibited from borrowing money from which of the following? A Broker-dealer B Investment adviser affiliate C Insurance company D Small manufacturing company

D Small manufacturing company

A customer is starting a new business and will not have much potential liability because of the type of services that he offers. The customer wants to minimize the legal expense of starting the business. The BEST business form would be a(n): A LLC B S Corporation C C Corporation D Sole Proprietorship

D Sole Proprietorship -Since the customer's business will already have minimal liability, the customer doesn't need to incur the expenses of stating a business to minimize liability like an LLC or corporation -Setting up a C or S Corporation or a Limited Liability Company requires legal filings in the State (so there are both legal and State filing fees)

Which form of efficient market theory would be used by those who believe that stock prices rapidly reflect both public and non-public information? A Weak Form B Semi-Weak Form C Semi-Strong Form D Strong Form

D Strong Form

An investment adviser representative works for a federal covered adviser. The IA is SEC registered and has filed notice in State A where it has an office. The IAR is registered in State A. The IAR has engaged in a pattern of trading in client accounts without having authorization to do so. Which statement is TRUE about the State Administrator's ability to take disciplinary action? A The State Administrator cannot take disciplinary action against the investment adviser because it is federal covered, nor can it take disciplinary action against the investment adviser representative of the federal covered adviser B The State Administrator cannot take disciplinary action against the investment adviser because it is federal covered, but the Administrator can take disciplinary action against the investment adviser representative C The State Administrator can take disciplinary action against the federal covered investment adviser, but the Administrator cannot take disciplinary action against the investment adviser representative D The State Administrator can take disciplinary action against the federal covered investment adviser, and it can take disciplinary action against the investment adviser representative of the federal covered adviser

D The State Administrator can take disciplinary action against the federal covered investment adviser, and it can take disciplinary action against the investment adviser representative of the federal covered adviser -The state administrator has the ability to take action over the FCA only to the extent to which the fraud extends

An agent recommends that a customer buy shares of ZIZI Mutual Fund. The fund has a sales charge of 7%. The first breakpoint occurs at the $10,000 level, where the sales charge is reduced to 5%. The fund offers a letter of intent provision. The customer gives the agent a check for $9,500 to invest in the fund, which the agent forwards promptly for investment in ZIZI shares. Which statement is TRUE? A The agent has acted properly by forwarding the customer's check promptly B The agent has acted properly because he does not have a fiduciary obligation to the customer C The agent has acted unethically because he did not make the client aware of the upcoming breakpoint D The agent has acted unethically because he did not make the client aware of the upcoming breakpoint and the letter of intent provision

D The agent has acted unethically because he did not make the client aware of the upcoming breakpoint and the letter of intent provision

A broker-dealer receives a court order directing it to turn over the customer account records of Joe Jones, a customer with a substantial account. Which statement is TRUE? A The broker-dealer is not obligated to comply with the order if Joe Jones directs it not to do so B The broker-dealer is obligated to comply with the order only if it has been issued by the Administrator C The broker-dealer is not obligated to comply with the order at its discretion D The broker-dealer is obligated to comply with the order and must disclose the information

D The broker-dealer is obligated to comply with the order and must disclose the information

Which "soft dollar" remuneration arrangement between an investment adviser and a broker-dealer is prohibited? A The broker-dealer providing free asset allocation software to the adviser in return for the adviser directing trades to that broker-dealer B The broker-dealer providing free research reports to the adviser in return for the adviser directing trades to that broker-dealer C The broker-dealer providing free market timing software to the adviser in return for the adviser directing trades to that broker-dealer D The broker-dealer providing the services of an on-site research analyst to the adviser in return for the adviser directing trades to that broker-dealer

D The broker-dealer providing the services of an on-site research analyst to the adviser in return for the adviser directing trades to that broker-dealer

Under the Investment Advisers Act of 1940, if there are material changes, existing customers of investment advisers MUST be sent a revised "Brochure" at least: A monthly B quarterly C semi-annually D annually

D annually

An attorney that has been appointed executor of a deceased customer's estate contacts an investment adviser in a State to invest and manage the estate's financial assets until they are distributed to the heirs. The attorney offers to pay an advisory fee that is based on a percentage of assets under management. Which statement is TRUE regarding this arrangement? A The advisory contract must be approved by the probate court judge prior to the adviser taking control of the financial assets B The advisory contract must be approved by the heirs prior to the adviser taking control of the financial assets C The contract is null and void because executors are not permitted to delegate investment and management functions over estate assets D The contract is valid as long as the adviser exercises reasonable care to comply with the terms of the delegation

D The contract is valid as long as the adviser exercises reasonable care to comply with the terms of the delegation

A dividend paid by a foreign corporation will be "qualified" in all of the following cases EXCEPT: A The corporation is incorporated in a country that has a comprehensive tax treaty with the United States B The corporation is incorporated in a U.S. possession C The corporation has its shares listed on an established trading market in the United States D The corporation has qualified for duty free shipments to the United States

D The corporation has qualified for duty free shipments to the United States -Dividends paid by U.S. corporations generally qualify for the lower 15% tax rate

Under the Investment Advisers Act of 1940, all of the following are requirements for a family office to be excluded from the definition of an Investment Adviser EXCEPT: A The family office must only provide investment advice to clients who are part of that family B The family office must be wholly owned by family clients and exclusively controlled by family members or entities C The family office cannot hold itself out as an investment adviser D The family office must have less than $100 million of assets under management

D The family office must have less than $100 million of assets under management -NO MONEY/AUM REQUIREMENT FOR FAMILY OFFICE

An investment adviser wishes to offer all of the medical professionals at a local hospital a reduced advisory fee in the hopes of attracting new assets to manage. Which statement is TRUE about an adviser offering discounted rates? A The investment adviser is permitted to offer a discount to any potential customer in order to attract new business B The investment adviser is not permitted to offer the discount unless the Administrator is notified that a discount may be offered C The investment adviser can offer the discount as long as charges to all of the investment adviser's customers are fair and reasonable D The investment adviser can offer the discount as long as the fact that non-medical professionals that are unaffiliated with the hospital pay a higher fee is disclosed in the Form ADV Part 2A

D The investment adviser can offer the discount as long as the fact that non-medical professionals that are unaffiliated with the hospital pay a higher fee is disclosed in the Form ADV Part 2A

A husband and wife have a joint account at DEF Securities. The husband informs the representative in a private conversation that he intends to divorce his wife soon. Which action can the representative take? A The representative can send a letter to the wife informing her of her husband's intentions B The representative can call the wife and offer to open a separate account for her C The representative can immediately divide the joint account into 2 separate accounts D The representative can offer to maintain the husband's account and recommend another broker-dealer to the wife if she requests

D The representative can offer to maintain the husband's account and recommend another broker-dealer to the wife if she requests -Choices A,B, and C all have the representative taking an action based on the information which they cannot do -Choice D occurs only at the wife's eventual request

Which statement is TRUE about a hedge fund's investment allocation to a particular investment asset? A No more than 10% of the fund's assets can be invested in a particular investment B No more than 25% of the fund's assets can be invested in a particular investment C No more than 75% of the fund's assets can be invested in a particular investment D There is no limit on the percentage of a hedge fund's assets that can be allocated to a particular investment

D There is no limit on the percentage of a hedge fund's assets that can be allocated to a particular investment -This is a hedge fund, not a mutual fund there it would be 10%

An agent of a broker-dealer that works out of a branch office during the week sends e-mails to customers about potential investment ideas from his home when he works during weekends. Which statement is TRUE? A These e-mails are not required to be retained because they originate from the agent's home and not from the agent's regular place of business B These e-mails are not required to be retained because only physical, not electronic, records are subject to the record retention requirements C These e-mails must be retained for a minimum of 1 year D These e-mails must be retained for a minimum of 3 years

D These e-mails must be retained for a minimum of 3 years

An investment adviser includes a list of its "Top Ten" recommendations made over the last year in its advertising. Under the Investment Advisers Act of 1940, which statement is TRUE? A This is permitted if the adviser gets the permission of the issuers to use their names B This is permitted if the adviser files the advertisement in advance with the SEC C This is permitted without restriction D This is a violation of the Act and is fraudulent

D This is a violation of the Act and is fraudulent -lists must show all recommendations

A broker-dealer is attempting to increase its commission brokerage business by offering "free office space" in its Park Avenue office building to hedge funds in return for the hedge fund sending its trades through that broker-dealer. Which statement is TRUE? A This is an unethical practice because broker-dealers cannot offer "free services" B This is an unethical practice because investment advisers are not permitted to accept "free" services C This is a legal usage of soft dollar compensation D This is an unethical practice unless it is disclosed on the Form ADV filing with the Administrator

D This is an unethical practice unless it is disclosed on the Form ADV filing with the Administrator -Because most hedge fund advisers are set up as partnerships, hedge funds are not subject to the mutual fund soft dollar rule which requires that the soft dollar benefit accrue to the shareholders. All of the "partners" in a hedge fund may get a benefit from the reduced expenses that the hedge fund will enjoy from the subsidized rent. However, the SEC (and also NASAA, because each State uses the same ADV Form) requires that the hedge fund disclose the practice of accepting soft dollars as a line item in the Form ADV and that it disclose that, in return for getting the rent subsidy, it may be paying a higher commission rate to that executing broker-dealer

An agent receives a strongly worded complaint letter from a customer. The agent discards the letter, deciding to handle the situation only if the customer shows up in person. Which statement is TRUE? A This is acceptable, since it is up to the agent to decide the best method for handling customer complaints B This is permitted, since written customer complaints must be sent by the customer to the State Administrator for resolution C This is prohibited, since all written customer complaints must be forwarded by the agent or broker-dealer to the State Administrator for resolution D This is prohibited, since all written customer complaints must be forwarded to the manager or principal of the firm for resolution

D This is prohibited, since all written customer complaints must be forwarded to the manager or principal of the firm for resolution

A registered agent effects a trade for a customer "privately" in a transaction that is not recorded on the books of the agent's broker-dealer. Which statement is TRUE? A This transaction is allowed as long as the agent told the customer that the trade was being done privately B This transaction is allowed if no commission was taken on the trade C This transaction is allowed without restriction D This transaction is a prohibited business practice

D This transaction is a prohibited business practice

A retired 81 year old customer has $36,000 of annual income from a pension and social security. She has no investments other than a fully-paid home worth $120,000. She has just inherited $75,000 that she would like to invest for supplemental monthly income with minimum default risk. The BEST recommendation is for the customer to purchase: A AAA rated municipal bonds B a variable annuity C whole life insurance D U.S. government bonds

D U.S. government bonds

The SEC administers all of the following EXCEPT: A Securities Act of 1933 B Investment Advisers Act of 1940 C Investment Company Act of 1940 D Uniform Securities Act

D Uniform Securities Act

Which of the following annuity payment options will pay the estate of the annuitant if the full value of the account was not received? A Life Annuity B Life Annuity with Period Certain C Joint and Last Survivor Annuity D Unit Refund Annuity

D Unit Refund Annuity

What type of flexible insurance policy has a savings component? A Term Life B Straight Life C Whole Life D Universal Life

D Universal Life

When can an agent represent that a mutual fund is "no load"? A When the fund does not impose an up-front sales load B When the fund does not impose a contingent deferred sales charge C When the fund does not impose annual 12b-1 fees in excess of .25% D When the fund does not impose an up-front sales load, a contingent deferred sales charge or annual 12b-1 fees in excess of .25%

D When the fund does not impose an up-front sales load, a contingent deferred sales charge or annual 12b-1 fees in excess of .25%

Which of the following is NOT defined as a Federal Covered security and must be registered in the State under the Uniform Securities Act? A Federally unregistered common shares of ADAP Corp. offered to 11 accredited investors under Regulation D B Federally registered preferred shares of ADAP Corp. that are trading on the American Stock Exchange (NYSE American) C Common shares of ADAP Fund, a mutual fund registered under the Investment Company Act of 1940 D Working interests in an oil income direct participation program offered to potential 14 partners in that State

D Working interests in an oil income direct participation program offered to potential 14 partners in that State Federal covered securities include: -Exchange listed/NASDAQ listed -Investment company issues (Mutual funds) -Issues sold to qualified/wealthy investors -Issues exempt from 1933 act including REG D private placement

Under the requirements of the Investment Advisers Act of 1940, the separate disclosure document that the solicitor must provide to a potential investment advisory client must include all of the following EXCEPT: A the nature of the relationship between the solicitor and investment adviser B a statement that the solicitor will be compensated by the investment adviser for the referral C disclosure of the specific amount or percentage being paid to the solicitor by the investment adviser for the referral D a copy of the written agreement between the investment adviser and the solicitor

D a copy of the written agreement between the investment adviser and the solicitor The solicitor's brochure must include: -the nature of the relationship between the solicitor and investment adviser -a statement that the solicitor will be compensated by the investment adviser for the referral -disclosure of the specific amount or percentage being paid to the solicitor by the investment adviser

All of the following activities are prohibited during the "cooling off" period EXCEPT: A accepting an order for the issue in registration B confirming a certain amount of the issue to a customer C accepting a check from a customer for the part of the issue D accepting an indication of interest from the customer for part of the issue

D accepting an indication of interest from the customer for part of the issue

All of the following are EXCLUDED from the definition of an investment adviser under the Investment Advisers Act of 1940 EXCEPT: A teachers B engineers C lawyers D actuaries

D actuaries

Under the NASAA Statement of Policy, all of the following written disclosures by investment advisers to customers are permitted EXCEPT the fact that the: A adviser executes its recommended transactions through an affiliated broker-dealer that receives commissions on each trade B agents of the adviser may receive a commission on each recommended transaction that results in an execution C adviser is the manager of a mutual fund that is recommended to customers D adviser is obligated to refund any investment losses to customers up to the amount of the advisory fee charged

D adviser is obligated to refund any investment losses to customers up to the amount of the advisory fee charged

All of the following are considered to be "giving advice about securities" under SEC Release IA-1092 EXCEPT a person who: A issues reports about securities to customers B develops an overall financial plan for customers C advises customers on the selection of an investment adviser D advises customers on the selection of a broker-dealer

D advises customers on the selection of a broker-dealer

Under SEC rules, an "access person" must report all personal securities positions: A quarterly within 30 calendar days of quarter end B quarterly within 45 calendar days of quarter end C annually within 30 calendar days of the date of the statement used to prepare the report D annually within 45 calendar days of the date of the statement used to prepare the report

D annually within 45 calendar days of the date of the statement used to prepare the report

E-mail required to be retained by an investment adviser under the Uniform Securities Act: A must be kept in printed form in a readily accessible location B only applies to e-mail sent to customers, but does not apply to e-mail received from customers C applies to e-mails sent or received from customers, relating to the offer, sale, trading, and custody of securities and funds D applies to any electronic communication sent from, or received by, the investment adviser, regardless of whether the e-mail is personal in nature or business related

D applies to any electronic communication sent from, or received by, the investment adviser, regardless of whether the e-mail is personal in nature or business related -Any communication over email between adviser and customer must be retained, business or personal

12b-1 fees are assessed by investment companies: A when shares are purchased B when shares are redeemed C when shares are exchanged D as shares are held

D as shares are held

The sale of an "at the money" call is a: A bull strategy B bear strategy C neutral strategy D bear/neutral strategy

D bear/neutral strategy -Selling a call is bearish -At the money, if the market declines OR stays that same, then the writer keeps their entire premium

All of the following are forms of compensation to an investment adviser EXCEPT: A commissions taken on securities transactions for customers B sales charges earned on investment company sales to customers C asset management fees taken on customer wrap accounts D bid-ask spread on securities transactions for customers

D bid-ask spread on securities transactions for customers -Quotes are not compensation

The unified credit applies to: A income tax only B estate tax only C gift tax only D both estate and gift tax

D both estate and gift tax

The "Brochure Rule" applies to: A oral advisory contracts only B written advisory contracts only C discretionary advisory contracts only D both oral and written advisory contracts

D both oral and written advisory contracts

A $25,000,000 offering of limited partnership units is being made under Rule 506. So far, 25 people have been solicited to make an investment of a minimum of $500,000. A potential client is interested, but she only has $200,000 available for investment. The client should be told that she: A will be permitted to become a limited partner with the lower investment amount B can become a limited partner if she invests $200,000 and signs a recourse note for the remaining $300,000 C can become a limited partner with the lower investment amount if she qualifies as an accredited investor D cannot become a limited partner

D cannot become a limited partner -Didn't have the minimum amount, that simple

Under the Uniform Securities Act, the term "guaranteed" can apply to all of the following EXCEPT: A principal B dividends C interest D capital gains

D capital gains -Suggesting that capital gains can be guaranteed would be to guarantee a positive return for the customer which is not allowed

All of the following are defined as "giving advice about securities" under IA-1092 EXCEPT a person who: A advises on the selection of an investment adviser B prepares a list of securities that may be purchased without making specific recommendations C prepares an asset allocation plan that specifies percentage investments in stocks, bonds, real estate and insurance D charts the price movements of stocks and distributes them to subscribers

D charts the price movements of stocks and distributes them to subscribers

Distributions from an IRA may be taken prior to age 59 1/2 without penalty for all of the following reasons EXCEPT: A first time home purchase expenses B qualified higher education expenses C disability D child care expenses

D child care expenses

The "AIR" of a variable annuity contract is set when the: A prospectus is delivered to the client B purchase contract is completed C surrender period of the contract has been completed D contract is annuitized

D contract is annuitized

The difference between a security's bid and ask prices represents the: A margin B discount C premium D cost of trading

D cost of trading -Spread is also considered the cost of trading

An options strategy where the maximum potential loss is equal to the difference between the increase in value of the underlying short securities position and the premiums received is a: A naked call writer B covered call writer C naked put writer D covered put writer

D covered put writer

Rebalancing of a client portfolio based on shifting values of different asset classes is called: A passive asset allocation B strategic asset allocation C efficient asset allocation D dynamic asset allocation

D dynamic asset allocation -Dynamic asset allocation is really just another name for "Tactical Asset Allocation." Once the basic asset allocation percentages are set in a portfolio composition using strategic asset allocation (this sets the basic "strategy" based on the client's investment objective, age, risk tolerance, investment time horizon, other investment holdings, etc.), the manager can "dynamically" alter the percentages, within specified limits, to take advantage of current asset valuations

Under the Securities Act of 1933, liability for omissions or misstatements of material fact in a registration statement or prospectus rests with: A the accountants for the issuer B the officers of the issuer C the lawyers for the issuer D every person who signed the documents or who gave an opinion related to the documents

D every person who signed the documents or who gave an opinion related to the documents

The sale of securities by a State chartered bank is: A exempt from registration with the SEC only B exempt from registration in the State only C subject to both SEC and State registration D exempt from both SEC and State registration

D exempt from both SEC and State registration

All of the following are defined as impersonal advisory services under the Investment Advisers Act of 1940 EXCEPT: A oral advice that is not based upon specific customer situations B written advice that is not based upon specific customer situations C statistical information prepared using a computer program about the performance of a security or group of securities D financial plan prepared using a computer program based upon statistical information provided by the customer

D financial plan prepared using a computer program based upon statistical information provided by the customer

A Registered Investment adviser recommends the placement of 25% of a customer's assets in mutual funds with an aggressive growth objective. The client objects to the idea. The RIA should: A convince the client that the strategy is appropriate B reduce the suggested allocation to 15% and only invest that amount C maintain the 25% allocation and invest that amount D find some other investment strategy

D find some other investment strategy

If a customer of a broker-dealer fails to pay for a securities purchase by the 4th business day from trade date, the customer's account must be: A restricted for 30 days B frozen for 30 days C restricted for 90 days D frozen for 90 days

D frozen for 90 days

All of the following are defined as "professionals" that are excluded from the definition of an investment adviser under the Uniform Securities Act EXCEPT: A lawyers B engineers C teachers D geologists

D geologists

Under the Uniform Securities Act, all of the following persons with no place of business in the State are EXEMPT from registration as an investment adviser EXCEPT advisers that: A deal solely with insurance companies B deal solely with investment companies C deal solely with broker-dealers D have more than 5 clients in the state in the preceding 12 months

D have more than 5 clients in the state in the preceding 12 months

During periods when interest rates are rising, which of the following fixed income securities offers the greatest protection from "interest rate risk"? A zero coupon bonds with long maturities B low coupon bonds with long maturities C current coupon bonds with long maturities D high coupon bonds with long maturities

D high coupon bonds with long maturities

If an access person at an investment adviser violates the firm's Code of Ethics involving privileged information, the consequence is most likely to be: A revocation of that individual's IAR registration B revocation of the firm's IA registration C fines to the firm, but no revocation of the firm's registration D internal reprimands, fines or firing of that individual

D internal reprimands, fines or firing of that individual

An investment adviser is considered to "take custody" of funds or securities from a customer if it: A exercises discretionary authority by placing trades of securities for that customer B accepts a check from the customer made payable to the fund custodian to buy a mutual fund C accepts commissions for effecting trades for that customer's account through an affiliated broker-dealer D is appointed as trustee for a customer's trust account under a legally binding trust document

D is appointed as trustee for a customer's trust account under a legally binding trust document

The Administrator of New York State can examine the books and records of all the following EXCEPT a: A registered investment adviser's office in New York State B branch office of a broker-dealer registered in New York State, whose main office is in California C main office of a broker-dealer in California, who has a branch office in New York State D main office of a broker-dealer in California, who has no branch office and effects no transactions in New York

D main office of a broker-dealer in California, who has no branch office and effects no transactions in New York

When comparing a "buy and hold" strategy to annual rebalancing of a portfolio consisting of 50% equities and 50% bonds, all of the following statements are true EXCEPT: A there are negative tax implications associated with annual rebalancing that do not exist with a buy and hold strategy B the asset allocation percentages are likely to shift over time with a buy and hold strategy but will remain relatively constant over time if the portfolio is rebalanced annually C transaction costs associated with a buy and hold strategy are lower than for a portfolio that is rebalanced annually D market risk of the portfolio over its life is more consistent with a buy and hold strategy than with a portfolio that is rebalanced annually

D market risk of the portfolio over its life is more consistent with a buy and hold strategy than with a portfolio that is rebalanced annually -With a "Buy and Hold" strategy, as the asset values move and the percentages allocated to each asset class shift over time, the customer's relative risk exposure will move over time as well, since the portfolio is not being rebalanced

The Net Asset Value (NAV) of a mutual fund is the: A market value of all securities holdings calculated as of market close B market value of all securities holdings calculated as of market close divided by the number of all outstanding shares C market value of all securities holding calculated as of market close minus liabilities of the fund D market value of all securities holding calculated as of market close minus liabilities of the fund divided by the number of outstanding shares

D market value of all securities holding calculated as of market close minus liabilities of the fund divided by the number of outstanding shares

Private Fund Advisers: A are not required to register with the SEC as long as they have no more than 5 clients B are not required to register with the SEC because their clients are all "accredited investors" C must register with the SEC once assets under management reach $100 million D must register with the SEC once assets under management reach $150 million

D must register with the SEC once assets under management reach $150 million -No federal exception for the number of clients (was 15) -State exemption is 5 or fewer clients in 12 months

The sale of a call has all of the same characteristics as selling stock short EXCEPT: A unlimited loss potential in a rising market B limited gain potential in a falling market C low liquidity risk if the position is to be liquidated D no erosion of value as the position is held

D no erosion of value as the position is held -Options contracts lose time premium as the position nears expiration; this is not true for stock positions.

Forward contracts differ from futures contracts in all of the following ways EXCEPT forward contracts are: A non-standardized B non-regulated C non-competitive D non-derivative

D non-derivative -Both are derivative products

The Designated Market Maker (Specialist) on the NYSE floor can handle all of the following orders EXCEPT a: A market order B limit order C marketable order D not held order

D not held order -A Designated Market Maker (formerly called the Specialist) cannot exercise discretion over price or time of execution, and therefore cannot accept a not held order

Registration by qualification becomes effective: A 5 days after filing B 10 days after filing C concurrent with the registration statement filed with the SEC becoming effective D on a date set by the Administrator

D on a date set by the Administrator

Under the Securities Act of 1933, a registered representative is permitted to sell shares of a registered offering: A when the registration statement is filed with the Securities and Exchange Commission B once 20 days have elapsed from the date of the filing of the registration statement C once the tombstone advertisement is published D once the registration statement is effective

D once the registration statement is effective

All of the following are defined as "investment advisers" who must register under SEC Release IA-1092 EXCEPT a person who: A only advises on asset allocation B only creates overall financial plans but who does not effect recommended transactions C creates overall financial plans and who effects recommended transactions D only gives advice on U.S. Government securities

D only gives advice on U.S. Government securities -Specifically excluded from the definition of an investment adviser under the Investment Advisers Act of 1940 is anyone who gives advice about U.S. Government securities.

Under the Investment Advisers Act of 1940, the use of a testimonial in an advertisement by a federal covered adviser is: A prohibited B permitted only if the promoter is a client of the adviser C permitted only if the promoter is not compensated D permitted only if it is prominently disclosed whether the promoter was compensated and whether the promoter is a client of the adviser

D permitted only if it is prominently disclosed whether the promoter was compensated and whether the promoter is a client of the adviser -NASAA rules prohibits testimonials in advertising entirely

All of the following would cause payment of a term life policy death benefit claim to be denied EXCEPT the: A insured person commits suicide during the first year of the policy B policy has lapsed because of non-payment of premiums C insured person misrepresents his or her health status on the application D policy was in force at the time of death

D policy was in force at the time of death

All of the following statements are true regarding an investment adviser wishing to take custody of client funds or securities EXCEPT: A Form ADV Part 2A must be provided to the customer B the investment adviser must be audited, on a surprise basis, at least annually C customers must receive account statements at least quarterly D prior permission from the SEC must be obtained

D prior permission from the SEC must be obtained

An investment adviser has placed a block trade for 500,000 shares of ABCD stock. The trade is filled in 5 separate lots of 100,000 shares each, at prices ranging from $13.56 to $14.04 per share. The adviser must allocate the shares to customers on a: A FIFO basis across all customers participating in the block B random basis across all customers participating in the block C LIFO basis across all customers participating in the block D pro-rata basis across all customers participating in the block

D pro-rata basis across all customers participating in the block

An investment adviser representative wants to share in the gain and loss of a customer account. Under NASAA rules, this is: A permitted if the IAR opens a joint account with the customer; contributes capital; and shares in proportion to the capital contributed B permitted if the Administrator is notified that the Investment Adviser is taking custody C permitted only if the Investment Adviser does not charge an advisory fee D prohibited

D prohibited -PROHOBITED always for IAs and IARs

An agent of a broker-dealer conducts a seminar for the general public about investing in different types of securities. At this seminar, it would be unethical for the agent to: A discuss the merits of allocating investment funds across different asset classes B distribute his or her business card to the attendees of the seminar C distribute the prospectuses of any specific mutual fund investments that were discussed during the seminar D recommend the purchase of specific mutual fund investments to the attendees of the seminar

D recommend the purchase of specific mutual fund investments to the attendees of the seminar -Since the making of a recommendation to a customer requires a suitability determination, making a recommendation of a specific security in a speech or advertisement is prohibited (because there is no way to determine the suitability of that recommendation for each person in the audience)

A Registered Investment Adviser (RIA) has managed $5,000,000 of a customer's funds successfully for many years. The customer asks the RIA to prepare a revocable trust for his children and tells the RIA to transfer $2,000,000 of his funds into the trust and trade the new account in the same manner as the existing account. The RIA should: A open the account and begin trading B tell the customer to contact a tax specialist C explain to the customer that revocable trusts cannot be traded D refer the client to an attorney that can set up the trust

D refer the client to an attorney that can set up the trust -rusts must be established as legal entities in a State, similar to establishing a corporation or partnership in a State. The best choice is to have the customer contact an attorney who is qualified to establish such a trust

An investment adviser is permitted to accept all of the following from broker-dealers in return for directing its portfolio trades (and thus paying full commissions) to that broker-dealer EXCEPT: A research reports provided by the broker-dealer B Monte Carlo simulation software provided by the broker-dealer C reimbursement for the cost of attending an investment seminar D reimbursement for the cost of hiring an administrative assistant

D reimbursement for the cost of hiring an administrative assistant

Under the Securities Exchange Act of 1934, registration with the SEC as a broker-dealer may be revoked for all of the following reasons EXCEPT the broker-dealer fails to: A maintain minimum net capital B send its financial statements to customers C be audited annually D report its net income to customers

D report its net income to customers

Under the Investment Advisers Act of 1940, all of the following are defined as "investment advisers" EXCEPT a firm that prepares: A research reports about the NYSE market B research reports about the municipal securities market C asset allocation reports covering securities, real estate, commodity and insurance investments D reports on the outlook for the U.S. economy

D reports on the outlook for the U.S. economy -This is not advice on securities

Under the provisions of the Uniform Securities Act, for willful violations, the State Administrator can: A institute criminal proceedings B impose a monetary fine C file suit under civil liability provisions D revoke registration of persons

D revoke registration of persons

All of the following are unethical practices by an investment adviser under the NASAA Statement of Policy EXCEPT an adviser: A exercising discretion under verbal authority from a customer given 15 business days ago B placing an order to sell a position that is dropping rapidly in price without discretionary authority C selling all of a security position when the customer authorized the sale of only part of the position D selecting the best time to sell a position when the customer authorized the sale

D selecting the best time to sell a position when the customer authorized the sale -NASAA gives 10 business days to get the written power of attorney after the order

An investor purchases 1 ABC Jan 45 Put @ $3. The investor subsequently exercises his option contract. The holder has the right to: A buy stock at $42 per share B buy stock at $45 per share C sell stock at $42 per share D sell stock at $45 per share

D sell stock at $45 per share -The holder of a put has the right to sell stock at the strike price of $45 per share specified in the contract. For the contract, the holder initially pays a premium of $3 per share

Which option position is used to generate additional income against a short stock position? A long call B short call C long put D short put

D short put

If an investment adviser wishes to use a paid solicitor, under the Investment Advisers Act of 1940, all of the following statements are true EXCEPT the: A solicitor must provide the customer with a copy of the investment adviser's brochure B solicitor cannot be subject to statutory disqualification under the Securities Acts C solicitor must disclose to the customer any additional costs of providing advisory services, due to the nature of the relationship between the solicitor and the investment adviser D solicitor must register with the SEC as an investment adviser

D solicitor must register with the SEC as an investment adviser

An advertisement published by an investment adviser may contain a(n): A chart that, by itself, gives buy and sell signals for different securities B paid testimonial from a well-known celebrity that is a long-term customer of the firm without additional disclosures C offer to furnish, free without charge, a list of the best performing recommendations made by the adviser in the past month D telephone number to call to get a list of all recommendations made by the adviser over the past 2 years

D telephone number to call to get a list of all recommendations made by the adviser over the past 2 years -Charts cannot by, themselves, be used in advertisements to show what securities to buy or sell -A list of recommendations must include all recommendations made by the advisor, not just the best -Paid testimonial are prohibited in IA ads

Registration as an investment adviser allows one to say that: A FINRA approves of the adviser B the SEC endorses the adviser C the State Administrator recommends the adviser D the firm is a registered investment adviser

D the firm is a registered investment adviser

A mutual fund sponsor wishes to hold a seminar at the convention center at a resort hotel near Disney World. The seminar will focus on the features of different bond funds offered by the fund sponsor. If an Investment Adviser Representative (IAR) is invited to attend the conference, then: A travel and accommodation expenses must be paid by the IAR B the IAR must decline the invitation C the IAR must favor the fund when making recommendations to clients D the nature of the conflict of interest must be disclosed to clients

D the nature of the conflict of interest must be disclosed to clients -The fund will front the cost of the IAR attending the seminar; but cannot pay for their spouse to come -The conflict of interest must be disclosed to the IARs clients

Under the Uniform Securities Act, copies of order memoranda maintained by investment advisers must contain all of the following EXCEPT: A person connected with the Investment Adviser who recommended the transaction to the client B person who placed the order C date of order entry D time of order execution

D time of order execution -This is information kept by the executing broker-dealer

An agent can promise a customer that he will resell a security at a price higher than that paid by the customer: A only for exempt securities B only for non-exempt securities C only for exempt transactions D under no circumstances

D under no circumstances -Cannot guarantee a customer against loss

A customer buys 10 ABC Jan 50 Calls @ 4.75 when the market price of ABC is $51 per share. The maximum gain potential is: A $4,750 B $45,125 C $50,000 D unlimited

D unlimited

If a customer stops making payments on a whole life policy, all of the following are permitted EXCEPT: A taking the cash value of the contract as a lump sum B taking a reduced paid-up whole life policy C using the equity to purchase a term life policy D using the equity to purchase a non-participating policy

D using the equity to purchase a non-participating policy