STC S 66 missed q's

Fred works for Lasker Securities and is holding an investment seminar in Connecticut. Fred has sent 100 invitations to people located in New York. Since his firm has no place of business in New York, he has the responses returned to his office in Connecticut. Which TWO of the following statements are TRUE? Lasker Securities would not need to be registered as a broker-dealer in New York if it has no place of business in New York, and the seminar is to be held in Connecticut. Lasker Securities would need to be registered as a broker-dealer in New York, since it is conducting business in the state. Fred would need to register in the state of New York as an agent, since he is doing business within the state. Fred would not need to be registered as an agent in New York, but must be registered in Connecticut, since the seminar will take place in Connecticut.

2 & 3

Over the past nine years, the annual percentage returns for a mutual fund have been 7%, -6%, -3%, 8%, 6%, 5%, 11%, 13%, and 8%. What is the median return?

7%

Which of the following communications would be exempt from the sales literature and advertising filing requirements of the Uniform Securities Act?

A brochure on U.S. Treasury securities

A Suspicious Activity Report (SAR) should be filed:

A firm must file an SAR whenever a transaction (or group of transactions) equals or exceeds $5,000 and the firm suspects any of the following wrongdoing: The client is violating federal criminal laws. The transaction involves funds that are related to illegal activity. The transaction is designed to evade the reporting requirements (structured transactions). The transaction has no apparent business or other legitimate purpose and the broker-dealer cannot determine any reasonable explanation after examining all the available facts and circumstances surrounding the transaction.

Which of the following is dissolved when an owner dies?

A general partnership

If employed by a federal covered adviser, which of the following individuals would be required to register as an IAR in State A?

A person who works at the home office in state A however all of his clients are institutions located in State A and State B

West Side Advisers manages several mutual funds. It uses South End Brokerage to execute many of its transactions, even though South End charges higher commissions than many other brokerage firms. West Side has access to all of South End's research reports. This is an example of:

A soft-dollar arrangement

Under the Investment Advisers Act, which of the following forms must be filed if an investment adviser has custody of customer funds and securities?

ADV-E Submission of Form ADV-E with the SEC is required if the adviser has custody of client funds and securities. The form is filed by an independent public accountant hired by the adviser who has audited the adviser's records. Form ADV-H is filed by an adviser seeking an exemption for a temporary or continuing hardship. Form ADV-NR is filed by a nonresident general partner or nonresident managing agent of a U.S. registered investment adviser. Form ADV-W is filed by an adviser that is either seeking a partial or full withdrawal from registration. (62547)

Mary is setting up an investment advisory business in the town in which she was born and has known the town's mayor since childhood. Mary places an advertisement in the local newspaper that quotes the mayor as stating, "I have known Mary since we were kids and we're fortunate to have someone with her expertise and integrity setting up her investment advisory business in our community." This advertisement is:

Acceptable as long as the advertisement contained a footnote which describes the mayor's qualifications An investment adviser is permitted to use testimonials in its advertising. Additionally, individuals who provide testimonials may receive compensation for providing a testimonial. However, to ensure that clients are not being misled, both SEC and state rules require advisers to disclose the qualifications of the provider of the testimonial and whether compensation was paid.

According to the Uniform Securities Act, which of the following investment advisers would be exempt from registration?

An adviser with no place of business in the state and only institutional clients

Important considerations that an investor should take into account before investing in a limited partnership would include all the following matters, EXCEPT:

An analysis to determine whether the business will lose enough money to make the investment a viable tax shelter

Under the Investment Advisers Act, the form that is filed annually with the SEC and determines an adviser's continued eligibility for federal registration is called:

Annual Updating Amendment The Annual Updating Amendment is submitted to confirm that an SEC registered investment adviser is still eligible for federal registration. The form must be filed within 90 days after the end of the adviser's fiscal year.

What name is given to the type of units used during the payout phase of a variable annuity?

Annuity units

Closed-end fund shares:

Are marketable and have fixed capitalization

Kate is an agent at Leopold Securities and works in the firm's New York office. She uses the telephone to contact a client in New Jersey. She recommends buying stock in Tomato Garden Industries, a company located in New Jersey. Which of the following statements is TRUE?

Both the New York and the New Jersey Administrator may have authority over the offer The Administrator has authority over any offer to buy or sell that is originated, accepted, or directed in the Administrator's state. A sale need not be made in order to meet the definition of an offer to sell.

A client sells shares of an S&P 500 company's common stock. The proceeds are reinvested in an S&P 500 Index fund. The client has reduced which of the following risks?

Business

If an investor is attempting to maximize her portfolio growth over a long period, what is her strategy called?

Capital appreciation would best fit the strategy being described. Capital appreciation involves buying and selling equities in an attempt to obtain as much growth as possible and is generally considered a risky strategy.

Under the Uniform Securities Act, which of the following statements is/are TRUE of exempt securities? Any security that is exempt under the Uniform Securities Act is also exempt under federal regulations Any security that is exempt under federal regulations is also exempt under the Uniform Securities Act Certain federal covered securities are required to notice file with the state Administrator All Canadian securities are exempt from registration

Certain federal covered securities are required to notice file with the state Administrator

Regarding the possession of funds held by investment advisers (IAs), which of the following is FALSE?

Clients must receive a statement at least annually that discloses certain details of the funds held by the firm Client account statements are sent on a quarterly basis and must include the amount of funds in the firm's possession, a list of securities held in custody, a record of transactions, and all fees charged. If a custodian holds the assets (i.e., not the IA), the IA must have a reasonable belief that the statements are being provided.

Melissa is listening to a group of individuals discussing trends in the current market. They are saying that they are fully invested and have no purchasing power and that they believe the market will continue to rise. Melissa, however, anticipates a market peak followed by a downturn. She is most likely a follower of which style of investing?

Contrarian investing

All of the following statements are TRUE of a 529 plan, EXCEPT:

Contribution amounts are unlimited. Although the contribution limits for a 529 plan are quite high, they're not unlimited. Each state establishes the maximum amount that may be contributed to all 529 plans maintained for one beneficiary. All of the other statements are correct. However, it's important to note that an investor who contributes the maximum amount allowable to a 529 plan may incur federal gift taxes. A single investor may contribute up to $16,000 per year ($32,000 for a couple) for each beneficiary without incurring gift taxes. An investor may also aggregate five years' worth of annual contributions and give a lump-sum amount of $80,000 ($160,000 for a married couple) without incurring federal gift taxes.

Which bonds would have the greatest sensitivity to interest rate changes? Bonds with long durations Bonds with short durations Bonds with high coupons Bonds with low coupons

Duration is a measure (expressed in terms of years) of a bond's price sensitivity to small changes in interest rates. The longer a bond's duration, the greater its price sensitivity. Also, bonds with low coupons are more sensitive to interest changes than bonds with high coupons. Therefore, a change in rates will result in a greater percentage change in a bond's value if it has a low coupon.

According to NASAA Model Rules, an IA may be compensated on the basis of performance provided the adviser discloses all the following information in writing to the client, EXCEPT the:

Fact that the adviser has discretion as to any index to measure performance

When is a statutory (final) prospectus used?

For all new issues any new issue in the primary market, including, stocks, bonds, investment company securities, and variable products.

Your client dies and leaves a sizable investment portfolio. Within two weeks of his death, the executor of his estate presents the proper documentation to you. She has you sell off the decedent's portfolio, investing the proceeds in money-market instruments in anticipation of the distribution to the heirs of the estate. The value of the holdings declines substantially in the period between his death and their sale. For estate tax purposes, the assets will be valued:

For estate tax purposes, assets are normally valued at the time of death. The date on which the assets are sold is not relevant.

The rate of return that a mortgage company may earn over the life of a loan to a customer is the:

Holding period rate of return

According to the Securities Act of 1933, which of the following descriptions would meet the definition of a security? A contract for the future delivery of 35,000 pounds of pork bellies An options contract for the future delivery of 50,000 pounds of copper Ownership interest in an endowment life insurance policy, with a cash value of $75,000 An unsecured promissory note issued by a corporation, maturing in 270 days or less A money-market mutual fund

II, IV, and V only

Sally is self-employed and has established a Keogh plan for her retirement. She has one full-time employee, Tom, who is 25 and has worked for her for 7 months. When is Tom eligible to participate in the Keogh plan?

In 5 months Employees of self-employed persons with a Keogh plan must be covered by the plan if they have worked for the employer for one year and are at least 21.

Your clients have a sizable estate, which they wish to leave to their children upon their death. Which of the following trusts would remove assets from their estate and potentially reduce their estate tax?

Irrevocable

Which of the following accounts do NOT ease probate?

Joint tenants in common account

A client has been watching a thinly traded stock and has noticed that it has not had any trading activity today. What type of risk is the MOST significant for this type of investment?

Liquidity risk If a security is thinly traded, it indicates that the market for that investment is illiquid. If an investment has a wide spread, it means the difference between the bid and ask prices is larger than normal. Market risk, or the risk that the market will affect a security's value, is a real risk, but not the most significant one for a thinly traded stock. Even if the stock market increases, the stock itself may still be illiquid.

All of the following are TRUE regarding option positions, EXCEPT:

Long puts will hedge short stock positions

While presenting a financial plan to a customer, an IAR talks about different types of risk. One of the primary risks mentioned by the IAR relates to the impact of current events, consumer confidence, and the general political climate. This risk is called:

Market risk

Which risk BEST measures the marketability of a security?

Marketability (also referred to as liquidity) represents how easy or hard it is to buy or sell a security. As a result, liquidity risk is the best measure of marketability. Market risk, which is a type of systematic risk, is the risk of loss due to a decline in the entire market. Business risk is a type of non-systematic risk and causes losses due to the poor performance of one business or company.

Under the Uniform Securities Act, an institutional investor:

May be designated as such by rule or order of the Administrator

The major advantage of an S Corporation versus a C Corporation is that an S Corporation:

May elect to be treated like partnerships for federal tax purposes

Over the past 10 years, an investment adviser has developed a computerized trading algorithm that produces average returns of 30% per year. To recover the costs associated with development, the adviser now plans to charge clients an annual fee equal to 25% of their average balance. An Administrator would consider this fee:

Performance-based fees are only available for qualified investors. Assessing a fee of 25% of the gains may be considered reasonable, but an asset-based fee of 25% would certainly be considered excessive. Generally, an asset-based fee exceeding 2% is considered excessive.

According to modern portfolio theory (MPT), the expected return of an investment is the:

Possible returns on the investment weighted by the likelihood that return will occur

Which of the following statements is TRUE regarding the taxation of qualified cash dividends?

Qualified cash dividends are typically taxed at a maximum rate of 20% in the year in which they're paid. Corporate bond interest is taxed at an investor's ordinary income rate, municipal bond interest is typically tax exempt. Stock dividends, not cash dividends, will adjust an investor's cost basis.

What are 12b-1 fees used to pay?

Section 12b-1 fees are a type of mutual fund sales charge. Such fees are assessed annually on the assets under management of the fund and used to pay commissions to the agents who sell the fund's shares to investors.

An adviser feels strongly that the economy is on the cusp of expanding. Therefore, the adviser recommends a shift from bonds to commodities to clients. This investment strategy is known as:

Sector rotation

A client currently has $75,000 in cash he does not envision needing for the next 18 months. He is interested in seeing if he can receive a greater return on this cash than the savings account it is currently in. Which of the following choices would be MOST suitable?

Short-term debt instruments

To measure the variability of returns on various investments, you would use which of the following metrics?

Standard deviation

According to the Uniform Securities Act, all of the following sales and advertising literature may be subject to filing with the Administrator, EXCEPT a(n):

The Administrator may require the filing of sales and advertising literature for securities investments. Limited partnerships, oil and gas programs, and mining companies issue securities. Endowment policies are insurance products, not securities. (62391)

Stephen Gigs is about to retire and is concerned about having enough income to supplement his Social Security retirement savings. He would like to buy a conservative investment that can help offset inflation. Mr. Gigs takes the advice of his agent and purchases Treasury Inflation-Protected Securities (TIPS) with a face value of $100,000 and a coupon rate of 2 3/4%. Six months later, he reads that the CPI is up 3 1/2%. What is the approximate amount of Mr. Gigs' next interest payment?

The CPI rose 3 1/2% and, therefore, the principal of the TIPS will increase by 3 1/2% ($100,000 + [$100,000 x 3.5%]) = $103,500. Mr. Gigs' interest will be calculated by multiplying the new face amount by the coupon rate of 2 3/4%, then dividing by two since interest is paid semiannually. ($103,500 x 2.75%) / 2 = $1,423.13. Remember, the stated rate is an annual rate and will not change.

According to the Employee Retirement Income Security Act, all of the following persons or entities would meet the definition of a fiduciary, EXCEPT:

The attorney who sets up the plan

The term "layering" refers to:

The blending of illicit money with legitimate money

A bond has a low coupon relative to other bonds with the same maturity and credit rating. Which of the following statements about the bond's price is TRUE?

The bond's price will be more volatile than bonds with higher coupons.

A broker-dealer sought legal advice regarding a security that could be exempt from registration. Legal counsel determined that the security was exempt. A transaction occurs, but counsel was in error. The client who bought the security brings suit against the broker-dealer. Given these circumstances:

The broker-dealer is still liable despite a good-faith effort in the transaction

An investment adviser contracts with a person who is not affiliated with the firm. In fact, the contractor is not registered with any state Administrator or with the SEC. Under the Investment Advisers Act of 1940, if the IA intends to give the contractor a finder's fee for any investment advisory client that's secured through her service, which of the following statements is TRUE?

The contractor doesn't need to register with the SEC as a solicitor.

Your client owns a portfolio of blue-chip equity securities and would like to increase the overall rate of return through the use of options. The most conservative strategy to achieve this objective is to:

The most conservative strategy for the investor to achieve his objective is to write covered calls. The call premium received will increase the yield on his portfolio of stocks because it will add to the income generated by the dividends received from the stock. (62485)

All of the following statements are TRUE of covered call option writing, EXCEPT:

The premium received guarantees the writer cannot have a loss on the underlying security

Under the Investment Advisers Act of 1940, a solicitor may not receive a cash payment unless:

The solicitor has a written agreement in place with the investment adviser for whom he solicits

Which of the following statements BEST describes discounted cash flow?

The total value of an investment's anticipated cash flows in today's dollars

Which of the following statements is TRUE concerning the posting of a bond by a broker-dealer?

There is no bond requirement if the broker-dealer does not have custody or discretionary authority over client funds or securities

An investment adviser charges fees based on a percentage of the assets being managed by the firm for the client. The schedule of fees reveals that the more assets the firm manages for the client, the lower the advisory fee. For customers with more than $5 million under management, the firm's advisory fees are negotiable. Which of the following statements is TRUE?

This fee structure is acceptable as long as the resulting fees are reasonable

A person located in State A has been a client for four years of a firm that is headquartered in State B. The firm is registered in both States A and B. Based on the advice of the firm, the client buys securities that become worthless. Two years later, the client files a civil suit to recover the purchase price of the securities. If the agent who sold the securities to the client has passed away, the client is:

Under the provisions of the Uniform Securities Act, every cause of action survives the death of any person who might have been a plaintiff or defendant. The client may file the suit in State A and need not file the civil suit in the state where the firm is headquartered. The statute of limitations for civil liabilities under the USA is three years from the sale or rendering of investment advice, or within two years of discovery. Therefore, the suit may be filed and the customer may recover damages. (The client still has one year left to file.) (62616)

On Tuesday, June 3, an IA discovers its net worth has fallen below the minimum requirement. When must the IA file a report of its financial condition with the Administrator?

f an IA's net worth is less than the required minimum, it must notify the Administrator by the close of the next business day (in this question, Wednesday, June 4). After notification is made, the IA must file a report of its financial condition by the next business (in this question, Thursday, June 5). Thereafter, the Administrator may require the IA to post a bond for the deficiency.