66 Finals Missed Questions

A QDRO: I. Is a court judgment, decree, or order for a retirement plan to pay all or part of a retirement allocation to a spouse, former spouse, or child of the plan participant. II. Is needed to divide the benefits of an IRA. III. Provides benefits that are taxed at the plan participant's rate. IV. Provides benefits that are taxed at the rate of the receiver of the benefits. A. I and IV B. II and III C. I and III D. II and IV

A.

A yield spread compares: A. A given bond's yield to some benchmark yield B. The average yield for corporate bonds to the average yield for municipal bonds C. The price of a given bond to the price of a given benchmark D. A given bond's yield to the yield of a bond with the same credit rating and a different maturity date

A. A given bond's yield to some benchmark yield

I. A primary government dealer that is short Treasury Bonds could hedge the position by: I. Buying T-Bond futures contracts II. Selling T-Bond futures contracts III. Buying T-Bond forward contracts IV. Selling T-Bond forward contracts A. I and III B. I and IV C. II and III D. II and IV

A. I and III I. A primary government dealer that is short Treasury Bonds could hedge the position by: I. Buying T-Bond futures contracts II. Selling T-Bond futures contracts III. Buying T-Bond forward contracts IV. Selling T-Bond forward contracts

The "time value of money" is the: A. Potential to earn interest on money which affects its relative value B. After tax return of an investment C. Original principal amount plus any interest accrued during a specific time period D. Incremental return of an investment over the return of a risk-free security

A. Potential to earn interest on money which affects its relative value

Establishing the structure of a portfolio to meet specific financial goals is called: A. Strategic allocation B. Tactical allocation C. Rebalancing D. Risk adjustment

A. Strategic allocation

Why does a partnership agreement have to be on file in order to set up a partnership account? A. To determine who has trading authority on the account B. To determine what percentage of dividends from the account goes to each partner C. To determine which partner pays taxes on the capital gains from the account D. To determine which partner is responsible for the account fees

A. To determine who has trading authority on the account

The purchase of a put 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. both are bear market strategies

A. unlimited loss potential in a rising market

Mary bought 100 shares of ABC for $20/share and paid a $20 commission. A year later, she sold the shares for $25/share and paid another $20 commission. What was Mary's tax basis when she sold the ABC shares? A. $2,000 B. $2,020 C. $2,500 D. $2,520

B. $2,020 TAX BASIS = COST BASIS

Which of the following bonds would have the greatest duration? A. 15-year Treasury Inflation Protection Security with a 2% coupon B. 15-year Zero Coupon bond with no stated coupon rate C. 15-year Corporate Debenture with a 7% coupon D. 15-year Treasury Bond with a 4% coupon

B. 15-year Zero Coupon bond with no stated coupon rate

The debt to equity ratio is designed to measure: A. Whether a company can repay its debts within 12 months B. A company's leverage C. Ability of a company to pay off current liabilities quickly using cash D. None of the choices listed

B. A company's leverage

Which of the following likely indicates that bond investors are optimistic about a company's bonds? A. An inverted yield curve B. A narrowing yield spread C. An increased nominal yield for new issues D. An increased bond rating for defeased bonds

B. A narrowing yield spread

Tad Schlough, an investment adviser representative, writes a letter to be sent to his clients summarizing his market forecasts and sell recommendations. This letter is a/an: A. False or misleading statement B. Advertisement C. Prohibited practice D. Testimonial

B. Advertisement

A Registered Investment Adviser is the beneficiary in the liquidation of a partnership investment that it made years ago and, in settlement, receives the assets of an existing broker-dealer. As a result of this, the directors of the RIA: A. Are required to register in the State as directors of the broker-dealer B. Are not required to register in the State as directors of the broker-dealer, nor take qualification exams, as long as they are not involved in overseeing the sales or operations of the broker-dealer C. Must register in the State as directors of the broker-dealer but are not required to take qualification exams D. Are not required to register in the State as directors of the broker-dealer

B. Are not required to register in the State as directors of the broker-dealer, nor take qualification exams, as long as they are not involved in overseeing the sales or operations of the broker-dealer

Which of the following is true of testimonials provided by broker-dealers and state-registered investment advisers? A. Testimonials for broker-dealers and investment advisers are subject to the same guidelines B. Broker-dealer websites can contain customer testimonials provided to the firm; investment adviser websites cannot C. Broker-dealers can use testimonials from clients in all cases; investment advisers can only use testimonials in limited circumstances D. Neither broker-dealers nor investment advisers can use client testimonials in their advertising

B. Broker-dealer websites can contain customer testimonials provided to the firm; investment adviser websites cannot

CAPM is used to calculate a/an: A. Risk-free rate of return B. Expected rate of return C. Geometric rate of return D. Total rate of return

B. Expected rate of return

A corporate investor may exclude from taxation, part of: I. Cash dividends received from common stock investments II. Cash dividends received from preferred stock investments III. Interest received from convertible bond investments IV. Interest received from non-convertible bond investments A. I only B. I and II C. III and IV only D. I, II, III

B. I and II

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

The advantage of a limited partnership business structure as opposed to a corporate business structure is: A. Limited partnerships are taxed at lower tax brackets than corporations B. Limited partnerships allow for "flow through" of gain and loss, while corporations do not C. Limited partnerships limit liability of owners while corporate shareholders have unlimited liability D. Limited partnerships have a better "track record" for economic success than corporations

B. Limited partnerships allow for "flow through" of gain and loss, while corporations do not

What is the best way to ensure that customer account information held at a broker-dealer is not stolen due to cyber theft? A. Require that the customer send a text message to the firm from a registered device before allowing access B. Maintain customer information in a secure website in encrypted form C. Purchase an adequate level of insurance to cover the full range of cyber risks D. Retain a third-party vendor to evaluate the firm's cyber risks

B. Maintain customer information in a secure website in encrypted form

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

When may broker-dealers commingle their funds with those of their clients? A. With a signed discretionary account agreement B. Never C. With the use of an insured account D. With a signed written agreement

B. Never

The advantage of forming a business as a Limited Liability Company as opposed to forming it as a C Corporation is: A. No limit on the number of shareholders B. Tax treatment that is the same as for a partnership or sole proprietorship C. Ease of formation D. Limited liability to the owners of the enterprise

B. Tax treatment that is the same as for a partnership or sole proprietorship

An IAR associated with a Federal Covered Adviser is terminated. The IAR goes to the State Administrator with a complaint, alleging that the Federal Covered Adviser did not pay him all of the money he was due when he was terminated. Which statement is TRUE regarding the Administrator's right to investigate the Federal Covered Adviser about this allegation? A. Because the adviser is federal covered, the Administrator does not have the right to investigate this complaint B. The Administrator has the right to investigate the complaint, even though the adviser is not registered in the State C. The Administrator may issue an injunction against the federal covered adviser, but cannot investigate the adviser D. Because the adviser is federal covered, the Administrator can only refer the complaint to FINRA

B. The Administrator has the right to investigate the complaint, even though the adviser is not registered in the State

The father of an agent registered in this state and the agent wish to open a joint account. What is required? A. The agent's father and the agent's broker-dealer must give written permission and both must share profits equally B. The agent's father and the agent's broker-dealer must give written permission and profits may be shared in whatever way the parties agree C. The agent's father and the agent's broker-dealer must give written permission and both must share profits equal to their contribution D. Nothing more than proper account applications

B. The agent's father and the agent's broker-dealer must give written permission and profits may be shared in whatever way the parties agree

What happens to the rate of return calculation on a non-callable bond if the rate of interest stays the same and the time intervals lengthen? A. The rate of return increases B. The rate of return declines C. The rate of return is unchanged D. The effect on the rate of return cannot be determined

B. The rate of return declines

What represents business risk? A. The risk that a company presents fraudulent financial statements B. The risk of buying a single stock C. The risk of investing in an enterprise that does not have a government backing D. The risk of making an investment commitment when prices are peaking

B. The risk of buying a single stock

The advantage of buying a foreign index fund as compared to direct investing in foreign stocks is that it: A. minimizes the risk of changing currency values B. is easier than individually investing in foreign stocks C. reduces tax liability when dividends are distributed D. minimizes the business risk of the investments

B. is easier than individually investing in foreign stocks

Which statements are TRUE regarding structured products? I A "structured product" is a derivative security that is "structured" to have the characteristics of a debt, but give the higher returns typically associated with "equity" securities II Structured products give a rate of return linked to an equity index such as the Standard and Poor's 500 index III Structured products have a fixed maturity at par in around 7 years based on an embedded option in the security IV Structured products are standardized and liquid instruments A I and II only B III and IV C I, II, III D I, II, III, IV

C I, II, III I A "structured product" is a derivative security that is "structured" to have the characteristics of a debt, but give the higher returns typically associated with "equity" securities II Structured products give a rate of return linked to an equity index such as the Standard and Poor's 500 index III Structured products have a fixed maturity at par in around 7 years based on an embedded option in the security IV Structured products are standardized and liquid instruments

Mark's company, which is located in Oregon, makes unfinished wood furniture. His company sells this furniture directly to the public from a large warehouse. Theresa's company, which is located in southern Georgia, grows cotton for t-shirt manufacturers. Which of the following statements correctly identify hedging strategies for Mark and Theresa? I. Mark should buy lumber futures. II. Theresa should sell cotton futures. III. Mark should sell lumber futures. IV. Theresa should buy cotton futures. A) III and IV B) II and III C) I and IV D) I and II

✓ D) I and II Explanation Mark is short lumber because he needs lumber to produce his products. A hedge position for Mark would be to go long lumber futures—that is, to purchase lumber futures. Theresa is long cotton because she owns cotton for manufacturing purposes. A hedge position for Theresa is to go short-that is, to sell cotton futures.

Which statement is TRUE about the tax treatment of capital gains and capital losses? A. Capital gains are offset against capital losses and any net capital gains are taxed at earned income rates B. Capital gains are offset against capital losses and there is no limit to the amount of net capital gains that can be carried forward C. Capital gains are offset against capital losses and there is no limit to the amount of time that a net capital loss can be carried forward D. Capital gains are offset against capital losses and any net capital losses are deductible in full for that tax year

C. Capital gains are offset against capital losses and there is no limit to the amount of time that a net capital loss can be carried forward

In many cases, a possible conflict of interest for an investment adviser can be easily resolved by: A. Mediation B. Arbitration C. Disclosure D. Giving the client a discount

C. Disclosure

If the beneficiary of a Coverdell Education Savings Account receives a full scholarship for education expenses, which statement concerning distributions is TRUE? A. The beneficiary can take distributions free of income tax and penalty tax B. Distributions to the beneficiary are subject to income tax and penalty tax C. Distributions to the beneficiary are subject to income tax but no penalty tax D. Distributions must be rolled over to a Traditional IRA or Roth IRA

C. Distributions to the beneficiary are subject to income tax but no penalty tax

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

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

The cost of money is known as the: A. Marginal rate B. Consumption rate C. Interest rate D. Opportunity cost

C. Interest rate

Which of the following is true of hypothetical performance information as it relates to federal covered advisers? A. It is always considered an advertisement B. It is only not considered an advertisement if shared in a group email sent to several private fund investors C. It is not considered an advertisement if it is shared on request D. It is never considered an advertisement

C. It is not considered an advertisement if it is shared on request

Which of the following is considered an unacceptable business practice for a securities professional? A. Recommending high-risk securities B. Purchasing a security for his own account right after placing an order for the same security for a client C. Making several small transactions for a client in order to receive increased commissions D. All choices represent an unacceptable business practice

C. Making several small transactions for a client in order to receive increased commissions

Bid and ask quotes in 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

A customer wishes to make an investment that provides income along with high liquidity and high marketability. The BEST recommendation is: A. Limited partnership units B. Long term corporate bonds C. Preferred stocks D. Growth stocks

C. Preferred stocks

An investment adviser charges a 1% annual management fee to all clients. The adviser also says that if he does not produce a 20% annual return on the client's investment, he will refund the management fee. This action is: A. Permitted because it has been offered to all clients B. Permitted because the clients are not being charged an incentive fee C. Prohibited because the adviser cannot make fee charges contingent on performance D. Prohibited because the adviser cannot share in portfolio gains and losses

C. Prohibited because the adviser cannot make fee charges contingent on performance

Exchange traded funds are NOT: A. Marginable B. Negotiable C. Redeemable D. Diversifiable

C. Redeemable

All of the following are prohibited actions under the Uniform Securities Act EXCEPT: A. Soliciting orders for unregistered, non-exempt securities B. Sharing a loss with a customer because you recommended the trade to them C. Sharing commissions with agents at your firm D. Borrowing stock from a customer to cover your margin account

C. Sharing commissions with agents at your firm

Projecting the future investment performance of a security based upon past investment performance of that security is: A. Permitted only with the use of 90-day moving averages B. Permitted only when supplied by the issuer C. Strictly prohibited D. Permitted when at least 10 years of historical performance is used to make the projection

C. Strictly prohibited

A client at your firm has an individual account. She dies without a will. What happens? A The firm takes the account assets as unclaimed property B The provisions of common law are followed C The rules of interstate succession are followed D The state takes the account assets as unclaimed property

C. The rules of interstate succession are followed Feedback If an individual account is not held as POD (payment on death, which specifies the name of the beneficiary to whom the account assets go on death), then the account assets are distributed based on the instructions in the deceased individual's will. If the individual dies without a will ("intestate"), then the rules of intestate succession are followed. This is established by each State, and the estate's assets are distributed to the closest living relatives, with a surviving spouse being first in line to get the assets; then the children; then the siblings; etc.

Which of the following types of orders enable an investor to know in advance the exact price he/she will pay (or receive) in a stock trade? A Market order B Stop order C Limit order D None of the choices listed

D None of the choices listed

Which of the following are appropriate investment strategies for a client with a 20-year time horizon? I The client should hold more cash || The client should hold less cash The client should hold less stocks IV The client should hold more stocks A I and III B I and IV C II and III D II and IV

D II and IV I The client should hold more cash || The client should hold less cash The client should hold less stocks IV The client should hold more stocks

A customer with $50,000 to invest needs $100,000 in 10 years to pay for his child's college education. The minimum interest rate needed to meet this goal is: A. 10.80% B. 9.40% C. 8.60% D. 7.20%

D. Use Rule of 72 as the $50k is doubling. Use 72 / (each answer) D. 72 / 7.2 = 10 years

In order to determine whether a direct participation program is a suitable investment for a customer, inquiry should be made into all of the following EXCEPT: A the customer's need for tax deductions in future years B the customer's ability to meet future assessments, if any C existing investments held by the customer D the customer's need for tax deductions in previous years

D. The customer's need for tax deductions in previous years Feedback An investor buys a limited partnership interest for tax benefits in future years. The investor's need for tax benefits in prior years is irrelevant.

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 $100k + $15k + 3k + 9k = $127k

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

D. CAPM

All of the following statements are true about Health Savings Accounts EXCEPT: A. HSAs are only appropriate for those individuals covered by high-deductible health insurance plans B. HSAs can be set up to include dependents of the covered individual C. HSA contributions are tax deductible D. HSA contributions are subject to phase-out when an individual's income exceeds $250,000

D. HSA contributions are subject to phase-out when an individual's income exceeds $250,000

Which of the following statements are TRUE about 457 plans? I. They are intended for government employees and some tax-exempt organizations II. They usually cover only management and highly-compensated employees III. They are a non-qualified salary reduction plan IV. They are subject to the same salary contribution limits as 401(k) and 403(b) plans A. I and II only B. III and IV only C. I, II and III only D. I, II, III, IV

D. I, II, III, IV

Which of the following statements are TRUE regarding defined benefit plans? I. Actuarial tables are used to determine contribution rates for each employee II. Distributions upon retirement are 100% taxable III. Employees with the highest salaries and the fewest years to retirement benefit the most IV. Contributions made to the plan can vary from year to year A. I and II B. III and IV C. II, III, IV D. I, II, III, IV

D. I, II, III, IV Which of the following statements are TRUE regarding defined benefit plans? I. Actuarial tables are used to determine contribution rates for each employee II. Distributions upon retirement are 100% taxable III. Employees with the highest salaries and the fewest years to retirement benefit the most IV. Contributions made to the plan can vary from year to year

Which of the following is the biggest risk of leveraged ETFs? A. Currency risk B. Business risk C. They are poor performers for customers who want to hold them for short amounts of time D. Large tracking errors

D. Large tracking errors

The antifraud provisions of the Uniform Security Act regarding sales and purchases of securities include prohibitions about all of the following except: A. Participating in a pump and dump B. Encouraging others to invest in a security by telling them that if they can get others to invest they will make money even if the security does not increase in value C. Encouraging another in a scheme to defraud, but not participating directly yourself D. Omitting an immaterial fact on the registration documents

D. Omitting an immaterial fact on the registration documents