81% Series 65

Issuer Transaction vs nonissue transaction

Issuer is right from company or owner non issuer is investor to investor

It would not be considered an unethical and dishonest business practice for an agent registered with a broker-dealer to divide or otherwise split the agent's commissions, profits, or other compensation from the purchase or sale of securities

NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents permits commission sharing as long as the agents are properly registered with the same broker-dealer or one under common control. There is no requirement for the arrangement to be in writing, and the customer has no say so in this matter.

Broker dealers in more than one state must

Register with SEC

If a customer would like to open a custodial UGMA or UTMA account for his nephew, a minor, the uncle can

The donor may name himself the custodian of an UGMA or UTMA account. No documentation of custodial status is required to open an UGMA account, and the custodian is not required to be the minor's legal guardian.

Standard deviation

The statistical measurement that indicates how much an investment's returns have fluctuated compared with its average return over a period of time is known as

One of the primary benefits of dark pools of liquidity is

institutional traders are able to execute large block trades without impact to public quotes or prices

An agent opening a wrap account for a wealthy client may tell the customer that

wrap fees may result in higher costs than separate charges for advice, management, and transactions

Securities Act of 1933

Applies to new issues unless the security or transaction is exempt. Exempt Transactions: -US gov and agency securities -State and Local Munibonds -Intrastate offering under rule 147

One year ago, ABC Widgets, Inc., funded an expansion to its manufacturing facilities by issuing a 20-year first mortgage bond. The bond is secured by the new building and land. The bond was issued with a 5.5% coupon and is currently rated Aa. The current market price of the bond is 105 resulting in a current yield of approximately

Corporate bonds are quoted as a percentage of the $1,000 par value. A market price of 105 is equal to $1,050 (105% × $1,000). Each $1,000 5.5% bond pays $55 of interest annually ($1,000 × 5.5% = $55.00). Current yield equals the annual interest divided by the current price of $1,050. The calculation is $55 ÷ $1,050, which is equal to approximately 5.24%

During the analysis of XYZ stock, a technical analyst concludes that XYZ's support level has been broken. Being a technician, the most appropriate decision should be to

If a support level is broken, this provides a sell signal. Once the stock has lost its support, expectations are that it will continue to fall. The breaking of a resistance level, as the price of the asset gathers momentum to the upside, indicates a buying opportunity.

What is the risk measure associated with the capital market line (CML)?

In the context of the CML, the measure of risk is total risk, or standard deviation. Beta (systematic risk) is used to measure risk for the security market line (SML).

One measure of an investor's total return is called holding period return. The computation includes both income and appreciation and is used for both debt and equity securities. An investor's holding period return would be less than the bond's yield to maturity if

The calculation of yield to maturity assumes reinvestment of the bond's interest at the coupon rate. Therefore, if the investor was only able to do less than that, the holding period return would be decreased. This is part of the concept of internal rate of return (IRR), which takes into consideration the time value of money (compounding). It is tempting to choose the answer "a call at a discount," but bonds are never called at a price below par. Just keep it simple: If the question says you can earn less than the YTM, your return will be lower than the quoted YTM.

A 47-year-old investor purchases a single premium deferred variable annuity from the ABC Insurance Company with an initial premium payment of $25,000. Six years later, a 1035 exchange is made to an annuity offered by the XYZ Insurance Company when the value of the account is $35,000. Seven years later, the account has a current value of $50,000 and the investor withdraws $20,000. The tax consequence of this withdrawal is

The investor's cost is $25,000. The 1035 exchange doesn't affect the cost basis because it is nontaxable. Therefore, with the account currently valued at $50,000, the first $25,000 withdrawn is from the earnings. That makes all of the $20,000 in this question taxable as ordinary income.

An investor is analyzing the impact of the specific type of risk affecting bonds because the fixed cash payments that they deliver may become less valuable. What risk is this?

This is an example of a question where careful reading is necessary. Indeed, every one of the choices is a risk faced by bond investors, but only one specifically answers the question. When the semiannual interest payments 10 or 20 years from now don't buy as much as they would today, that is inflation or purchasing power risk. That falls into the category of systematic risk. On the exam, when one choice is specific and the other is broad, go with the specific one. Interest rate risk is another systematic risk, but it indirectly relates to the question.

An investor purchases a 5% callable convertible subordinated debenture at par. Exactly one year later, the bond is called at $104. The investor's total return is:

Total return consists of income plus gain. Buying a bond at par and having it called at $104 results in a $40 gain. With a 5% coupon, there will be two semiannual interest payments of $25 in a one-year holding period. Adding the $40 + $50 = $90 total return on an investment of $1,000 which = 9%.

529 Plan

Unless a change of beneficiary is involved, only one rollover is permitted in a 12 month period. If there is a distribution of the assets, the rollover must be completed within 60 days. Even though these plans are generally under state control, the rollover rules are federal law.

Over the past year, the market, with a beta of 1.0, has returned 15%. Under CAPM, which of the following stocks would be considered overvalued?

We compare the expected return to the actual return to determine if the security outperformed (making it undervalued) or underperformed (making it overvalued). RJP's beta of 1.2 would have led to an expected return of 120% of that of the market. That would be 15% x 120% = 18%. With an actual return of 17.5%, the stock did not perform relative to the additional risk taken. The actual return for all of the others exceeded the expected return. LQR was 11% compared to 10.5%; BED was 23.5% compared to 22.5%; and ACR was 13.6% compared to 13.5%.

A direct participation program (DPP) is

a pooled entity that offers investors access to a business venture's cash flow and tax benefits. Also known as a "direct participation plan," DPPs are non-traded pooled investments in real estate or energy-related ventures over an extended time frame.

A federal covered registered investment adviser who receives compensation for advice and whose business is primarily as an investment adviser may describe its business as investment counsel if

a substantial part of his business is providing investment supervisory services

One of your clients is discussing various options for funding his IRA. Current tax law would permit investing in which of the following vehicles? -Collectible stamps issued by the U.S. Postal Service -Gold or silver coins minted by the U.S. Treasury Department -Fixed annuities -REITs

2,3,4 In general, investments in collectibles are not permitted in IRAs. The one major exception is U.S. gold and silver coins minted by the Treasury Department. Although some might object to placing an annuity into a tax-deferred plan because it is already tax deferred, there could be a good reason for its inclusion and, more important for this question, it is permitted.

Not Security

- Fixed Annuities - Ordinary Insurance Policies - Endowments - Keogh Plans - IRAs - Commodity Contracts - Precious Metals

private placement to be considered an exempt transaction

For a private placement to remain an exempt transaction under the Uniform Securities Act, the offer may be directed to no more than 10 individuals during any 12-month period. Additionally, no commissions may be paid to agents of the offering broker on sales to noninstitutional buyers, and there must be reasonable belief that the purpose in buying the securities by noninstitutional clients is for investment rather than resale purposes. However, just as with any other securities purchase, payment must be made in accordance with industry standards.

Mr. Beale buys 10M RAN 6.6s of 32 at 67. What is his total purchase price?

For those of you not familiar with bond listings, this means that Beale bought $10,000 (10M) of the RAN Corporation bonds with a 6.6% coupon (interest rate stated on the face of the bond) that mature in 2032 (32). The price is 67, which represents 67% of $10,000, or $6,700. U13LO2

monetarist economic position

Monetarists believe that the economy and inflation are best controlled through the management of the money supply rather than through fiscal policy stimulation.

A TIPS bond with a par value of $1,000 has a coupon rate of 6%. During year 1, the inflation rate is 8%. How does this affect the TIPS in year 2?

On a semiannual basis, the principal value of a TIPS is increased by that year's inflation rate. A TIPS bond adjusts principal every 6 months based on the inflation rate. With an annual rate of 8%, the first semiannual adjustment is half of that, or 4%. That increased the principal value to $1,040. The next 6 months adds 4% to the $1,040 bringing the end-of-year value to $1,081.60. The 6% coupon rate will be applied to the new principal giving us approximately $65 in interest paid during the 2nd year. Technically, we would also have to know the inflation rate for the first 6 months of year 2 because that will impact the amount of interest paid on the 2nd semiannual payment date. If that information is not given, just go with it as we have it here. As noted in the solution, the principal value has increased to a bit over $1,081, but the market price is determined by supply and demand and could be higher or lower.

Security

stock, bonds, options, CD, variable annuities

Under the Investment Company Act of 1940, which of the following qualify for a discount in a mutual fund's sales charge? -Mr. and Mrs. Jones each purchase $5,000 worth of shares; the fund offers a volume discount for a single purchase of $10,000. -Neighbors Jan, Mickey, and Lee form an investment club; Jan places an order for $10,000 worth of shares to be held in their 3 names. The fund offers a volume discount for a $10,000 purchase. -Allen is the vice president of a firm under contract to provide investment advice to a mutual fund. He buys shares of that fund.

A husband and wife and all children under 21 qualify as a single person for the purposes of obtaining a quantity discount, as do corporations formed for a purpose other than obtaining such a discount and employee benefit plans. But other associations acting collectively, such as the members of an investment club, do not qualify as a single person for such a purpose. Discounts may also be made to directors, officers, partners, employees, or sales representatives of the fund, its investment adviser, or its principal underwriter.

Under the NASAA Model Rule on financial requirements for investment advisers, investment advisers who have custody of customer funds are usually required to have a net worth in the amount of

Custody min net worth $35K Discretionary min net worth $10K