Exam 11

A customer has invested a total of $10,000 in a nonqualified deferred annuity through a payroll deduction plan offered by the school system where he works. The annuity contract is currently valued at $16,000, and he plans to retire. On what amount will the customer be taxed if he chooses a lump-sum withdrawal?

$6000

What is the name given to an order to purchase or sell a stock where the investor has specified a price?

A limit order

characteristic of index investing?

A portfolio that mirrors the performance of a specific market

a company's stock will have a relatively high P/E ratio if investors feel the company's earnings will grow slow or fast?

FAST

For which of the following is there no active secondary market? Forward contracts ETFs Futures contracts Options

Forward contracts

do hedge funds tend to be more diversified in order to hedge risk?

NAH FAM

are approvals req If a federal covered investment adviser wishes to sell his business to another advisory firm?

NO

Which of the following acts requires publicly traded corporations to issue annual reports?

Securities Exchange Act of 1934

is a limited partnership in an oil and gas exploration program a sec?

YES

is automatically recommends securities that are highly regarded by other agents in the office unethical?

YES

An investment adviser representative is required to make disclosure to the client when

transactions recommended to the client are inconsistent with those for the IAR's own account/ the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale

are members of AT's board of directors who are active in the firm's business included in the firms brochure supplement?

NO

is a contract in soybean futures a sec?

NO

Consent of the client before completion of a trade made between the firm and a client must be made when?

an investment adviser will be acting in the capacity of a principal

UGMA limited to giving?

cash, securities, and insurance policies

A professional tennis player comes to you seeking advice on setting up a trust. She is interested in giving to charity and also wants discretion as to when income is distributed to the beneficiaries, her parents. Which trust do you advise she use?

complex trust

With respect to taxation, an investment adviser representative should NOT

draft tax and estate documents to ensure compliance with current law to provide substantial after-tax returns

Bill will put money into stocks only if he expects that stock returns, over time, will outpace bond returns by some amount that compensates him for the added volatility of owning stocks. This reflects?

risk premium

UTMA limited to giving?

virtually any kind of asset

general partnership characteristics

ease of formation/dissolution

Section 404(c) of ERISA deals with?

fiduciary responsibilities

An inverted yield curve results in part by?

investors buying long-term bonds and selling short-term bonds

A client in the 28% marginal federal income tax bracket invests in a corporate bond with an 8% coupon. To calculate the client's after-tax rate of return?

multiply 0.08 by 0.72

Hexagon Portfolio Advisors (HPA) believes that the market is semi-strong efficient. The firm's portfolio managers most likely will use?

passive portfolio management strategies

A QDRO applies only to assets in a?

qualified employer plan

ETF Characteristics

shares may be purchased and sold throughout the day/lower taxable distributions than most mutual funds/lower annual expenses than those of mutual funds.

An investment adviser representative of a federal covered investment adviser registers with?

the admin

A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. The value of the separate account is now $30,000. If the customer takes a withdrawal of $10,000, what are the tax consequences?

the entire $10,000 is taxable as ordinary income

One reason for including commodities in an investment portfolio is because they have a high correlation to?

the inflation rate

a registration statement for a security must be signed by?

the issuer's chief executive officer/ chief financial officer/ a majority of the issuer's board of directors

Under the Uniform Securities Act, a state-registered investment adviser whose only office was in State N would NOT have to register in State O if its only clients were?

trust companies

renewal provisions of an investment adviser's contract are?

The renewal must state the adviser's compensation/The renewal must be approved by either majority vote of the board or majority vote of the outstanding shares, as well as majority vote of the noninterested members of the board/The contract must be terminable upon no more than 60 days' notice.

Twelve years ago, an investor placed $2,500 into an account. The account is now worth $10,000. Using the Rule of 72, you can determine that the approximate annual return was?

Under the Rule of 72, we can determine an earnings rate by dividing 72 by the number of years it takes for money to double. In this case, the money had quadrupled. That means it has doubled twice in 12 years or, every 6 years. Dividing 72 by 6 years results in an annual return of 12%