FIN450 TEST 3

Several investors open an account in joint tenancy. Financial information is required on which of the following investors?

All of the investors

With regard to a federal covered investment adviser, which of the following statements regarding the Form ADV Part 2A is CORRECT?

An investment adviser must deliver to each client, a copy of the most recent ADV Part 2A no later than at the time of entering into the advisory agreement.

Exchange market

Auction

Agency capacity

Broker

Which of the following statements regarding IRAs is NOT true?

Cash value life insurance is a permissible IRA investment, but term insurance is not

Which of the following statements regarding both traditional IRAs and Roth IRAs is TRUE?

Contribution limits are identical

Regulations regarding how contributions are made to tax-qualified plans relate to which of the following ERISA requirements?

Funding

Constructing a portfolio of companies that are outperforming most other stocks in that industry

Growth Investing

Market order

Immediate execution

Which of the following are unlawful or prohibited practices for an investment adviser under the Investment Advisers Act of 1940?

Making an untrue statement of a material fact in a registration application with the SEC, Stating that the firm's ability and qualifications have been approved by the U.S. government, Representing that the firm is an investment counselor when it does not normally render investment advice

Who of the following will NOT incur a penalty on an IRA withdrawal?

Man who has just become totally disabled

Selecting companies currently out of favor on the basis of earnings prospects

Value investing

ABC Advisers is a federal covered IA. John Oldman has been responsible for keeping the firm's Form ADV updated for the last 40 years. John has suddenly announced his immediate retirement. This would require

prompt filing of an amended ADV with SEC indicating the change in contact person

An individual's net worth is

the difference between the individual's assets and the individual's liabilities

Among the eligibility requirements to open a health savings account individual's

the individual must have a HDHP

A business organized as a sole proprietorship wishes to open an advisory account. When preparing an investment policy statement, the IA would have to consider the objectives of

the sole proprietor

Prompt notification to the Administrator must be made when

there is a material change to any information contained in a broker-dealer's application for registration that is on file with the state

The maximum amount that may be invested in a Coverdell ESA in one year is

$2,000 per child

Premature distribution from an IRA is generally subject to a

10% penalty plus tax

The expected return on the market is 15%, the risk-free rate is 8%, and the beta for Stock A is 1.2. Compute the rate of return that would be expected (required) on the stock

16.4%

An investor wants to provide for his 3 nephews after his brother dies. Under the UTMA, the investor may open

3 separate accounts and deposit cash and securities

A client order is received with the following instructions: Buy stop 100 shares ABC at 34, limit 34.20. After the order is submitted, trades occur at 33, 33.90, 34.10, 33.85, 34.05, 34.25. More than likely, the client paid

33.85

Minimum distributions from a TSA are required when a retired participant is age

70.5

Which of the following would be excluded from the definition of investment adviser under the Investment Advisers Act of 1940?

A bank offering advice through its trust department, A person whose only clients are individuals and whose only advise deals with securities which are direct obligations of the U.S. government

Which of the following would meet the definition of investment adviser under the Uniform Securities Act?

A broker-dealer making a separate charge for investment advice, A civil damages attorney who advertisers that she is available to assist clients in suggesting appropriate investments for their successful claims, A finance teacher at a local community college who offers weekend seminars on comprehensive financial planning at a very reasonable price

Under the Uniform Securities Act, which of the following is NOT an investment adviser representative?

A clerk employed by a state registered investment advisory firm

Under the Uniform Securities Act, registration with the state could be required of which of the following?

A financial planner or other person who provides investment advisory services to others for compensation

Which of the following investment advisers would be permitted to use the term Investment counsel?

A firm whose exclusive business is placing their client's assets into midel portfolios

An investment adviser has engaged a website designer. What may the designer include on the website?

A general description of the types of investment advisory programs offered by the firm

For which of the following types of clients would the suitability requirements be somewhat more relaxed?

A high net worth individual

Which of the following would best describe a prudent investor?

A trustee who invests with reasonable care, skill and caution

When viewing several of your client's trade confirmations, you notice that a recent purchase was made of ABC stock where there was no commission indicated while a sale took place of DEF stock in which the commission listed was $55. From this information you could determine that

ABC was purchased in a principal transaction, DEF was sold in an agency transaction

With regard to the brochure rule of the Investment Advisers Act of 1940, which of the following are exempt from the delivery requirements of the rule?

All of the above

Which of the following investment advisers are exempt from registration under the Investment Advisers Act of 1940?

An adviser whose only clients are insurance companies, An adviser who maintains offices in only one state, advises only residents of that state (none of whom is a private fund), and gives advise relating to only tax-exempt municipal bonds

XYZ Advisers has its principal office in State A. XYZ maintains custody of customer securities and they wish to open an office in State B. They have been informed that the Administrator of State B requires all investment advisers that take custody to maintain a minimum net worth of $65,000. Which of the following statements is CORRECT?

As long as XYZ meets the net worth requirements of State A, it can register in any other state

A customer works as a nurse in a public school and wants to know more about participating in the school's TSA plan. Which of the following statements is (are) TRUE?

Contributions are made with before-tax dollars, Distributions before age 59.5 are normally subject to penalty tax, Mutual funds and CDs are available investment vehicles

Principal capacity

Dealer

Specifies the monthly amount an employee will receive at retirement

Defined benefit plan

Enables the investment adviser representative to make investment decisions in a client's account

Discretionary authorization

Which of the following are characteristics of a Keogh plan?

Dividends, interest, and capital gains are tax deferred., Lump-sum distributions are allowed

Which of the following is a price-weighted average?

Dow Jones industrial Average

Person authorized by law to manage the estate of a decendent

Executor

Person legally appointed to manage and/or hold assets for the benefit of another person

Fiduciary

Which of the following statements is(are) TRUE regarding advertising by an investment adviser?

Free offers must be free of cost or any other obligation, Past specific recommendations may be shown, but only if they include all recommendations for at least the previous 12 months and make very clear that past performance is not any assurance of the future

Legal documentation that authorizes someone other than the customer to have all privileges in an account

Full power of attorney

An investor purchases 100 shares of GHI common stock at a price of $50 per share. Six months later, the stock is sold for $52 per share. In the interim, the investor has received 2 quarterly dividends of $0.50 and the CPI has risen by 2%. Expressed as a percentage, which of the following statements is TRUE?

I,II,III, and IV

Constructing a portfolio to mirror the performance of the S&P 500

Indexing

Once established, changes may not be made

Irrevocable trust

Parties share an undivided interest in the account. If one party dies, his interest passes to the other owner(s) of the account.

JTWROS

Qualified retirement plan for self-employed individuals and unincorporated business

Keogh plan

Most new businesses operate at a loss for a period of time. If several of your clients were forming a group to fund a start-up enterprise but wished to limit their liability and, at the same time, be able to receive favorable tax treatment for the expected losses, you would suggest forming which of the following?

LLC

An investor following foreign securities would be most interested in the performance of the

MSCI EAFE

You have a client who has recently retired. A pressing question is, "How much can be withdrawn without running out of money?" One of the popular techniques for approximating an answer is by using

Monte Carlo simulations

A married couple is 55 and 57 years old. The older of the two plans to retire at 62 and the younger at 65, and both are healthy. What is the most appropriate estimate of the time horizon for their retirement portfolio?

More than 20 years

OTC market

Negotiated

Which of the following are possible sources of taxable income to an individual?

Owning a sole proprietorship, Being a shareholder in a subchapter 5 corporation, Owning stocks and bonds

An unincorporated interest of two or more individuals. A written agreement specifies which individuals can trade the account.

Partnership account

Seven Seas Strategic Advisers (SSSA) maintains a place of business in 11 states and is registered with the SEC. As defined in the investment Advisers Act of 1940, the office from which control of the activities of SSSA takes place is known as the

Principal office and place of business

An investor who would like to increase current income from investors and, at the same time, pay taxes on that income at less than his marginal tax rate, would probably find which of the following to be most suitable?

Public utility stock

Under the Investment Advisers Act of 1940, an investment adviser would be prohibited from engaging in which of the following practices, even if disclosed in writing to the customer?

Putting the adviser's own interests before those of the customer

Three friends plan to start a new business. It is anticipated it will be several years before the business turns a profit. Which of the following types of business organization would be best if they wish to limit their liability while, at the same time, being able to receive favorable tax treatment for the expected losses?

S corporation

Sam Jones has been a successful businessman and is concerned that his youngest daughter will not be able to live within her means. To protect this from happening. Mr. Jones places a certain sum of money into a trust for the benefit of the daughter. Because Mr. Jones knows he won't live forever, he arranges for the Fidelity Bank and Trust Company to have control over the assets. In this case:

Sam Jones is the grantor, Fidelity Bank and Trust Company is the trustee, Sam Jones's daughter is the beneficiary

Which of the following may participate in a Keogh plan?

Self-employed doctor, Analyst who makes money giving speeches outside regular working hours, individual with a full-time job who also has income from freelancing

Which would disqualify a person from participation in a Keogh plan?

She turned 70 eight months ago

IRA contributions made for a nonworking spouse

Spousal IRA contributions

Balancing portfolio assets for the ling term

Strategic asset allocation

Each party specifies a percentage interest in the account. If one party dies, her interest in the account passes to her estate.

TIC

A client has an account where, upon her death, she desires that her only son will receive 50% of account value and her 4 daughters will receive 12.5% each. The easiest way to accomplish this would be to title the account

TOD

The assets in the account become the property of the beneficiary on the death of the account owner without passing through probate.

TOD

Involves short-term adjustments to portfolio asset class mix

Tactical asset allocation

A deceased's fractional interest in an account is retained by his estate

Tenants in common

Ponzi Planning Associates (PPA), is an investment adviser registered in the tri-state area of New York, New Jersey, and Connecticut. PPA's principal office is located in Jersey City, NJ. Which of the following statements is CORRECT?

The Connecticut Administrator can require PPA to submit advertisements placed in his state

One of your clients is a successful professional couple with earnings in excess of $500,000 per year. They are interested in providing a funding source for post-secondary education for their grandchildren. Which would be appropriate to discuss with them?

The Section 529 plan

Under which of the following circumstances would the SEC be permitted to cancel or revoke an investment adviser's registration?

The annual updating amendment has not been filed for the current fiscal year, and mail addressed to the investment adviser is returned with a notation "no forwarding address available", An investment adviser doing business in 10 states has been enjoined by a competent court of jurisdiction in one of those states from engaging in the securities business

Susan participants in Section 401(k) plan at work that includes loan provisions. Susan has recently enrolled in college and has inquired about the possible consequences of borrowing from the plan to help pay for her education. As her financial planner, what is your advice to her?

The loan must be repayable within 5 years at a reasonable rate of interest

Which of the following is appropriate justification for selling a stock short?

To benefit from a decline in the price of the stock

Which of the following determines the amount paid into a defined contribution plan?

Trust agreement

A retirement plan that allows the employee to make pre-tax contributions (within certain limits), provides for tax deferral of earnings, and is available for employees of public school systems and certain tax-exempt organizations is

a 403(b) plan

All of the following statements regarding the USA's minimum financial requirements of an investment adviser are correct EXCEPT

advisers maintaining discretion over client accounts must have net worth of $35,000

To comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must

allow plan participants to exercise control over their investments, provide plan participants with information relating to the risks and performance of each investment alternative offered

The Investment Advisers Act of 1940 excludes certain persons from the definition of an investment adviser if their performance of advisory services is solely incidental to their professions. This exclusion would apply to all of the following EXCEPT?

an economist

Followers of the efficient market hypothesis believe that

an efficient market is one that produces random results

A dark pool would most likely be used by

an institution

SEP IRAs

are used primarily by small businesses

An 83-year-old widower explains to you that he is risk averse and wishes to find an investment that will provide him with preservation of capital. Which of the following might you recommend?

bank-insured CDs

The risk level of a typical guaranteed investment contract (GIC) with an insurance company is best described as

conservative

Registration as an investment adviser is required for any firm in the business of giving advice on the purchase of

convertible bonds

The investment Advisers Act of 1940 would permit an ADV to be filed by a(n)

corporation, partnership, sole proprietorship, unincorporated association

Under the Investment Advisers Act of 1940, an investment adviser is required to

disclose, in their brochure supplements, the educational background, business experience, and disciplinary history (if any) of the supervised persons who provide advisory services to the clients

A registered investment adviser has discretionary authority over client accounts. Its accounting department has just discovered that the firm's net worth is $8,500. Under the Uniform Securities Act, they

must notify the Administrator of the net worth deficiency by the close of the next business day, must file a financial report with the Administrator by the first business day following notice

Smith & Jones is a registered investment adviser under the Investment Advisers Act of 1940. it has 1,000 active clients. The firm maintains custody for 200 of their clients and exercises investment discretion for 400 of them. When preparing its brochure for annual distribution, it would need to include an audited balance sheet prepared by an independent accountant for

none of its clients because the balance sheet requirements is only required when the firm collects fees in excess of $1,200, 6 or more months in advance

An individual younger than age 70.5 may contribute to a traditional IRA

only if he has earned income

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

open the account and name himself custodian

If a 50-year-old individual wants to withdraw funds from her IRA, the withdrawal will be taxed as

ordinary income plus a 10% penalty

Non qualified plan in which an employee authorizes regular reductions from his salary

payroll deduction plan

Under the Investment Advisers Act of 1940, a registered investment adviser who provides investment advisory services to individuals must

provide each new client with a disclosure statement or brochure no later than when entering into the advisory agreement

In designing an investment portfolio for a new client, one of the first things to do is determine the client's

risk tolerance

In most cases, the tax filing status that results in the highest income tax is

single

The most appropriate term to use when referring to a trust that is established up the death of the grantor is

testamentary trust