Final Questions
Mixed Margin Account
-margin account contains both long and short positions
Safe Harbor
A provision in a regulatory scheme that provides protection against legal action if stated procedures are followed
The Investment Advisers Act of 1940 as further modified by SEC Release IA-1092, excludes which of the following from the definition of an investment adviser? A) A financial representative for a celebrity. B) A pension consultant offering advisory services to employee benefit plans. C) An adviser who only gives advice on U.S. government securities. D) A financial representative for a professional athlete.
A) A financial representative for a celebrity.
For an investment adviser to advertise a proprietary technical-based formula for timing the market, disclosure must be made of the: I. extent of difficulty involved in applying the formula. II. limitations of using the formula. III. recommendations based on the formula that generated profits in the previous year. IV. amount of experience the adviser has using the formula. A) I and II. B) II and III. C) I, II, III and IV. D) II, III and IV.
A) I and II.
Among the reasons to consider investing in a variable annuity would be: I. tax deferral of earnings in the account II. lower expenses than a mutual fund with similar objectives III. the ability to choose among sub-accounts offering equities, fixed income, or a combination of both IV. IRS Section 1035 transfers A) I, III and IV. B) I and II. C) III and IV. D) II, III and IV.
A) I, III and IV.
Which of the following are NOT ERISA-covered plans? I. 401(k). II. Roth IRA. III. Deferred compensation. IV. Defined benefit pension. A) II and III. B) I, II and III. C) I, III and IV. D) III and IV.
A) II and III.
Which of the following statements regarding a mutual fund are TRUE? I. Class A shares have no front-end sales charge and no 12b-1 fee. II. Class B shares have a contingent deferred sales charge and a 12b-1 fee. III. Class A shares are generally not eligible for breakpoint reductions IV. Class C shares are generally referred to as level load. A) II and IV. B) I and III. C) I and II. D) III and IV.
A) II and IV
In a meeting with a client, an agent has been discussing the applicability of placing some of the client's cash balance into a variable annuity. The client wants to know how the variable annuity receives an investment return. The agent should respond that the investment return of a variable annuity comes from: A) the performance of the selected sub-accounts. B) computing the excess of the premiums received over the mortality experience. C) the rate stated in the policy documents. D) the participation rate up to the cap.
A) the performance of the selected sub-accounts.
A registration statement has been filed using the process known as Qualification. Under normal circumstances, this registration will become effective: A) when the Administrator says so. B) when the SEC says so. C) at Noon of the 30th day after filing. D) once the appropriate filing fees have been paid, accompanied by a consent to service of process.
A) when the Administrator says so.
It would be most unusual to see which one of the following issued at a discount? A) Jumbo CD B) Commercial paper C) Zero coupon bond D) Treasury bill
A) Jumbo CD
Which of the following statements regarding U.S. government agency obligations are NOT true? I. They are all direct obligations of the U.S. government. II. They generally have higher yields than direct U.S. obligations. III. The Federal National Mortgage Association is a publicly traded corporation. IV. Interest received on securities issued by GNMA is exempt from state and local taxation. A) II and IV. B) I and IV. C) II and III. D) I and II.
B) I and IV.
The NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents deals with the topic of commission sharing. Under that Policy, in order for two agents to be able to share in commissions, which of the following are TRUE? I. The client must give consent to the sharing. II. Both agents must be licensed with the same or affiliated broker-dealers. III. The Administrator must approve of the sharing arrangement. IV. The broker-dealer must agree to permit the sharing. A) I and III. B) I, II and III. C) I, II, III and IV. D) II and IV.
B) I, II and III.
The NSMIA allows state Administrators to: A) impose state registrations and net capital requirements on federal covered investment advisers. B) enforce their antifraud provisions against federal covered advisers. C) accept filing fees on behalf of the SEC. D) require registered open-end investment companies wishing to offer securities in their state to coordinate their registrations with the SEC.
B) enforce their antifraud provisions against federal covered advisers.
Under the Uniform Securities Act, the Administrator has the authority to waive or alter: A) any requirement of the act deemed inappropriate. B) rules, orders, and forms considered necessary to carry out the provisions of the act. C) the antifraud provisions for those investment adviser representatives who only deal in exempt securities. D) the antifraud provisions for those investment adviser representatives not residing in the state
B) rules, orders, and forms considered necessary to carry out the provisions of the act.
An investor close to retirement age considering the purchase of a variable annuity should be advised by her agent that: A) it has a high degree of liquidity. B) the different investment options (known as subaccounts) are subject to market risk. C) it has fixed payments once it has been annuitized. D) a guaranteed rate of return is available.
B) the different investment options (known as subaccounts) are subject to market risk.
The Securities Exchange Act of 1934 contains provisions that regulate the: I. ethical responsibilities in the sale of securities. II. form and content of the prospectus that must be given to all prospective purchasers of a security. III. trading activities such as short sales, stabilizing, and registering over-the-counter brokers and dealers. IV. registration of persons engaged in the business of advising others about investment company transactions. A) I, III and IV only. B) I and III only. C) I, II, III and IV. D) I and II only.
C) I, II, III and IV.
As a result of the Dodd-Frank Act of 2010, which of the following firms or individuals would be required to register with the federal regulatory authorities? A) Westlake Fund Managers, Inc., the manager of venture capital fund with $200 million under management. B) J. Haines Investment Consultant, a sole proprietor with $75 million in assets under management. C) Retirement Specialists, Inc., a firm offering consulting services to qualified plans with aggregate assets of $150 million. D) Riverbend Partners, money managers with $110 million in assets under management.
C) Retirement Specialists, Inc., a firm offering consulting services to qualified plans with aggregate assets of $150 million.
Your client wishes to begin a self-funded retirement plan that will enable him to make contributions until he is 75 years of age with no required minimum distributions. Which of the following would be your recommendation? A) Deferred compensation plan. B) Traditional IRA. C) Roth IRA. D) 401(k).
C) Roth IRA.
An agent who is found by the state Administrator and a criminal court to have knowingly violated the Uniform Securities Act will receive: A) mandatory fine of at least $5,000 and possible imprisonment for up to three years. B) fines of not more than $10,000, imprisonment of not more than five years, or both. C) fines of not more than $5,000, or imprisonment of not more than three years, or both. D) mandatory imprisonment of three years, or fines of up to $5,000, or both.
C) fines of not more than $5,000, or imprisonment of not more than three years, or both.
One of the potential effects of a mutual fund's portfolio manager having poor investment results might be A) a restriction on the sale of new shares. B) failure to renew the bi-annual management contract C) fund shares dropping below their net asset value per share. D) net redemptions.
C) fund shares dropping below their net asset value per share.
As part of a comprehensive financial plan, a registered investment adviser representative of All-Star Advisory Services recommends the purchase of several stocks from the inventory of All-Star's affiliated broker-dealer. Under the Investment Advisers Act of 1940, this activity: A) requires the written consent of the client. B) is prohibited. C) requires the consent of and written disclosure to the client prior to completion of the transaction. D) requires advance written disclosure to the client.
C) requires the consent of and written disclosure to the client prior to completion of the transaction.
An individual who is licensed with the Administrator as an agent of a broker-dealer wants to offer wrap fee programs sponsored by the firm. In order to do so, it would be necessary to A) register with the SEC as an investment adviser representative B) maintain his current agent registration only C) register with the state as an investment adviser representative D) register with the state as an investment adviser
C) register with the state as an investment adviser representative
A corporate bond with an A rating is currently selling for 105. If the bond has a coupon of 6% and matures in 10 years, its yield to maturity is closest to: A) 5.71%. B) 6.34%. C) 5.37%. D) 6.19%.
C.) 5.37 60 - (50/10) ----------- (105 + 100 /2)
An investor purchases 1,000 shares of ABC at $42 per share. One year later, the investor receives 50 shares of ABC as a stock dividend. One month later, with the market price of the stock at $50 per share, the investor's holdings in ABC are liquidated. What are the tax consequences of this transaction? A) $8,000 long-term capital gain. B) $8,000 short-term capital gain. C) $8,000 long-term capital gain; $2,500 short-term capital gain. D) $10,500 long-term capital gain.
D) $10,500 long-term capital gain. Cost is the cost of the father
What does a bond's yield to maturity (YTM) indicate? A) Interest an issuer pays on a bond issued at a premium. B) Annual interest rate a bond purchaser receives. C) Annual interest rate an issuer pays on a bond relative to the issuer's dividend. D) Discounted rate that equates a bond's cash flow to its current price.
D) Discounted rate that equates a bond's cash flow to its current price.
Economic indicators are used by analysts in an attempt to forecast future economic conditions. Which of the following would reveal an indication of a lowering of the inflation rate? A) A reduction in interest rates. B) An increase in manufacturer's orders for durable goods. C) Increased consumer demand. D) High unemployment.
D) High unemployment.
An investment adviser with custody of customer funds and securities discovers that his net worth has dropped below the required minimum under the rules of the state Administrator. Under NASAA rules, the adviser must: I. notify the administrator by the close of business the day after discovery. II. file a report of its financial condition with the Administrator no later than the close of business one day after notification including a statement as to the number of client accounts. III. cease doing business. IV. notify all clients and make plans for the return of the funds and securities. A) I, II, III and IV. B) I, II and IV only. C) I, II and III only. D) I and II only.
D) I and II only.
The Prudent Investor Rule applies to: I. an investment adviser representative with full discretionary authorization. II. a client executing orders in a joint account with adult son. III. a court appointed guardian for a senile adult. IV. an executor appointed by a court for a decedent's estate. A) II and III. B) I and III. C) II and IV. D) I, III and IV.
D) I, III and IV.
Two brothers are interested in forming a business together. They have three initial concerns: 1) how to maximize their benefits despite the fact that the business is expected to lose money for at least the first year or so; 2) making sure that the business will be able to continue in the event one of the brothers dies; and 3) minimizing their personal liability for the obligations of the business. On the basis of the brother's concerns, which form of business is appropriate for the situation? A) Limited partnership. B) General partnership. C) C corporation. D) LLC.
D) LLC.
A client calls and tells his adviser that he has read about how to avoid estate taxes by transferring all his assets into an irrevocable living trust and would like the adviser's opinion on the matter. The adviser's most appropriate and ethical response should be: A) refuse to discuss the trust with the client because the adviser does not want the client to transfer his assets to another account. B) to discuss the advantages of the arrangement and assist the client in drafting the appropriate documents for a fee. C) urge the client to consult with an attorney without disclosing that this attorney pays a referral fee to the investment adviser. D) recommend the client consult with a qualified legal professional.
D) recommend the client consult with a qualified legal professional.
When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a state registered investment adviser in the state where the individual maintains a place of business: A) only the state registered investment adviser must notify the Administrator. B) the investment adviser representative and the federal covered adviser must notify the Administrator promptly. C) only the investment adviser representative must notify the Administrator promptly. D) the investment adviser representative must give notification of the termination, and the state registered adviser must give notification of the employment, to the Administrator promptly.
D) the investment adviser representative must give notification of the termination, and the state registered adviser must give notification of the employment, to the Administrator promptly.
While passing by the water cooler, you hear one of the experienced representatives in your office talking to a client on the phone about money in a DDA. Having never heard the term and being a willing student, after the phone call is completed, you summon up the nerve to ask the definition of those initials. Proud of you for asking, this top producer informs you that they stand for A) Digital deposit account B) Donor directed account C)Direct deposit account D) Demand deposit account
D) Demand Deposit Account
Types of Open-end fees
Front End loads (charged at the initial investment, difference between NAV and POP) - Class A (Front end) Back-end loads (fees upon share redemption, tiers down in year share is held and applies to share proceeds sold during that year) - Class B (back end load) 12b-1 fees (a fee based on the NAV, is between .25%-.75%) Class C - Level load, no sales charge
Hybrid REIT
A REIT that owns and operates a portfolio of real estate as well as provides financing for real estate projects.
Which of the following statements regarding REITs are true? I. Investors receive flow-through benefits of income as well as loss II. Hybrid REITs own properties as well as making loans on others. III. Equity REITs are prohibited from using leverage to acquire properties. IV. Most REITs are easily traded in the secondary market A) II and IV. B) III and IV. C) I and IV. D) I and III.
A) II and IV.
When an account is opened under the Uniform Transfers to Minors Act, the social security number of which of the following is used? A) Minor. B) Custodian. C) Any one of these may be used. D) Donor.
A) Minor.
If a customer enters a market order to buy 100 shares of GFT, the trade will be executed at the: A) highest bid. B) highest ask. C) lowest offer. D) lowest bid.
A) highest bid.
As the number of stocks in a portfolio increases, the portfolio's systematic risk A) decreases at a decreasing rate. B) can increase or decrease depending on the beta of the added stocks. C) increases at a decreasing rate. D) decreases at an increasing rate.
B) can increase or decrease depending on the beta of the added stocks.
Federal covered investment adviser registration will be granted or proceedings to determine whether registration should be denied will begin within how many days of filing an application? A) 30 days. B) 60 days. C) 45 days. D) 15 days.
C) 45 days.
A power of attorney is a legal document that conveys certain powers from one party to another. Which of the following will survive the mental incompetence of a client? A) Discretionary power. B) Full power of attorney. C) Durable power of attorney. D) Limited power of attorney.
C) Durable power of attorney.
ERISA regulations apply to the retirement plans of which of the following? I. ABC Corporation, listed on the NYSE. II. DEF Corporation, privately held among nine shareholders. III. City of Detroit employees retirement benefit plan. IV. FBI employees retirement benefit plan. A) III and IV only. B) I, II, III and IV. C) I and II only. D) I only.
C) I and II only.
An agent of a broker-dealer who willfully violates the Uniform Securities Act is subject to possible: I. revocation of registration. II. civil liabilities. III criminal penalties. A) II and III. B) I only. C) I, II and III. D) I and II.
C) I, II and III.
One of the terms found in the Securities Exchange Act of 1934 is that of a "person associated with a broker-dealer." Included in that definition would be all of the following EXCEPT A) an individual registered with the broker-dealer as an agent who does not maintain a place of business in the state. B) the individual managing the firm's smallest branch office. C) an individual whose sole duties are ministerial in nature. D) any person directly or indirectly controlling, controlled by, or under common control with the broker-dealer.
C) an individual whose sole duties are ministerial in nature.
Which of the following statements regarding investment companies is TRUE? A) When investors sell or redeem their open-end fund shares, they receive the net asset value (NAV) as of the previous day's close. B) An investment company can offer investors two ways of participating in the fund under management through the purchase of closed-end shares, or, if the investor prefers, open-end redeemable shares. C) The only two types of investment companies provided for in the Investment Company Act of 1940 are open-end and closed-end management investment companies. D) It is generally prohibited for an investment company registered under the Investment Company Act of 1940 to acquire more than 3% of the outstanding voting shares of another investment company.
D) It is generally prohibited for an investment company registered under the Investment Company Act of 1940 to acquire more than 3% of the outstanding voting shares of another investment company.
A GTC order is entered to buy 500 LMN at 24.35. By the close, the firm has acquired 100 shares at 24.25 and 200 at 24.35. The remainder is unfilled. What is the outcome? A) The customer must accept the execution for 300 shares and the remainder of the order remains open until filled or canceled. B) The customer may demand that the firm deliver the remaining shares at 24.35. C) The customer may reject the incomplete order unless the remainder can be filled within three business days. D) The customer may reject the incomplete order unless the broker-dealer can guarantee filling the remainder by the end of the day.
D) The customer may reject the incomplete order unless the broker-dealer can guarantee filling the remainder by the end of the day.
A corporation may benefit by attaching warrants to a new issue of debt securities from a(n): A) increase in the earnings per share. B) increase the company's amount of debt service coverage. C) decrease in the bond's rating. D) decrease in the company's interest costs.
D) decrease in the company's interest costs.
DDA
Demand Deposit Account
DRIP
Dividend reinvestment plan
Closed End Fund
Has a set number of shares Pricing fluctuates and therefore can be above or below NAV Can issue common, preferred and bonds
Cost basis for inherited and gifted stock?
Inherited stocks are the donor's cost basis Gift stocks are taxed and the cost basis of the receiver
An early distribution from a traditional IRA can avoid the 10% tax penalty in all of the following cases EXCEPT A) death B) payments made under IRS Rule 72t C) a QDRO D) reaching age 59½
C QDRO
Holders of certain professional qualifications may be granted a waiver from taking the Series 65. However, that waiver would not apply to an individual holding which of the following designations? A) ChFC® B) CFP® C) CLU® D) CFA®
C) CLU
QDRO (Qualified Domestic Relations Order)
A court-issued order that instructs a plan administrator how to pay all or a portion of a pension plan benefit to a divorced spouse or child.
What is the risk measure associated with the capital market line (CML)? A) Alpha B) Beta C) Correlation D) Standard deviation
D) Standard deviation
When an investment adviser prepares a financial plan and distributes research reports prepared by several different third parties, which of the following statements is TRUE? A) An adviser may not use specific research reports that are prepared by an outside third party without disclosure of the source. B) An adviser is required to disclose all sources of information used in making a recommendation to a client. C) An adviser is prohibited from distributing someone else's work. D) An adviser must disclose the source of any information used in making a recommendation to a client whenever requested by the client.
B) An adviser is required to disclose all sources of information used in making a recommendation to a client.
Which of the following offenses are grounds for the denial, suspension, or revocation of an issuer's registration? A) The registrant's underwriting fees are considered reasonable by the Administrator. B) Persons filing the registration statement engaged a third party to assist in the preparation of the registration statement. C) The registrant engaged in business operations outside of the United States. D) The registration statement was filed without the appropriate fees.
D) The registration statement was filed without the appropriate fees.
The dictator of a foreign nation, with whom the U.S. barely maintains diplomatic relations, has just placed an order for 25 armor plated limousines to be manufactured in Detroit. Upon completion and payment for this order there will be a: I. credit to the foreign account balance of the U.S. II. debit to the foreign account balance of the U.S. III. positive impact on the U.S. GDP. IV. negative impact on the U.S. GDP. A) I and IV. B) I and III. C) II and III. D) II and IV.
Maybe C
Open-End Company
Also known as mutual funds Issues unlimited shares Pricing is around NAV, must be redeemed at NAV Can only offer common stock NAV computed at the forward price
AMT
Alternative Minimum Tax Used so the rich don't escape federal income taxes certain items that receive favorable income treatment are added back like; accelerated depreciation R&D costs Private Purpose muni bonds
Averaging techniques would include all of the following EXCEPT A) maintaining a constant ratio plan. B) reinvesting all distributions from an open-end investment management company. C) dollar cost averaging. D) maintaining a DRIP with a stock listed on the NYSE.
B) reinvesting all distributions from an open-end investment management company.
Which of the following statements regarding registration requirements under the Uniform Securities Act is NOT true? A) The revocation of a broker-dealer's registration in a state has no effect on the registration of agent employed by that broker-dealer. B) If an agent resigns from his employing broker-dealer and affiliates with another broker-dealer, both firms and the agent must notify the state Administrator of the change in employment. C) An agent may lawfully sell securities that have been registered in a state or that are exempt from registration in the state. D) An agent that does not live in a state can solicit business in that state if the agent and the broker-dealer are registered in that state.
A) The revocation of a broker-dealer's registration in a state has no effect on the registration of agent employed by that broker-dealer.
Which of the following statements regarding liability and tax treatment of business entities is CORRECT? I. C corporations have limited liability and no flow-through of income or loss II. S corporations have limited liability and no flow-through of income or loss III. LLCs have limited liability and flow-through of income or loss IV. Limited partnerships have limited liability and limited flow-through of income or loss A) II and III B) I, III and IV C) I and III D) II and IV
B) I, III and IV
You have a client who is subject to the AMT. As a result, the client would not receive the full benefit of investing in A) nonqualified stock options. B) ADRs. C) cumulative preferred stock. D) tax-exempt private purpose bonds.
D) tax-exempt private purpose bonds.
An Administrator may initiate a suspension or revocation proceeding against a broker-dealer registered in his state: I. up to two years after a broker-dealer voluntarily withdraws its registration. II. when an agent of the broker-dealer is convicted of a felony violation of the Securities Exchange Act of 1934. III. upon discovery that the broker-dealer's license had been suspended in another state. IV. upon discovery of new facts unknown to the Administrator at the time of the broker-dealer's initial registration. A) I and II. B) I, II, III and IV. C) II, III and IV. D) III and IV.
B) I, II, III and IV.
