Missed Exam Questions

Applicants who pass the Series 66 exam after having also passed the Series 7 exam can tell prospects,

"I am a FINRA registered representative and an investor adviser representative."

XYZ stock has a beta of 0.92. The risk-free rate of return is 3% and the market's rate of return is 8%. Using the capital asset pricing model (CAPM), what is the expected rate of return of this stock?

7.60% Use the CAPM to calculate the expected rate of return. Expected (required) return = 0.03 + [0.92 (0.08 − 0.03)] = 0.0760, or 7.60%.

Under the Uniform Securities Act, the Administrator has the power to deny, suspend, or revoke the registration of an issue if it is in the public interest and which of these are true?

An officer of the registrant has been convicted of a securities-related crime. The Administrator of another state has revoked the issue's registration.

Which of the following statements regarding the properties of duration is not true?

Duration measures the holding period return on a bond.

A bond with a par value of $1,000 and a nominal yield of 6% paid semiannually is currently selling for $1,300. The bond matures in 25 years and is callable in 15 years at $1,080. In the computation of the bond's yield to call, which of these would be a factor?

Interest payments of $30 The YTC computation involves knowing the amount of interest payments to be received, the length of time to the call, the current price, and the call price. With a 15-year call, there are only 30 semiannual interest payment periods, not 50. The present value is $1,300 and the future value is $1,080, the reverse of the numbers indicated in the answer choices.

Which of the following statements about investment constraints is least accurate?

Investors with short time horizons are not likely to worry about liquidity.

Which of the following entities would issue a Schedule K-1?

LLCs with more than 1 partner, partnership, S Corps,

Which of the following retirement plans is not legally required to establish vesting, funding, and eligibility requirements?

Payroll deduction plan

Which of the following is regulated by the Securities Exchange Act of 1934?

Regulation of exchanges

Under the civil liabilities section of the Uniform Securities Act, how long does a client have to sue an investment adviser after the advice is given?

Three years

In which of the following situations is an agent committing a prohibited practice?

Using discretion to purchase a security in a discretionary account while awaiting written receipt of trading authority

Section 402 of the Uniform Securities Act contains a listing of those securities that are granted an exemption from the registration and advertising filing requirements of the act. Excluded from the listing would be

corporate debentures.

The Alpha-Gamma Mutual Fund reports a large number of their investors liquidating shares of the fund, so much so that the dollar amount of liquidations exceeds the incoming cash for new purchases. This would lead to a condition known as

net redemptions.

When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office,

only the investment adviser representative must notify the Administrator promptly.

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.

In order to compute yield to maturity, all of the following are necessary except

the call price.

One of your clients invested $10,000 into a mutual fund. The client elected to reinvest all dividends. As a consequence of this,

the investor's cost basis is increased by the amount of the reinvested dividends.

Under the Investment Company Act of 1940, an investment company may initially retain the services of an investment adviser only with approval of the majority vote of

the outstanding shares and a majority of that portion of the board of directors that is considered noninterested members.

For larger accounts, a broker-dealer is least likely to waive its normal fee for

transferring the account to another broker-dealer.

An investor purchased stock for $50 per share at the beginning of the year. In December, the investor liquidated his stock for $55 per share, while also receiving dividends of $2 per share during the year. Assuming an inflation rate of 3%, what is the investor's real rate of return?

Given the fact the client liquidated his shares at a price of $55, we can conclude that he attained a 10% ($5 profit ÷ $50 initial investment) return based on capital appreciation of the stock. He also received dividends of $2 per share giving him an additional return of 4% ($2 ÷ $50). By adding these 2 percentages together, we can conclude that his total return is 14%, less an inflation rate of 3%, which would give a real rate of return of 11%.

Which of the following is a method for determining the internal rate of return by portfolio managers without the influence of additional investor deposits or withdrawals to or from the portfolio?

Time-weighted return Time-weighted returns are used to evaluate the performance of portfolio managers separate from the influence of additional investor deposits or withdrawals. Dollar-weighted return is more commonly used for evaluating investor performance.

unsystematic risk

a risk that affects at most a small number of assets

Systematic Risk

a risk that influences a large number of assets

Under the Uniform Securities Act, the Administrator may require a broker-dealer to post a surety bond of

an amount not in excess of that set by the SEC.

An adviser has custody of a client's securities or funds if the adviser

has authority to withdraw funds from a client's account for the benefit of the adviser for the payment of the quarterly advisory fees.

An example of systematic

purchasing power risk.

An agent has 4 clients who have purchased variable annuities, all of who are about to enter the annuitization phase. Client 1 purchased a single premium deferred annuity 20 years ago with a premium of $30,000. Client 2 purchased a single premium deferred annuity 10 years ago with a premium of $50,000. Client 3 purchased a periodic payment annuity 15 years ago and has made monthly premium payments totaling $60,000. Each of these 3 annuities has a current surrender value of $100,000. Client 4 just purchased an immediate annuity with a premium of $100,000. Assuming that all of these clients are of the same sex and the same age, when the annuity payout begins, which of the clients will receive the lowest amount of taxable income?

Client 4 When it comes to taxation on annuitization, each payment consists of a combination of income and return of principal, how much of which depends on the exclusion ratio. In the case of Client 4, with an immediate annuity, it is unlikely that there is much in the way of income - almost all of the monthly payout will represent a nontaxable return of principal. Each of the other clients has tax-deferred income ranging from Client 1's $70,000 to Client 3's $40,000. When using the exclusion ratio to determine how much is income and how much is return of principal, Client 1 will have the greatest amount of taxable income followed by Client 2 and then Client 3.