Orion Industry Certification 2

pension consultant

Consultants who advise employee benefit plans on how to fund their plans with secu- rities are also considered investment advisers by the SEC.

$24.00

A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year or for the 2 previous years. How much must the company pay the customer per share before it may pay dividends to the common stockholders? A) $16.00 B) $24.00 C) $8.00 D) $0.00

property dividends

A distribution of a corporation's earnings. Divi- dends may be in the form of property. The board of directors must declare all dividends.

stock dividends

A distribution of a corporation's earnings. Divi- dends may be in the form of stock. The board of directors must declare all dividends.

employee stock options

A form of employee com- pensation where the employing corporation makes available the opportunity for employees to acquire the issuer's stock. There are two forms: nonqualified (NSOs) and incentive (ISOs).

common stock

A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy.

the right to determine the par value of the stock

A common stockholder's rights include all of the following EXCEPT: A) electing the board of directors. B) the right to determine the par value of the stock. C) preemptive rights. D) the receipt of dividends if declared by the board of directors.

determined by its board of directors

A company's dividend on its common stock is: A) mandatory if the company is profitable. B) determined by its board of directors. C) voted on by shareholders. D) specified in the company charter.

$9.00

A corporation with a 7% $100 par cumulative preferred paid $5 to preferred stockholders last year. Before the company can pay common dividends, how much must it pay each preferred share outstanding? A) $9.00 B) $15.00 C) $3.00 D) $7.00

dividend growth model

A valuation method which takes into consideration dividend per share and its expected growth. This model assumes that dividends grow at the same rate forever. Therefore, it is most commonly used to value companies belonging to for mature and stable industries, having steady dividend growth. It will show a higher valuation than the DDM.

fiduciary

All RIA's must follow which standard? A) Fiduciary B) Suitability C) Mortgage Interest Rate D) Home Lending

the current earnings per share

An analyst using the dividend growth model would take into account all of the following factors EXCEPT: A) the growth of the dividend. B) the current earnings per share. C) the investor's required rate of return. D) the current dividend.

convertible preferred

An equity security that can be exchanged for common stock at specified prices or rates. Dividends may be cumulative or non- cumulative.

cumulative preferred

An equity security that offers the holder any unpaid dividends in arrears. These dividends accumulate and must be paid to the cumulative preferred stockholder before any dividends can be paid to the common stockholders.

Preferred stock

An equity security that represents ownership in a corporation. It is issued with a stated dividend, which must be paid before dividends are paid to common stockholders. It generally carries no voting rights.

capital appreciation

An increase in an asset's market price.

B III and IV

An investment adviser is preparing an advertisement. Which of the following would be acceptable? I. An endorsement on radio or TV from a celebrity who is a client of the firm. II. Identifying his best investment recommendations for the past 6 months. III. Offering to provide his investment recommendations for the past 12 months. IV. Promoting his system of charts and formulas while mentioning their limitations and difficulties. A) I and II. B) III and IV. C) I and IV. D) II and III.

quarterly

An investment adviser with custody of customer funds and securities must send the customer a statement of account activity no less frequently than: A) monthly. B) with every transaction. C) annually. D) quarterly.

common stock

An investment in which of the following would expose the investor to the greatest capital risk? A) Debentures. B) Common stock. C) Mortgage bonds. D) Preferred stock.

C

An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks? I. Loss of principal II. Price volatility of preferred stock is closely related to interest rates III. Preferred stock cannot be traded as readily as bonds IV. If the stock is callable, the client's income can be suddenly lowered A) III and IV B) I and II C) I, II, and IV D) I, II, III, and IV

limited liability

An investor's right to limit potential losses to no more than the amount invested. Equity shareholders, such as corporate stockholders and limited partners, have limited liability.

rise

As interest rates fall, prices of straight preferred stock will: A) rise. B) remain unaffected. C) fall. D) become volatile.

I and II

Bail Bonds, Inc., might issue warrants in connection with a bond issue for which of the following reasons? I. As an inducement to make the bonds more marketable. II. To lower their interest cost on the issue. III. To increase the marketability of their common stock. IV. To increase the number of common shares outstanding.

all of them

Investing in emerging market stocks primarily exposes your client to which of the following risks? I. Currency. II. Inflation. III. Liquidity. IV. Political.

the SEC

Kapco Investment Advisers currently has $138 million in assets under management and has offices in Colorado and Utah. Kapco's only clients in Utah are 2 insurance companies domiciled in that state. Kapco has no office in New Mexico but does service the accounts of 3 middle-class individuals. Kapco recently has opened an advisory account for a pension plan for a corporation located in Montana. Under the Uniform Securities Act, Kapco would have to register with: A) the Administrator in each state in which it does business. B) the Administrator in the states of Colorado and Utah. C) the Administrator in the states of Montana and New Mexico. D) the SEC.

realized gain

The amount a taxpayer earns when he sells an asset.

unrealized gain

The amount by which a security ap- preciates in value before it is sold. Until it is sold, the investor does not actually possess the sale proceeds.

par value

The dollar amount assigned to a security by the issuer. For an equity security, par value is usually a small dollar amount that bears no relationship to the security's market price. For a debt security, par value is the amount repaid to the investor when the bond ma- tures, usually $1,000.

liquidity

The ease with which an asset can be converted to cash in the marketplace. A large number of buy- ers and sellers and a high volume of trading activity provide high liquidity.

GDP (gross domestic product)

The market value of all final goods and services produced within a coun- try in a given period of time. GDP = consumption + investment + government spending + (exports - imports) investment. To account for inflation, GDP is based on a constant dollar, currently the value in 2005.

enforcement

The matter resolved in an administrative proceeding or civil action and has ongoing compliance obligations.

market risk

The potential for an investor to experience losses owing to day-to-day fluctuations in the prices at which securities can be bought or sold.

dividend discount model

The simplest model for valuing equity is the dividend discount model—the value of a stock is the present value of expected divi- dends on it.

economist

Under the Uniform Securities Act, all of the following persons may provide investment advice incidental to their normal business without requiring registration as an investment adviser EXCEPT a(n): A) economist. B) lawyer. C) teacher. D) engineer.

the ability of the company to pay the stated dividend

When analyzing a preferred stock, an investment adviser would give the most credence to: A) the company's short-term debt obligations. B) the ability of the company to pay the stated dividend. C) book value per share. D) earnings per share.

B

When using the Dividend Discount Model, A) a higher degree of accuracy in forecasting stock prices is obtained with preferred stock B) future expected dividends are discounted to compute the present value of the stock C) the discount rate is generally lower than the expected rate of return D) best results are obtained from stocks that pay irregular dividends

B

Which of the following statements accurately describes the doctrine of limited liability? A) A shareholder of a corporation has some personal liability for the corporation's debts. B) A shareholder of a corporation is not personally liable for the corporation's debts. C) A partner is not personally liable for the debts of the partnership. D) The owner of a sole proprietorship is not personally liable for the proprietorship's debts.

A

Which of the following statements best describes cumulative preferred stock? A) Owners have a continuing claim to their dividends, and all arrears must be paid before any dividends can be paid on common stock. B) Owners are allowed to vote for directors using the cumulative voting procedures. C) Owners lose any claim to dividends that are not paid in any one year. D) Owners receive an extra dividend along with common shareholders, in addition to the preferred dividend.

A

Which of the following statements best explains unrealized gains? A) Amount by which a security appreciates in value before it is sold B) Uniform Securities Act (USA) C) Non-taxable yield D) Amount by which a security appreciates in value before it is sold

preemptive rights

a right of existing shareholders in a corporation to purchase newly issued stock before it is offered to others. The right is meant to protect current shareholders from dilution in value or control.

custody

a safekeeping service that a financial institution provides for a customer's securities. For a fee, the institution collects dividends, interest, and proceeds from security sales and disburses funds according to the customer's written instructions.

Person associated with an investment advisor

any partner, officer, or director of such investment adviser or any person directly or indirectly controlling or controlled by such investment adviser.

currency risk

arises from the change in price of one currency in relation to another. Investors or companies that have assets or business operations across national borders are exposed

exemption

reduces the amount of income that is subject to income tax.

exclusion

refers to individuals and populations without access to common financial services. These can include savings accounts, loans, cashless transactions, credit, and other traditional banking services.

investment counsel

term defined by the Investment Advisers Act of 1940. A person or organization employed by an individual or mutual fund to manage assets or provide investment advice.