Practice Test Series 65
what type of risk is eliminated if you always hold a bond until maturity?
interest rate risk
what will high inflation do to interest rates?
interest rates will increase
when can a short sale take place?
Only on an up-tick or zero-uptick price movement
what is the leading indicator of inflation?
PPI
what should be associated with OTC markets?
massive market, trades government securities etc
what are examples of penalty free withdrawals from a traditional IRA?
medical bills, tuition expenses, first time home purchase, disability, beneficiary of deceased who previously held IRA
if the duration is long on a bond will it be more sensitive or less sensitive to interest rate changes?
more sensitive
what is the equation for operating margin?
net profit / revenue
can a broker dealer act as a principal and a broker in the same transaction?
no
can roth IRAs be rolled over into traditional IRAs?
no
can you buy back stock in your company to avoid paying out dividends?
no
do you have voting rights if you hold an ADR?
no
does a corporation have to pay a production tax?
no
if you advise people strictly on securities issued by the federal government, are you an investment adviser?
no
is an IA who made an inadvertent mistake that resulted in financial restitution likely to be revoked membership?
no
is an accredited investor in the business of lending money?
no
is the 12-b1 fund part of the expense ratio?
no
is the administrator allowed to aid in selecting the appropriate court in which to process a criminal trial?
no this is left up to the judicial system
is a 403(b) a qualified plan?
no, but it is tax advantaged
can you convert a 401(k) directly into a roth IRA?
no, it must be in a traditional ira first
what are EE bonds?
non-marketable bonds that are sold at a 50% discount to face value that matures in 17 years
when do common shareholders get stock if cumulative preferred shareholders aren't getting their dividends?
not until the cumulative preferred shareholders get their dividends
how often are close ended funds initially offered?
once
fee structure, clients, investments, business address, industry affiliations, education backgrounds would be on which part of form ADV?
part 2
is the education of financial planners found on part 1 or part 2 of the form adv?
part 2
who approves to put out a 12-b1 fee?
the fund's shareholders as well as directors
what composes the cost basis of mutual funds?
the original purchase price plus transaction costs, reinvested dividends and reinvested capital gains
if a partner dies who does his property rights go to?
the other partners
what does the par value of a stock measure?
the price you bought it at, doesn't change
to determine a fair price to charge as a commission what should be considered?
the type of security, current market price and conditions, size of the purchase, amount of time and expense involved, and the nature of the member's business
what are the three exemptions in having to provide someone with part two of the ADV form? (brochure rule)
1. they are an institutional investor 2. the newsletters are passed out annually and cost less than $200 dollars 3. the incite is not personal
to share commissions what must be true?
1. you must work in the same firm as the person 2. they must be registered
an IA would be exempt from registering if he had under how many clients int he last 12 months?
15
what is the difference between a market maker and a specialist?
A specialist works on the floor of an exchange like the NYSE to maintain an orderly market in assigned stocks, when a market maker does the same thing in OTC markets
how does standard and poors rate investment grade bonds?
A, AA, AAA, BBB
how does moody's rate investment grade bonds?
Aaa, Aa, A, Baa
when the dollar depreciates in value who benefits in terms of imports and exports?
US imports decrease and exports increase
what is a nominal fee?
a very small fee
if an IA has client funds in custody what must be sent to the SEC and a copy to the client?
an annual audited balance sheet of the IA
what is an agent?
an individual that represents a broker/dealer or issuer in transacting or attempting to transact in the purchase or sale of securities
what is a Foreign Corporation?
conducts business outside of the state of its incorporation
how large must a negotiable CD be to be considered negotiable?
face value of 100,000
what are some things that fundamental analysts look for?
fiscal policy, money supply, industry analysis, monetary policy, interest rates, and the economic environment.
if in an initial meeting the IA does not provide the client with part 2 of the form adv what are they required to do?
give the client 5 days to cancel without penalty
what is the proper strategy for someone approaching retirement?
growth and income, to protect against inflation
when someone wants to immunize their bond what does that mean?
hold it until maturity to get rid of interest rate risk
what is an Alien Corporation?
incorporated in a country other than the United States
what type of risk does beta calculate?
systematic risk, risk of a single security compared to the market as a whole
if one of your clients does not have any type of estate planning what should you recommend?
that she meet with a qualified estate planning attorney
who bears the investment risk in a defined benefit plan?
the employee
what is the maximum amount you are allowed to gift in a year?
$12,000
an advisor in custody of client funds must meet each of the following requirements:
1. Arrange for an annual surprise audit by an independent public auditing firm 2. Send account statements to clients on a quarterly basis 3. Notify clients in writing when funds are moved to a different securities firm 4. Never commingle client funds with the advisor's funds
when it comes to cold calling what can you not do?
1. call after 9 PM 2. maintain a do-not-call list 3. the name of the caller must be provided 4. 500 dollar fines for any violation
what are the 3 ways to be exempt from registering if you are an IA?
1. clients are insurance companies 2. fewer than 15 clients during the preceding 12 months who does not hold himself out as an investment advisor 3. and an advisor whose clients are residents of the state of the advisors place of business and he does not give advice on securities listed on a national exchange
if a firm automatically deducts fees out of a customer account what must they do?
1. have written authorization that it is alright to automatically take fees out 2. the custodian agrees to send the client statements at least quarterly 3. a copy of the bill and the manner in which the fee was calculated is provided to the client and custodian at the same time.
what three things does a solicitor need from a prospective client?
1. provide the client with a copy of the solicitor's agreement 2. provide the client with a copy of the firm's ADV Part II 3. obtain a signed & dated acknowledgement of receipt form back from the client
what 3 conditions must be met for an IA to pay commissions to solicitors for bringing in business?
1. the investment advisor must be registered under the Advisors Act 2. there must be a written agreement 3. and cash referral fees cannot be paid to a solicitor that is subject to statutory disqualification
what is the maximum amount of capital loss you can claim on your taxes?
3,000
how long until registration is effective after you file?
30 days, unless the party is notified
for spouses, how much are they allowed to contribute to IRAs every year?
4,000 in any combination they want
what are the two government agencies that issue debt securities?
Federal Farm Credit Banks and the Federal Home Loan Banks
how long do IAs have to maintain books?
Five years from the end of the fiscal year during which the last entry was recorded
which index tracks the largest amount of bonds?
Lehman Aggregate Bond Index
what index tracks the stocks on the NYSE?
S&P500
which act regulates the abuses of insider trading as it applies to investment advisors?
The Securities Exchange Act of 1934, The Insider Trading and Securities Fraud Enforcement Act of 1988 is also considered a part of the Securities Exchange Act of 1934.
in order to conduct a seminar on investing if you are a registered IA what must you do?
You must obtain approval from your firm before you conduct the seminar
what is an s corporation?
a corporation that is taxed as a partnership because it has less than 100 partners in it
what is a fulcrum fee?
a fee set when portfolio performance exceeds a specified benchmark
what is a qualified plan?
a plan that contributions made are tax deductible
what types of retirement account transfers are legal?
a trustee to trustee direct rollover of one traditional IRA to another, a rollover of a qualified employer plan to an IRA, a SEP-IRA to an IRA, and rollovers ordered by a judge under a qualified domestic relations order (QDRO) due to divorce
what are treble damages?
damages required you have to pay by the SEC that are 3 times any illegally required gains, or 3 times any illegal sell due to potential losses from insider trading
what type of plan is not qualified and usually used for highly compensated employees?
deferred compensation plan
what are the four type of pension plans that are qualified?
defined benefit, cash balance, money purchase pension plan, and target benefit plans
why would a doctor giving investment advise make him considered an IA?
it is not incidental to his business
what is an example of a non qualified retirement plan?
plan 457 (government employees)
what does ERISA regulate?
plans that are made for retirement that are qualified plans, which means contributions are tax deductible
what type of plan is a profit sharing plan?
qualified plan
what is the most frequently an administrator can require a filer to update his records?
quarterly, no shorter
when people are getting old what should you estimate their time horizon to be?
reasonably long because life expectancies are high
what type of risk does a zero coupon bond not have?
reinvestment risk
what is the schedule H?
requires registered investment advisors to fully disclose the terms of their wrap fee programs
no load funds don't have which type of fee?
sales fee
what does the income of a partnership get reported on?
schedule k-1
what is a way to combat the probate court process?
setting up a trust
how can a 12-b1 fee be terminated?
shareholder vote
if an investment is held for exactly one year if it taxed as short term or long term?
short term, it must be a year and a day to be long term
when does an administrator not have jurisdiction over a newsletter?
when an offer is made in a newspaper with more than two-thirds of its circulation outside the administrator's state
when you inherit a security what is your cost basis?
when the death occurs the fair value of the security is your cost basis, and it is always a long term gain
in a life term annuity when must you pay ordinary taxes on the income?
when you outlive the plan, but if you don't outlive the plan you can file a loss on your last return
what index is considered to be the broadest measure of the activity and movement of the overall stock market?
wiltshire 5000
can preferred stock ever be called back by a company?
yes
can you have gold in your IRA account?
yes
do individuals have balance sheets?
yes
is a broker dealer in the business of lending money?
yes
is a mortgage company in the business of lending money?
yes
if you are a registered rep in one state but your broker dealer is registered in all 50 states, can you fill a transaction for an individual out of the state you are registered in?
yes, but you need to register in that state in 10 days
if a bond is at a discount which is higher yield to call or yield to maturity?
yield to call
if a bond is at a premium which is higher yield to call or yield to maturity?
yield to maturity