S66 10/12

Net asset value per share for a mutual fund can be expected to decrease if A) the fund has made dividend distributions to shareholders. B) the fund has experienced net redemptions of shares. C) the issuers of securities in the portfolio have made dividend distributions. D) the securities in the portfolio have appreciated in value.

A

One of your clients buys 300 shares of RIF common stock in March at $25 per share. Three months later, the client purchases 200 shares of RIF at $30 per share. One month later, RIF pays a dividend of $1 per share. Then, five months later, another purchase of RIF is made—this time 400 shares at $35 per share. If the client were to sell all RIF at $30 per share, what is the client's capital gain or loss? A) $500 loss B) $500 gain C) $400 gain D) No gain or loss

A The investor's total cost is $27,500 for the 900 shares purchased. The proceeds of the sale are $27,000 (900 × $30). That results in a capital loss of $500. The cash dividend has nothing to do with capital gain or loss.

A client asks her investment adviser representative what footnotes to the financial statements are for. The best reply would be that footnotes A) contain a detailed history of the enterprise and its products or services. B) contain information that doesn't have a place in the main body of the financial statements. C) are used to explain how the various ratios are computed because companies recognize that many shareholders do not have a financial background. D) serve as a bibliography indicating where additional information may be obtained.

B

A unique requirement for those investment advisers who maintain custody of customer assets is the filing of A) Form ADV, Appendix 1. B) Form ADV-E. C) Form ADV-H. D) Form ADV, Part 1.

B

All of the following are potential benefits of high frequency trading (HFT) except A) increased liquidity, especially in very active stocks. B) greater trading opportunities for the small investor. C) arbitrage opportunities increase market efficiency. D) lower costs for institutional purchasers.

B

An analyst attempting to determine the extent to which financial leverage is being employed by a company would examine the company's A) working capital B) debt-to-equity ratio C) book value per share D) acid-test ratio

B

If you overheard an analyst referring to an investment's indicative value, the discussion would most likely be about A) ETFs. B) ETNs. C) REITs. D) TIPS.

B

One of the likely consequences of a rating downgrade on a bond is A) the call feature will be employed. B) a reduction in the market price of the bond. C) the current yield will be reduced. D) an increase to the coupon by the issuer.

B

An investor purchases shares of ABC stock at $50 per share. One year later, ABC is selling for $54 per share and, at the end of the 2nd year, the price is $52 per share. ABC has paid dividends of $2 per year. Upon liquidation, the investor would have earned a return of A) $2 per share B) $4 per share C) $6 per share D) $8 per share

C

Your client has the following bonds in her portfolio: - XYZ 3s of 44. - TUV 6s of 45. - QRS 9s of 43. - NOP 12s of 42. If interest rates were to suddenly rise, which of her bonds would suffer the greatest decline in market price? A) NOP 12s of 42 B) TUV 6s of 45 C) XYZ 3s of 44 D) QRS 9s of 43

C

There are certain circumstances under which clients might wish to give their agents discretionary power over their account. An agent empowered to do which of the following would be considered to be using discretion? A) Determining the specific time to execute the order B) Determining the specific price to be paid C) Making the decisions in the account while awaiting delivery of the proper paperwork D) Picking the specific security

D

Fill in the blanks: Concerning Trusts, Distributable Net Income (DNI) is _ and _ plus _ _

Distributable Net Income (DNI) is dividends and interest plus capital gains

True or False? Regarding the treatment of estates by the IRS, income received by the estate is reported on Form 1040.

False

The definition of offer (offer to sell) includes which of the following? I. An attempt to dispose of a security for value II. A solicitation of an offer to buy an interest in a security for value III. The actual sale of a security for value IV. An offer to dispose of a security for value

I, II, & IV

Form ADV-E is used for...?

Investment advisers who maintain custody of customer assets

True or False? Regarding the treatment of estates by the IRS, the maximum tax rate on estates is the same as that on gifts.

True

An investment adviser's contract contains the following statement: "While GEMCO Advisers agrees to use its best efforts in the management of the portfolio, GEMCO shall not be responsible for errors in judgment or losses incurred on investments made in good faith, and its liability shall be limited expressly to losses resulting from fraud or malfeasance, or from violation of applicable law." Under the USA, this statement A) is an improper waiver and makes the contract null and void. B) clearly defines the parameters of the adviser's responsibilities. C) complies with the investment adviser's fiduciary liability. D) offers protection to the client by limiting those acts for which the adviser can be sued.

A

The formula for computing the combined equity in a mixed margin account is A) current market value of the long positions, plus the credit balance in the short account, minus the current market value of the short positions, minus the debit balance in the long account B) debit balance in the long account, plus the credit balance in the short account, minus the current market value of the long and short positions C) current market value of the long positions, minus the credit balance in the short account, minus the debit balance in the long account, plus the current market value of the short positions D) credit balance in the short account, minus the current market value of the long positions, plus the current market value of the short positions, minus the debit balance in the long account

A

Over which of the following would the investment adviser representative have discretionary authority? A) An account in which a customer has power of attorney over another individual's account B) An account in which a trustee has power of attorney over another individual's account C) An account in which the investment adviser representative chooses portfolio securities on behalf of the client D) An order that specifies the size of the trade and name of the security, but leaves the choice of price or time up to the investment adviser representative

C

Which of the following statements regarding the brochure delivery requirements of the Investment Advisers Act of 1940 are true? I. The brochure must be updated each time Part 1A of Form ADV is updated. II. The brochure delivery requirement does not apply to investment companies or clients who are serviced on an impersonal basis, such as with a newsletter, with an annual cost of less than $500. III. A brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year.

II & III

In discussing a direct participation program with your customer, rank the following items in order of importance from most to least. I. Tax write-offs II. Liquidity and marketability III. Potential for economic gain

III, I, II

Adam Samuels suffered a massive heart attack and died at the age of 62. As part of his estate, there is an IRA with a current value of $170,000. A review of the IRA documents reveals that Eve Samuels, his wife, is the primary beneficiary and their two children have been named as contingent beneficiaries. Eve is 50 years old and does not need the income from the IRA and would like to preserve the IRA for her children to inherit. Which of the following steps would you recommend Eve take? A) Cash in the IRA because as a spouse of a deceased, she will avoid the 10% tax penalty. B) Disclaim the IRA and let it pass to the contingent beneficiaries. C) Execute a rollover into an inherited IRA. D) Execute a rollover into an IRA in her name.

D

During the past year, the market price of Kapco common stock has increased from $47 to $50 per share. Over that period, Kapco's earnings per share (EPS) have increased from $2.00 to $2.50 per share, and their dividend payout ratio has decreased from 50% to 40%. Based on this information, the current yield on Kapco common stock is A) 4.26%. B) 6.34%. C) 2.13%. D) 2.00%.

D The current yield on a stock is computed by dividing the annual dividend rate by the current market price. With EPS of $2.50 and a 40% payout ratio, the annual dividend is $1.00. This dollar divided by the current market price of $50.00 results in a current return of 2%.

Computing the Sharpe ratio for a specific stock requires using all of the following except: A) the beta for the subject security. B) the actual rate of return for the subject security. C) the standard deviation of the subject security. D) the risk-free return available in the market.

A

Under the Uniform Securities Act, the Administrator may require the filing of advertising and sales literature in which of the following offerings? A) Sale of a U.S. Treasury bond maturing in more than 10 years B) Sale of an IPO limited to residents of the state C) Sale of the bonds of AAA insurance company organized under the laws of the state D) Sale of preferred stock of a long-established company registered with the SEC whose common shares trade on the New York Stock Exchange

B

Which of the following statements regarding discretionary accounts is true? A) The rules regarding churning of accounts do not apply to discretionary accounts. B) An order in which an investor designates the security's name, the number of shares, and whether to buy or sell and gives the agent discretion as to time and price only is not considered discretionary. C) A branch manager must approve discretionary orders before entry. D) A principal must approve discretionary orders before entry.

B