Series 65

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During an investigation the administrator may I. Subpoena records located in other states. II. Subpoena witnesses from any states. III. Convict for fraud. IV. Revoke registration on behalf of other state administrators.

(A) I and II

Which of the following changes to an investment adviser would be considered a change in management that requires consent from clients to assign their advisory contracts? I. A majority partner retires and sells his interest in the firm to his daughter. II. A shareholder of 30% of the outstanding stock sells his stake in the firm. III. A minority shareholder buys out two other shareholders and now owns a majority of the investment adviser's stock. IV. An investment adviser replaces their CFO and CEO.

(A)I and III Contract assignment includes a change in majority ownership of any class of voting securities, or a change in the majority interest of a partnership. A minority shareholder becoming a majority shareholder is a change in majority ownership.

What is the time that an investor has actual ownership of the security called?(A) Ownership period(B) Vesting period(C) Retention period(D) Holding period

(D) Holding period

An investment adviser (IA) purchases stock for its own account from one of its institutional clients. This transaction is called a/an

(D) Principal transaction.

An investment adviser may share in the profits and losses of a client's account, provided that(A) A written contract exists between the client and adviser.(B) Any advisory fees are deducted from any profits gained.(C) Both of the above must occur.(D) Under no circumstances.

(D) Under no circumstances.

A customer places an order to buy 100 ABC @ 35, but not for more than 36. What type of order is this?(A) Buy stop order(B) Buy limit order(C) Buy stop limit order(D) Buy market order

A natural person may be considered an accredited investor if, in each of the past 2 years, his/her income exceeded

.(C) $200,000.

An investor places $10,000 into a mutual fund which reinvests dividends and capital gains. After 12 months, the investor's fund has a value of $12,000. If inflation during the period was 3%, what is the investor's real rate of return for the year?

17% (1+nominal)(1+inflation)-1

A corporation uses the statutory voting method. The shareholder owns 200 shares and there are five vacancies up for re-election. What is the maximum number of votes the shareholder may cast for any one vacancy?(A) 1(B) 5(C) 200(D) 1,000

200

On April 25, a customer buys 100 XYZ at 62.25 and, on the next day, buys one XYZ July 60 put at 1.50. At expiration, XYZ is selling at 68.38. The customer allows the put to expire and sells the XYZ shares at 68.38. What would be his profit on the overall transactions?

463 Paid $6,225 for the long position in XYZ (100 X 62.25), also paid $150 for the put option, for a total of $6,375 paid. Put option expires unexercised, and receives $6,838 for the sale of XYZ (100 X 68.38). $6,838 - $6,375 = $463 profit.

A sporting goods manufacturer reported the following financial statement items last year: net income - $475,000; net expenses - $100,000; depreciation - $25,000; amortization - $15,000; current receivables - $50,000. What was the company's cash flow?

515000 Cash flow equals net income plus all noncash expenses, which in this case are depreciation and amortization. $475,000 + $25,000 + $15,000 = $515,000.

On which of the following forms would a publicly held corporation file details concerning a 10% change in ownership with the SEC?

8k. Annual information is filed on the 10K, quarterly information is filed on the 10Q, and details concerning significant changes are filed on the 8K.

A high net worth investor in the 30% tax bracket is considering a corporate bond yielding 4.8%. A comparable municipal bond must provide at least what yield for this investor?(A) 3.36%(B) 4.05%(C) 4.8%(D) 6.86%

A key difference between a C Corp and an S Corp is that(A) S Corps are limited to 100 shareholders.(B) S Corps are not taxed like a partnership, i.e. single taxation rules.(C) S Corp shareholders are personally liable for business operations.(D) A C Corp is limited to 30 shareholders while an S Corp may have up to 100 shareholders.

An Investment Adviser Brochure(A) Must disclose all material information to a prospective client.(B) May be used instead of an advisory contract only if accompanied by a current prospectus.(C) May be used instead of a prospectus only with sophisticated investors.(D) Must be preceded or accompanied by a current prospectus.

If an investor cannot specifically identify redeemed shares, IRS assumes that reporting will be on the basis of(A) First-In, First-Out.(B) Determined on a case by case basis.(C) Average cost.(D) Last-In, First-Out.

An agent is relating information about a mutual fund to a prospective customer. All of the following are prohibited statements by the agent EXCEPT(A) The fund paid dividends of $1.00 and capital gains of $.30 per share last year for a total income of $1.30 per share.(B) Mutual funds are guaranteed to be a better investment against potential loss than an individual stock because of their diversification.(C) The fund is a registered security and is approved by the SEC.(D) The fund earned 12 percent for the past 2 years and is expected to continue to do the same, although the actual return may be more or less.

An agent knowingly tells a customer that the price of a security is three points higher than it actually is, and the customer sells the security based on the information. The agent I. Acted in an unethical manner. II. Has engaged in a fraudulent activity. III. Will not be subject to civil liabilities. IV. Is not guilty if this is an exempt security.

An investment adviser must exercise care, caution, and control while managing a client's funds, which is the basis of the(A) Uniform Prudent Investor Act.(B) Financial Adviser and Counselor Management Act.(C) Investment Advisers Standards Act.(D) Securities and Exchange Standards Act.

An investor owns 1,000 shares of XYZ Corporation, which just declared a stock dividend of 6%. The stock was selling for $10 just before the dividend was declared. The dividend announcement will have what effect?(A) Increase the number of shares the investor owns to 1,060 shares, but will not impact the total value of the stock holding.(B) Increase the cash in the account and decrease the number of shares owned.(C) Increase the number of shares outstanding and lower the investor's proportional ownership of the company.(D) Increase the number of shares the investor owns to 1,060 shares and increase the share price to $10.60 in the market.

Anita received equal quarterly 25 cent dividends on her Kabob stock last year. In addition, her shares appreciated from $20 to $27. Which of the following is true? (A) Anita will be taxed on $1 per share.(B) Anita will be taxed on $8 per share.(C) If Anita participates in a DRIP, she will pay no taxes on the reinvested dividends.(D) Anita will be taxed on $7.25 per share.

Buy 100 shares of ABC at 40 and sell an ABC April 45 call for 2. What is your maximum loss?(A) $3,800(B) $4,000(C) $4,200(D) $4,500

Differences between an insurance company's general account and separate account include I. The separate account is registered pursuant to the Securities Act of 1933. II. The separate account must comply with the Dodd-Frank Act. III. The separate account is usually registered under the Investment Company Act of 1940. IV. If it funds a tax-qualified annuity, the separate account is exempt from registration under the Securities Act of 1933.

In a limited partnership or a family limited partnership, owners are(A) Taxed once on their personal tax return.(B) Not taxed until the partnership is dissolved and distributions are made.(C) Taxed differently depending on whether they are general or limited partners.(D) Taxed on both their personal tax return and the partnership's tax return.

In accordance with the Uniform Gifts to Minors Act, a donor may(A) Give an unlimited amount of cash.(B) Include the value of collectibles in the account.(C) Only revoke gifts of cash.(D) Give cash gifts up to $16,000 annually.

In early October, a customer buys 100 shares of XYZ stock at $50 per share and, at the same time, writes an XYZ April 50 call option for a premium of $8 per share. What is the term used to describe this position?(A) A covered write(B) Either an uncovered writer position or a naked position(C) An uncovered writer's position(D) A naked position

In order of liquidation, which of the following has a residual claim to the assets of the corporation?(A) Common shareholders(B) General creditors(C) Secured bondholders(D) Preferred shareholders

Incentive stock options differ from employee stock options in that: I. Only employees are eligible to participate in incentive stock options. II. Incentive stock options are tax qualified. III. Incentive options are written only on preferred stock. IV. Employee stock options require shareholder approval.(A) I and II(B) I and III(C) II and III(D) II and IV

It is permissible for an agent to borrow money from a customer under all of the following circumstances EXCEPT(A) The customer is an accredited investor.(B) The customer is the agent's father.(C) The customer is the agent's spouse.(D) The customer is a lending institution

Max and Joe are private investors who actively trade in small, speculative issues. Over several months, they have been circulating "rumors" over the Internet about some of the stocks that they own. While there was no factual basis for any of their statements, Max and Joe managed to drive the prices of several of their holdings up. They sell their holdings at a profit. Is this activity a violation of the Uniform Securities Act?(A) Yes, because they have committed a form of market manipulation.(B) No, the USA regulations do not apply to the Internet trading by unregistered persons.(C) No, since they are not licensed securities professionals.(D) Only if they are trading as insiders.

Of the following, a prohibited practice that is considered a violation of conduct rules with a client is called(A) Excessive trading.(B) Rebalancing.(C) Systematic withdrawal.(D) Portfolio reallocation.

Persons who are found guilty of insider trading violations are subject to all of the following penalties EXCEPT(A) FINRA fines.(B) Civil lawsuits.(C) Treble charges.(D) Imprisonment.

Phillip is in the process of determining his current financial status as part of the client financial profile process. He has several works of art that are priceless to him since they have been in his family for three generations. One of the key challenges that Phillip is facing is(A) The tendency to "overvalue" property due to the emotional ties one has with that property.(B) That insurers will not place a set value on art it is, therefore, uninsurable.(C) That art is considered a disposable asset; therefore, Phillip should not include it in his net worth.(D) The possibility that the art will not be able to be sold for a loss.

Short 1 ABC May 45 call at 1.50 and buy 1 ABC May 40 call at 3.50. This position is I. Debit; II. Bear; III. Bull; IV. Credit.(A) I and III(B) II and IV(C) III and IV(D) I and II

The Prudent Man Rule dictates that fiduciaries must I. Make prudent investment decisions. II. Choose the most conservative investment when faced with alternatives. III. Provide for the needs of the beneficiary. IV. Obtain beneficiary approval for each trade.(A) I and III(B) I and IV(C) II and III(D) II and IV

The form filed by limited partnerships with the IRS that discloses each limited partner's share of the partnership's income or loss is called a(A) K-1.(B) 1099 part.(C) W-2.(D) 1099 misc.

The purpose of a Transfer on Death (T.O.D.) account is to(A) Bypass probate.(B) Avoid beneficiary designations.(C) Avoid estate taxes.(D) Avoid income taxes.

Time-weighted return is also called(A) Geometric mean return.(B) Annualized return.(C) Holding period return.(D) Internal rate of return.

To determine the current yield of a bond,(A) Divide the annualized dollar yield by the current market value.(B) Multiply the current market value by the nominal yield.(C) Multiply the par value by the nominal yield.(D) Divide the annualized dollar yield by the face value.

When the owner of a TOD account dies,(A) Account ownership transfers directly to the designated beneficiary.(B) The account is frozen, pending instructions from the executor.(C) The entire account is inherited by the surviving owner.(D) The deceased owner's interest in the account passes to the estate.

Which investment would be most appropriate for an individual who is 40 years old and has a moderate risk tolerance level?(A) S&P index fund(B) U.S. Treasury notes(C) Short-term bond fund(D) High-yield municipal securities

Which of the following are subject to AMT? I. GO municipal bond interest; II. IDR bond interest; III. Incentive stock options; IV. ESOPs(A) II and III(B) II and IV(C) I and II(D) I and III

Which of the following does ERISA 404(c) require that plan sponsors provide to participants? I. Annual consultation with an investment adviser regarding asset allocation; II. Statement that the plan is intended to comply with ERISA section 404(c); III. 1-, 5-, and 10-year performance returns for each investment alternative; IV. Description of the risk and return characteristics of each investment alternative.(A) II and IV(B) I and II(C) I and IV(D) II and III

Which of the following government enterprises does not provide financing for residential mortgages?(A) SLMA(B) FNMA(C) GNMA(D) FHLMC

Which of the following is NOT an "offer to sell" or "sale" under the Uniform Securities Act?(A) A stock dividend distributed to shareholders(B) Stock warrants given to buyers of debt offerings(C) Subscription rights given to shareholders for different securities than those purchased(D) A stock bonus given in conjunction with a securities transaction

Which of the following is true regarding ETF shares?(A) The price per share is determined by market demand.(B) ETF shares must be sold by prospectus.(C) The number of outstanding shares fluctuates daily.(D) The price per share is determined by an NAV calculation.

Which of the following is used in calculating working capital?(A) Current liabilities(B) Inventory(C) Fixed assets(D) Long-term debt

Which of the following would most distinguish a growth from a value stock?(A) P/E ratio(B) Sharpe Ratio(C) IRR(D) NPV

Which of them following employees must be included in his or her employer's retirement plan under ERISA?(A) An employee who is 21 years old and has worked for the company for the past 18 months(B) An employee who worked 400 hours last year and is on track to work at least that much this year.(C) A part-time employee who works 800 hours a year(D) A 19-year-old employee who has worked full-time for 1 year

#47. On which of the following forms would a publicly held corporation file details concerning a 10% change in ownership with the SEC? a) 8K b) 8Q c) 10K d) 10Q

Annual information is filed on the 10K, quarterly information is filed on the 10Q, and details concerning significant changes are filed on the 8K.

In a limited partnership or a family limited partnership, owners are(A) Taxed on both their personal tax return and the partnership's tax return.(B) Taxed once on their personal tax return.(C) Not taxed until the partnership is dissolved and distributions are made.(D) Taxed based on which type of partnership entity they hold (general versus limited).

#25. Which of the following persons is NOT required to file a Consent to Service of Process with the state administrator? a) Agent for an issuer b) Investment adviser c) Broker/dealer d) Investment adviser representative

A Agents, broker/dealers, IAs and IARs are all required to file Consent to Service of Process with the state administrator. Issuer agents who are exempt from registration are not.

All of the following investments may be suitable for a client in need of "current income" EXCEPT(A) Zero-coupon bonds.(B) Government agency securities.(C) Utility stocks.(D) Preferred stocks.

A. Zero-coupon bonds do not generate current income; interest accumulates within the bond and is payable upon maturity.

An agent who is registered in Illinois works for a broker/dealer that is registered in all 50 states. One of her Illinois clients owns a vacation home in Wisconsin and invites the agent to Wisconsin for a summer vacation. A Wisconsin neighbor meets the agent and wants the agent to handle his investments. Under what circumstances may the agent transact business with this neighbor?(A) The agent must file for registration in Wisconsin prior to doing business with the neighbor in Wisconsin.(B) The agent must wait until she returns to Illinois.(C) The agent may transact business with the individual if she had fewer than 3 customers in Wisconsin during the past 12 months.(D) The agent may immediately transact business with the neighbor in Wisconsin.

A Because the agent is not registered in Wisconsin, she cannot solicit new business there. The agent must file for agent registration in Wisconsin before she may conduct business there.

Which of the following is required in order for a plan to be "qualified"?(A) The plan must be formally written and communicated to the employees.(B) The plan must not be permanent.(C) The plan must be for the exclusive benefit of the employer.(D) The plan's contribution formula is allowed to discriminate in favor of officers of the company.

A The plan must be for the exclusive benefit of the employees and their beneficiaries, formally written and communicated to the employees, and the plan's benefit or contribution formula cannot discriminate in favor of the so-called "prohibited group": officers, stockholders, or highly paid employees. Participation in a plan may not be geared exclusively to the prohibited group. The plan must be permanent.

Which of the following are true regarding universal variable life insurance? I. It is funded through the general account. II. It is funded through a separate account. III. This type of insurance must be purchased through a series of payments. IV. This type of insurance carries less risk to the insured than universal life insurance.(A) I and II(B) I and IV(C) II and III(D) II and IV

A Universal variable life provides a fixed rate component (funded through the insurance company's general account) and a variable component funded through a separate account. Universal variable life may be purchased with one premium payment, as long as the growth of that premium is sufficient to cover all future internal charges for insurance. Universal variable transfers more risk to the insured than universal life only, which is a form of fixed life insurance.

Harry's customer is purchasing 300 shares of the PDQ growth fund. Harry sends the purchase application directly to the fund, so that he can collect the entire sales load rather than splitting it with his employer. Harry(A) Is guilty of selling away, a violation of the USA.(B) Has violated FINRA's uniform practice code.(C) Will receive a 1099 from the fund, and must report the income on his taxes.(D) Must ensure that his customer receives the prospectus and statement of additional information upon request.

A When an agent secretly effects securities trades away from the agent's employer, this is known as selling away, a USA violation.

In an options contract, which party receives the premium and is obligated to buy the underlying security at the strike price?(A) Put writer(B) Call holder(C) Call writer(D) Put holder

A. n an options contract, the put writer collects the premium and is obligated to buy the underlying security at the strike price. Remember that the option writer - for calls or puts - always has the obligation to sell or buy the underlying security and receives the premium.

#40. A registered investment adviser paid a large sum of money to settle a lawsuit. As a result, the firm's net worth fell to $22,000. The adviser has discretion over customer accounts; however, the client's funds are held at a large custodian bank. Under these circumstances, what is the adviser required to do? a) Do nothing b) File a report with the state administrator by the end of the next business day c) File a report with the state administrator on the day that the net worth falls below $35,000 d) Notify all of the clients that the adviser's net worth has fallen below $35,000 Because the adviser does not have custody of the client's assets, the minimum capital requirement is $10,000, and the adviser is not required to do anything.

A. Because the adviser does not have custody of the client's assets, the minimum capital requirement is $10,000, and the adviser is not required to do anything.

Which of the following is false regarding bond anticipation notes?(A) Notes are repaid from general tax collections and direct government obligations.(B) Interest is paid semi-annually.(C) Interest on the notes is exempt from federal income tax.(D) The maturity of the notes is under 5 years.

A. Bond anticipation notes, or BANSs, are interim financing that is repaid from the proceeds of an upcoming bond issue.

Which of the following is true of regional securities exchanges? I. Historically they were localized venues for smaller, regional stocks. II. They provide local trading of OTC securities. III. Several have closed or consolidated with national exchanges. IV. They were negotiated markets.(A) I and III(B) I and IV(C) II and III(D) II and IV

A. I and III Regional exchanges are smaller, local exchanges. Regional exchanges provided an auction market for securities which it listed for trading.

An "indexing" strategy is I. Considered appropriate only for sophisticated or institutional investors. II. A type of passive, "buy and hold" strategy. III. One where total returns are not significantly reduced by research and trading costs. IV. One that involves a mixture of "short selling" and options contracts.

A. II & III

#15. Which of the following is true concerning international securities exchanges? I. They affect global capital markets II. They contribute to 24- trading activity III. They are regulated by the SEC. IV. They facilitate trading in OTC securities. a) I and II b) I and IV c) II and III d) II and IV

A. Major exchanges around the world affect the global capital markets, and contribute to 24-hour trading activity. These include the London, Hong Kong, and Tokyo exchanges. Overseas exchanges are not regulated by the SEC. Only listed securities trade on exchanges.

Which transaction must occur in a margin account?(A) Short sale of common stock(B) Opening sale of a cash covered short put(C) Purchase of nonconvertible bonds(D) Long sale of common stock

A. Short sale of common stock

All of the following apply when the U.S. imports more goods than it exports EXCEPT(A) The U.S. will experience a balance of trade surplus.(B) The U.S. will experience an unfavorable balance of trade.(C) The U.S. will experience a balance of trade deficit.(D) The U.S. will experience a balance of payments deficit.

A. The balance of trade is the net difference over a period of time between the value of a country's imports and exports of merchandise, such as autos, foods, and apparel. When a country exports more than it imports, it is said to have a favorable balance of trade, but when a country imports more than it exports, it creates an unfavorable balance of trade or trade deficit. Although the U.S. typically has an unfavorable balance of trade, it is generally considered to have a good economic position since payments for services and tourism abroad are not included in balance of trade calculations.

Which of the following is NOT true regarding a cash account?(A) The investor must sign a statement that he or she understands the risks.(B) The account must maintain sufficient funds.(C) The investor must pay in full for all purchases by the settlement date.(D) Brokers may require a large deposit before opening an account.

A. The broker will usually require the investor to sign a statement that he or she understands and acknowledges the risks associated with derivative instruments when trying to open an option account, not a cash account. All the other statements are true.

Which of the following are issued with a specified, fixed rate of interest? U.S. government bonds and notes U.S. government bills and notes U.S. government bills and bonds All of the above

A. U.s. government bonds and notes. Treasury notes and Treasury bonds are issued with specified or fixed interest rates. Treasury bills are OIDs; they are always purchased at discount. T-Notes and T-Bonds can be purchased at a discount and/or a premium in the secondary market.

An investment adviser is considering using endorsements to advertise its investment advisory services. All of the following are always requirements associated with using endorsements in advertisements EXCEPT(A) Written agreements.(B) Disqualification provisions(C) Disclosures.(D) Oversight.

A. Written agreements with promoters are not always required. There are exceptions, e.g., when the promoter is an affiliate of the adviser, or the promoter receives $1,000 or less in cash or non-cash compensation during the preceding 12 months.

Forms of business in which the owners are taxed only once include(A) LLC, Sole Proprietorship, Partnership, S Corporation.(B) Sole Proprietorship and Partnership only.(C) S Corporations, C Corporations and Sole Proprietorship.(D) LLC, Sole Proprietorship and Partnerships only.

A.The C Corporation creates a separate business entity. The shareholders' liability is limited to the value of their investment; however, both the corporation and shareholder income is taxed. Owners have personal liability with the other forms (except for the LLC) but are taxed only on the personal level.

The bond feature that states that the conversion formula will be adjusted for any stock dividends or splits is called the(A) Anti-dilutive covenant.(B) Dividend covenant.(C) Conversion covenant.(D) Rate covenant.

A.The rate covenant applies to user rates for a revenue municipal bond. There are no conversion or dividend covenants in the bond indenture.

Which of the following is true concerning fees charged by investment advisers? Fees may not be prepaid since future services vary. Fees may be disclosed either in writing or verbally depending on the client's needs. The advisory fees must be disclosed prior to advice being given. The formula for computing fees is not required to be disclosed to prospective clients.

An adviser must disclose to the client in writing, prior to any advice being given, the advisory fee to be charged, the formula for computing the fee, and the amount of the fee that has been "prepaid" that will be returned if the contract is terminated prematurely.

A corporation's capitalization consists of: Debenture - 7% - $1,000 par, maturity 2022: $4,000,000; Common Stock - $1 par, 200,000 shares outstanding: $200,000; Capital in excess of par: $800,000; Retained earnings: $5,000,000. The corporation, for the year 2010, earns $1,500,000 before interest and taxes and is in the 50% tax bracket. What is the return on common equity?

A person transferring an IRA to another trustee via a trustee to trustee transfer(A) Will receive a check that must be rolled over to another qualified plan within 60 days to avoid taxation.(B) Will not be subject to any penalties or taxation.(C) May only do so twice per year.(D) Will pay a penalty unless the person is at least 59½.

A security that is considered "guaranteed" must I. Pay interest when due. II. Reimburse investment loss. III. Repay principal when due. IV. Protect against investment loss.(A) I and II(B) I and III(C) II and III(D) II and IV

A wealthy widow in the 35% tax bracket has a large bond portfolio that she hopes to leave to her grandchildren. She has principal to reinvest and is considering a 5% corporate bond and a 2.4% municipal bond. Which is a better investment?(A) A tax-free money market fund yielding 1.80%(B) The corporate bond(C) The municipal bond(D) The returns are equal; the investor should choose her favorite.

ABC Corporation originally authorized 1 million shares and has issued 600,000 shares. ABC Corporation has decided to buy 50,000 of their shares back and record them on the balance sheet under treasury stock. How many shares are currently outstanding?(A) 400,000 shares(B) 550,000 shares(C) 600,000 shares(D) 1 million shares

ABC broker/dealer bought DEF stock at 35 for its inventory position. Three months later, when the inter-dealer market for DEF was 32.50 - 33.25, the broker/dealer sold DEF stock to a customer from the inventory. What was the basis for the dealer's markup?(A) 32.50(B) 33.25(C) 35(D) 36

All of the following are benefits of rebalancing a portfolio EXCEPT(A) Selling appreciated assets (selling high).(B) Elimination of systematic risk.(C) Maintaining the original asset allocation.(D) Preventing the over emphasis of a single type of investment.

An investor is considering a municipal bond yielding 3%. The investor is in the 35% tax bracket. To purchase a comparable corporate bond, the investor would demand a yield of at least(A) 2.89%(B) 4.62%(C) 4.98%(D) 5.02%

An investor who wants to purchase mortgage-backed securities fully guaranteed by the U.S. government should purchase(A) Federal Home Loan Mortgage Corporation (Freddie Mac).(B) Government National Mortgage Associations (Ginnie Maes).(C) Collateralized Mortgage Obligations (CMOs).(D) Federal National Mortgage Association (Fannie Mae).

Bill owns shares in a closed-end management company. He can dispose of his shares by(A) Redemption by the investment company at a discount.(B) Sale through the sponsor.(C) Sale on the open market.(D) Redemption by the investment company.

Commercial paper I. Can be issued to the public. II. Is generally issued at a discount. III. Can be traded. IV. Has maturity of more than 270 days.

How do asset allocation funds attempt to reduce risk?(A) Invest in tax-exempt investments(B) Utilize industry and asset class diversification(C) Only put assets in government bonds and notes(D) Specifically concentrate dedicated assets in one primary area of the market

How often does a mutual fund calculate NAV?(A) Weekly, as stipulated in the statement of additional information(B) Daily(C) As stipulated in the prospectus(D) Hourly

In which qualified retirement plan may both the employer and employee contribute to an employee trust?(A) ESOP(B) 401(k)(C) Pension(D) Profit-sharing

Open market operations of the Federal Reserve Board cause direct changes in(A) Dollar exchange rates.(B) M1.(C) Interest rates.(D) Velocity of money.

The definition of an investment adviser representative includes I. Employees of an investment adviser who solely perform clerical duties. II. An individual associated with an investment adviser who only manages accounts for others. III. Employees of investment advisers who only perform administrative duties. IV. Investment adviser employees who supervise activities of IA representatives.(A) II and III(B) II and IV(C) I and II(D) I and III

The internal rate of return (IRR) represents(A) The final market value of the investment, discounted by a risk-adjusted rate of return.(B) The discounted rate at which the net present value of all cash flows and final market value of an investment becomes zero.(C) The present value of an investment's future cash flows expressed in today's dollars.(D) The discounted sum of all future cash flows plus the final market value.

The portfolio management style of selecting carefully chosen proportions of different assets and periodically adjusting the portfolio to maintain those proportions is(A) Passive management.(B) Asset allocation.(C) Index management.(D) Sharpe Ratio management.

The state administrator has the ability to cancel the registration of an individual who I. Has been found mentally incompetent by the courts. II. Has violated the USA. III. Cannot be located within a reasonable time and effort. IV. Has violated a fiduciary responsibility to one or more clients within the state.(A) I and II(B) I and III(C) II and III(D) III and IV

The theory which says that historical performance is not an indicator of future results is(A) Sector rotation.(B) Efficient market hypothesis.(C) Tactical asset allocation.(D) Sharpe Ratio theory.

What is the key difference between the recordkeeping requirements for a broker/dealer and an investment adviser?(A) The broker/dealer does not have to maintain as many forms of documentation.(B) A broker/dealer may keep records in any form of data storage that is accessible to the administrator and permitted under the Securities Exchange Act of 1934; however, investment advisers are required to use storage methods approved by the SEC or the USA.(C) A broker/dealer must maintain paper copies of any records for a period of 5 years, in addition to any electronic data storage method that is currently being utilized.(D) An investment adviser may use any method to store data while the broker/dealer must maintain records using one of the approved methods stated in the Act.

When comparing the IRR of two investments yielding the same amount, which provides the most value to an investor?(A) The lower dollar value over the term of the investment.(B) Highest IRR above zero.(C) The higher dollar value over the term of the investment.(D) Lowest IRR as it represents the discounted value to investors.

Which best describes the Federal Funds Rate?(A) Daily average rate of largest central banks(B) Daily average rate of reserve member banks(C) Weekly average rate of reserve banks(D) Weekly average rate of yield auctions of member banks

Which market hypothesis disregards fundamental analysis and all known information about a security as an indication of performance?(A) Yates model(B) The semi-strong version of efficient market hypothesis(C) Capital market pricing hypothesis(D) Modern portfolio theory

Which of the following are true statements concerning investment advisory contracts? I. The adviser may be compensated based on the average value of the client's funds under management. II. The adviser may be compensated on his share of the capital appreciation of the client's funds under management. III. The adviser may not assign the advisory contract without consent from the client. IV. The contract may be oral or written.(A) I and II(B) I and III(C) II and III(D) II and IV

Which of the following does not violate the Uniform Securities Act?(A) Recommending a security based on inside information(B) Proposing a security listed on your broker/dealer's recommendation list(C) Omitting material facts when presenting a security to a customer(D) Recommending a security based on hearsay information

Which of the following is not a component of the capital asset pricing model?(A) Market return(B) Internal rate of return(C) Beta(D) Risk-free rate of return

Which of the following is true about a short sale of stock? I. It must be done in a margin account. II. It may be done in a margin account. III. It is bullish. IV. It is bearish.(A) I and III(B) I and IV(C) II and III(D) II and IV

Which of the following is true about the CBOE? I. It is an exchange for options on NYSE and Nasdaq securities. II. It is a negotiated market. III. It is centralized. IV. Trading hours mirror the NYSE.(A) II and IV(B) I, III and IV(C) I and III(D) II and III

A corporation has the following: Revenue: $200,000. Operating expenses: $180,000 (includes $4,000 depreciation). Interest on notes: $11,000. Taxes (34%): $3,060. What is the cash flow?(A) $5,940(B) $9,000(C) $9,940(D) $16,940

Which of the following statements regarding the impact of market performance on a variable life insurance policy is TRUE?(A) Expense charges may be increased by the insurance company against the separate account.(B) If performance in the separate account is negative, the policy may have no cash value.(C) The death benefit may decline to zero due to poor account performance.(D) The insurance company may increase the premiums due to poor market performance.

Which statement is true concerning dollar cost averaging?(A) Dollar cost averaging protects the investor from a loss in a steadily declining market.(B) Dollar cost averaging is a way to reduce risk.(C) Dollar cost averaging allows the investor to buy the same number of shares per installment.(D) All of the above are true statements.

Which of the following benefit from catch-up contribution provisions allowed by certain retirement plans? I. IRA owners age 50 or older; II. A married person with a nonworking spouse who is 53; III. A 401(k) participant who is 47; IV. A Roth IRA owner who is 49

B. I and II

A client buys a BAT July 40 put and sells a BAT April 40 put. The client would profit if this spread position(A) Narrows.(B) Expires.(C) Widens.(D) Narrows, then widens.

A corporation has a $4 million profit. The corporation is in the 34% tax bracket. What is pre-dilutive EPS? Common stock: 1,000,000 shares ($10 par) = $10,000,000; 5% preferred: 50,000 shares ($100 par) = $5,000,000; 7% debentures: 5,000 bonds ($1,000 par convertible at $10) = $5,000,000(A) $2.59(B) $2.16(C) $2.41(D) $2.66

B $4,000,000 (profit) minus $350,000 (interest 7% X $5 million) = $3,650,000 (pre-tax profit) X .66 (converse of 34% tax bracket) = $2,409,000 (post-tax profit) minus $250,000 (preferred dividends) = $2,159,000 earnings divided by 1,000,000 shares = $2.16 EPS

When an agent terminates employment with a broker/dealer, which of the following is/are true? I. The agent's registration is no longer effective. II. The registration remains effective as long as the agent associates with another firm within 2 years. III. The individual is not an agent until registering with another firm. IV. The agent must register directly with the Administrator until such time as he or she associates with another firm.(A) I and II(B) I and III(C) II and III(D) II and IV

B An agent's registration is in effect only while the agent is associated with a registered broker/dealer. To be an agent again, the individual must make a new application for registration through a registered broker/dealer firm.

An investment adviser's compensation may come from(A) A percentage of capital gains in an account.(B) A percentage of all assets under management.(C) Commissions from trades effected for the customer.(D) All of the above

B An investment adviser may only receive compensation from the total assets under management. He may not share in the gains and losses or receive a commission on transactions in the account.

Minimum net worth may be required for registration of(A) Investment adviser reps only.(B) Broker/dealers and investment advisers.(C) Broker/dealers and agents only.(D) Investment advisers only.

B Broker/dealers and investment advisors

Which of the following is NOT an NYSE listing requirement?(A) Minimum number of publicly traded shares(B) Approval by the SEC(C) Minimum stock price(D) Minimum market value

B Listing requirements of the NYSE include defined minimums for the number of publicly traded shares, total market value, stock price, and number of shareholders. The SEC does not approve the trading of a company's shares on an exchange.

#14. Which of the following is NOT true regarding the net present value? a) It works best for long-term investments. b) It considers profits and losses from a today's value perspective. c) It expresses the future value of an investment in today's dollars. d) It is used to calculate holding period return.

B The Net Present Value (NPV) is the future value of an investment expressed in today's dollars. The net present value considers the future cash flows from a today's-value perspective. The net present value only considers cash flows but not profits and losses

An investment adviser is required to provide an Investment Adviser Brochure when entering into a contract with which of the following clients?(A) An investment company registered under the Investment Company Act of 1940(B) An individual charged $2,500 per year for investment advice for her revocable trust(C) A client being charged less than $500 per year for impersonal advice(D) All clients must receive an Investment Adviser Brochure

B. Advisers are not required to provide an Investment Adviser Brochure if they enter into a contract with an investment company or for impersonal investment advice or if an adviser charges less than $500 per year.

A common fund found in the indenture of a revenue bond that provides money for additions, expansions, and improvements is the(A) Operations and maintenance fund.(B) Construction fund.(C) Replacement and renewal fund.(D) Sinking fund.

#19. A customer shorts one ABC Jan 65 call for a premium of 4 and holds one ABC 70 call for a premium of 1. What is the customer's maximum potential loss? a) $0 b) $200 c) $300 d) Unlimited

B. 200 On this credit spread, if the option is exercised, the customer will lose $200. This is equal to the difference in the strike prices minus the net premiums. BUY 70 call for 1 minus SELL 65 call for 4 = 5 market minus 3 premium = 2 OR Premium = +4 minus 1 = +3 Market = +65 minus 70 = -5 = -2 loss

Concerning minimum net worth requirements, which of the following is true? I. They are generally required when a broker/dealer may have custody of client assets or discretion over their accounts. II. A deposit of cash or securities may be accepted in lieu of the net capital requirement. III. Net capital requirements are normally higher for investment advisers who have custody of client assets.(A) I and II(B) I and III(C) II and III(D) I, II and III

B. I and III

#43. Your client is bearish on ABC stock. Which of the following option spreads might you recommend? I. Buy 1 ABC July 50 call, sell 1 ABC July 55 call. II. Buy 1 ABC July 55 call, sell 1 ABC July 50 call. III. Buy 1 ABC July 55 put, sell 1 ABC July 50 put. IV. Buy 1 ABC July 50 put, sell 1 ABC July 55 put. a) I and IV b) II and III c) II and IV d) III and IV

B. II and III are both bearish. II is a credit call and III a debit put spread.

Whitney Securities is a broker/dealer located and registered in Connecticut. Many of its Connecticut customers spend the winter months in Florida. Beth, an agent with Whitney, spends several weeks in a Miami hotel each winter, servicing Whitney customers. Which of the following is true?(A) If Whitney has fewer than 3 customers who winter in Florida, it does not have to register in Florida.(B) Neither Whitney nor Beth must register in Florida if Beth solicits no new business from Florida residents.(C) If Beth services fewer than 5 customers per year, she does not have to register in Florida.(D) Both Whitney and Beth must be registered in Florida.

B. If the broker/dealer only services existing customers who are temporarily in the state, neither the broker/dealer nor the representative must register in the state.

#37. An example of an AMT preference item is a) Reduced deduction for trading expenses. b) Interest from private activity municipal bonds. c) Use tax credits from underdeveloped countries. d) Exemptions allowed to high net worth investors.

B. Interest from private activity municipal bonds, also referred to as private activity revenue bonds, are AMT preference items.

If representatives of a federal covered adviser terminate their employment, who is required to inform the state administrator?(A) The federal covered adviser(B) The adviser representatives(C) Neither the adviser nor the representatives because the representatives are employed by a federal covered adviser(D) Both the adviser and the representatives

B. The Advisor rep Because the adviser is federal covered, the adviser has no obligation to inform the state administrator. The representatives, however, are required to inform the administrator.

#13. All of the following types of stocks would be eligible for dividends EXCEPT a) Outstanding stock. b) Treasury stock. c) Preferred stock. d) Common stock.

B. Treasur yStockTreasury stock has no voting rights and does not receive dividends since the corporation holds these shares.

Which of the following municipal entities does NOT issue overlapping debt?(A) School district(B) Turnpike authority(C) Park district(D) Library district

B. Turnpike

The following statements are all true about asset-backed securities (ABSs) EXCEPT(A) Asset-backed securities are backed by securities that can be traded individually.(B) Mortgage-backed securities are a form of asset-backed securities.(C) Asset-backed securities are typically bonds or notes.(D) Asset-backed securities are an alternative to investing in corporate debt.

B.Mortgage-backed securities are not a form of asset-backed securities since they are considered their own classification of securities.

Under the Uniform Gifts to Minors Act, which of the following statements is correct concerning a custodian account between a parent and minor child?(A) Income tax on dividends will be deferred until the child reaches age of majority.(B) Taxes on earned income from the account are the responsibility of the minor.(C) The custodian may post the stocks in the account as collateral for a loan.(D) Any stocks in the account will be registered in the child's name.

B.Taxation on distributed income is the responsibility of the minor. The securities in the account are for the benefit of the minor and therefore are not available as collateral for a loan to the custodian. Securities held in the account will be registered to the custodian, for benefit of (FBO) the minor. Taxes on dividend and capital gain distributions are due in the year of distribution in an UGMA account.

#16. Which of the following is an investment company with the objective of achieving the same return as a particular market index? a) Industrial Revenue Bond b) Exchange-Traded Fund c) Hedge Fund d) Revenue Bond

BExchange-Traded Funds are investment companies whose objective is to achieve the same return as a particular market index and who primarily invest in the securities of companies included in a selected market index.

"Separate account" is a term that applies to I. Whole life. II. Universal life. III. Variable life. IV. Variable annuities.(A) I and II only(B) II and IV only(C) III and IV only(D) I, III and IV only

A broker/dealer would need to file a Currency Transaction Report for which of the following transactions?(A) Multiple transactions by the same customer: one of $5,000 on one business day, and the other of $5,000 two days later(B) Single transaction involving $3,000 of currency(C) Single transaction involving $11,000 of currency(D) Multiple transactions on the same business day by the same customer: one of $3,000 and the other of $5,000

A registered representative's client wants to place a trade that the representative believes is unsuitable. The registered representative should do which of the following?(A) Refuse to execute the trade and terminate the relationship with the client(B) Execute the trade and pass the client's portfolio to another representative(C) Execute the trade and obtain a written statement from the client that this transaction was unsolicited.(D) Refuse to execute the trade because it will not meet the investor's financial objectives

Adjusting a portfolio to adapt to a seasonal market trend is an example of(A) Risk-adjusted management.(B) Strategic management.(C) Tactical management.(D) Contrarian management.

Alex, a representative of a registered investment adviser, has a friend at Fast Paced Funds that mentioned to him at a cocktail party that his company will pay bonus commissions to advisers who sell higher volumes of Skyward Bound Fund. Skyward has not performed very well over the past 5 years due to market declines, but has achieved 30% annualized growth in the last 6 months. Can Alex inform his clients that the fund has enjoyed a 30% rate of return during the past 5 years?(A) No, the shortest timeframe for comparison that can be used is a 1-year period(B) Yes, as long as Alex explains that the past performance is not a guarantee of future results(C) No, the average investor would be misled by such a statement as it overemphasizes the short-term performance of the fund(D) Yes, since the fund has shown a 30% return during a timeframe within the 5-year period

All of the following are examples of an offer, offer and sale, or sale of a security EXCEPT(A) A security given as a bonus in conjunction with the purchase of a security.(B) The sale of a convertible security.(C) A security interest of a borrower pledged as collateral for a loan.(D) The gift of an assessable security.

An investor's eldest child is about to graduate from high school and is not planning on attending any higher education program. What options does the investor have regarding the 529 plan which was established for this child?(A) The parent may use the funds to purchase a primary residence.(B) The funds will be forfeited.(C) The funds may be transferred to a sibling without penalty.(D) The balance may be withdrawn without penalty.

Buy 100 shares of LMN at 44 Sell LMN May 45 call. At what market price could there be a loss?(A) Above 44(B) Above 45(C) Below 44(D) Below 45

ERISA section 404(c) does NOT(A) Set minimum standards for participant choice, control and communication regarding the investment options within a plan.(B) Provide for sufficient information and communication to allow participants to make "informed investment decisions".(C) Prevent fiduciary-related lawsuits against sponsors of retirement plans.(D) Provide guidelines to plan sponsors to minimize fiduciary legal liabilities.

ERISA section 404(c) requires that employer-sponsored retirement plans must provide I. The opportunity to give investment instructions no less frequently than once per month. II. The ability to move readily from more volatile investments to less volatile ones. III. The opportunity to obtain written confirmation of instructions. IV. The ability to be in at least six different investment options at a time.(A) I and II(B) I and IV(C) II and III(D) II and IV

Mark recommended that Bill, one of his retired clients, purchase shares in a new company that had a new method for cleaning factory machinery. Bill asked Mark if it was a risky investment, to which Mark replied, "It is as safe as the bank's vault." Bill subsequently lost all of his investment in the new company and Mark has quit the company. Which of the following is true?(A) Bill will need to bring legal action against the company in which he bought the shares.(B) Bill should have done his own research prior to investing and therefore has no legal recourse in this situation.(C) Mark and his broker/dealer could be held liable for the losses he caused Bill to suffer.(D) Only Bill's broker/dealer can be held liable in this situation.

Mr. & Mrs. Hardy want to contribute into their IRAs. Mr. Hardy earns $35,000 a year as an employee of XYZ Insurance Company. Mrs. Hardy is currently not working. What is the maximum they can currently contribute into their IRAs?(A) $12,000 only for Mr. Hardy(B) $12,000 into one account(C) $12,000, with not more than $6,000 for Mr. Hardy and $6,000 for Mrs. Hardy(D) $12,000, with any combination of contributions by the 2 of them

Nelda wants to save for her 10-year-old niece's college expenses. Which of the following investments is probably most suitable?(A) Aggressive growth stock fund(B) Money market fund(C) Zero coupon bonds(D) Tax-free bond fund

Revenues: $1,980,000; Operating expenses: $500,000; Interest expense: $300,000 Management fees: $100,000; Depreciation: $2,700,000. The corporation's taxable income or loss for the year from this limited partnership is

The broker call rate is based on(A) Rate governing bond call provisions.(B) Broker/dealer investment in Treasury Securities.(C) Rate banks charge broker/dealers for loans secured by securities.(D) Debit balances in customer margin accounts.

Under the Uniform Securities Act, which of the following would be considered a person? I. The beneficial owner of an UGMA; II. A government; III. A joint stock company; IV. A recently deceased individual(A) I and II(B) I and IV(C) II and III(D) II and IV

Under what circumstances must an adviser that uses testimonials or endorsements in advertisements have a written agreement with promoters?(A) Always(B) The promoter is an affiliate of the adviser.(C) The promoter receives $5,000 in cash compensation from the adviser.(D) The promoter receives $1,000 in non-cash compensation from the adviser.

What is the timeframe for filing relevant Suspicious Activity Reports?(A) Within 90 days of initial discovery(B) Within 90 days of the suspicious transaction(C) Within 30 days of initial discovery(D) Within 30 days of the suspicious transaction

What type of mutual fund offers safety and stability, but may not produce returns that can keep up with inflation?(A) Bond fund(B) Growth fund(C) Money market fund(D) Income fund

When an agent terminates an association with a broker/dealer(A) The firm must notify the State Administrator within 30 days.(B) The agent must promptly submit a revised U-4 form to the Administrator unless he or she is associating with another registered broker/dealer firm.(C) The broker/dealer and agent must promptly file a notice of termination with the Administrator.(D) Both the agent and the firm must promptly notify FINRA unless the agent is moving from one broker/dealer to another, in which case the agent, the prior employer and the new employer must notify FINRA.

Which characteristics are associated with a "buy and hold" investment strategy? I. Higher portfolio turnover II. Lower management costs III. Less demanding research IV. Different investments than an active trading style

Which of the following best describes total return?(A) Holding period return expressed as an annual figure(B) Annual dividend and net market value change over the year(C) The cumulative total return from the beginning to the end of a stated period(D) Cumulative total return net of taxes from beginning to end of the period

Which of the following is NOT a violation of the suitability rule under the Act?(A) Recommending aggressive growth mutual funds to a customer with a moderate risk tolerance(B) Recommending that a 58-year-old client open a home equity line to purchase growth stocks(C) Recommending municipal bonds to a customer who wants tax-exempt income(D) Recommending excessively large trades to a customer

Which of the following is NOT guaranteed?(A) Interest and principal on direct U.S. government obligations(B) Death benefit on a whole life insurance policy(C) Cash value on a variable life insurance policy(D) Interest on a fixed annuity contract

Which of the following is not a pooled investment characteristic?(A) Centralized management(B) A portfolio of assets(C) Direct flow through of expenses to the owners(D) Price per share based on the value of portfolio assets

Which of the following portfolio management techniques is used in tactical asset allocation?(A) Passive management(B) Rebalancing(C) Sector rotation(D) Dollar cost averaging

Which of the following sources should be considered in planning for possible disability? I. Medicaid II. Private disability insurance III. Employer benefits IV. Deferred compensation(A) I and II(B) I and IV(C) II and III(D) II and IV

Which of the following would NOT have to register as an investment adviser?(A) A lawyer whose investment advice is central to their practice.(B) A publisher of a newsletter providing specific investment advice for particular clients.(C) An economics professor who occasionally advises other faculty members on their portfolios as a favor.(D) An accountant who charges a client for constructing a financial portfolio.

Which one of the following individuals is considered an agent?(A) An issuer who issues nonexempt securities(B) An individual representing an issuer in U.S. Government securities(C) An officer of a broker/dealer who effects a security transaction(D) An individual who represents an issuer in a private placement

XYZ Industries has outstanding 9% debentures convertible at $25. The trust indenture for the debentures contains an "anti-dilution" clause. If the company distributes a 10% stock dividend on the common stock, an investor who owns 10 XYZ Industries debentures would receive which of the following?(A) A certificate for 10 shares of common stock(B) A check for $50, representing the adjustment for the conversion ratio(C) A notice that the conversion price of his bonds has been reduced to $22.73(D) A certificate for one additional bond

Your client wrote 5 XYZ June 60 straddles @ $8.25. What is the potential maximum gain and loss?(A) Maximum gain is $4,125 and maximum loss is $25,875.(B) Maximum gain is $4,125 and maximum loss is $30,000.(C) Maximum gain is $4,125 and maximum loss is unlimited.(D) Maximum gain is unlimited and maximum loss is $4,125.

What of the following statements about testimonials and endorsements is true?(A) Compensation for solicitation activities must be paid in cash.(B) Endorsements must be in writing.(C) Only testimonials are permitted in advertisements.(D) Compensation for advertisements may be provided in the form of reduced advisory fees.

What registration method is most likely used when securities are issued on an intrastate basis?(A) Notification(B) Coordination(C) Filing(D) Qualification

When a brokerage firm is acting as a dealer, it is acting in the capacity of a/an(A) Agent.(B) Fiduciary.(C) Broker.(D) Principal.

A broker/dealer who is making a market in a security is(A) Acting in a broker/agency capacity, incurring no risk and is compensated by commission.(B) Acting in a broker/agency capacity and is incurring risk.(C) Acting in a dealer/principal capacity, incurring risk and is compensated by the mark-up or "spread".(D) Standing ready to buy at the ask and sell at the bid.

C A market maker publishes a bid and ask for a given security and buys/sells for its own account. A market maker is acting in the capacity of a dealer/principal/market maker, is compensated by the difference in the bid and ask price and, thus, incurring risk.

Which of the following is not a characteristic of value stocks?(A) Anticipated long-term price correction(B) Low P/E ratios(C) Financially unsound(D) Low investor enthusiasm

C Value stocks are financially sound, but currently out of investor favor based a variety of potential circumstances. This low investor enthusiasm is characterized by low current P/E and price-to-book ratios, which are expected to eventually rise when the stocks' true value is recognized by the broad investment public.

Which of the following is the most appropriate scenario for executing a limit order?(A) Selling a security that the seller does not own(B) Trying to lock in a profit of a particular security(C) Buying a security when the market price has fallen to a specified limit(D) Buying a security at the most advantageous price

C A limit order is an order to buy at or below a specified price, or to sell a stock at or above a specified price. It is a conditional order.

According to the Uniform Securities Act, the registration of an agent(A) Is continuously in effect unless revoked or suspended.(B) Expires every two years on the anniversary effective date.(C) Expires December 31st of each year.(D) Is only good for one year after the effective date, unless renewed.

C Agent registrations expire every year on December 31st, unless renewed. Some states, however, renew on the anniversary of the effective date, but December 31st is the date stipulated in the Act

Ms. Curtis is a teacher in School District #12. The value of her TSA (Tax Sheltered Annuity) is $75,000. The district has contributed $35,000 and Ms. Curtis has contributed $20,000. What is Ms. Curtis' cost basis?(A) $35,000(B) $20,000(C) $0(D) $75,000

C Ms. Curtis' contributions were made pre-tax, as were the employer contributions. Therefore, her cost basis is zero and all withdrawals will be taxed as income.

A bridge authority issues a revenue bond through a competitive bid underwriting. Twenty years after construction is finished, the bridge is condemned due to weather damage and faulty construction. What provision is in place to protect the bond holders?(A) Errors and Omissions refund under the insurance covenant(B) Sinking fund required by the bond indenture(C) Catastrophic call under the insurance covenant(D) Additional bonds test

C The insurance covenant in the bond indenture requires that the project is insured against future catastrophe. In this event, the insurance proceeds are used to call the bonds.

#48. Which of the following is FALSE regarding warrants? a) Warrants can trade separately from the common stock. b) Warrants have a longer life than rights. c) Warrants are issued at a discount to the underlying equity in order to make security offerings more attractive to the investor. d) Warrants typically have a long life, perhaps even perpetual; the subscription price is above the stock's current market value.

C Warrants are long-term and at issue, their subscription price is at a premium to the underlying stock price. Rights are short-term, with a subscription price that is at a discount to the underlying stock price.

A customer buys a June 30 put for 1 after having purchased 100 shares of the same stock for $34 per share. If the market price moves to $41 per share and the stock is sold in the market, the result is a(A) $500 loss.(B) $600 loss.(C) $600 gain.(D) $700 gain.

C f the market price moved to 41, the put would expire (worthless as it is) out-of-the-money by 11 points. The customer could then sell the stock in the market for the current price of $41 a share, resulting in a net profit of $600. Premium is -1; Market is -34; This equals -35 + 41 (current stock price) = +6 = $600

Which of the following are expenses to consider in planning for the death of a strategic household income earner? I. Alternative minimum tax II. College education funds III. Inheritance taxes IV. Gift taxes(A) I and II(B) I and III(C) II and III(D) III and IV

C. Funding college expenses for surviving dependents and paying possible inheritance taxes on the deceased's estate are part of death planning in a comprehensive financial plan.

A corporation has a $4 million profit. The corporation is in the 34% tax bracket. What is post-dilutive EPS? Common stock: 1,000,000 shares ($10 par) = $10,000,000; 5% preferred: 50,000 shares (100 par) = $5,000,000; 7% debentures: 5,000 bonds ($1,000 par convertible at $10) = $5,000,000(A) $2.41(B) $1.44(C) $1.59(D) $2.16

C. When an issuer's convertible securities are converted into its common stock, the total number of outstanding common shares increases. This is said to have a dilutive effect on the stock's price because the total number of outstanding shares increases. First calculate the number of shares from the bond conversion. (5,000 x $1,000) ÷ 10 = 500,000 shares. Add this to the number of common shares to find the new number of shares 1,000,000 + 500,000 = 1,500,000 shares. To find the EPS, calculate the earnings after taxes. The earnings are taxed at a 34% tax rate ($4 million x 34% = $1,360,000). Subtract this from $4,000,000 to get net income after taxes: $4,000,000 - $1,360,000 = $2,640,000. From this, subtract the preferred dividend. The 5% preferred dividend is $250,000 (50,000 x $100 par = $5,000,000 and $5,000,000 x 5% = $250,000. So, $2,640,000 - $250,000 = $2,390,000. Finally, EPS = earnings per share ÷ # of shares: $2,390,000 ÷ 1,500,000 = $1.59.

#26. A customer buys a June 30 put for 1 after having purchased 100 shares of the same stock for $34 per share. If the market price moves to $22 and the long stock is used to exercise the long put, the result is a a) $500 gain. b) $1,300 gain. c) $500 loss. d) $1,300 loss.

C. 500 loss Since the investor was out $3,400 on the stock plus the $100 on the put, the investor is originally out $3,500. If the stock moves to 22 and the long put is exercised and the stock is delivered against the exercise, the customer will receive the strike price of $3,000 for a net loss of $500.

C. A debenture convertible at 25 would convert into 40 shares ($1,000/25 = 40). A 10% stock dividend would adjust the number of shares to 44 to keep the bondholder. $1,000/44 = 22.73, the new conversion price.

#3. Bill owns shares in a closed-end management company. He can dispose of his shares by a) Redemption by the investment company at a discount. b) Sale through the sponsor. c) Sale on the open market. d) Redemption by the investment company.

C. Closed-end investment companies do not redeem their own shares. Once issued, shares are disposed by sale on the open market at either a premium or discount, depending on market conditions. Shares of open-end investment companies are redeemed at NAV by the issuing fund

#28. Which of the following are true regarding soft dollars? I. Soft dollar relationships must be reviewed regularly; II. Permissible soft dollar expenditures include securities software, subscriptions, and computers; III. Broker/dealers may not earn both commissions and soft dollars; IV. Soft dollar expenditures are provided in exchange for potential securities transactions. a) II and IV b) I and II c) I and IV d) II and III

C. Computers are not permissible soft dollar expenditures because they are not considered a direct customer benefit. Broker/dealers provide soft dollar expenditures to investment advisers in exchange for potential future securities trades. Broker/dealers do not earn soft dollars.

A broker/dealer who knowingly executes a transaction for the purchase or sale of a security for the account of someone associated with another firm must do which of the following? I. Use reasonable diligence to determine whether the transaction will adversely affect the interests of the employing broker/dealer. II. Nothing until written approval is received from the employing broker/dealer. III. Notify the employing broker/dealer prior to the execution of the transaction. IV. Broker/dealers are not allowed to transact securities with associated persons of other members firms.

C. I & III

Beverly, a Seattle resident, winters in Tucson. Which of the following is true? I. Beverly's broker/dealer may service Beverly without registering in Arizona. II. Beverly's broker/dealer may not solicit new Arizona business without registering. III. Only Beverly's agent must register in Arizona. IV. Beverly's broker/dealer may open a Tucson office to assist only Beverly without registering in Arizona.

C. I and II

Which of the following are characteristics of TIPS? I. Fluctuating interest rate; II. Fixed interest rate; III. Fluctuating principal; IV. Fixed principal(A) I and III(B) I and IV(C) II and III(D) II and IV

C. II and III

George bought 500 shares of ABC at 41 and wrote 5 ABC June 40 straddles. At expiration, ABC closes at 37.50 and George is exercised on his short puts. After being exercised, what is George's stock position?(A) Long 500 shares ABC(B) Short 500 shares ABC(C) Long 1,000 shares ABC(D) Short 1,000 shares ABC

C. Long 1,000 share ABC A put writer has the duty to buy stock at the strike price. George already owned 500 shares and had to buy another 500 shares of ABC at the 40 strike price.

Which of the following is true regarding estate taxes?(A) The estate tax applies to the sum of all assets excluding real estate and royalties.(B) Taxes are paid by the recipients.(C) Estates above a specified limit are taxed.(D) Assets are taxed, even if passed to a spouse.

C. Only estates above a specified limit (currently $5 million) are taxed.

#31. A person found in violation of anti-fraud registration requirements under the Act is liable for I. Administrative sanctions, but not for exempt securities. II. Civil liabilities. III. Criminal penalties. IV. Administrative sanctions, but not for exempt transactions. a) I and II b) I and IV c) II and III d) II and IV

C. Persons in violation of the anti-fraud provisions of the Act are subject to civil liabilities, criminal penalties, injunctions, and administrative sanctions, even if the securities are exempt.

A customer enters a limit order good for one month. The member firm has entered the order as a GTC order. The responsibility for canceling the order, if not executed by the end of that month, is that of the(A) Designated market maker.(B) Firm's commission broker.(C) Firm.(D) Customer.

C. When a member firm accepts an order of this type, it accepts ultimate responsibility for follow-through. The firm's commission broker is commonly known as the "floor broker" and is on the floor of the exchange. The designated market maker (DMM) has no responsibility in this case because the DMM does not know that the order was only good until the end of the month.

FINRA requires which of the following persons to sign the new account form?(A) Registered Representative(B) Account Owner(C) Approving Principal(D) All of the above

C.FINRA requires the principal who approves the account to sign the new account form. The account owner's signature is not required by FINRA but is required by most broker/dealers.

Which of the following statements regarding the impact of market performance on a variable life insurance policy is TRUE?(A) The insurance company may increase the premiums due to poor market performance.(B) Expense charges may be increased by the insurance company against the separate account.(C) If performance in the separate account is negative, the policy may have no cash value.(D) The death benefit may decline to zero due to poor account performance.

C.Poor performance could cause the cash value in a variable policy to be zero, but the death benefit may not fall below the face amount of the policy. Variable policy premiums are fixed, and contract expense clauses prevent the company from raising administration fees.

When is a policyholder allowed to surrender a variable annuity contract?(A) During either the accumulation or annuity period(B) During the grace period(C) During the annuity period(D) During the accumulation period

#20. Which of the following is not a characteristic of term insurance? a) Low cost b) Temporary coverage c) Simplicity d) Cash value

A customer buys a June 30 put for 1 after having purchased 100 shares of the same stock for $34 per share. What is the breakeven point?(A) $29(B) $31(C) $33(D) $35

A negative "net present value" means that(A) An amount of money in hand is worth less than that same amount in the future.(B) An amount of money in the future will be worth the same as its equivalent value expressed in today's dollars.(C) An amount of money in the future will be worth more than its equivalent value expressed in today's dollars.(D) The future value of an investment, when expressed in today's dollars represents a negative return.

A shareholder owns 200 shares of stock with cumulative voting rights. If there are five vacancies being voted upon, what is the maximum number of votes the shareholder may cast for any one vacancy?(A) 1(B) 25(C) 200(D) 1,000

Under the USA, which of the following persons is a broker/dealer in a state? I. A broker/dealer with no office in the state that transacts business exclusively with banks; II. A broker/dealer with an office in the state that transacts business exclusively with insurance companies; III. A bank in the state that has a trust department with custody of private pension fund investment assets; IV. A person with offices in the state that effects securities transactions for itself or for customers.

All of the following are contained in the CPI EXCEPT(A) Consumer spending on apparel.(B) Consumer spending on medical care.(C) Consumer spending on entertainment.(D) Consumer purchases of mutual funds.

An Emerging Market Currency ETN may be an appropriate investment for which of the following persons?(A) A sophisticated investor seeking to invest in a portfolio of emerging market equities(B) An experienced investor who is building a long-term portfolio of debt securities.(C) A sophisticated investor seeking current income(D) An experienced investor looking for a simple way to gain exposure to a portfolio of emerging market currencies

An investor is deciding between a blue chip fund and an aggressive growth fund. Which of the following would be most useful in comparing the investments?(A) Internal rate of return(B) Dollar-weighted return(C) Total return(D) Risk-adjusted return

An issuer may use which registration method if the same offering is registered simultaneously with the SEC under the Securities Act of 1933?(A) Registration by qualification(B) Registration by filing(C) Registration by notification(D) Registration by coordination

At what age may an individual make withdrawals from an HSA for nonhealth purposes without being penalized?(A) 55(B) 59 1/2(C) 62(D) 65

For a financial goal to be ultimately successful, it must be(A) Accurate.(B) Reasonable.(C) Opportunistic.(D) Quantifiable.

Several people enter into a scheme to defraud investors. Which of these participants are subject to civil and criminal penalties? I. Agents; II. Issuers; III. Underwriters; IV. Broker/dealers(A) I and IV(B) II and III(C) I, II and IV(D) I, II, III and IV

Technical analysis is used for which of the following for an investor?(A) Earnings per share(B) Stock selection(C) Price-earnings ratio(D) Trade timing

The bond feature that states that the conversion formula will be adjusted for any stock dividends or splits is called the(A) Dividend covenant.(B) Conversion covenant.(C) Rate covenant.(D) Anti-dilutive covenant.

The business model that has a single owner and in which the owner and the company are viewed as one and the same is called a(A) General partnership.(B) Corporation.(C) Limited partnership.(D) Sole proprietorship.

The most accurate indicator of an investor's financial status and one that considers all assets and sources of present and future revenues, as well as liabilities is known as the(A) Intellectual property value.(B) Net cash flow.(C) Independent appraisal value.(D) Current net worth.

The most subjective suitability determination is the client's(A) Net worth.(B) Time horizon.(C) Investment objective.(D) Attitude towards risk.

What annuity provision guarantees a certain expense amount for an annuity contract?(A) Dollar limit(B) Amount guarantee(C) Mortality guarantee(D) Expense guarantee

Which of the following apply to progressive taxation? I. Low income earners are taxed at a higher rate than higher income earners. II. Higher income earners are taxed at a higher rate than low income earners. III. The federal marginal tax rate increases as income rises. IV. Progressive taxation includes marginal tax brackets.(A) I and II(B) I, II, and III(C) II and IV(D) II, III, and IV

Which of the following bonds is affected by the price of the common stock?(A) Surety bond(B) Income bond(C) Guaranteed bond(D) Convertible bond

Which of the following is NOT true concerning bid and ask quotes?(A) The ask, or "offer," is the larger number and may be referred to as the "POP" when discussing mutual fund shares.(B) The difference between the bid and the ask is the "spread" and represents the market maker's mark-up or gross profit.(C) When buying or selling for the accounts of others, a broker/dealer is remunerated by a commission.(D) The bid is the smaller number and is defined as the lowest price a seller is willing to accept for the security at a particular time.

Which of the following is true concerning broker/dealer successor firm applications?(A) The term of the successor firm registration begins 30 days after the original firm ceases to do business.(B) The initial successor firm registration remains effective for 18 months unless otherwise directed by the Administrator.(C) The successor firm need not be in existence at the time of application.(D) A filing fee must be included with the successor firm registration application.

Which of the following is true of the organizational structure of a balance sheet?(A) Leverage items follow equity items.(B) Stockholders' equity appears on the left side.(C) Liquid items appear on the left and illiquid and fixed items appear on the right.(D) It is arranged from current items at the top to long term items at the bottom.

Which of the following statements regarding investment adviser agency cross transactions is FALSE?(A) The adviser must disclose to both customers that it is representing both customers.(B) Investment advisers may not solicit both sides of agency cross transactions.(C) Agency cross trades must be disclosed on the confirmation and the account statement.(D) The customer cannot cancel consent for a cross trade.

Which of the following would require the delivery of a prospectus at the time of sale? I. Variable universal life; II. UIT; III. Mutual fund; IV. Closed-end bond fund(A) I, II and III only(B) I and III only(C) II and IV only(D) I, II, III and IV

Your friend is on the board of directors for ACME Manufacturing. He tells you that his company did not receive government approval for a new product under development. You should I. Advise your clients to sell their ACME stock. II. Inform your supervisor of the information. III. Sell your personal holdings of ACME stock. IV. Not effect any trades based on the information.(A) I and III(B) I and III(C) II and III(D) II and IV

The taxes on dividend and capital gain distributions in a mutual fund IRA account are(A) Deferred only if the IRA funding contribution was tax deductible by the account owner.(B) Reducing the cost basis of the investment.(C) Payable by the owner in the year of distribution.(D) Deferred until withdrawal.

D IRA accounts enjoy tax deferral on all reinvested dividend and capital gain distributions until they are withdrawn.

An investor buys 500 shares of XYZ at 38 and writes 5 XYZ January 40 calls. This position is referred to as:(A) Uncovered call writing.(B) Full hedge.(C) Straddle.(D) Covered call writing.

D To establish a covered call write, an investor writes call options share for share against a long stock position and collects the premium.

Credit analysis of an airport authority revenue bond includes all of the following EXCEPT(A) Debt coverage ratios.(B) Flow of funds.(C) Competing facilities.(D) Overlapping debt.

D Overlapping debt is for GO (general obligation), not revenue bonds.

One of the biggest differences between a C corporation and a Subchapter S corporation is that(A) C corporation owners have limited liability; Sub S owners have unlimited liability.(B) C corporations are not subject to double taxation.(C) A C corporation is ongoing and a Sub S corporation has a predetermined liquidation date.(D) Sub S corporation earnings and expenses are reported on form K1.

D Subchapter S corporation earnings and expenses flow through directly to the owners, who report them on form K1. Both entities are perpetual and offer their owners limited liability. C corporations experience double taxation.

In June, a beneficiary inherited stock from his grandmother. She paid $35 per share in April; fair market value at the time her death was $38 per share. The beneficiary has(A) A short-term gain of $3.(B) A long-term gain of $35.(C) A cost basis of $35.(D) A cost basis of $38.

D The heir received the shares at a stepped-up cost basis of fair market value at the time of the grandmother's death. Inherited shares are always long-term, regardless of the deceased's holding period.

What are the two types of voting processes used by corporations?(A) Proxy and cumulative(B) Preemptive and proxy(C) Proxy and statutory(D) Statutory and cumulative

D There are two types of voting processes used by corporations: statutory voting and cumulative voting. With statutory voting, shareholders are permitted one vote for each share owned to be voted for each director. With cumulative voting, shareholders can multiply the number of shares owned by the number of directorships and cast the votes in any manner desired.

To calculate taxes due on mutual fund shares being sold using the average cost basis for the shares, what must the investor account for?(A) Any cash dividends paid out to the investor during the holding period.(B) All dividend and capital gains paid out to the investor in cash after the shares were purchased.(C) Only the capital gains received in cash during the holding period.(D) The taxes paid on dividend and capital gain reinvestments made for additional shares

D To be calculated correctly, investors must also take into account all taxes previously paid on shares that have been purchased through dividend or capital gains reinvestment programs.

Insider trading laws set guidelines for imposing penalties including civil actions in a federal court. The maximum penalty a court can impose for insider trading violations is(A) $500,000.(B) $100,000 fine, 5 years imprisonment, or both(C) The amount of profit gained or loss avoided.(D) An amount up to 3 times the profit gained or loss avoided.

D When the insider trading violations are subject to civil but not criminal penalties, the maximum fine cannot exceed three times the profit gained or loss avoided.

According to the Uniform Securities Act, a "person" is a(n) I. Individual. II. Joint venture. III. Corporation. IV. Government.(A) I only(B) I and III only(C) II and III only(D) I, II, III and IV

When an annuitant terminates an annuity during the accumulation phase, which of the following is true?(A) The annuitant will receive cost basis but forfeit growth.(B) The annuitant will be taxed at capital gains rates.(C) There is no termination; the annuity is a binding contract that may not be terminated.(D) The annuitant will receive surrender value.

D. $1.59 When an issuer's convertible securities are converted into its common stock, the total number of outstanding common shares increases. This is said to have a dilutive effect on the stock's price because the total number of outstanding shares increases. First calculate the number of shares from the bond conversion. (5,000 x $1,000) ÷ 10 = 500,000 shares. Add this to the number of common shares to find the new number of shares 1,000,000 + 500,000 = 1,500,000 shares. To find the EPS, calculate the earnings after taxes. The earnings are taxed at a 34% tax rate ($4 million x 34% = $1,360,000). Subtract this from $4,000,000 to get net income after taxes: $4,000,000 - $1,360,000 = $2,640,000. From this, subtract the preferred dividend. The 5% preferred dividend is $250,000 (50,000 x $100 par = $5,000,000 and $5,000,000 x 5% = $250,000. So, $2,640,000 - $250,000 = $2,390,000. Finally, EPS = earnings per share ÷ # of shares: $2,390,000 ÷ 1,500,000 = $1.59.

Sell ABC short 20 stop 20.50. The ticker tape shows: 19, 20, 21, 20.50, 20.25. At what price was the trade executed?(A) 19(B) 20(C) 20.50(D) 21

D. 21 Sell short 20 stop 20.50 (limit) is triggered or elected at 20 or below, and executed at or above 20.50. The order is triggered at 19 (20 or below), and execution occurs at 21 (20.50 or above).

A client places an order to sell short 100 shares of XYZ at 35.50 stop limit. At which trade was the order triggered? 36, 35.75, 35.13, 34.88, 35, 35.62

D. 35.13

If distributions are made on a variable annuity policy before age ____ , a 10 percent penalty will be imposed. 49½ 59½ 69½ 71½

D. 591/2 If distributions are made before age 59½, a 10 percent penalty is imposed, unless the circumstances qualify as exceptions to the early distribution rule, such as divorce and disability.

Which of the following is a suitability concern regarding a fund of funds?(A) Lack of diversification(B) Impaired liquidity(C) Specialized investment objective(D) High expense ratio

D. Because a fund of funds invests in other mutual funds, it has a "double layer" of expenses, which typically means a higher expense ratio than other funds. By investing in a fund of funds, the investor gains exposure to several different investment objectives and a diverse range of securities. A fund of funds is as liquid as a conventional mutual fund.

The cost basis in a tax-qualified retirement plan includes(A) Contributions, but not growth.(B) Growth but not contributions.(C) Both contributions and growth.(D) Neither contributions nor growth.

D. Cost basis only exists when after-tax dollars are contributed to a plan. Since the employee has not been taxed on employer contributions or on his own pre-tax contributions, the cost basis is zero.

#23. A customer was inadvertently sold an illegal issue. The customer may do which of the following: I. Sue under civil liabilities; II. Sue under criminal liabilities; III. Recover the purchase price plus 6% interest; IV. Sue for punitive damages. a) II and IV b) III and IV c) I and II d) I and III

D. I and IIIIn the absence of willful intent, only civil liabilities apply. The customer can also recover the purchase price plus 6% interest and attorney fees.

A heavily leveraged corporation has which of the following? I. Low debt/equity ratio; II. High debt/equity ratio; III. Low rate risk; IV. High rate risk

D. II & IV

Dollar cost averaging I. Will allow an investor to purchase a fixed number of shares periodically. II. Is not as effective as market timing. III. Does not protect the investor against loss in steadily declining markets. IV. Does not guarantee a profit.

D. III and IV

Dollar cost averaging plans have which of the following features? I. They are voluntary plans. II. They entail purchasing the same number of shares each period. III. Investors are penalized for missing subsequent investment periods. IV. The investor's personal share cost will be lower than the share price over the period.

I & IV

Volunteers of America has a 403(b) plan for its employees. Which of the following is NOT a provision that can be changed by the employer or employee?(A) The types of compensation that may be deferred.(B) Whether the salary reduction plan is authorized for the year.(C) The amount of salary contributed (deferred) into the plan during the year.(D) Whether the deferred salary is considered pre-tax or post-tax contributions.

D. Many of the same rules applicable to cash or deferred elections under a 401(k) apply to salary reduction contributions under a 403(b) plan, including the following: frequency that an employee is permitted to enter into or modify a salary reduction agreement; compensation to which an agreement may apply; the ability to revoke the agreement. However, all 403b contributions are pre-tax dollars and are tax-deferred for growth.

#34. Municipalities typically issue short-term notes for a) Permanent financing. b) Long-term financing. c) Project financing. d) Interim financing.

D. Municipalities use short-term municipal notes to provide interim financing in anticipation of receiving money from taxes, revenues collected from a municipal facility, or new bonds being issued.

A customer of a Canadian broker/dealer spends winters in Miami every year. The customer trades regularly in her tax-qualified account. She is considering a permanent move to Miami. Which of the following is true?(A) The broker/dealer and agent must already be registered in Florida, and must maintain their existing state registrations.(B) If the customer moves to Miami, the broker/dealer must register in the state.(C) If the customer moves to Miami, the agent must register with the state and the broker/dealer must maintain its Florida registration.(D) If the customer moves to Miami and opens a taxable account, the broker/dealer must register with the SEC.

D. Neither broker/dealer nor agent must register with the state unless the customer moves to Miami and opens a taxable account. If the customer does both things, the broker-dealer and representative must be registered with the SEC and become a member of an SRO, such as FINRA. Also, the broker/dealer and agent must register in any state in which they are transacting business.

Sally divorces Andrew at age 35 and collects distributions on their retirement plan as a result. What taxation/penalties will she have to pay?(A) 10 percent penalty tax(B) 15 percent penalty tax(C) Age-based penalty stipulated in the contract(D) None

D. None Under normal circumstances, a 10 percent penalty tax is imposed on distributions made before the age of 59½. There are exceptional circumstances, however, that are exempt from the penalty tax, including distributions made as a result of a divorce decree.

An investor owning a variable annuity contract is assuming Risk of increasing expense ratios. Purchasing power risk. Investment risk. Mortality risk.

D. The annuity owner assumes the investment risk of the separate account. The mortality risk is borne by the insurance company and the contract has specified M & E (management and expense) ratios.

A corporation is issuing additional shares of stock through an APO (additional public offering). Which of the following would not be affected?(A) Outstanding shares(B) Working capital(C) Earnings per share(D) Interest owed

D. Working capital would increase because of cash receipts from the stock sale. EPs would decline because earnings are now dividend among a greater number of outstanding shares.

A hedge fund is(A) Available over the counter to all levels of investing.(B) Generally a product for institutions only.(C) A large mutual fund.(D) A managed fund that is not restricted by what investments it may use.

D.A hedge fund is costly and risky investment portfolio managed to a specific goal. There are very few restrictions and positions may be both long and short. Although originally offered only to institutions, hedge funds are now available to high net worth individual investors.

Which of these statements is INCORRECT concerning broker/dealers?(A) A dealer sells securities from its own inventory.(B) A broker is an agent who purchases or sells securities for a customer and charges them a commission.(C) A dealer earns a profit by marking up the security above the ASK price.(D) A firm can act in both the capacity of a broker and a dealer when selling securities from its own inventory.

D.Acting as broker and acting as dealer are mutually exclusive. In each trade, the firm acts as one or the other, but never both. When a firm acts as a broker, it is acting in an agent capacity and does not use its inventory account.

In considering a stock for listing on the NYSE, which of these is NOT a requirement? I. Market value of publicly held shares; II. Number of outstanding shares; III. Total employees of 2,500; IV. Net income for the most recent year

DIII & IV

An agent commits a violation under the Act if he or she I. Makes a material misrepresentation in the offer or sale of a security. II. Files a fraudulent application. III. Offers or sells a security that is unregistered. IV. Omits immaterial facts regarding an investment.(A) I and III(B) II and III(C) II and IV(D) I and II

DInformation presented in the sales process must be truthful and complete. It is not a violation to offer an unregistered security if that security is exempt. It is a violation of the Act to file a fraudulent application for registration as an agent, broker/dealer, issuer, or investment adviser. It is fraudulent to omit material facts, but not immaterial facts.

#41. An investor owns 500 XYZ shares. He wrote covered calls, which will expire in May. In what month will he be able to write contracts after the May expiration? a) December b) February c) September d) November

DThe May quarterly cycle contains August and November.

#46. Discounted cash flow is best described as a) Averaged rate of interest expected over the cash flow periods. b) Current Yield from a discounted bond. c) Yield to Maturity. d) Current amount required to produce future cash flows.

Discounted cash flow determines the present value of the future payments. To finance a series of payments over time, a series of discounted dollars are reserved and grown at interest to mature to the needed payment amount. The first payment requires a reserve of more dollars then year 2, and year 2 more than year 3, etc., based on the time value of money. The sum of each year's reserved dollar amounts equals the discounted cash flow.

With regard to 529 education savings plans, all of the following are considered qualified higher education expenses EXCEPT

Extracurricular activity

Which of the following are acceptable forms of recordkeeping as established by the NASAA? I. Paper or hard copy; II. Microfilm or microfiche; III. Maintained by customer; IV. Public access web site(A) I and II(B) I and III(C) II and III(D) II and IV

I and II

I and II Because incentive stock options are tax qualified, the plan must be approved by company shareholders 1 year prior to the plan taking effect. Both plans deal with the employer's common stock.

I and III

The Uniform Prudent Investor Act sets standards by which investment advisers should manage funds over which they exercise discretionary control and includes such things as I. Self-control on the part of the adviser. II. Using caution based on the adviser's desires. III. Discretionary control by the investor. IV. Managing based on the character of the account.

I and IV The Act calls for an investment adviser who has discretionary control of a client's account to manage based on the character of the account, using a strategy that is prudent based on the client's desires, and demonstrating self-control in the process.

If an investment advisory firm offers an optional wrap account for its clients, I. The advisory contract does not need to be preceded by a brochure. II. Information contained in Part 2 of Form ADV must be furnished to prospective clients. III. A wrap fee brochure must be furnished to the client prior to entering into a contract. IV. Both an Investment Adviser Brochure and a wrap fee brochure must be furnished.(A) III and IV(B) I and II(C) II and III(D) II and IV

II and III n wrap accounts, a wrap fee brochure is furnished instead of the Investment Adviser Brochure. It must be furnished 48 hours prior to entering into a contract and must include all of the information contained in Part 2 of Form ADV. Alternatively, it may be furnished at the signing of the contract if the customer is given a 5-day, free-look period during which they may opt out of the contract without cost.

Market makers differ from designated market makers in that I. Market makers facilitate an auction market. II. A market maker may or may not deal from inventory. III. There is only one designated market maker per security on the exchange. IV. A market maker does not facilitate agency trades.

III and IV

#18. Which of the following is NOT true regarding a nonqualified retirement plan? a) Tax on accumulation is deferred. b) It needs IRS approval. c) Excess over cost basis is taxed. d) It can discriminate in offering its benefits and selecting participants.

Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need IRS approval

Which of the following accurately describes an ETN?(A) ETNs have principal protection.(B) Interest payments fluctuate based on the underlying index.(C) Principal at maturity is based on an index.(D) ETNs are senior secured debt instruments.

Which of the following is not a responsibility of the DMM?(A) Buying and selling for his own account to counteract temporary imbalances in supply and demand(B) Executing limit orders on behalf of other members for a portion of the floor broker's commission(C) Dealing in over-the-counter securities with market makers on a fee basis(D) Maintaining the published quote and a fair and orderly market in one or more securities

c. Unlike the auction market in securities listed on an exchange such as the NYSE, an over-the-counter security may be bought and sold on a negotiated price basis from any number of market makers.

To assure a client who has objections about the proposed purchase of a security, the agent may state that the security(A) Is a safe and prudent investment.(B) Is approved by the State Administrator.(C) Is approved by the SEC.(D) None of the above

d. An agent may never suggest that a security is "safe," which infers that it is guaranteed against a loss. It is also a violation to imply that a security is approved by the State or the SEC.

Which of the following best fits the definition of an investment adviser?(A) Bank(B) Broker/dealer whose advice is incidental to their business(C) Lawyer(D) Publisher of reports used to promote particular securities

d. In this case, a publisher would fall under the definition of an investment adviser because it is promoting specific securities. Lawyers and broker/dealers whose advice is incidental to their business, and do not receive fees solely for the advice given, are not considered investment advisers.

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