Series 65 - Practice Exam (No Answer Selected)

Ways in which a Section 529 plan differs from a Coverdell ESA include

A) I and II B) II and III C) I and IV D) II and IV

Which of the following forms of joint ownership is most often used for real estate?

A) Tenants in common B) Totten trust C) Tenancy by the entirety D) Joint tenants with right of survivorship

As defined in the Investment Company Act of 1940, the term investment company would NOT include a

A) management company B) holding company C) face amount certificate company D) unit investment trust

A client's portfolio consists of holdings in long-term U.S. Treasury bonds and Treasury notes. Of least concern to this investor would be

A) market risk B) interest rate risk C) purchasing power risk D) credit risk

The technical market theory that measures the breadth of the market is

A) the odd-lot B) the support/resistance C) the advance/decline D) the short interest

Which of these forms of business structure carries the greatest personal liability?

A) Sole proprietorship B) LLC C) S corporation D) Limited partnership

Early in the year, an investor purchased 100 shares of KAP common stock at a price of $60 per share. Just prior to the end of the year, after receiving three quarterly dividends of $1, the investor liquidated all of the KAP at a price of $59 per share. If the Consumer Price Index (CPI) increased by 3%, the investor's total return over the holding period was

A) 5% B) 2% C) 3.33% D) .33%

A significant difference between opening an account for a trust and an account for an estate is

A) banks can be named as trustees for a trust, but not as an executor B) the trust account will generally be active for a much longer period of time C) only the estate has beneficiaries D) the standard of prudent investing applies to trusts, but not to executors

One respect in which advertising by investment advisers differs from that of broker-dealers is that

A) investment advisers are not permitted to use testimonials, while broker-dealers can B) investment advisers are permitted to refer to charting systems in their advertisements, while broker-dealers cannot C) investment advisers are permitted to conduct seminars, while broker-dealers cannot D) investment advisers are not permitted to use the internet, while broker-dealers can

Irving Wilson works for Wall Street Limited (WSL), a registered investment adviser. He limits his advice exclusively to equity securities listed on the NYSE. Under the Uniform Securities Act, Irving

A) is not covered by the anti-fraud rules, as these are federal covered securities B) need not register as an IAR C) must register as an IAR D) would need registration as a federal covered IAR

In the over-the-counter market, the person who performs the dealer function that a DMM is responsible for on an exchange is

A) the broker-dealer B) the OTC trader C) the market maker D) the floor broker

Which of the following bonds would most likely be exposed to the greatest amount of interest rate risk?

A) GHI 7s of 2042 B) ABC 5s of 2040 C) JKL 4s of 2020 D) DEF 6s of 2041

A U.S. Treasury bond's price has moved from 96.18 to 96.22. An investor's account holding 10 of these bonds would show an increase of

A) $.40 B) $12.50 C) $1.25 D) $4.00

Prudent Asset Construction Enterprises (PACE) has offices in states X, Y, and Z. On their last annual updating amendment, they reported AUM of $218 million. In which of the following instances would PACE be receiving a substantial prepayment of fees?

A) $1,600, paid one year in advance B) $10,000, paid monthly C) $1,600, paid at the first of each quarter D) $600, paid six or months in advance

A corporate bond with a BB rating is currently selling for 95. If the bond has a coupon of 6% and matures in 10 years, its yield to maturity is closest to

A) 6.32% B) 5.71% C) 6.67% D) 5.37%

An investor indicates that her objective is long-term growth. Income is of secondary importance, and while she is basically quite conservative, she feels her time horizon is long enough to give her a bit more risk tolerance. Which of the following common stock mutual fund selections would probably be most suitable?

A) 75% large-cap, 25% small-cap B) 100% large-cap C) 75% small-cap, 25% large-cap D) 100% small-cap

What is the tax equivalent yield of a 7% municipal bond to an investor in the 35% federal income tax bracket?

A) 9.45% B) 4.55% C) 10.77% D) 20%

As defined in the Uniform Securities Act (USA), which of the following would be considered an exempt transaction?

A) A sale of stock by an administrator of an estate B) A purchase of bonds by a trustee of an irrevocable trust C) A sale of U.S. Treasury bonds to a retail investor D) A purchase of stock by an accredited investor under Rule 506(b)

If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio?

A) Preferred stock B) Annuities C) AAA bonds D) Tangible assets

One of the usual practices of the fiduciary handling a qualified retirement plan is providing a written document that sets forth the objectives and constraints on a managed portfolio. This document is called

A) the management agreement B) the statement of fiduciary responsibility C) the investment policy statement D) the legal opinion

A corporation with a 6%, $25 par cumulative preferred paid $.50 to preferred stockholders last year. This year, the company wants to pay common dividends. How much must it pay each preferred share?

A) $11.50 B) $2.50 C) $1.50 D) $0.50

Your client notices that the listing for the CDL $100 par common stock in the Wall Street Journal indicates that the current yield of the stock is 4%. If the last trade was at $40 per share, more than likely, CDL is paying quarterly dividends of

A) $4.00 B) $1.60 C) $1.00 D) $.40

John Jones purchased 100 shares of DEF common stock at a price of $25 per share on August 4, 2016. On December 1, 2017, with the stock selling for $29 per share, he gifted the stock to his daughter. She subsequently sold the stock nine months later for $32 per share. Her tax consequence is

A) $700 long-term capital gain B) $700 short-term capital gain C) $300 short-term capital gain D) $300 long-term capital gain

What is the current yield on ABC common stock selling for $60 per share with a semiannual dividend of $.75 per share?

A) 1.25% B) 7.50% C) 5% D) 2.50%

Using the discounted cash flow method of valuation, you would expect to arrive at the highest valuation for which of the following?

A) 10% coupon maturing in 10 years B) 5% coupon maturing in 20 years C) Zero-coupon bond maturing in 11 years D) 7% coupon maturing in 9 years

When a market maker publishes a quote, what prices will be shown? Bid Market Offer Spread

A) I and II B) I and III C) III and IV D) II and IV

The term alternative investment would least likely apply to

A) closed-end funds (CEFs) B) leveraged ETFs C) exchange-traded notes (ETNs) D) inverse ETFs

Popular strategies used by bond investors to mitigate the effects of changes in interest rates would include any of the following EXCEPT

A) the bullet strategy B) the strategy of lengthening the maturities of their holdings C) the laddering strategy D) the barbell strategy

Historically, common stock has been shown to protect against

A) market risk B) business risk C) systematic risk D) inflation risk

Under which of the following asset allocation programs is it most likely that commission expense will have a significant impact on portfolio performance?

A) Buy and hold B) Tactical C) Strategic D) Rebalancing

Which of the following activities might result in a positive yield curve in the bond market?

A) A parallel downward shift in interest rates B) A parallel upward shift in interest rates C) Investors buying short-term bonds and selling long-term bonds D) Investors buying long-term bonds and selling short-term bonds

Which of the following would probably be the best indicator of where the economy is headed?

A) Average prime rate B) Average duration of unemployment C) Permits for construction of new housing units D) Industrial production

A client with a bearish outlook on a particular stock would be able to benefit from taking which of the following actions?

A) Entering a sell limit order B) Entering a market order to sell C) Selling the stock short D) Buying the stock on margin

A portfolio manager with a growth style would probably diversify by

A) placing a portion of the portfolio into high-yield bonds B) devoting a portion of the portfolio to securities with a negative correlation C) attempting to build a portfolio with a very high correlation D) concentrating in stocks in one or two industries

In which of the following cases does exercise not involve the issuer of the underlying asset?

A) An option B) A warrant C) A right D) A convertible bond

You are trying to explain to an advisory client that the U.S. economy goes through somewhat repeatable phases over a period of time. Which of these terms does NOT describe one of those business cycles?

A) Inflation B) Expansion C) Contraction D) Peak

As defined in the Uniform Securities Act (USA), the term person would include

A) I and IV B) I, II, and III C) I, II, III, and IV D) II and III

Your client with a traditional IRA splits her annual $6,000 contribution into four quarterly investments of $1,500 into a broad market ETF. In so doing, she is taking advantage of the principle of

A) overfunding her IRA B) rebalancing C) tactical investing D) dollar cost averaging

When a fundamental analyst views a corporation's balance sheet, it reveals the issuer's

A) productivity B) dividend payout ratio C) owner's equity D) profitability

Which of the following classes of mutual fund shares would be appropriate for an investor who doesn't mind paying some sales charges on a purchase, but wants to minimize operating expenses over a long-term holding period?

A) Class B shares B) No-load shares C) Class C shares D) Class A shares

Which of the following clients of a federal covered investment adviser are NOT exempt from the delivery requirements of the brochure rule?

A) An open-end investment company with less than $25 million in assets B) An individual investor purchasing the IA's newsletter with an annual subscription price of $410 C) An employee benefit plan with assets of at least $5 million D) A closed-end investment company traded on the New York Stock Exchange

An estate-planning technique often recommended for those with large taxable estates is the use of

A) the capital needs analysis B) a testamentary trust C) the alternative valuation date D) an irrevocable life insurance trust (ILIT)

One of the major goals of most hedge funds is to

A) generate higher fees for their advisers B) appeal to the sophisticated investor C) use long and short strategies to provide a stable return in both up and down markets. D) generate liberal tax write-offs for their investors

John Johnson was convicted five years ago of failure to pay child support—a misdemeanor in his home state. Johnson would now like to register as an IAR in a neighboring state where that crime is considered a felony. Under the Uniform Securities Act, the Administrator of the neighboring state

A) will determine Johnson's status based upon the extent to which his child support payments are being paid B) will consider granting registration to Johnson, but only if he receives heightened supervision C) will disregard that conviction when determining Johnson's qualifications for registration D) will consider Johnson to be statutorily disqualified since in this state, his crime is a felony

LMN, Inc., is preparing to report its net income for the past year. An increase in which of the following would NOT cause a decrease in the reported net income?

A) Year-end bonuses to employees B) Corporate income tax rate C) Cash dividends D) Allowance for bad debts

One would not normally place convertible bonds in the portfolio of an investor

A) seeking to maximize current income B) seeking capital gains C) who is bullish on the future for a specific issuer's common stock D) seeking a position senior to that of common stock

You have a client who is interested in a preferred stock whose dividends are guaranteed. What is likely the reason for using that term?

A) As a fixed income security, the dividends are guaranteed to never increase. B) The issuer has a AAA rating that is tantamount to dividend payments being a sure thing. C) A previous IAR has improperly used that term in an effort to make a sale. D) Someone other than the issuer has guaranteed the payment of those dividends.

With regard to nonqualified stock options (NSO) and incentive stock options (ISO), which of the following statements is incorrect?

A) Capital gain treatment is only available with NSOs. B) Board of director approval is required for both NSOs and ISOs. C) AMT is only an issue for those exercising ISOs. D) A tax deduction for the employer is generally only available with NSOs.

In order to be in compliance with the rules under the Investment Advisers Act of 1940, which two of the following statements are correct regarding a registered investment adviser's relationship with solicitors? An individual who is subject to statutory disqualification from registration as an investment adviser representative may solicit clients for the adviser as an employee of a third-party solicitor. There must be a written agreement between the investment adviser and the solicitor. While the sales script used may be written by the solicitor, its content is the responsibility of the adviser. Cash referral fees to solicitors may only be paid in the case of impersonal advisory services.

A) I and II B) II and III C) III and IV D) I and IV

In order to comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must offer plan participants at least three different investment alternatives ensure that plan participants are insulated from control over their portfolios allow plan participants to change their investment options no less frequently than quarterly permit immediate vesting of employer contributions.

A) I and III B) II and III C) I and IV D) II and IV

Which of the following statements are accurate when describing preferred stock? Owners of convertible preferred stock have an opportunity to participate in the growth of the company. Unlike any other securities the company may issue, the return on preferred stock is fixed. Issuing preferred stock confers certain tax benefits to the company. In general, preferred stock does not have a maturity date.

A) I and IV B) II and III C) III and IV D) I and II

Which of the following statements regarding an agent's registration is CORRECT?

A) Individuals whose only securities activity with a broker-dealer is trading for the firm's proprietary account are not required to register as agents. B) Revocation of the registration of an agent's broker-dealer will result in placing that agent's effective registration in suspense. C) If the broker-dealer with which that agent is registered should have its registration revoked, the agent's license will be held by the Administrator, and the agent will be required to register with an active broker-dealer no later than 30 days following the revocation. D) Agents may be licensed in a state even if their broker-dealer is not

Daphna works for Automated Asset Allocators (AAA), an investment adviser having offices in States D, E, and F and registered with the SEC. Daphna spends most of her time in an office in State D, but, once every other week, she goes to the branch in State E. Daphna would be exempt from registration as an IAR in which of the following states?

A) State E, where she has no retail clients B) State F, where she has 227 retail clients C) Daphna would have to register in all three states D) States E and F

Under the provisions of Regulation S-P, a person who has an investment advisory contract with a registered investment adviser is known as

A) a cohort B) a client C) a customer D) a consumer

Under the Uniform Securities Act, all of the following persons with no place of business in the state are exempt from registration as an investment adviser EXCEPT

A) advisers who deal exclusively with savings banks located in the state B) Company Act of 1940 C) advisers who deal exclusively with federal covered investment advisers located in the state D) advisers who have conducted business with no more than six clients, other than institutions, in the state within the past 12 months E) advisers who deal exclusively with investment companies registered under the Investment

Gerald has been a client of yours for more than a decade. Over that period, the relationship expanded from a business one to one of a social nature, including attending events with your respective spouses. One afternoon, Gerald's wife calls explaining that she just got off the phone with Gerald. Before hanging up, he asked her to contact you with a sell order in his account. Having had extensive social contact, you recognize her voice and know that their marriage is on strong footing. You should

A) contact your compliance department, explain the relationship, and wait for further instructions B) explain that you cannot accept an order from anyone other than the account holder without having written trading authorization C) accept the order because you know the wife and understand that this is something that would be fine with Gerald D) email a copy of the trading authorization form and ask her to electronically sign for Gerald and return it so that you can place the order.

When comparing futures and forwards, it would be correct to state that

A) forwards are more likely to be closed out prior to expiration B) forwards are exchange-listed, while futures are not C) futures are considered securities, while forwards are not D) futures are more commonly used by speculators than forwards

An index annuity has no cap on gains, but guarantees a minimum return of 3.35% with an 80% participation rate. If the index increases by 15%, what is the rate of return to the investor?

A) 12% B) 2.68% C) 15% D) 18.35%

When discussing the suitability of investing in direct participation programs, particular attention should be focused on which risks? Legislative Liquidity Market Purchasing power

A) II and III B) I and IV C) I and II D) III and IV

The discounted rate that equates a bond's cash flow to its current price is known as the bond's

A) duration B) yield to maturity C) current yield D) coupon rate

While reviewing the financial statements of the ABC Corporation, you notice that the company has $5 million in cash on hand and $6 million in inventory. If the current assets total $15 million, the total assets are $22 million, and the current liabilities are $6 million, the quick asset ratio is

A) 3.0:1 B) 2.66:1 C) 2.33:1 D) 1.5:1

An investor has returns of 4%, 5%, and 9% over a three-year period. What is the investor's arithmetic mean?

A) 7% B) 5% C) 18% D) 6%

During your initial interview with a potential advisory client, you obtain the following information: He is 58, she is 56, and they both plan to continue working until she reaches 65 and is eligible for Medicare. As you begin to develop a plan for this couple, you would probably project their time horizon as

A) 9 years B) 16 years C) 7 years D) approximately 30 years

In order to make a quantitative evaluation using the present value computation, which of the following is NOT needed?

A) Anticipated rate of return of the portfolio B) Time period involved C) Account value at the beginning of the period D) Account value at the end of the period

An advisory client is interested in learning more about municipal bonds. It would be correct to state that general obligation bonds are usually, but not always, safer than revenue bonds interest received on municipal bonds is generally free of both federal and state income taxes municipal bonds are usually suitable for investors in higher tax brackets the coupon yield on AAA-rated municipal bonds will generally be slightly higher than that of AAA-rated corporate bonds with a comparable maturity

A) I and II B) I and III C) II and IV D) III and IV

Initial and renewal contracts between investment advisers and their clients must be in writing when the contract is under the jurisdiction of the Securities Exchange Act of 1934 the Investment Company Act of 1940 the Investment Advisers Act of 1940 the Uniform Securities Act

A) I and III B) I, II, and III C) II, III, and IV D) II and IV

An investment adviser representative is meeting with a potential advisory client. Among the items of information the IAR needs to obtain in order to develop the proper plan are the prospect's anticipated number of years until retirement location of current bank and brokerage accounts current savings and investments college alma mater

A) I and III B) III and IV C) I and II D) II and IV

It would be reasonable to expect an increase in exports from the U.S. if the dollar strengthened against the euro yen strengthened against the dollar Swiss franc weakened against the dollar dollar weakened against the British pound

A) II and IV B) I and II C) I and III D) III and IV

An investment adviser representative is required to make disclosure to the client when the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale transactions recommended to a specific client are inconsistent with those for other clients with objectives that are similar to that particular client transactions recommended to the client are inconsistent with those for the IAR's own account

A) II and IV B) I and III C) II, III, and IV D) I, II, and III

Which of the following risks would most likely be minimized through portfolio diversification?

A) Purchasing power risk B) Credit risk C) Market risk D) Interest rate risk

Once reaching the age of 70½, required minimum distributions must be taken for retired individuals who were participants in all of the following EXCEPT

A) Roth IRAs B) traditional IRAs C) SEP IRAs D) Keogh plans

A portfolio manager looking to create alpha would most likely use which of the following?

A) Tactical asset allocation B) Indexing C) Buy and hold D) Strategic asset allocation

One of your clients is a widow with three grown children. She wants the assets in her account to go to her children upon her death—50% to her daughter and 25% to each of her sons. She does not want the estate to have to deal with probate on these assets. How should her account be set up?

A) Tenants in common B) Transfer on death C) Joint tenants with right of survivorship D) Tenants in the entirety

In which of the following instances would an investment adviser representative be exempt from the anti-fraud rules of the Uniform Securities Act?

A) The IAR makes a presentation at a seminar where the only topic discussed is fixed annuities. B) In an effort to avoid possible conflicts of interest, the IAR only does personal trades through an account set up with a fictitious name. C) The IAR is also an agent of a broker-dealer and, in that capacity, makes a recommendation to a nonadvisory client. D) Since the IAR understands how nervous a particular client is, he never admits a loss in the account to that client.

The dividend discount model is

A) a function of the price to earnings ratio B) the complement of the dividend payout ratio C) a method of determining the appropriate relationship between the price of the corporation's common stock and its preferred stock D) an analytical tool used to project the current value of a common stock using projected dividends

A life insurance policy with benefits tied to the performance of a separate account that allows the policyholder to skip premium payments is called

A) a universal life insurance policy B) a scheduled premium variable life insurance policy C) a flexible premium variable life insurance policy D) a fixed premium variable life insurance policy

A corporation is capitalized with common stock, senior preferred stock, mortgage bonds, and subordinated debentures. Your client, who holds $10,000 of the debentures, is concerned about the future viability of the enterprise. You can inform the client that the debentures have a claim

A) ahead of the common stock, the preferred stock, and the bonds B) behind the bonds, the preferred stock, and the common stock C) ahead of the common stock, but after the preferred and the bonds D) ahead of the common stock and the preferred, but after the bonds

In order to come under the SEC's requirement to file a Form 13F, an institutional manager must have discretion over

A) an equity portfolio of at least $100 million B) more than 10% of the outstanding voting securities of a reporting company C) an equity portfolio of at least $100 million in 13(f) securities D) an equity portfolio of at least $50 million in 13(f) securities

NASAA's Model Rule on Business Continuity and Succession Planning requires that each investment adviser establishes a plan that provides for each of the following EXCEPT

A) assignment of duties to qualified persons in the event of unavailability of key personnel B) minimizing service disruptions and client harm C) office relocation in the event of a temporary loss of a place of business D) assurance of continued profitability

An agent has a client who is relatively new to investing in securities, having been a bank CD purchaser most of her life. One of the client's holdings is a stock that the agent recommended, and its market price has recently fallen by more than 10%. Knowing her fear of loss, the agent comforts her by continuing to report that the stock is moving upward with the market. Under the Uniform Securities Act, this action is

A) fraudulent, as it is equivalent to giving inaccurate market quotations B) permitted, because the client is not selling anytime soon and there is no need to cause her to be upset C) prohibited, unless the agent receives permission from a designated supervisor D) prohibited, as the agent has a fiduciary responsibility to the client to manage the account in her best interests

An investor would be entitled to a breakpoint on quantity purchases made together with all of the following accounts EXCEPT

A) his brother with whom he regularly shares investment ideas B) his wife's personal account C) a custodian account under UTMA for his child D) shares of that fund held in his 401(k) that were purchased with employer-matching funds

A portfolio manager who follows the value style of investing would most likely focus her attention on

A) market capitalization B) moving averages C) financial statements D) 52-week highs and lows

Individuals who pass the Series 65 exam will be able to tell prospects that

A) their investments will be offered protection by the anti-fraud statutes of the Uniform Securities Act B) they passed a 130-question examination in order to qualify as an IAR C) by passing the exam, they are now registered as investment adviser representatives with the SEC D) this indicates the regulatory bodies consider them qualified to manage money

An agent for a broker-dealer conducts a seminar where he makes extravagant comments in favor of an investment he recommends to all attendees, regardless of their financial circumstances. This agent could be in violation of the Uniform Securities Act's anti-fraud rule unless the investment being touted was

A) variable life insurance B) U.S. government bonds C) an S&P 500 index ETF D) gold bullion

Under the provisions of the Uniform Securities Act, which of the following statements about unsolicited orders is TRUE?

A) An unsolicited order from a noninstitutional client for an unregistered, nonexempt security is considered a transaction exempt from the registration and advertising filing requirements of the act. B) If the order ticket is appropriately marked, the Administrator may not challenge a broker-dealer's assertion that the order was unsolicited. C) A client may not purchase, at his own initiative, securities trading in the secondary market if the agent is otherwise prohibited from soliciting the order. D) Under certain conditions, an Administrator may prohibit a broker-dealer registered in the state from accepting any unsolicited orders.

What is the term generally given by analysts to the number generated by the addition of a company's annual depreciation expense to its net income?

A) Cash flow B) Book value per share C) Dividend payout ratio D) Working capital

Which of the following are prohibited actions under the Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers?

A) Claiming that advisory fees are negotiable, but maintaining a fixed fee schedule B) Determining the price and time of execution of customer orders without written discretionary authority C) Depositing securities or cash with the Administrator in lieu of a required surety bond D) Notifying the Administrator that the adviser intends to maintain custody of customer securities

Which of the following statements regarding REITs are TRUE? - Equity REITs offer possible income and capital appreciation. - Investors receive interest and principal payments periodically. - In order to receive favorable tax benefits, the REIT must pay out at least 90% of its net income in the form of dividends. - Interests in REITs offer the benefit of flow through of income or loss.

A) II and IV B) I and IV C) I and III D) II and III

The issuance of new common stock will affect which of the following balance sheet items? Total assets Current liabilities Retained earnings Net worth

A) II and IV B) II and III C) I and IV D) I and III

An investor is concerned that interest rates will be volatile over the next few years. Which of the following would eliminate interest rate risk?

A) TIPS B) Insured bank CDs C) Zero-coupon bonds D) Cumulative preferred stock

Each of the following would be exempt from the definition of an agent under the Uniform Securities Act EXCEPT

A) Violet, an employee of the Widget Spinners Corporation, who is paid a commission on sales of the company stock to fellow employees B) Beatrice, who was appointed by the other members of her investment club to make the portfolio decisions for the next quarter C) Florence, an employee of the First Fidelity Trust Company, who buys and sells securities to meet the needs of her trust clients D) Katrina, the administrator of the Widget Spinners Corporation pension plan, who is paid for making investment decisions for the portfolio

An options strategy that would be most useful for an investor with a long position in a stock who is concerned that a proposed management change will negatively impact the stock's price would be to

A) buy a call on that stock B) buy a put on that stock C) sell a put on that stock D) sell a call on that stock

The Uniform Securities Act provides for civil penalties in the event of illegal activities of broker-dealers and their agents. Under the act, a purchaser would NOT be entitled to claim:

A) court costs B) attorney's fees C) interest at the state's legal rate less any income received on the security D) the original consideration paid for the security or the current market value, whichever is greater

All of the following statements relating to ADRs are true EXCEPT

A) dividends are paid in U.S. dollars B) trading takes place on domestic secondary markets C) the issuer is a domestic bank D) currency risk is avoided

A broker-dealer having no place of business in a state is not required to be registered in that state if the broker-dealer

A) is registered in the state where its principal office is located B) is a federal covered broker-dealer C) limits its clientele to employee benefit plans with assets of at least $1 million D) is a member of the New York Stock Exchange

KAPCO, Inc. has 100,000,000 shares of $1 par common stock outstanding. If the current market price of the KAPCO common stock is $33 per share, KAPCO would be considered a

A) large-cap stock B) small-cap stock C) mid-cap stock D) micro-cap stock

If the executor of an estate containing a substantial stock portfolio is of the opinion that the economy is about to enter a down cycle, estate taxes could be reduced by

A) liquidating the portfolio in advance of the market downturn B) using the alternative valuation date C) asking for an extension to file the return D) reallocating the assets to less risky securities

Under federal law, the statute of limitations for civil liability is

A) one year after discovery of the action B) one year after discovery or three years after the action, whichever is sooner C) two years after the action D) two years after discovery or three years after the action, whichever is sooner

An investment adviser wishes to advertise a proprietary charting system used to time the market. In order to be in compliance with the Investment Advisers Act of 1940

A) results obtained by using the system must be shown using a time period of no less than 12 months B) authorship of the system must be prominently disclosed C) the advertisement must be filed with the appropriate SRO within 10 business days of first use D) a statement reflecting the limitations and difficulties of using the system must be included in the ad

You have a 45-year-old client wishing to save for retirement. The client does not have a great deal of investment sophistication and inquires about the risks you have exposed him to by placing the majority of his portfolio in listed common stocks. You would respond that one risk he should not concern himself with is

A) systematic risk B) inflation risk C) business risk D) liquidity risk

Richard, Tim, Sam, and Fred have a regular golf foursome every weekend. During one of their outings, they decide it is time they did something constructive with their money by opening an account with a brokerage firm. If the account is opened tenants in common, suitability information would be required on

A) whichever person has been designated by the group as its spokesman B) each of the individuals, and if married, their spouses C) only that individual with the authorization to trade the account D) each of the four individuals

As specified in the Dodd-Frank Act of 2010, which of the following would NOT qualify for the private fund exemption?

A) An investment adviser who limits its advisory services to private funds with less than $150 million in assets under management in the United States B) An investment adviser who limits its advisory services to venture capital funds C) An investment adviser who limits its advisory services to insurance companies D) A non-U.S. based investment adviser with no place of business in the United States and less than $25 million in assets under management belonging to U.S. clients

Which of the following statements regarding agent registration under the Uniform Securities Act is TRUE? In the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day after the filing of a complete application. The Administrator may initiate a disciplinary action within two years of an agent's withdrawal of registration. The Administrator may request the agent furnish a statement of assets and liabilities. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed as of the original filing date.

A) C and D B) A and B C) B and C D) A and D

Which of the following is required to effectuate annual renewal of the registration of an investment adviser representative affiliated with a federal covered adviser?

A) Form U-4 B) State licensing fee C) Renewal notice to the SEC D) Consent to service of process

Which of the following would offer your client check-writing privileges and FDIC insurance coverage?

A) Government securities money market fund B) Negotiable CD C) DDA D) GIC

When discussing the features of a Roth IRA with a 52-year-old client who has been contributing the maximum for the past three years, it would be correct to state that there is a $1,000 catch-up benefit for contributors who are 50 or older once the account has been in existence at least five years, he may begin taking withdrawals free of any income tax he may increase his potential retirement benefits by also contributing to a traditional IRA if the client has earned income well into his 70s, he may still continue to contribute to the plan

A) I and IV B) II and III C) I, III, and IV D) I, II, III, and IV

In October 1987, the SEC promulgated Release IA-1092, which had the effect of broadening the definition of investment adviser. As a result of the release, which of the following would be included in the definition? Commercial banks offering comprehensive financial planning for their high net worth clients Entertainment agents earning a fee for negotiating contracts for their clients and then placing a portion of the client's royalties into investment-grade bonds or large-cap stocks as market conditions dictate Persons being compensated for assisting employee benefit plan administrators in selecting investment managers for the plan's assets Lawyers who prepare trust agreements for clients with large securities holdings, with a goal of minimizing estate taxes

A) II and IV B) II and III C) I and II D) I and IV

An individual has just received an inheritance of $15,000 and has the goals of preservation of capital and income. The client is in a low tax bracket. Which of the following would be the most suitable choice?

A) Newly issued U.S. Treasury bonds B) Bank-insured CDs C) Insured municipal bonds D) Public utility stocks

A state-registered investment adviser maintaining custody of customer funds and securities discovers that its net worth is $32,000. Which of the following steps would NOT be required?

A) Returning the customer funds and securities within three business days of the discovery B) Notifying the Administrator of the deficiency by the close of business on the next business day C) Filing a financial report with the Administrator by the close of business on the next business day following notice D) Reporting to the Administrator the number of client accounts being served by the investment adviser

Your client has a long position in a security that has had considerable appreciation since the date of purchase. The client is concerned that speculation that the company's CEO may retire could have negative implications for the stock. Wishing to protect those unrealized gains, which of the following orders would be appropriate?

A) Sell limit B) Sell stop C) Buy stop D) Buy limit

Which of the following actions by an agent would be an unethical practice under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents?

A) Splitting commissions with a customer service representative who is not registered but works for the same firm B) Telling a customer that the investment being recommended will be sold from the inventory of the broker-dealer and indicating on the trade confirmation that the firm acted in a principal capacity C) Recommending securities that result in major losses in the customer's account D) An agent with discretionary authority enters a buy order for a security when its price is rising

One of the purposes of filing the annual updating amendment to the Form ADV Part 1A is to

A) ensure that full disclosure has been made in the adviser's brochure B) verify that the investment adviser still qualifies for SEC registration C) provide updated information on those associated persons who are in charge of giving investment advice D) disclose the amount and location of securities or funds of clients that are being held by the adviser or a qualified custodian

Arguably, determining a client's risk tolerance is the most critical step before making any recommendations. Methods of doing that would include knowing all of the following EXCEPT

A) how much of a loss the client can tolerate emotionally B) the name of other firms where the client has or has had an account C) the client's prior investment experience D) the investment time horizon—short-term or long-term

Fiscal policy, as implemented by Congress and the administration, would entail all of the following EXCEPT

A) running a budget deficit B) increasing military spending C) changing tax rates D) changing the discount rate

An investor concerned about liquidity would be least likely to invest in

A) stock subject to Rule 144 B) ADRs C) cumulative preferred stock D) common stock listed on the New York Stock Exchange

A support level is the price range at which a technical analyst would expect the

A) supply of a stock to increase substantially B) demand for a stock to decrease substantially C) demand for a stock to remain constant D) demand for a stock to increase substantially

An investor contacts you somewhat puzzled over the fact that she saw a newspaper listing for the KAPLOW Fund where the net asset value per share was $10.27 and the asking price was $14.14 per share. She wants to know why the difference between the two is so great. You would respond, saying

A) that this is probably an unregistered hedge fund not subject to SEC rules B) there is probably a misprint in the paper and, more than likely, the asking price is $11.22, making the sales charge 8.5% C) the KAPLOW Fund is a closed-end company whose selling price is not based upon NAV, as is the case with an open-end fund D) the KAPLOW Fund is being investigated by the SEC for being sold with a sales charge in excess of the 8.5% maximum limit

Most states have replaced the Uniform Gifts to Minors Act (UGMA) with the Uniform Transfers to Minors Act (UTMA). One of the major advantages of UTMA is

A) the beneficiary has access to the account at an earlier age B) reduced fiduciary exposure to the custodian C) greater flexibility in the choice of investments D) better tax benefits

If an investment adviser representative receives a letter from a client complaining about unauthorized activity in the account, the first person the IAR should communicate with is

A) the individual with supervisory responsibility for that investment adviser representative B) the SEC C) the Administrator D) the client

When an investment adviser representative terminates employment with a federal covered investment adviser and immediately accepts employment performing the same functions with a different federal covered investment adviser in the state where the individual resides

A) the investment adviser representative and each of the federal covered advisers must notify the Administrator promptly B) the investment adviser representative and the employing adviser must notify the Administrator promptly C) only the investment adviser representative must notify the Administrator promptly D) only the terminating investment adviser must notify the Administrator.

If a client prefers owning an investment company whose portfolio consists primarily of companies that have a history of paying regular dividends, rather than companies reinvesting their earnings for the purpose of generating capital appreciation, what type of mutual fund would you recommend?

A) A growth fund B) An income fund C) A government bond fund D) An index fund

An IAR is attempting to develop an investment plan for a client. The IAR decides to use two different mutual funds in an effort to provide appropriate diversification. Of the four pairs given below, which one would offer the most diversification?

A) Portfolio 3 and 4, with a correlation coefficient of +.20 B) Portfolio 7 and 8, with a correlation coefficient of -.20 C) Portfolio 5 and 6, with a correlation coefficient of -.05 D) Portfolio 1 and 2, with a correlation coefficient of +.90

Investors seeking current income would benefit from

A) buying LEAPS B) selling call options C) buying U.S. Treasury STRIPS> D) buying periodic payment variable annuities

Which of the following items does NOT fall within the Section 28(e) safe harbor?

A) Research reports prepared by a third party other than the broker-dealer B) Software used to simplify the investment adviser's preparation of its tax returns C) Software used to analyze client's portfolios D) Proprietary research reports analyzing the performance of a specific industry

One of the differences between state and federal law involving an investment adviser maintaining custody of customer funds and/or securities relates to the handling of client checks made payable to third parties such as broker-dealers. Which of the following properly expresses that difference?

A) Under federal law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within three business days of receipt. B) Under state law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within 24 hours of receipt. C) Under federal law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within 24 hours of receipt. D) Under state law, receipt of a check payable to an unrelated third party is considered to be custody unless forwarded to the third party within three business days of receipt.

On the basis of IRS guidelines, which of the following is most likely eligible to contribute to a Keogh plan?

A) While employed full time for a major department store, a clerk who won $10,000 playing the state lottery B) A doctor who has formed a professional corporation with three other physicians C) The CEO of a listed corporation who receives a large bonus after an outstanding year D) A public school teacher who gets paid during her summer vacation to give motivational speeches to training directors at major brokerage firms

All of the following would decrease the U.S. balance of payments deficit EXCEPT

A) a decrease in imports of foreign goods into the U.S. B) a decrease in dividend payments by U.S. companies to foreign investors C) an increase in exports of domestic goods from the U.S. D) a decrease in purchases of U.S. securities by foreign investors

In the Howey decision, the U.S. Supreme Court held that to be considered a security, an investment contract must represent

A) an investment of money in a common enterprise, with the expectation of profit from the managerial efforts of others B) an interest in a publicly traded corporation whose managers are engaged in a regulated business enterprise C) an investment of money in a common enterprise with the expectation of profit from the efforts of the investor D) either equity or debt of the issuing enterprise

Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment adviser would have to disclose that the firm was acting in a principal capacity when

A) engaging in an agency cross transaction B) the trade was being executed by an officer or partner of the firm C) selling shares from its proprietary account to an advisory client D) directing a securities transaction to an affiliated broker-dealer

Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and its investment manager. Among those requirements is that

A) the initial contract is for a maximum of one year and then may be renewed on either an annual or biannual basis B) no contract may be terminated with more than 60 days' written notice C) the contract should be in writing D) unless a specific exemption applies, the fund may not engage in margin trading