Series 65 - Simulated Exam (April 8, 2024)
An investor purchased a Mosaks, Inc., put option with a strike price of $105. If Mosaks' stock price is $115 at expiration, the value of the put option is
$0 the put has a value of $0 because it will not be exercised. Why would you want to exercise at $105 per share when the current market value is $115?
Your client with $100,000 to invest is looking for maximum current income. Which of the following would offer the highest current return?
$100,000 market value of corporate bonds selling at a premium and yielding 6% to maturity
Unless the beneficiary is a special needs individual, amounts remaining in a Coverdell ESA must be distributed within
30 days after the designated beneficiary reaches age 30.
Which of the following is an example of business risk?
A company's earnings decline because of a change in technology.
The term Eurodollars refers to
American dollars held by banks in other countries, especially in Europe.
In which of the following cases would the Uniform Securities Act require registration of an investment adviser who had no place of business in the state?
He had more than five noninstitutional clients who were residents of the state.
Examples of identity theft would include which of these? I. Taking over an individual's credit card account II. Applying for new credit cards in the compromised individual's name III. Lending money in the name of the compromised individual IV. Purchasing lottery tickets in the name of another individual
I and III
Which of the following are regulated under the Securities Exchange Act of 1934? I. New issues II. Broker-dealers III. Securities exchanges
II and III The Securities Exchange Act of 1934 was designed to regulate securities transactions, securities markets, and the securities firms that do the trading
One of the prohibited practices under the Uniform Securities Act is market manipulation. Which of the following are examples of a broker-dealer engaging in that practice? I. Arbitrage II. Churning III. Matched orders IV. Wash trades
III and IV
The time value of money is part of the computation for
IRR
Which of the following statements regarding nonqualified annuities is correct?
It is possible to receive distributions from an annuity before age 59 1/2 without incurring tax penalties.
An investor has bonds maturing in three weeks on the first day of the upcoming month. Since his purchase of the bonds five years ago, interest rates have fallen. To which one these risks are these bonds most likely to be subject?
Reinvestment risk
Which of the following securities of Synergy, Inc., an issuer whose stock trades on the Nasdaq Stock Market, does not have an exemption from registration with the state?
Synergy's oil and gas limited partnership units (Synergy, Inc., is the general partner)
Under the Investment Company Act of 1940, which of the following statements is true about an investment company that wishes to contract with an outside investment adviser to manage its portfolio?
The contract between the investment company and the investment adviser must be in writing.
A corporation ends its accounting year on September 30. It would be correct to state that it uses
a fiscal year
An investor in an equity security
acquires an ownership interest in the company.
An investor who purchases stock in two technology companies with high projected earnings and growth potential but little performance history is considered
an aggressive investor
An investor will likely exercise a put option when the price of the stock is
below the strike price
In general, when describing the characteristics of equity index annuities and variable annuities, each of the following would be a true statement except
both offer an opportunity for unlimited gain
Which of the following is the simplest portfolio management style for individual stocks?
buy and hold
Corporate long-term debt securities that are issued on the general credit of the issuer and are not otherwise secured are called
debentures Debentures are corporate long-term debt securities issued on the general credit of the corporation and are not backed by any specific assets
Under the provisions of the Uniform Securities Act, it is not necessary for an investment adviser to register when it
has no place of business in the state and deals with savings and loan associations only.
When giving advice to a large pension plan invested heavily in large-cap stocks on how to reduce their systematic risk, you would probably recommend that they
hedge by purchasing broad index puts
All of the following statements concerning the EMH are correct except
investors usually react slowly to new and random information pertaining to all currently-available security market information.
A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has
no effective change in the value of the position
A broker-dealer makes a market in XYZ stock and places large orders for it on the open market either at or slightly above its current price with the aim of stabilizing the price. This unethical practice is best described as
pegging
Which of the following risks would be associated with long-term, AAA-rated bonds?
purchasing power (inflation) risk
The management style that is most similar to buy and hold is:
strategic management
A speculator, believing that a drought in the Midwest will lead to a weak corn crop, would probably
take a long position in corn futures
When a bond's NPV is zero, it is usually an indication that
the market is highly efficient, the NPV of 0 indicates that their is no difference between the bond's present value and its current market price
Which of the following is considered the most accurate method of measuring GDP?
Constant dollars - they are mathematically adjusted to remove the effects of inflations
Which of the following is not a market cap-weighted index?
Dow Jones Industrial Average
An investor is considering purchasing an equity exchange-traded fund (ETF) to further diversify his portfolio. All of the following are reasons for him to purchase this investment except
ETFs offer tax benefits similar to a limited partnership
Which of the following investments is not registered under the Investment Company Act of 1940?
FACCS
When a bond's NPV is zero, it is usually an indication that
Government bond fund, corporate bond fund, municipal bond fund
An investor invested $1,000 into the shares of the Stratford Growth and Income Fund, an open-end investment company registered under the Investment Company Act of 1940. On the purchase application, the investor checked the boxes signifying that dividends were to be paid out in cash and capital gains were to be reinvested. During year, the fund paid dividends of $20 and distributed a $250 capital gain. At the end of the year, the fund's value is $1,300. The total return to this investor was
32% Total return is all distributions plus/minus appreciation/depreciation. In this question, the $1,300 includes the $250 capital gain, so all we add is the $20 dividend. $320 divided by $1,000 equals 32% total return.
An investor in the 25% federal income tax bracket is considering the purchase of some fixed-income instruments. Which of the following would provide the investor with the greatest after-tax return?
7% Ba rated corporate bond
Which of the following is not an issuer under the Uniform Securities Act?
A broker-dealer trading securities as an agent for the account of others
Which of the following is not correct regarding the capital asset pricing model (CAPM)?
CAPM uses standard deviation as a measure of market risk - market risk is determined by Beta
If a natural person files an initial application for state registration as an investment adviser representative on October 1, the registration will most likely expire
December 31 of that year
A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened?
Options - only available for experienced traders
A person providing which of the following services to an ERISA plan would be performing in a fiduciary capacity?
Selecting and monitoring third-party service providers
Who is required to provide audited balance sheet to clients for whom they maintain custody?
State-registered investment advisers who have custody of clients' securities are required to provide audited balance sheets to their clients.
Which of the following involves an offer or sale?
The gift of an assessable security, where the recipient may be required (assessed) to put up money, involves both an offer and a sale.
If an investor was of the opinion that the market was going to have a bad day, to maximize that investor's gains, you might recommend
an inverse leveraged ETF - helps to maximize potential gain
An investor's portfolio has a beta coefficient of 0.85. If the overall market declined by 10% over the course of a year, the portfolio's value has likely
decreased by 8.5%
In order to achieve its goals, an inverse ETF uses
derivatives and debt
To reflect a more accurate picture of economic results, gross domestic product is adjusted
for inflation
One of your new clients has only been working for 3 years but is already interested in retirement planning. In order to be fully eligible for Social Security, the client must
have a minimum of 40 covered quarters of employment
Richard Alan is a longtime customer of yours and usually calls in orders identifying himself as Dick. Today, you receive a call requesting that half of the available funds in his account be wired to an offshore bank. When you say that his voice sounds different, he replies that he has a sore throat and that is why he doesn't sound like himself. Then you recall that when you answered the phone, he said, "This is Mr. Richard Alan calling." At first, you thought he was having fun, but now you might suspect
identity theft
The Uniform Securities Act gives the Administrator the authority to do all of the following except
issue injunctions
Health savings accounts (HSAs) offer the opportunity for employees to use pretax funds to pay for a wide range of medical expenses. Medical expenses included are all of the following except
long-term disability insurance premiums
An agent employed at First Securities, an independent broker-dealer, shares commissions with his uncle, who is employed at ABC Securities, an independent broker-dealer with offices in the same state. This arrangement is
prohibited because the broker-dealers are not under common ownership or control.
Under the Investment Advisers Act of 1940, a registered investment adviser who provides investment advisory services to individuals must
provide each client with a disclosure statement or brochure no later than when entering into the advisory agreement.
If the efficient market hypothesis is true, portfolio managers should do all of the following except
spend more time working on security selections
Pricing of a closed-end fund is determined by
supply and demand for the shares, because they are traded in the secondary market
Those investors wishing to examine a document that would probably give them the most information about a corporation's current and planned operations would seek out
the annual report
The Smiths are saving money for a down payment on a house. The Smiths have $25,000 in cash, and they estimate that in 5 years they will have approximately $31,000 if they deposit their cash in a savings account that compounds interest yearly. To calculate the $31,000 amount, the Smiths determined
the future value of the $25,000
When recommending a corporate security, an IAR indicates that the top officers of the company were responsible for the rapid growth of LJB Corporation, a well-known, successful firm in the same industry. Under the Uniform Securities Act, all of the following statements by the agent are permitted except
there is no doubt that the officers will repeat the success they enjoyed with LJB Corporation.
One way in which closed-end management investment companies differ from open-end investment management companies is that
they trade at a price independent of their net asset value
A client, who is a famous tennis player, offers to record a testimonial for a covered investment adviser. The recording will be used in a television commercial. Under the SEC's Marketing Rule for Investment Advisers, the firm may
use the testimonial, provided disclosure is made that the athlete is a client and about the extent of any compensation paid.
Under which of the following circumstances would it most likely be presumed that an adviser holds custody of client property?
Harold, a client, makes a check intended for his investment account payable to Gibraltar Advisers, which is dually registered as an investment adviser and a broker-dealer. Harold's fee is automatically withdrawn from his account on a semiannual basis.
Which of the following statements about plan fiduciaries under ERISA are true? I. Plan fiduciaries sometimes have conflicting obligations to plan participants and other parties in interest. II. Plan fiduciaries must ordinarily diversify plan investments. III. Plan fiduciaries are personally liable for fines if they violate their fiduciary duties.
II and III
One of your prospective clients is considered a key employee at his place of business. This individual has a net worth of almost $3 million, currently earns in excess of $540,000 per year, and is married with two teenage children. He currently has a little over $1 million in his 401(k), slightly more than half of which is invested in his employer's common stock. The company is the beneficiary of a $1.5 million key person life insurance policy on his life. Given these facts, what is your greatest concern as his adviser?
Inadequate life insurance coverage
A client is considering the purchase of American depositary receipts (ADRs). She is looking to further diversify her portfolio. Which of the following is not a feature of this type of investment vehicle?
They are not subject to exchange rate, or currency, risk.
Jon, an agent with Johnson-Bayer Securities, was reacting to peer pressure to use email as a prospecting tool. He decided to highlight the exciting new process for drug delivery that was covered in the new offering prospectus when explaining why he felt the issuer found the next "aspirin." He summed up the email by stating potential investors needed to act quickly to get in on the ground floor. His decision to do so fell into the category of which of the following?
Unethical business practice
If a businessowner's goal is to establish an entity that features ease in raising capital, which of these entities is the most appropriate?
a limited liability company (LLC)
Your elderly client has $10,000 to invest and seeks preservation of capital and a moderate income stream. If she has never invested in mutual funds before and all of her savings are in bank CDs and saving accounts, you should recommend
a money market fund
One of the components of a cash flow statement is cash flow from investing activities. Included would be
transactions and events involving the purchase and sale of land, buildings, and equipment.
Under the NASAA Model Rule on financial requirements for investment advisers, unless an exception exists, investment advisers who have discretionary powers but not custody of customer funds are usually required to have a net worth in the amount of
$10,000
You have determined that the net present value (NPV) of your client's investment is positive. If your client's required rate of return is 8%, which of the following is most likely the investment's internal rate of return (IRR)?
9% - for NPV to be positive the IRR must be greater than the investor's required rate of return
Your customer, age 29, is seeking a long-term growth investment, is concerned about the loss of purchasing power as a result of inflation, and often complains about high commissions that reduce his investment returns. When he was in college, he took a few economics courses and firmly believes that securities analysts cannot consistently outperform the overall market. Which of the following mutual funds is the most suitable for the customer?
ARG Stock Index Fund Because the client believes that money managers cannot outperform the market, an index fund, which simply mimics the market, is the appropriate investment
According to North American Securities Administrators Association's (NASAA) Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following practices is not unethical?
An agent of a broker-dealer exercised discretion in deciding the time that a sale took place during the trading day without expressed written discretionary authority. This is ethical because time and price are not considered true discretion.
FNK Corporation reported earnings of $2.47 per share last year on its stock, currently trading at $9.42 per share. Dividends paid out during the year totaled $0.93 per share. FNK's dividend payout ratio is closest to
38% $0.93/$2.47
Which of the following investments is required by law to have at least 75% of its assets represented by real estate assets such as real property or loans secured by real property, cash, and U.S. government securities?
REITs
A federal covered investment adviser may enter into a contract with a client that provides for performance-based compensation under all of the following conditions except
disclosure that the performance compensation may create an inventive for the adviser to take greater risks - Because these types of compensation agreements may only be entered into with clients meeting minimum financial standards, the SEC assumes that clients understand the increased risks they are being exposed to
Two sisters might wish to open an account as tenants in common (TIC) rather than JTWROS in order to
ensure that their respective shares go to their heirs instead of the surviving sister.
When developing a client profile, it is important to note both the financial and nonfinancial considerations. These can be categorized as those that are objective and those that are subjective. Included in the list of subjective considerations would be
risk tolerance Subjective considerations are the nonfinancial ones—the ones that can't be expressed in monetary terms. Risk tolerance is one of the key subjective considerations to be evaluated.
Margin regulations are determined by the Board of Governors of the Federal Reserve System. The authority for them to do so is found in
the Securities Exchange Act of 1934
A company's current ratio is 0.5:1. This could be an indication
the company may have trouble paying its bills. A 0.5:1 ratio means that the company has current liabilities that are twice its current assets.
With regard to a broker-dealer's use of social media, static content would be considered which of these? I.A planned communication to a target audience that is generally not altered II. Communication that does not provide for interaction with the author once published III. Content used to engage in real-time interactive communications with a target audience IV. A blog that gives readers the opportunity to post comments
I and II Static social media content is that is is not usually changed once published and does not provide a method for interaction
Which of the following statements regarding ADRs are true? I. The securities are vehicles used to facilitate U.S. trading of foreign securities. II. Dividends are received in the foreign currency. III. Holders have foreign currency risk. IV. The receipts are issued by a foreign branch of a domestic bank.
I and III
Which of the following are regulated under the Securities Exchange Act of 1934? I. Broker-dealers II. Investment advisers III. Pension plans IV. OTC markets
I and IV
Under the Uniform Securities Act, certain transactions are exempt from the sales literature and advertising filing requirements. Which of the following would be included in that category? I. Any isolated, nonissuer transaction II. Any sale to a financial institution III. Any transaction by the executor of an estate IV. Any transaction between an issuer and underwriters
I, II, III, and IV All four options describe exempt transactions. Exempt transactions are not subject to the advertising and sales literature filing requirements of the Administrator.
An investment adviser is a member of the board of directors of a privately held corporation that has just gone public. The adviser would like to recommend the stock to several of his advisory clients. Which of the following statements are true? I.The adviser can do so without restriction. II. The adviser must disclose the existence of a control relationship. III. The adviser may base his recommendation on all information at his disposal. IV. The adviser must base his recommendation on publicly available information.
II and IV
Under the Uniform Securities Act, which of the following are not required to register as investment adviser representatives in this state? I. An individual who sells advisory services in several states, including this one, for AAA Advisers, Inc. II. United Trust Company of America III. An agent for a broker-dealer advising customers for a fixed separate fee stated as a percentage of the customer's assets under management IV. An investment adviser with no office in the state that does business exclusively with other investment advisers located in the state
II and IV
Mark's company, which is located in Oregon, makes unfinished wood furniture. His company sells this furniture directly to the public from a large warehouse. Theresa's company, which is located in southern Georgia, grows cotton for t-shirt manufacturers. Which of the following statements correctly identify hedging strategies for Mark and Theresa? I. Mark should buy lumber futures. II. Theresa should sell cotton futures. III. Mark should sell lumber futures. IV. Theresa should buy cotton futures.
I and III
The industry is concerned about the protection of both firm and customer data. Where would it be acceptable to store this information? I. On a cloud-based server II. In paper form III. On computer disks IV. On microfiche
I, II, III, IV As long as the proper protections are taken, any of these are acceptable as a storage medium for customer and firm records
NASAA holds that the most important duty of an investment adviser (IA) is the disclosure of all information relating to the relationship between an adviser and a client. Because of this, when performing an examination of the IA, the Administrator not only will look for disclosure-related items in the disclosure document but may also check which of these? I. The adviser's advertising II. The adviser's contracts III. The adviser's seminar materials IV. The adviser's websites
I, II, III, and IV
Several entrepreneurs form an S corporation. Under which of the following circumstances will the entrepreneurs risk losing their tax benefits? I. 150 new investors buy into the corporation during the year. II. 1 new member is a nonresident alien. III. 50% of the corporation's income is derived from passive investments in limited partnerships. IV. The corporation issues several classes of stock.
I, II, III, and IV
An investment adviser representative with a state-registered investment adviser reads an article in the newspaper about a local company that has had a surge in demand for its product line. If the representative's supervisor gives approval, posting the article on her social media accounts would constitute
adoption
If an agent located in the Ogden, Utah, office of a broker-dealer wishes to solicit prospects residing in California, under the Uniform Securities Act, the agent would
have to register in California.
During your training, you overhear your manager discussing the Chinese wall. This is probably referring to
internal provisions enacted to prevent material, nonpublic information from leaking from one department of the firm to another
While attending a seminar given by one of your firm's analysts, you hear the term, feasible set. That would mean the discussion was dealing with the topic of
the efficient frontier The feasible set of portfolios represents all portfolios that can be constructed from a given set of stocks.
An investor purchases a single premium deferred index annuity with a 6% bonus feature. The premium was $100,000. The annuity has an 80% participation rate with a 10% cap. If the underlying index increased by 15%, the account's value at the end of the year would be closest to
$116,600 The 6% bonus means that the client's initial payment is increased by 6%. That means the account shows a starting balance of $106,000. Although the index increased by 15% and the participation rate of 80% would be a 12% growth rate, the cap of 10% comes into play. That makes the calculation: $106,000 x 110% or $116,600.
Which of the following statements are not true? I. A broker-dealer must be a firm or corporation (legal person) as opposed to a natural person (human being). II. An investment adviser must be a firm or a corporation as opposed to a natural person. III. An investment adviser representative (IAR) cannot, under any circumstances, be employed by a registered broker-dealer.
I, II, and III
