Series 65 wrong questions/answers
Which of the following orders would be most likely to add fuel to a bullish stock market? A) Buy limit B) Buy stop C) Sell stop D) Sell limit
(B) Buy stop Buy stop orders are placed above the current market price and are usually used by those with short positions. As prices increase, these stop orders are triggered, sending more buy orders to the trading floors.
Which of the following best describes net present value? A) The discount rate that results in a return of zero for a series of future cash flows B) The difference between the sum of the discounted cash flows that are expected from an investment and its initial cost C) The amount of money that must be invested today at some specified rate of return to equal a targeted value in a specified number of years D) It is the true interest yield expected from an investment expressed as a percentage
(B) The difference between the sum of the discounted cash flows that are expected from an investment and its initial cost
A prospective client has been interviewing a number of investment advisers and wishes to see your firm's investment policy statement. Your IPS would probably include which of the following headings? Investment objectives Investment philosophy Investment selection criteria Monitoring procedures
All of the above
If Gerald turned age 70 on November 15, 2016, when was he required to take his first IRA distribution? A) 1-Apr-18 B) 31-Dec-17 C) 1-Apr-17 D) 31-Dec-16
(A) 1-Apr-18 Because his birthday is late in the year, Gerald will not attain age 70½ until May 15, 2017, so his required beginning date was April 1, 2018 (the year following the date Gerald attains age 70½). U24LO1
Which of the following could NOT be an open-end fund? A) RST Fund ask price 45.25-NAV 44.80 B) WXY Fund ask price 10.50-NAV 11.25 C) PQR Fund ask price 17-NAV 17 D) LMN Fund ask price 7.75-NAV 7.50
(B) WXY Fund ask price 10.50-NAV 11.25 Although closed-end fund shares may have an ask price below NAV, this is not true of an open-end fund. The ask price (POP) of an open-end fund is either the NAV (a no-load fund) or the NAV plus a sales charge.
A client in the 28% marginal federal income tax bracket invests in a corporate bond with an 8% coupon. To calculate the client's after-tax rate of return, A) divide 0.08 by 0.72 B) multiply 0.08 by 0.72 C) multiply 0.08 by 0.28 D) divide 0.08 by 0.28
(B) multiply 0.08 by 0.72 To determine a taxable bond's after-tax rate of return, multiply the coupon rate by the complement of the client's marginal federal income tax bracket. The client's tax bracket is 28% (0.28), so the complement is 100% − 28% (1.00 − 0.28) = 0.72.
The Uniform Securities Act invests a great deal of power in the Administrator. These powers include all of the following EXCEPT A) citing a witness for contempt of court for failing to appear at a hearing B) waiving the requirement to take the licensing exam due to prior experience C) issuing a subpoena for a witness to appear at a hearing D) issuing a cease and desist order
A) citing a witness for contempt of court for failing to appear at a hearing Only an official of the court (such as a judge) can find someone in contempt of court. U5Lo2
BFJ Corp's 5% convertible bond is trading at 120. The bond is convertible at $50. An investor buying the bond now and immediately converting into common stock, would receive A) 24 shares B) 20 shares C) 2.4 shares D) 20 shares plus cash for fractional shares
(B) 20 shares U13LO9
In the formula for determining the real rate of return, A) the marginal tax bracket is subtracted from the investment return B) the inflation rate is subtracted from the investment return C) the investment return is divided by the inflation rate D) the inflation rate is divided by the investment return
(B) the inflation rate is subtracted from the investment return
Which of the following usually does NOT pay interest semiannually? A) Treasury notes B) Public utility bonds C) Treasury bonds D) GNMA
(D) GNMA GNMA pass-through certificates pay principal and the interest monthly. All other choices usually pay interest semiannually.
Which of the following would have the effect of reducing a taxpayer's taxable income? Net capital loss Traditional IRA contribution Public purpose municipal bond interest Earnings in a deferred variable annuity
(D) I and II Up to $3,000 in net capital losses can be deducted against ordinary income. Contributions to a traditional (but not Roth) IRA are deductible against ordinary income (unless the taxpayer is above certain income limits and is covered by an employer plan).
A bond is paying $100 per year in annual interest and is selling at par. If the discount rate is 10%, the net present value is A) negative B) positive C) the same as the coupon D) zero
(D) zero A bond paying $100 in interest per year has a coupon rate of 10%. Whenever the coupon rate is equal to the discount rate, the NPV is zero. U10LO1
If the return on Treasury bills is 3% and the equity risk premium is 4%, the expected equity returns should be A)1% B)4% C)7% D)12%
(c)7% The expected return on an equity investment is the risk-free (for example, T-bill) rate of return added to the equity risk premium (3% + 4% = 7%).
In which of the following cases could revocation of the registration of an IAR lead to disciplinary action against the investment adviser employing that individual? A) The IAR was found guilty of first degree murder. B) The IAR failed to make full disclosure of a previous felony conviction on the Form U4. C) The firm supplied the IAR with a copy of its Code of Ethics and administered regular training on its contents. D) The firm was found guilty of failure to supervise.
D) The firm was found guilty of failure to supervise. In most cases, disciplinary action against an investment adviser representative (unless the individual is filling an executive position) will not have a direct impact on the investment advisory firm. The major exception is when the IAR's actions leading to the revocation can be shown to have be aided by the firm's failure to supervise.
A bond purchased at $900 with a 5% coupon and a 5-year maturity has a current yield of A) 7.80% B) 7.40% C) 5.56% D) 5.00%
(C) 5.56% Current yield is determined by dividing the annual interest payment by the current market price of the bond ($50 ÷ $900 = 5.56%).
Which of the following mutual fund share classes generally has a 1% CDSC that is eliminated once the shares have been held more than 1 year? A) Class B B) Class A C) Class 1% D) Class C
(D) Class C It is the Class C shares that have no front-end load, but they do have a 1% CDSC for a period of 1 year.
A 45-year-old employment counselor has a Keogh plan for himself and 3 full-time employees who have been working for him for the past 4 years. If he earns $150,000 this year and contributes the maximum amount allowed to his Keogh plan, how much may he invest in an IRA? A) He may contribute 100% of earned income or the maximum allowable IRA limit, whichever is less. B) He may have an IRA but may not make a contribution for this year. C) He may not have an IRA. D) He may invest any amount up to 100% of his earned income.
(A) He may contribute 100% of earned income or the maximum allowable IRA limit, whichever is less. The maximum contribution to an IRA is 100% of earned income or the maximum allowable limit, whichever is less. In this individual's case, however, the contribution would probably be nondeductible.
Under the USA, when one is referring to a security that is guaranteed, the guarantee applies to capital gains to be expected by holding the specified security dividends to be paid on the specified stock interest and principal payment on the specified bond reimbursement by the firm for any losses suffered while holding that security A) II and III B) I and IV C) II and IV D) I and III
(A) II and III The USA defines the term guaranteed as meaning guaranteed as to payment of principal, interest, or dividends.
If a customer is in the 15% federal income tax bracket and his main investment objective is current income, which of the following securities should the agent recommend? A) Investment-grade corporate bond. B) Zero-coupon bond. C) City of Milwaukee GO bond. D) U.S. government bond.
(A) Investment-grade corporate bond. The investor is in a low tax bracket, so the tax-exempt municipal bond is not a suitable investment. To maximize income, the best recommendation is the corporate bond which offers a higher yield than a government bond with a similar maturity.
Under the provisions of the USA, all of the following transactions are exempt EXCEPT A) transactions in preorganization certificates if no commission is paid, no subscriber makes any payment, and the number of subscribers does not exceed 10 B) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made C) transactions by executors D) liquidation of a security pledged as collateral for a loan
(B) a transaction pursuant to an offer directed by the issuer to no more than 10 individual investors in the state within a 12-month period, as long as no payment is made A transaction pursuant to an offer by an issuer to no more than 10 noninstitutional persons in the state would qualify as a private placement and would be exempt. However, unlike a preorganization certificate, the subscribers do pay for their purchases. All the other transactions are exempt. U4LO3
At his death, on January 1, 2017, Morris owned shares of ABC Corporation common stock, with a fair market value of $50 per share, which he had purchased in 2001 for $25 per share. If Morris's executor elected to value the estate by using the alternate valuation date, but then sold the shares through a broker-dealer on May 15, 2017, at $40 per share, what is the estate's basis per share for estate tax purposes? A) $50 B) $40 C) $125 D) $15
(B) $40 If the executor elects to value the decedent's estate by using the alternate valuation date, the value per share is the value at the date 6 months after death, unless the property is sold prior. In this case, the value per share is the FMV on the date of sale, $40 in this example.
A review of a corporation's financial statements reveals the following information: Net assets—$50 million Net revenues—$20 million Cost of goods sold—$14 million Depreciation—$1 million Interest—$1 million Long-term debt—$20 million Using the information, the gross margin for the year was A) 53% B) 30% C) 20% D) 25%
(B) 30% The gross margin, or margin of profit, is usually expressed as a percentage. It is the operating profit remaining after subtracting the cost of goods sold from the revenues (sales), divided by those revenues. In this question, the cost of goods sold is $14 million, and that number includes the depreciation. Subtracting $14 million from $20 million results in an operating profit of $6 million, which is 30% of the $20 million in revenues.
Which of the following would be considered a security under the provisions of the USA? A) Gold bullion B) A certificate of interest in a real estate limited partnership offering C) An endowment contract issued by a life insurance company licensed to do business in the state D) A fixed annuity contract issued by a life insurance company not authorized to do business in the state
(B) A certificate of interest in a real estate limited partnership offering It is always best to remember what is not a security than try to remember all of the things that are. All insurance contracts, other than variable ones, are not securities. Commodities, including precious metals, are not securities.
Your customer, age 60, is retired and living at home with a fully paid-off mortgage. Her portfolio contains growth stocks and high-quality bonds, and she is a longtime investor and comfortable with moderate risk. Her objective is a moderate level of current income to supplement her corporate pension plan distributions and the earnings from her IRA. Which of the following mutual funds is the most suitable for this customer? A) LMN Stock Index Fund B) ABC Equity Income Fund C) QRS Capital Appreciation Fund D) XYZ Biotechnology Fund
(B) ABC Equity Income Fund An equity fund that aims to achieve both current income and growth of income best suits the objectives and investment profile of the client. A stock index fund does not offer the current income that the client requires. The capital appreciation and biotechnology funds not only fail to provide income; they are too risky for this retired person
Securities issued by which of the following agencies offer direct government backing? A) Federal Intermediate Credit Bank B) Government National Mortgage Association C) Federal National Mortgage Association D) Federal Home Loan Mortgage Corporation (Freddie Mac)
(B) Government National Mortgage Association
An elderly widow with no independent income wishes to invest the proceeds from her recently deceased husband's life insurance. Which of the following would be the most suitable recommendation? A) Municipal bonds B) High-grade corporate bond mutual fund C) Oil and gas exploration program that you know is going to strike D) Call options
(B) High-grade corporate bond mutual fund This customer needs income. Of the answers provided, the bond fund would be the most suitable because it would provide income while maintaining relative safety. While the municipal bonds are probably safer, the benefits of their tax-free income would probably be lost on a client with no independent income.
A bond with a par value of $1,000 and a coupon rate of 6%, paid semiannually, is currently selling for $1,200. The bond is callable in 6 years at 103. In the computation of the bond's yield to call, which of the following would be a factor? A) 20 payment periods B) Interest payments of $30 C) Future value of $1,200 D) Present value of $1,030
(B) Interest payments of $30 The YTC computation involves knowing the amount of interest payments to be received, the length of time to the call, the current price, and the call price.
Jasper Whitlock is considered an affiliated person of the Tahor Clean Energy Mutual Fund. Under the Investment Company Act of 1940, Mr. Whitlock is prohibited from all of the following EXCEPT A) borrowing from the fund (money or property) B) being elected to the fund's board of directors C) selling anything to the fund, except shares of the fund D) buying anything from the fund, except shares of the fund
(B) being elected to the fund's board of directors There is no problem with an affiliated person being elected to the fund's board of directors. Under the act, as many as 60% of the board members may be affiliated persons.
A bond analyst reports that there is currently an inverted yield curve. That would mean A) bonds with intermediate maturities have the highest yields. B) the closer the bond is to its maturity date, the higher the yield. C) the closer the bond is to its maturity date, the lower the yield. D) the further the bond is from its maturity date, the higher the yield.
(B) the closer the bond is to its maturity date, the higher the yield. An inverted yield curve shows near-term maturities with higher yields than those of long-term maturities. Sometimes called a negative yield curve, it is usually an indication that interest rates are near a peak and the trend should soon reverse.
An investment adviser representative is looking for a suitable investment for a client. The IAR wishes to find something that will offer an attractive return commensurate with its systematic risk. The choices have been narrowed to Security C and Security L, and the selection will be based on alpha. C has a beta of 1.0 and earned 13%, while L has a beta of 0.8 and earned 10.1%. The alpha of Security L is A) +2.9 B) −0.3 C) −2.9 D) +0.3
(B) −0.3 Alpha is obtained by comparing how a security actually performed to the performance one would have expected based on its beta. A beta of 1.0 is used to indicate the expected volatility of the overall market. Because Security C has a beta of 1.0, its 13% return matches that of the "market." With a beta of 0.8, one would expect Security L to produce a lower return, but how much lower? Its return should be 80% of the "market" or, in this case, 80% of 13%, which computes to 10.4%. However, its actual return fell short of that by 0.3%, giving it a negative alpha of 0.3.
Which of the following stocks would probably be most appealing to a value investor? A) A stock that has relatively high volatility B) A stock with a relatively high price-to-book value ratio C) A stock with a relatively low P/E ratio D) A stock with a relatively low dividend yield
(C) A stock with a relatively low P/E ratio Value investors look for stocks in companies that have been overlooked or undervalued by other investors. They often focus on stocks with relatively low P/E ratios or price-to-book value ratios or on stocks with relatively high dividend yields compared to other stocks in the same industry.
Which of the following is an allowable early withdrawal from a traditional IRA without a tax penalty? A) A person withdraws funds from his IRA to pay for elective cosmetic surgery. B) A single parent supplements a home equity loan with funds from her IRA to pay for a second home. C) A wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence. D) A single parent withdraws funds from her IRA to pay for the education of a nephew.
(C) A wealthy individual withdraws $10,000 from his IRA to purchase his first principal residence. An individual withdrawing up to $10,000 from his IRA to purchase his first principal residence would have the 10% tax penalty waived; the wealth of the individual is not relevant. Although there are certain circumstances where funds may be withdrawn for medical expenses, elective cosmetic surgery does not qualify
In general, one would prefer to purchase a bond when its current market price is A) more than its present value B) the same as its present value C) less than its present value D) less than its future value
(C) less than its present value When a bond can be purchased for less than its present value, it has a positive net present value (NPV). For example, if the present value of a bond is $600 and it can be purchased for $565, it has an NPV of $35 and should be an attractive investment.
An individual is deciding between a flexible premium variable life contract and a scheduled premium variable life contract. If she is concerned about maintaining a minimum death benefit for estate liquidity needs, she should choose A) the flexible premium policy because earnings of the contract directly affect the face value of the policy and earnings can never be negative B) the scheduled premium policy because earnings do not affect the contract's face amount C) the scheduled premium policy because the contract is issued with a minimum guaranteed face amount D) the flexible premium policy because the contract's face amount cannot be less than a predetermined percentage of cash value
(C) the scheduled premium policy because the contract is issued with a minimum guaranteed face amount A scheduled premium variable life contract is issued with a guaranteed minimum death benefit. If the individual is concerned about having the minimum guarantee, you should recommend the scheduled contract.
One of your clients buys 300 shares of RIF common stock in March at $25 per share. Three months later, the client purchases 200 shares of the RIF at $30 per share. One month later, RIF pays a dividend of $1 per share. Then, 5 months later, another purchase of the RIF is made—this time 400 shares at $35 per share. If the client were to sell all the RIF at $30 per share, what is the client's capital gain or loss? A) $500 gain B) $400 gain C) No gain or loss D) $500 loss
(D) $500 loss The investor's total cost is $27,500 for the 900 shares purchased. The proceeds of the sale are $27,000 (900 × $30). That results in a capital loss of $500. The cash dividend has nothing to do with capital gain or loss.
f Wallace resigned his position as an agent with Rockland Securities to work for Gibraltar securities, which of the following parties must notify the Administrator of Wallace's move? A) Wallace and Rockland B) Rockland and Gibraltar C) Gibraltar and Wallace D) Rockland, Gibraltar, and Wallace
(D) Rockland, Gibraltar, and Wallace When an agent with one broker-dealer resigns and affiliates with another, both broker-dealers and the agent must notify the Administrator of the change in registration.
Registration statements for securities A) need not be filed with the Administrator if the securities are only sold in one state. B) expire on December 31 of each year and must be renewed if further sales are to be continued C) are effective for at least 2 years from their effective dates, or longer if the securities are still under distribution by the underwriters D) may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed
(D) may be amended after their effective dates as to the amount of securities issued, provided that underwriting fees and the initial offering price have not changed Securities registration statements remain effective for 1 year from their effective date, and do not expire on December 31 of each year. Registrations of agents, investment advisers, and broker-dealers expire on December 31 and need to be renewed.
