Series 66

A broker-dealer with an office in this state would be defined as an investment adviser if it charges which of these? Commissions for selling securities Commissions for selling securities while offering investment advice incidental to the sale of the securities A fee for selling investment research and additional fees in the form of commissions for the sale of securities Fees for investment research sold exclusively to institutions located in this state

A broker-dealer would be considered an investment adviser if it has a place of business in this state and if it charges a fee for selling investment research or any other form of investment advice, even to institutions. If a person is in the business of selling research for a fee, that person or firm meets the definition of an investment adviser. If a broker-dealer charges commissions for selling securities and offers investment advice incidental to the sale of the securities, the broker-dealer is not an investment adviser because it is not compensated for the research.

A money market mutual fund would be least likely to invest in which of the following assets? A) Repurchase agreements B) Jumbo CDs C) Newly issued ​U.S. Treasury notes D) Newly issued ​U.S. Treasury bills

C) Newly issued ​U.S. Treasury notes A money market mutual fund typically invests in money market instruments—those with a maturity date not exceeding 397 days. Treasury notes are issued with maturity dates of 2-10 years.

An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks? 1. Loss of principal can occur. 2. Price volatility of preferred stock is closely related to interest rates. 3. Preferred stock cannot be traded as readily as bonds. 4. If the stock is callable, the client's income can be suddenly lowered.

I, II, and IV

Bond Indenture and debenture

The indenture is the contract that sets forth the promises of the issuer of the bond and the rights of the lenders (the investors). A debenture is an unsecured long-term debt security (that has an indenture). One of the details in the indenture is the coupon (interest) rate that will be paid on the loan.

Which of the following has the least exposure to inflation risk? A) Fixed annuity B) Preferred stock C) Common stock D) Cash

The returns on common stock have historically outperformed inflation, making them less vulnerable to loss of purchasing power among the choices presented. Cash is a store of present purchasing power that inflation will erode. Fixed annuities have more exposure to inflation than common stock because their payments are fixed in nominal dollars. Preferred stock has the same exposure to inflation risk as do all fixed-income instruments.

An investor purchases a Treasury note and the confirmation shows a price of $102.25. Rounded to the nearest cent, the investor's cost, excluding commissions, is A) $1,020.25. B) $102.25. C) $1,027.81. D) $1,022.50.

Treasury notes are quoted in 32nds, where each 32nd equals $0.3125. The 102 in the quote equals $1,020 and the 25/32 is an additional $7.81, bringing the total to $1,027.81.

Which of the following statements about preemptive rights are true? 1. Preemptive rights give shareholders the right to purchase shares of new stock issues in direct proportion to the number of shares they already own. 2. Preemptive rights allow shareholders to buy as many new shares as they want at any time. 3. Preemptive rights allow shareholders to maintain their proportionate share of ownership in the corporation.

I and III

Which of the following statements regarding secondary trading in the private equity market is true? A) A trade in a secondary market may be motivated by the desire for increased access to future deals in the primary market. B) Secondary trading generally causes investors to have to wait over a longer time period to generate returns from their private equity investment. C) Secondary trading makes it more difficult for investors to make strategic shifts in the private equity allocations within their portfolios. D) Secondary markets are a form of distressed securities markets wherein limited partners sell securities with troubled performance histories.

One of the advantages to secondary trading is that making secondary purchases can give an investor exposure to a general partner. Showing investment support after the deal becomes public can create opportunities to gain access to future opportunities from that partner at the earlier, private stage. The other statements are all incorrect. Secondary trading may allow investors to get into a private equity deal at a later stage and, thus, realize positive returns more quickly. Secondary trading provides liquidity and makes it easier for investors to make strategic shifts in their portfolios. Secondary markets are often used by investors due to changing portfolio needs, rather than a change in the value of their private equity funds.

Among the differences between an investment in a limited partnership offering and in a corporation is that A) only corporations issue securities. B) only corporations are organized to run a business. C) limited partnership offerings do not pay dividends; corporations do. D) limited partners take a more active role in the management of the enterprise than do stockholders of a corporation.

One of the key features of a limited partnership investment is the concept of flow-through of operating results. If the business operates at a loss, the limited partner's share of that loss is treated as a passive loss on the investor's tax return. If the business is profitable, the limited partner's share of the profit is treated as passive income. Corporations issue securities, primarily stocks and bonds, while limited partnerships issue units representing the limited partner's interest in the venture. Those units are investment contracts and, as taught in Unit 4, LO4, securities. Limited partners who take an active role in the partnership lose their limited status.

Ana is a bond analyst who notices a wider credit spread between Treasury bonds and AAA corporate debt. From this, she would be most likely to infer A) the economy is weakening. B) corporate earnings are reaching record highs. C) interest rates on Treasury bonds are increasing. D) corporate bond prices are increasing.

The reason the spread gets wider is that investors are getting out of corporate bonds and getting into Treasuries. Why would they do that? Because, as the industry says, "It is an escape to quality." When there are economic clouds on the horizon, like a recession, you would much rather have your money invested in U.S. Treasuries because you know they will pay off. Higher corporate yields come from lower market prices.

When a bond is selling at a premium, a bond callable at par will A) have a current yield that is less than the YTM. B) have a YTM that is more than the coupon. C) have a YTC that is more than the coupon. D) have a YTC that is less than the YTM.

A bond selling at a premium will always have a yield that is lower than the coupon. The highest of the computed yields will be the current yield because, unlike the YTM or the YTC, the loss at payoff of the principal is not included. Comparing YTM and YTC, because in both cases the investor is getting back the same par value, the YTC is lower because the loss is occurring sooner (bonds are always called prior to maturity).

In order to qualify as a REIT, A) a mortgage REIT must have at least 75% of the assets in government-insured mortgages. B) at least 75% of the taxable income must be paid out as dividends to investors. C) at least 90% of the assets must be invested in real estate-related assets. D) at least 75% of the assets must be invested in real estate-related assets, cash, and U.S. government securities.

D

One of the most important definitions found in the Investment Company Act of 1940 is that of investment company. Included in that definition are all of the following except A) management investment companies. B) face-amount certificate companies. C) unit investment trusts. D) REITs.

Even though REITs (real estate investment trusts) share many of the same characteristics of investment companies, they are not included in the definition as found in the Investment Company Act of 1940.

Under the Investment Company Act of 1940, which of the following are considered management companies? Open-end companies Closed-end companies Unit investment trusts Face-amount certificate companies

I and II

Which of the following are characteristics of a money market mutual fund? Shares are offered without a sales charge. There is a redemption fee. All purchasers must receive a copy of the prospectus. The letter of intent must be signed within 16 months.

I and III

An individual purchases a $10,000 CD with a 5-year maturity from her local bank branch. In doing so, she is eliminating A) opportunity cost. B) purchasing power risk. C) interest rate risk. D) inflation risk.

Interest rate risk is the uncertainty that changes to market interest rates will cause the price of an investment to fluctuate in value. Because this type of bank CD is nonnegotiable (it doesn't trade), changes to interest rates do not impact the principal value of the investment—she can always redeem the CD for $10,000 (although there could be a penalty for early withdrawal). As a fixed-income investment, though, it does suffer from purchasing power risk, also known as inflation risk, and the investor has the opportunity cost of settling for a lower rate of return than could potentially be obtained with equities.

SOFR meaning

Secured Overnight Financing Rate

Which of the following securities are exempt from registration at the state level? Bonds issued by the American Red Cross U.S. Treasury bonds American Advisers Unit Investment Trust Common stock in AAA Commercial Bank, member of the FDIC

Securities offered by nonprofit organizations, the U.S. government, or investment companies registered under the Investment Company Act of 1940, as well as securities issued by commercial banks, are exempt from registration with the states under the Uniform Securities Act and the NSMIA.

A mutual fund's expense ratio is found by dividing its expenses by its

average annual net assets