Series 66 Final Exam #1

All of the following statements are contributions to 403(b) plans are true EXCEPT: A. employees may contribute by salary reduction B. Deferrals to a 401(k) plan reduce the amount that an employee can defer to a 403(b) plan C. an employee may contribute up to $19,000 by means of salary reduction for 2019 D. The employer decides the amount of the contribution to be made on behalf of the employee

403(b) plans are only available to non-profit organization employees, such as school and hospital employees. These are tax deferred annuity plans, where contributions made by employees are made by salary reduction and thus reduce the employee's taxable income for that year. If an employee is eligible to participate in both a 401(k) plan and a 403(b) plan, the $19,000 contribution limit in 2019 is applied to both of these combined. Thus, if $9,500 is contributed to a 401(k) plan, that person could only contribute $9,500 to a 403(b). The employee decides the amount to be contributed for the year, not the employer.

Hedge Funds are set up as: A. Management Companies B. Limited partnerships C. General Partnerships D. Unit investment trusts

A hedge fund is a private investment fund that uses sophisticated investment strategies and leverage to enhance returns but also takes on higher levels of risk. They are set up as limited partnerships, where the investor is a limited partner in the venture. They are not set up as general partnerships because general partners assume unlimited risk. They are not set up as management companies or unit trusts, because then they would be subject to regulation under the Investment Company Act of 1940.

The investment approach that analyzes the entire economic outlook to sort out the areas for higher growth potential, prior to deciding the specific investments to be made, is known as the: A. Resistance level B. Support level C. Top down approach D. Bottom up approach

A portfolio manager that uses a "top down" approach would look at the overall economy to identify those sectors that appear to have the best growth potential; and then would emphasize investments in that sector.

Active portfolio management is: A. Buying and holding the investments chosen by the Registered Investment Adviser B. Determining the securities to be bought or sold based on investment research performed by the Registered Investment Adviser C. Managing a portfolio to meet the performance of a benchmark portfolio D. Managing a portfolio to exceed the performance of a benchmark portfolio

Active portfolio management practitioners believe that they can outperform a benchmark portfolio (say an index fund) by finding undervalued securities in the marketplace. Passive portfolio managers, in contrast, believe that the market is "efficient" in pricing securities so that one cannot find "undervalued" securities. Passive portfolio managers simply buy index funds (which are managed to match the composition and performance of the chosen index).

An investment adviser set up an investment plan for a client which included enough life insurance held in an irrevocable trust to fund the remainder of the plan if the client were to die prematurely. The client dies before fulfilling the investment plan. Which of the following statements are TRUE? I. The life insurance proceeds are included in the client's taxable estate II. The life insurance proceeds are not included in the client's taxable estate III. The amount of insurance needed to fulfill the investment plan needs to be increased to cover any tax liability IV. The amount of insurance needed to fulfill the investment plan doesn't need to be increased to cover any tax liability

An "insurance approach" to a customer's capital needs analysis factors into the investment plan the fact that if the client dies prematurely, then the plan may not be fully funded and the client's beneficiaries may suffer as a result. In such a case, life insurance would be purchased in an amount to complete the funding of the plan if the client dies prematurely. If the insurance policy is owned by someone other than the decedent (e.g., owned by an irrevocable trust or by the spouse of the decedent), then the life insurance proceeds are not included in the decedent's gross estate. In such a case, the amount of insurance needed does not have to be increased to cover additional tax liability.

If an agent opens a joint account with a customer, the agent is permitted to: A. Place a trade in the account without having written power of attorney from the customer B. Withdraw funds from the account in the form of a check made payable to the agent's name C. Share in investment gains in the account but not in investment loss D. Effect transactions in the account only at the direction of the customer

An agent can open a joint account with a customer, as long as sharing is proportional to to capital contributed and sharing occurs in both gain and loss. In addition, the employing firm must approve of the arrangement. Regarding the operation of any joint account, any single owner can enter a trade (this would be either the customer or agent, in this case). There is no requirement for joint agreement to accept a trade. Any single owner of a joint account can demand that a check be drawn, but checks must be drawn to the full account name (this would be the names of both the agent and the customer, thus both would need to endorse the check in order to cash it).

Which statement is TRUE regarding the tax treatment of bond interest income received by a C Corporation versus that received by an S Corporation? A. In a C Corporation, the interest received is taxable at the corporate level and if a dividend is declared based on the receipt of the interest, then the dividend is taxable at the shareholder level B. In an S Corporation, the interest received is taxable at the corporate level and if a dividend is declared based on the receipt of the interest, then the dividend is taxable at the shareholder level C. In both a C Corporation and an S Corporation, income is only taxable at the shareholder level D. In both a C Corporation and an S Corporation, income is only taxable at the corporate level .

C Corporations are taxable entities. Net income is computed by the corporation and tax is paid at corporate income tax rates. If the C Corporation makes a distribution to its shareholders (a dividend), then the shareholders must include the dividend in their taxable income and pay personal income tax. Thus, corporate dividends are said to be "double taxed." In contrast, S Corporations are not taxable entities. Any income or loss "Flows through" onto the shareholder's tax return and is only taxed at the shareholder level.

CAPM is used to calculate the: A. Risk-free rate of return B. Expected Rate of return C. geometric rate of return D. Total rate of return

CAPM (the Capital Asset Pricing Model) is used to identify the most "efficient" investments" - meaning those that give the greatest return for the risk assumed. As long as the investment meets the minimum return dictated by the model, then it should be included in the portfolio. CAPM finds the "Expected return of an investment" using the formula: Expected Return of An Investment = Risk-Free Rate of Return + Risk Premium* (*Risk Premium is: Beta x (the excess of the Expected Market Return over the Risk-Free Rate of Return) In the formula, Beta is the measure of risk. Thus, High Beta stocks must give a higher rate of return to meet the formula's investment threshold.

Under IA-1092, which of the following are defined as "giving advice about securities?" A person who: I. Advises on the selection of an investment adviser II. Prepares a list of securities that may be purchased without making specific recommendations III. Prepares an asset allocation plan that specifies percentage investments in stocks, bonds, real estate and insurance IV. Charts the price movements of stocks and distributes them to subscribers.

Charting of the price movements of stock is not "investment advise." An investment adviser, under the Investment Advisers Act of 1940, is "a person who receives compensation for advising others about securities, or about the advisability of investing in securities." Under the SEC's Interpretations, a person who prepares a "list" of securities is making an implicit recommendation of these securities and is giving advice (if one of those assets included is securities). Furthermore, a person who recommends investment advisers is also one who gives advice! A person who prepares and distributes charts of stock price movements is not giving advice. Note, however, that if this information is used by the preparer to determine which securities to buy or sell, it would be considered to be "investment advice."

Which statements are TRUE? I. Distributions from a 529 plan to pay for higher education costs are not taxable II. Distributions from a 529 plan to pay for higher education costs are taxable III. Distributions from a Coverdell ESA to pay for Qualified education costs are not taxable IV. Distributions from a Coverdell ESA to pay for qualified education costs are taxable.

Contributions to both Coverdell ESAs and 529 plans are not tax deductible. Earnings build tax-deferred in both. Distributions from both, when used to pay for appropriate educational expenses, are not taxable

Which statements are TRUE about protecting gains on stock positions? I. A long call can be used to protect a gain on an appreciated long stock position II. A long call can be used to protect a gain on an appreciated short position III. A long put can be used to protect a gain on an appreciated long position IV. A long put can be used to protect a gain on an appreciated short position.

If a customer has a gain on a long stock position that he wishes to protect from a subsequent market fall, the only way to do this is to buy a put. If a put is purchased with a strike price at the current market price, then the customer can exercise the put in a falling market and sell the stock at a fixed price, closing out the long position at a profit. If a customer has a gain on a short stock position that he wishes to protect from a subsequent market rise, the only way to do this is to buy a call. If a call is purchased with a strike price at the current market price, then the customer can exercise the call in a rising market and buy the stock at that fixed price, closing out the short position at a profit.

If a representative that transacts business in a State terminates employment with an investment adviser: A. Notice must be given to the Administrator by the Representative only B. Notice must be given to the Administrator by the Investment Adviser only C. Notice must be given to the Administrator by both the investment adviser and the representative D. No notice is required to be given to the Administrator

If a representative of an investment adviser terminates employment, the adviser must notify the Administrator promptly. Notice that this is different than the requirement for a broker-dealer, where both the terminated agent and the broker-dealer must notify the Administrator. Also note that this is different than the requirement for a federal covered adviser, where the investment adviser representative must notify the State Administrator

An employer would set up a defined benefit plan for 15 or more employees in order to: A. Diversity plan assets B. Maximize plan participation C. Permit employees to choose specific investments D. Shift investment risk to employees

In a defined benefit (DB) plan, every employee that is full time, age 21 with at least 1 year of service, is included at the employer's expense. In a defined contribution (DC) plan, most of which are salary reduction plans, the employee contributes a portion of his or her salary and this amount is deductible to the employee (for example, a 401(k) plan is a salary reduction DC plan). In a DC plan, the employee can choose to participate, or may choose not to participate, each year. Thus, DB plans maximize employee participation, since all eligible employees are included in the plan, at the employer's expense. One could argue that Choice A is also good, since employer managed DB plans tend to be broadly diversified, whereas salary reduction DC plan investments are chosen by the employee who may, or may not, fully diversify his or her portfolio. However, Choice B is better. Because salary reduction DC plans allow employees to make investment decisions, these plans shift investment risk to the employee. In contrast, DB plans keep investment risk with the employer, since the plan must pay the "defined benefit" at retirement, regardless of the performance of the portfolio funding the plan.

An IAR has a customer with $1 million under management. The customer is experiencing a cash flow shortfall but does not want to liquidate part of the portfolio because it is performing so well. The client calls the IAR and asks for a short-term loan of $25,000. What should the IAR do? A. The IAR should lend the customer the money because the client has sufficient assets under management to ensure that the loan will be repaid B. The IAR should arrange for the customer to rehupithecate a sufficient amount of securities to a bank to secure the loan. C. The IAR should Co-Sign a loan with the client at a bank D. The IAR should refuse the client's request.

Investment adviser representatives cannot lend money to customers - no exceptions. Note that if the employing advisory firm is a unit of a bank or brokerage firm, there is nothing stopping the bank or brokerage firm from lending money to the customer, as long as the terms and conditions of the loan are no different than that of anyone else

Which of the following are prohibited practices under NASAA guidelines? I. An investment adviser lending money to a customer II. An investment adviser lending money to a customer that is a relative III. An investment adviser lending money to a customer through a bank affiliate IV. A broker-dealer lending money to a customer where securities are collateral under Regulation-T

Loans to a customer by an investment adviser or broker-dealer is a prohibited practice, unless the provisions of Regulation T are met. Since nothing is said about Regulation T, it must be assumed that Choice I is prohibited. In addition, NASAA takes the stance that lending to customers that are relatives is also prohibited. Loans made by an affiliate that is a bank are OK, since the affiliate must comply with the banking laws. Similarly, lending a customer money where securities are collateral is in compliance with Regulation T is fine as well .

Under NASAA rules, Investment Advisers must retain copies of all advertising for: A. 3 years in an easily accessible place with the first year's records kept in the principal office of the adviser B. 3 years in an easily accessible place with the first 2 years' records kept in the principal office of the adviser C. 5 years in an easily accessible place with the first year's records kept in the principal office of the adviser D. 5 years in an easily accessible place with the first 2 years' records kept in the principal office of the adviser

NASAA requires all IA records (with the exception of permanent records covered following) to be retained for 5 years in an easily accessible place with the first 2 years' records kept in the principal office of the adviser. However, certain "permanent" records must be kept for the life of the firm - these include the partnership agreement if the RIA is a partnership; articles of incorporation if the RIA is a corporation; and any minutes to partnership or Board of Directors meetings. These must be retained at the principal office of the adviser and be preserved for at least 3 years after termination of the enterprise

A customer invests $2,000 in an investment that is expected to generate $100 in the first year, $200 in the second year, and $300 in the third year at which time the original $2,000 investment will be returned. What is the Return on Investment? A. 10% B. 20% C. 30% D. 60%

Return on Investment is a simple measure that takes an initial investment and shows how well it performs. The annual cash flows generated by the investment are averaged, and dividend by the original investment amount. In this example, $2000 is invested. The investment is expected to generate cash flow of $100 in the first year, $200 in the second year, and $300 in the third year, at which point the $2000 original investment will be returned. The average annual cash flow is $100+$200+$300 = $600 / 3 years = $200 per year. Since $2,000 was invested, the ROI is $200 / $2000 = 10%

A portfolio manager generates a 10% rate of return on a "small cap" portfolio, compared to an 8% rate of return on the benchmark portfolio and a 6% rate of return on the Standard and Poor's 500 index over the same period. The passive rate of return on the portfolio is: A. 2% B. 6% C. 8% D. 10%

The "passive" rate of return is that achieved by investing in an appropriate index fund. Here, the benchmark index has an 8% rate of return - this is the return that any passive investor could achieve by investing in an index fund that mimics that index

The Administrator is empowered to revoke the registration of an investment adviser if the investment adviser has: I. Ceased operating as a business in that State II. Been judged to be mentally incompetent III. Relocated, and has not notified the Administrator of the new business location

The Administrator is empowered to revoke the registration of an investment adviser if the Administrator determines that the firm is no longer in business; if the adviser is judged in a court of law to be mentally incompetent; or if the Administrator cannot find the adviser after a reasonable search.

An investment adviser representative obtains a list of all 263 members of the local Kiwanis Club and sends a coupon to 52 leads on the list, along with a letter, offering 20% discount on services to new clients that are club members. Aside from retaining a copy of the letter, under the provisions of the Investment Advisers Act of 1940, the investments Adviser MUST keep: A. A memorandum describing the list and the source of the list B. a record of the names and addresses of the persons to whom the offer was made C. The worksheets that estimate the net worth of leads and the standards used to determine which leads were to receive the offer D. A record of the names and addresses of all of the Kiwanis Club members on the list

The Investment Advisers Act of 1940, under Rule 204-2 on Record Keeping, requires that if an investment adviser sends any notice, circular or other advertisement to more than 10 persons, the adviser is not required to keep a record of the names and addresses of the persons to whim it was sent. But if the notice is distributed to persons named on any list, the adviser must "retain, along with a copy of such notice, a memorandum describing the list and the source thereof."

An adviser that Takes custody must file a copy of its surprise audit results with the State Administrator within: A. 60 days of year-end B. 60 days of completion of examination C. 120 days of year-end D. 120 days of completion of the examination

The NASAA custody rule requires that each adviser that takes custody be audited on a "surprise" basis annually, so the actual date of the audit is only known to the CPA. After the CPA shows up for the audit and completes the examination, a copy of the auditor's report and financial statements must be filed with the Administrator within 120 days of completion

The Prudent Investor Act requires that fiduciaries manage the assets of their beneficiaries based upon: A. Legal list requirements B. Efficient market theory C. Modern portfolio theory D. Value investing theory

The Prudent Investor Act, adopted in most States, is the modernization of the "Prudent investor rule" restricting the investment authority of fiduciaries. Instead of setting forth a list of "approved" securities (a "legal list") for investment, the Prudent Investor Act allows fiduciaries to use modern portfolio theory for investment decision making. Thus, instead of just investing in securities that have minimal risk, the fiduciary can apply risk-return analysis to choose the "best" investments for the level of risk assumed. Investment performance is not measured on each individual investment, but rather by looking at the overall portfolio return.

A hedge fund wishes to make a seed capital investment in a start-up company under Rule 504 of Regulation D. The maximum permitted investment by the hedge fund is: A. $5,000,000 B. $10,000,000 C. $20,000,000 D. $50,000,000

The Regulation D Private Placement exemption consists of Rules 501-506. Rules 501-503 are definitional rules, basically explaining who is an accredited investor and who is a "sophisticated" investor. The actual permitted offerings are detailed under rules 504-506 . Rule 504 is for small offerings, and is pretty much obsolete (but still tested!). Rule 505 has been rescinded. Rule 506 is the one everyone uses and can be used to raise any dollar amount. Rule 504: Covers offerings of up to $5,000,000. For such very small offerings, the rule does not specify required investor disclosures, and does not place any limit on the number of investors. Also, there is no audit requirement for the issuer's financial statements. While there is no Federal registration required, the State(s) where the issue is offered can still require State registration. Rule 505: Rescinded. Rule 506: Covers offerings of more than $5,000,000: This is the private placement rule used by pretty much everyone. The rule requires detailed disclosure to investors, similar to that required in a prospectus. The offer can only be made to a maximum of 35 non-accredited investors; and to an unlimited number of accredited investors. However, the States cannot require registration at the State level - a big financial benefit.

Surety Bonds may be required by the State Administrator for the licensing of: I. Agents II. Broker-Dealers III. Investment Advisers IV. Investment Adviser Representatives

The State Administrator can require surety bond coverage for broker-dealers, their agents and investment advisers that wish to register. Note that there is no surety bond requirement for investment adviser representative registration.

A customer invests $500,000 and opens a discretionary account with an agent specifying an investment objective of current income. The agent decides that it is best to diversify and spreads the monies between an income fund and a growth fund/ Which statement is TRUE? A. The agent acted prudently as it is best to diversify a portfolio to reduce risk B. The agent acted prudently as long as the manager approves of the transaction C. The agent acted inappropriately and fraudulently D. The agent's actions are acceptable if there is a profit on the investment made

The customer specified an investment objective of current income, not growth and income. If the agent splits the funds between income and growth, the action is inappropriate and fraudulent

The maximum amount that can be given to a child in a 529 plan is: A. The annual gift tax exclusion amount B. 5 Times the annual gift tax exclusion amount C. Determined by the limitations established by the State D. Unlimited

The maximum amount that can be contributed to a 529 plan (state sponsored college savings plan) is established by each State and the dollar limits can be quite high (around $300,000 for most States, since college is expensive).

Limited partnership shares are sold to a bank. Under the provisions of the Uniform Securities Act of 1956, as amended, this transaction is subject to : I. Advertising filing requirements with the Administrator II. Anti-fraud provisions as promulgated in the Act III. Payment of filing fees with the State

The sale of securities to a financial institution is an "exempt transaction" under the Uniform Securities Act - because the general public is not involved. As an exempt transaction, the securities involved are not required to be registered in the State (however the person selling them must still be registered in the State) Both exempt securities and exempt transactions are specifically excluded from the Act's advertising filing requirements Finally, filing fees are only required for securities registrations in the State (primary market); not for secondary market transactions that occur in the State

A stock is quoted as follows: Bid Ask 18.95 19.00 10x10 The spread for a round turn trade is: I. $.05 II. $5 III. $50 IV. $500

The size of the quote is "10x10" = 10 round lots of 100 shares = 1,000 shares both bid and offered. If the dealer sells 1,000 shares at $19.00 and buys 1,000 shares at $18.95 (a round turn trade), the dealer makes a spread of $0.05 on 1,000 shares = $50

A portfolio invested in index funds that is rebalanced annually is considered to be: A. Active/Active B. Passive/Passive C. Active/Passive D. Passive/Active

The terms "active" and "passive" are most often used when looking at the management of a stock portfolio. An actively managed portfolio has its investments selected by a professional manager; whereas a passive portfolio has a composition that is matched to a market index. However, "active" and "Passive" can also be used to refer to the frequency of portfolio rebalancing. A portfolio that is rebalanced once annually is said to be "passive;" a portfolio that is rebalanced more frequently or as market conditions move is said to be "active." These terms can be combined to describe both the frequency of rebalancing (active or passive) and the underlying investment style (active or passive). Therefore, a portfolio that is: *Rebalanced monthly and actively managed is called: "Active/Active" *Rebalanced annually and actively managed is called: "Passive/Active" *Rebalanced monthly and invested in an index fund is called: "active/passive;" * Rebalnced annually and invested in an index fund is called: "passive/passive

An agent is soliciting customer orders for a new non-exempt issue that has been registered. The top officers of this company were previously associated with XYZ Company, a highly successful firm in the same industry. That firm's success was attributed to these individuals. Under the Uniform Securities Act, which statements by the agent are permitted? I. "The top officers of this new firm were previously at XYZ Company." II. "These top officers were responsible for the rapid growth of XYZ Company over the past 3 years" III. " The top officers are experts in the field who made XYZ Company, their previous firm, into a gold mine."

The use of flamboyant or exaggerated language to induce a sale is prohibited. It is perfectly acceptable to state that the officers were associated with the other company and were responsible for its growth, as long as the statements are true. SO I & II are fine

An investment adviser has an institutional customer that wishes to sell 5,000 shares of ABC Stock. The adviser believes that ABC Stock would be a suitable investment for another institutional client. The adviser wishes to arrange a trade between the 2 institutions at the current market price, for which the adviser would charge a token fee. Because there will be no brokerage commissions, the institutional customers will get a better execution price. Which statement is TRUE about this? A. This is permitted only if the adviser discloses that it is acting as a broker, discloses its fee and gets written consent from each client B. This is not permitted because of the conflict of interest that exists if an investment adviser that recommends a transaction as a fiduciary then acts as the broker, executing that transaction for a fee C. This is permitted because both the customers are getting a better execution than if they went to the market for a fill D. This is not permitted because a fee is being charged

This is an agency cross transaction. If an investment adviser wishes to effect an agency cross transaction for a customer, it cannot have recommended the transaction to both the buyer and the seller - which is the case here. To effect the transaction, the adviser must obtain written consent of the customer; must disclose the remuneration that will be received from the transaction; and must send the customer an annual statement identifying the total number of agency cross transactions effected by the adviser and the remuneration received.

Which order or a customer's account can be accepted by an agent of a broker-dealer A. The order is placed by the customer's attorney, who assures the agent that the customer has given him trading authority B. The order is placed by the customer's accountant, who recommended the security to the customer C. The order is placed by the customer's attorney in an account where the customer is deceased, and the attorney provides a written power of attorney signed by the deceased customer D. The order is placed by the customer's attorney in an account where the customer is deceased, and the attorney provides a written copy of the will appointing the attorney as executor over the estate

To accept trading orders in a customer account from anyone other than the customer, there must be a written trading authorization signed by the customer. In choices A and B, there is no written authorization, so orders cannot be take. Choice C is more subtle - the written power of attorney from the customer becomes void if the customer dies (it dies with the customer), so the attorney could not place the order. In Choice D, the written copy of the will signed by the customer is witnessed, where the attorney is appointed as executor, is the written authorization for that attorney to trade the deceased's account.

A customer with $30,000 to invest places $10,000 in Investment A; $10,000 in Investment B; and $10,000 in Investment C. During the course of 1 year, Investment A pays $200 in dividends; Investment B pays $600 in dividends; and Investment C pays no dividends. At the end of the year, Investment A is down 20%; Investment B is up 5%; and Investment C is up 7%. The Total Return on Investment is: A. 0% B. 3% C. 5% D. 6%

Total Return consists of both dividends and asset appreciation. Total dividends collected were +$800. Investment A depreciated by $2,000, Investment B appreciated by $500, and Investment C appreciated by $700, for a net loss of $800 on the 3 investments of $10,000 each. The $800 of dividends received were exactly offset by $800 of capital losses. Thus, Total Return is "0" on $30,000 invested.

A broker-dealer headquartered in State X has an agent that is located in State Y. The agent accompanies a customer to State Z on a golf outing, where the agent makes an offer of securities to the customer. Which State(s) has (have) jurisdiction over the offer? A. State X only B. State Y only C. State Z only D. States X, Y, and Z

Under the Uniform State Law, the Administrator has jurisdiction over an offer of securities or advisory services if an offer: * Originates in the Administrator's State * Is directed into the Administrator's State;or * Is accepted in the Administrator's State Basically the idea behind the State law is that there must be a "presence" in the State for that State Administrator to have jurisdiction. In this scenario, the "vacationing" exclusion does not apply because it ONLY applies when an agent registered in another State makes an offer into a State where the customer is vacationing. It does NOT apply if both the agent and the customer are both in another State, where the offer is made. Both the agent and the customer are vacationing in State Z, where the offer of securities is made. Therefore, State Z has jurisdiction. The agent did not make an offer of securities from State Y and the offer was not accepted in State Y, so State Y does not have jurisdiction in this instance. The fact that the agent's broker-dealer is headquartered in State X has no bearing on the Administrator's Jurisdiction

Which of the following is NOT an advantage of owning a variable annuity? A. Separate account accumulation units allow for participation in the equity markets B. The costs and fees associated with owning the contract are lower than making direct investments in mutual funds C. The separate account growth is tax-deferred until distributions commence. D. There are no limits on the amount that an individual can invest

Variable annuity contracts have 2 layers of fees. One is the cost of running the mutual fund held in the separate account. The second is the insurance company's mortality and expense fees that are added to the contract. It is not uncommon for the total of these fees to exceed 2% per year. The high annual cost of the contract is the disadvantage of owning a variable annuity. The other 3 choices are advantages. Any individual can contribute to a variable annuity - there are no income limits. The separate account can be invested in an underlying equity mutual fund, allowing for participation in the equity markets. And reinvested dividends and capital gains grow tax deferred - tax is due only when distributions commence.

Which form of efficient market theory would be used by those who believe that future prices cannot be predicted by past performance? A. Weak-Form B. Semi-Weak Form C. Semi-Strong Form D. Strong Form

Weak Form: Price reflects all past publicly available information, but that this has no validity for predicting future price movements. It essentially states that price movements are random. This implies that technical analysis is basically useless to improve returns, but fundamental analysis still has potential value. Semi-Strong Form: Prices respond rapidly to publicly available information, so that no potential gains can be made by trading on that information. This implies that anyone with inside information has an inherent advantage and can profit by trading on it. Strong Form: Pries respond rapidly to both publicly available and private information, so that no one can profit by trading this information