Series 66

a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants

A basic difference between a Section 457 plan established on behalf of a governmental entity and one established by a private tax-exempt organization is that

Monte Carlo simulation (MCS).

A computerized mathematical technique that is often used by investment advisers to project future financial outcomes, such as the probability of a client's funds lasting through retirement, is called

high frequency trading. HFT uses algorithms to maximize speed. In this style of trading, computers take advantage of minute discrepancies in price.

A discussion of algorithmic trading is probably referring to

Sharing of commissions by agents of two unrelated firms is prohibited. Unless an exception is granted by the Administrator, it is prohibited for an agent to share commissions with any person not also registered as an agent for the same or affiliated broker-dealer.

Agent A with Firm Y and Agent B with Firm Z conduct a joint seminar. They agree to share the commissions on any resulting business. Under the Uniform Securities Act, which of the following statements regarding sharing commissions is CORRECT?

works of art Gems, collectibles, and works of art are ineligible investments for an IRA. Covered call writing is allowed, but speculative options strategies are not.

All of the following investments are eligible for a traditional IRA EXCEPT

when informed by the investment adviser that the representative's registration is effective

An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients

Preorganization certificate Certificate of deposit for a security Oil and gas drilling program Cattle feeding program The best strategy is to memorize the short list of things that are not securities rather than try to remember all of the things that are.

An interest in which of the following is a security under the Uniform Securities Act?

Determining which securities to purchase for the client's investment portfolio Before making any investment recommendations, the IAR must obtain basic information about the client. Only after evaluating the needs and objectives can the IAR begin to create an investment plan.

An investment adviser is conducting the initial meeting with a new advisory client. Which of the following is least necessary when gathering information necessary to fulfill the engagement?

8% Treasury bond maturing in 2036 Generally speaking, those bonds with the highest coupons have the shortest duration, therefore, are the least subject to interest rate risk. STRIPS, which are zero-coupon bonds, are the most volatile because they have the longest duration.

An investment adviser representative has a client who prefers the safety of securities guaranteed by the U.S. Government, yet is concerned about volatility due to uncertainties in the future direction of interest rates. Which of the following recommendations would best address these concerns?

9% 8% (the return on the market is a beta of 1.0) minus the risk-free rate of 6%, or 2%. Then, multiply that by the beta of this stock (1.5) to arrive at 3%. That is, the stock should return 3% over the risk-free rate of 6%, or 9%. Inflation rate is only important if we are looking for the real (inflation-adjusted) return, not the expected return.

An investment adviser representative is evaluating DEF stock to see if it is a good fit for a client's portfolio. Using the security market line (SML), what is the expected return for DEF when the return on the market is 8%, the 91-day Treasury bill is yielding 6%, DEF's beta is 1.50, and the inflation rate, as measured by the CPI, is 4%?

interest rates increased causing the bond price to decrease

An investor buys a 5% AA-rated corporate bond at par. After 1 year, if his total return on the position is 4%, the most likely explanation for this is

$1,026.56. Treasury notes are quoted in 32nds where each 32nd equals $.3125. The 102 in the quote equals $1,020 and the 21/32 is an additional $6.56 bringing the total to $1,026.56.

An investor purchases a Treasury note and the confirmation shows a price of $102.21. Rounded to the nearest cent, the investor's cost, excluding commissions, is

is excluded from the definition of agent under the Uniform Securities Act.

Anyone who represents an issuer in effecting transactions between the underwriter and the issuer:

is any person who, for compensation, engages in the business of advising others as to the value of securities

As defined in the Uniform Securities Act, an investment adviser

Beta is a measure of relative systematic risk for stock or portfolio returns.

Beta

$9,000 is taxable; $6,000 is nontaxable. the first dollars withdrawn are all taxable until the amount of withdrawal meets or exceeds the growth in the account. Because Bob is over 59½, there is no 10% tax penalty on his withdrawals.

Bob, age 60, has invested $17,000 in his nonqualified variable annuity over the years. The total value has reached $26,000. He wishes to withdraw $15,000 to send his son to college. What is his tax consequence on the withdrawal?

7%, the net present value (NPV) of Bond Y will exceed the NPV of Bond X.

Bond X has an internal rate of return (IRR) of 7%. Bond Y has an IRR of 9%. Both bonds pay interest semiannually. If the required rate of return is

the feasible set the efficient set the capital asset pricing model

Each of the following terms is commonly found in modern portfolio theory

The fund may use the 12b-1 fee to pay for mailing sales literature. The fund's prospectus is required to disclose the fee.

If XYZ Mutual Fund has an expense ratio of 1.85% that includes a 12b-1 fee of 0.30%, which of the following statements are TRUE?

Sell the security.

If a client who holds a convertible preferred stock believes the company may go bankrupt within the next 3 years, what would you advise the client to do with the stock?

tax preference items.

Investors who are subject to the alternative minimum tax (AMT) will lose the tax benefits normally associated with

greater flexibility in the type of property that may be transferred The property that may be transferred into an UGMA account is generally limited to cash and securities, while in an UTMA account, almost any kind of property—real or personal, tangible or intangible—can be transferred to the custodian.

It is generally agreed that one of the primary benefits offered by UTMA over UGMA is

to bring the portfolio mix back to the original asset allocation percentages

One feature employed by portfolio managers using a passive style is rebalancing. The purpose of this technique is

they are not registered as investment companies

One of the exemptions from registration under state and federal law applies to investment advisers to private funds. One characteristic of all private funds is that

markets operate efficiently and stock prices instantly reflect all available information.

Proponents of the efficient market hypothesis believe that

a 401(k) and a 403(b)

The contribution limit has to be aggregated when participating in both

the chief compliance officer.

The final responsibility for ensuring that investment adviser representatives are adequately supervised is that of

Public and private The strong form EMH assumes that stock prices fully reflect all information from public and private (inside) sources. That is why proponents of EMH engage in passive strategies, such as using index funds and ETFs.

The strong-form efficient market hypothesis (EMH) asserts that stock prices fully reflect which of the following types of information?

a leveraged ETF. ETFs are publicly traded

The term "private fund", as defined under federal and state law, would not apply to

US government securities Municipal securities Canadain Banks Promissory notes and investment contracts NOT: insurance co and federal savings and loans

The term agent does not include an individual who represents an issuer in effecting transactions such as:

Primary offering of a closed-end investment company registered under the Investment Company Act of 1940 Sale of shares of an open-end investment company whose first public offering was 23 years ago

To be in compliance with the Securities Act of 1933, the sale of which of the following securities would require delivery of a prospectus?

only with prior notification to the president of the United States

Under the Securities Exchange Act of 1934, the SEC may suspend all trading on an exchange

None (can be done anytime)

Under the USA, how much notice must be given to an adviser before examining the adviser's books and records?

standard deviation lowest is least volatile and highest is most volatile

When the question is dealing with volatility, look for the

future expected dividends are discounted to compute the present value of the stock

When using the dividend discount model,

Behavioral finance

Which economic concept attempts to explain why investors behave irrationally?

Net present value (NPV) Internal rate of return (IRR)

Which of the following methods of calculating investment returns are discounted cash flow (DCF) techniques?

is registered under section 203 of the Investment Advisers Act of 1940

Which of the following would meet the USA's definition of federal covered adviser? An investment adviser who

adjusted gross income

gross income - adjustments =

after proper written disclosure, an adviser recommends the transaction to both the seller and the buyer

ll of the following activities comply with the requirements for agency cross transactions EXCEPT

tax liability on long term capital gains

net long term gain x .15 =

25 years Decumulation is the opposite of accumulation. Instead of focusing on how to increase the assets, the focus is on how to make sure they last as long as required. Just how long is that time horizon? Until the death of the second party.

A couple, ages 63 and 66, are long-time clients of your firm and are in good health. They plan to retire from gainful employment in 4 years and wish to discuss decumulation strategies. One of the important factors to consider is the time horizon for this couple. Which of the following would be the best estimate to use?

21.75% $10 per share short-term capital gain ($50 − $40) plus the $2 qualifying dividend (quarterly dividend of $0.50 × 4). Short-term gains are taxed at the same rate as ordinary income, and qualifying dividends are taxed at a maximum rate of 15% (except for very high income earners—not tested). The tax on the $10 gain is $3 ($10 × 30%), and the tax on the $2 qualifying dividend is $0.30 ($2 × 15%). $12 total minus the $3.30 in taxes, or $8.70

A customer purchases stock for $40 per share and holds it for 1 year, selling it for $50 per share exactly 12 months after the date of purchase. Four quarterly qualifying dividends of $.50 were paid during the year. If the customer's tax bracket is 30%, what is the after-tax rate of return?

dividends must be paid before any distribution to common stockholders a fixed rate of return that is likely higher than that for a debt security offered by the same issuer

Among the advantages of including preferred stock in an investor's portfolio are

the person appointed as administrator of the estate Dying intestate means that there is no valid will. In that case, the state will appoint someone as administrator of the estate

During a trip to visit grandchildren, one of your clients suffers a massive heart attack and dies, intestate. Directions for handling the account could only come from

a long-term time horizon

Relatively high portfolio volatility is most tolerable to investors with

default risk. Default risk primarily applies when holding debt securities. A portfolio heavily concentrated in equity securities is going to have market (systematic) risk. Business risk is the risk that a company's managerial decisions or even factors out of its control, such as expiration of a patent, may negatively affect the value of an equity investment.

Steve and Haley, ages 48 and 45, respectively, invest in large-cap stocks, international stock mutual funds, and real estate. They consider themselves moderately aggressive investors. Their investment portfolio is subject to all of the following risks except

30 Registration becomes effective 30 days after the application is filed unless the Administrator begins a proceeding or issues a stop order before that time.

Under the Uniform Securities Act, if the Administrator does not deny an application for registration and no disciplinary proceeding is underway in regard to it, how many days after filing the application as an investment adviser representative does registration generally become effective?

Selecting a random set of stocks for a portfolio The efficient market hypothesis states that an investor cannot consistently outperform the market. Selecting a random set of stocks is consistent with this theory.

Which investment strategy is consistent with a belief in the efficient market hypothesis?

A trustee of a corporation in bankruptcy liquidates securities to satisfy debt holders. An offer of a securities investment is directed to 10 individuals in the state during a 12month consecutive period.

Which of the following transactions are exempt from registration under the Uniform Securities Act?

Both Joan and the firm

she resigns from the broker-dealer and accepts a position as an economics professor at a state university. Which, if any party, is required to notify the state securities Administrator of this change?

is excluded from the definition of investment adviser under federal law and is, therefore, exempt from state registration requirements

A person who renders investment advice solely with respect to securities issued by the U.S. government

exempt transactions exchange listed securities non-profit securities employee benefit plan issued investment contracts

An administrator may by order revoke/deny certain exemptions:

No approvals are required.

If a federal covered investment adviser wishes to sell his business to another advisory firm, which of the following statements is TRUE?

Tangible assets Tangible assets, such as real estate, precious metals, and other commodities, tend to keep pace with inflation. Fixed dollar investments do not.

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

a perfectly acceptable market arbitrage

If an investor bought stock on one exchange and sold it at a higher price on another exchange, this practice constitutes

With the original application only

Under the Uniform Securities Act, when must a consent to service of process be filed with the Administrator?

as a contra party to the trade In every trade, there are 2 principals—the buyer and the seller. If the broker-dealer is one of the principals (either buyer or seller), the firm is the contra party to the other side of the trade.

When a broker-dealer acts in the capacity of a principal in a trade, the firm has acted

401(k) plans Defined benefit plans

Which of the following qualified retirement plans offer tax advantages to both the employer and the employee?

If there is an antidilution clause, her conversion privilege will permit her to acquire 20% more shares than before the stock dividend. Most convertible securities are sold with antidilutive clauses that provide for an adjustment in the number of shares based on stock splits or stock dividends.

A client of yours owns some convertible preferred stock. She notices an article in the business section of her local newspaper that reports the company is going to pay a 20% stock dividend on their common stock. She wants to know how this will affect her?

ETNs The question describes an individual with a low risk tolerance, so the Treasury bonds and CDs would certainly be considered appropriate. Because ETNs are a debt security backed solely by a single issuer while an ETF based on a specific index of debt securities represents a large group of issuers, they are only suitable for those who can understand and take the risks involved.

A client with limited assets seeking additional income in retirement would probably find which of the following investment choices to be the least suitable?

Nonfinancial

A new client indicates a desire to avoid investing in mid-cap stocks because of large losses suffered several years ago. What type of consideration would this be?

the disclosure brochure must be signed by an officer or a general partner of the firm When an investment adviser's business structure is a general partner (as is the case with PAP), the brochure must be signed by a general partner. If the firm is a corporation, then an officer's signature is acceptable.

All of the following statements regarding the investment adviser brochure rule of the Uniform Securities Act are true except

current yield and total return.

An agent making a sales presentation to a client about a mutual fund's historical returns is required to explain to the client the difference between the fund's

an agent of a broker-dealer Registration statements may be filed by a broker-dealer, a person on whose behalf the offering is made (e.g., an offering made by a large shareholder), or more commonly, the issuer.

An application to register securities may be filed under the USA by any of these EXCEPT

Bank-insured CDs Preservation of capital is almost always a sign that the client needs CDs. Sure, the U.S. government bonds will pay back the principal when due, but with long-term maturities, there will be plenty of interest rate risk that could affect the client if he needs the capital prior to maturity.

An elderly client explains to you that he is risk averse and wishes to find an investment that will provide him with preservation of capital. Which of the following might you recommend?

Dividend yield of 0.3% Growth investors usually seek stocks with high-growth expectations, reflected by a higher-than-normal P/E ratio, typically 20:1 or higher, and a low dividend yield, usually caused by a low dividend payout ratio

Based on the following information, which stock is most likely to appeal to a growth investor?

only static content needs preapproval only interactive content can be commented on by others Interactive content can be reused by others and can be commented on by others.

Differences between static and interactive content on social media include

A clerk employed by a state-registered investment advisory firm Clerical and ministerial personnel are specifically excluded from the definition of investment adviser representative. Specifically included in the definition are directors, officers, partners, associates, and employees of state-registered advisers who carry out investment advisory or solicitation functions or who supervise those functions.

Under the Uniform Securities Act, which of the following is NOT an investment adviser representative?

the property is divided into as many equal shares as there are surviving children of the designated ancestor and deceased children who left surviving descendants

When a will calls for property to be distributed per stirpes, it means that

required by Appendix 1 of Form ADV, Part 2A. The required disclosure statement for wrap fee programs must contain at least the information in Appendix 1 of Form ADV, Part 2A.

When opening a new wrap account, PPR must provide the client with a written disclosure statement containing at least the information

tax liability on short term capital gains

net short term gain x investors marginal tax rate =

the Securities Exchange Act of 1934

Margin regulations are determined by the Board of Governors of the Federal Reserve System. The authority for them to do so is found in

every December 31, unless renewed

Under the Uniform Securities Act, agents' registrations expire

A non-qualified annuity for a non-qualified annuity A life insurance policy for a non-qualified annuity A life insurance policy for a life insurance policy

1035 exchanges

PArtnership Agreements

3 of 10Which of the following records must be kept for the lifetime of an investment adviser plus three years after the termination of the business?

Money market fund, intermediate-term government bond fund, large-cap stock index fund (3 different asset classes)

A 401(k) offering which of the following choices would be most likely to be in compliance with Section 404(c) of ERISA?

The growth portion is taxed as ordinary income. The growth portion is subject to a 10% penalty.

A 45-year-old investor takes a lump-sum distribution from a nonqualified variable annuity. How is the distribution taxed?

Decline A bond's basis is synonymous with its yield-to-maturity. Interest rates and yield-to-maturity on a bond will move in the same direction

A 6% coupon bond is selling at a basis of 6.20. If interest rates in the market decline below 6%, the bond's basis will:

IRS

A QDRO is a judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant. The QDRO must contain certain specific information as stated in whose regulations?

are operated by a centralized management Both a REIT and a DPP are run by centralized management. A REIT may not pass through losses to its investors, and it is not a limited partnership. A DPP cannot be easily traded in the secondary market.

A REIT and a direct participation program are similar because they both

a partnership. an LLC. an S corporation. Not: C corporation C corporations pay tax on their earnings; the other business types listed here flow through the income to their owners. The owner's share of income (or loss) is reported to them on the Schedule K-1. A shareholder in a C corporation who receives dividends will have that reported on a Form 1099.

A Schedule K-1 would be received by an individual with an ownership interest in all of the following

For transactions of $5,000 or more

A Suspicious Activity Report (SAR) should be filed:

As a broker-dealer

A bank is effecting corporate securities transactions with investors. The securities being bought and sold are not issued by the bank and the bank is not currently issuing securities. Under the Uniform Securities Act, how must the bank be registered?

average annual net assets

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

express the author's end-of-life wishes.

A living will is used to

A registered investment adviser spends about 25% of its time on investment advisory activities and the balance on managing rental real estate projects An investment adviser representative, who is also an insurance agent, may decide to recommend a particular insurance product based on an incentive to sell the product An investment adviser representative, who is also an agent with an unaffiliated broker-dealer, directs transactions to that firm

A registered investment adviser has a fiduciary duty to disclose all real and potential conflicts of interests to clients. Which of the following are examples of conflicts that would require disclosure?

a unit investment trust.

A registered investment company whose portfolio consists of equity securities and the portfolio does not change in response to market conditions is probably

a support level. The downtrend reached a support level where buying demand sustained the price. A resistance level is a price at which selling pressure emerges that stops an uptrend.

A stock has been in a downtrend for several days. When its price decreases to near $30, many investors enter orders to buy the stock and the price increases to $31. This is most likely an example of

the rate of taxation on any additional taxable income received

A taxpayer's marginal tax rate is

support level Sell stops are entered below the market. They are used to turn an order into a market order if the current market value falls below the stop level. In technical analysis, support levels are theoretical levels where the market supports the stock price (keeps it from falling below the stated level).

A technical analyst (chartist) with a long position in a particular stock would most likely enter a sell stop order below that stock's

risk-adjusted return

The Sharpe ratio is a measurement of a portfolio's

its sensitivity to changes in interest rates changes.

As a bond's duration changes,

ensuring that the firm remains solvent for protection of customers and employees alike Managing conflicts of interest does not take into consideration making enough money to remain solvent.

As appropriate to the scale and complexity of a firm's business, elements of an effective practice framework for managing conflicts of interest include all of the following EXCEPT

a holding company

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

final salary.

In general, in a defined benefit plan, the pension to be received upon retirement is based on the number of years of service and the individual's

platinum.

Commodities contracts are available on

4 retail clients residing in State B Options were: 4 retail clients residing in State B 1 mutual fund registered with the SEC 15 other broker-dealers 6 banks doing business in State B Excluded from the definition of broker-dealer under the Uniform Securities Act is a broker-dealer with no place of business in a given state whose clientele consists exclusively of other broker-dealers, financial institutions (banks, investment companies), or existing customers who are temporarily in the state. However, once the BD has even 1 retail (noninstitutional) client who resides in the state, registration is required.

Creative Financial Solutions (CFS) is a broker-dealer registered with the SEC. CFS has its principal and only office in State A. CFS also does business with clients in State B. Which of these clients would cause CFS to have to register in State B?

selling at a premium. The only way for a bond with an 8% coupon to have a yield to maturity of 6% is if the bond is selling at a premium.

Current market interest rates are 6%. A bond with an 8% coupon would be most likely to have a net present value of zero when the bond is

The dollar price per bond will be lower than par. The current yield on the issue will be higher than the coupon.

Currently, a company issues 5% Aaa/AAA debentures at par. Two years ago, the corporation issued 4% AAA-rated debentures at par. Which of the following statements regarding the outstanding 4% issue are TRUE?

Totten trust

In the banking industry, the term POD refers to an account similar to the TOD designation used by broker-dealers. An old, but sometimes still used term to describe this kind of account, is

account in which the agent has the power to decide which securities to buy or sell without customer authorization for those specific trades

In the securities industry, the term "discretionary" refers to an

3 years The USA specifies that all records, including electronic communications (emails), must be maintained for a minimum of 3 years. For investment advisers, the requirement is 5 years.

GEMCO Securities, Inc., a broker-dealer registered in the state, has over 10,000 clients ranging from small individual accounts to substantial institutions. GEMCO has determined that the most efficient way to maintain contact with its clients is through electronic communications. Under the USA, these emails must be retained by the broker-dealer for a minimum of

The firm transacts business only with other broker-dealers. The firm transacts business only with institutional investors.

Global Investments is a broker-dealer based in State A. It is currently registered as a broker-dealer is States B, C, and D. The firm is looking to expand its business to State E. Under the Uniform Securities Act, in which of the following situations would Global Investments NOT be required to register as a broker-dealer in State E?

By using the option's delta and gamma Delta measures the amount by which an option's premium will increase or decrease relative to a change in the underlying stock's price. Gamma measures the rate of change of the option's delta as the underlying stock price changes

How can investors manage the volatility of option prices?

Alimony payments are not deductible for the payer. Alimony payments are not taxable for the payee.

How is alimony treated for tax purposes?

the limited partnership.

The most common form of investment vehicle for venture capital is

the cost of goods sold

When analyzing a company's financial statements, gross profit is computed by subtracting from revenues

Apartment building

Which investment offers income tax relief?

federal

advisers that are required to register at the ___________ level must abide by not only the rules and regulations set forth by the SEC, but also the regulations established by the Investment Advisers Act of 1940.

$110 million or more SEC only $100 million up to $110 million Either SEC or state Less than $100 million State only

an adviser with assets under management of: Must register with:

When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $32,000

​Oscar and Hilda, a married couple, are collecting Social Security. They speak to their financial planner for advice on taxation of those benefits. At what level do their benefits become subject to income tax?​

Efficient market hypothesis

"Stock prices adjust rapidly to the release of all new public information." This statement is an expression of which of the following ideas?

No later than 10 days after becoming an access person; then at least every 12 months thereafter

According to the Investment Advisers Act of 1940, access persons must submit their personal security holdings reports by:

add a markup to the offering price when selling shares to a client

A broker-dealer acting as a principal in a trade would

In written form on site On microfilm on site On magnetic tape or computer on site

According to the Investment Advisers Act of 1940, how can records of the investment adviser's business be stored during the first 2 years?

Jake takes delivery. As the purchaser of the contract, Jake has an obligation to take delivery. On the other hand, the party that initially sold the contract has an obligation to make delivery.

34 of 50Jake purchased a corn futures contract at $1.20 per bushel. At the end of the contract, if the price of corn has fallen to $1.10 per bushel, which of the following statements is TRUE?

They are, since anyone who represents a broker-dealer in effecting securities transactions is defined as an agent

A broker-dealer has summer interns who are involved in sales and solicitations, but they are not paid. Are these interns considered agents and subject to registration?

zero . In any qualified plan, if all of the contributions are in pre-tax dollars, the cost basis is zero no matter who contributes the money.

In a qualified plan, if the employer makes all the contributions, the employee's cost basis is

benefits are increased by 8% for each year from the full retirement age. If an individual delays taking Social Security until age 70, the benefit is increased by 8% for each year from the full retirement age. If full retirement age is 66, four years at 8% means the payout is 132% of the base amount. Medicare (Part A) goes into effect at 65 and income tax rates do not change at 70.

A benefit of waiting until the age of 70 to claim Social Security benefits is that

discounted cash flow (DCF)

A bond analyst who determines the value of a debt security by adding the present value of the future coupons to the present value of the maturity value is using which of the following valuation methods?

longer for a 10-year bond with a 5% coupon than it is for a 10-year bond with a 10% coupon Duration measures a bond's price volatility by weighting the length of time it takes for a bond's cash flow to pay for itself. If 2 bonds with differing coupon rates have identical maturities, the one with the lower coupon has the longer duration.

A bond's duration is

must segregate them Any securities held in custody by a broker-dealer (or, for that matter, an investment adviser) must be segregated from those belonging to the broker-dealer (or investment adviser).

A broker-dealer holds fully paid-for customer securities for safekeeping. Under the NASAA Statement of Policy on Unethical and Dishonest Business Practices of Broker-Dealers and Agents, the broker-dealer

the investment advisory services are incidental to the broker-dealer's business and no special compensation is received

A broker-dealer is NOT considered an investment adviser if

This would be regarded as making a recommendation.

A broker-dealer provides HotScores, a portfolio analysis tool that allows clients to indicate their retirement goal. After disclosing age, current financial condition, and risk tolerance, those participating will receive a list of specific securities the customer could buy or sell to meet the investment goal. Which of the following is TRUE?

the sole proprietor

A business organized as a sole proprietorship wishes to open an advisory account. When preparing an investment policy statement, the IA would have to consider the objectives of

By no later than the 10th year following the owner's death According to IRS rules regarding inherited IRAs, a non-spouse who inherits an IRA may take a lump-sum distribution or have the funds distributed by the end of the 10th year following the IRA owner's death.

A client inherited his father's IRA. If his father died at the age of 69 and the client did not choose to take a lump-sum distribution, he must withdraw the entire account:

He will receive a reduced load on $13,200 worth of the shares.

A client invests $2,200 in an open-end investment company and signs a letter of intent for a $10,000 breakpoint. If 6 months later he deposits $11,000, which of the following statements is TRUE?

Intermediate-term municipal bond fund When the question states a high-income tax bracket, the answer will almost always be municipal bonds.

A client is interested in investing in a mutual fund that will provide current income without the risk of large swings in the portfolio's value. The client is in a high-income tax bracket and has a moderate risk tolerance. Which of the following funds is most appropriate for this client?

the loan could only be made after the advisory contract was terminated . Loans may never be made to clients unless the firm is in the business of lending money. Because this IA states that it is not their business model, the only way this loan could be made is if there was no adviser/client relationship.

A client of an investment adviser needs a bridge loan and approaches the IA to see if the firm is interested. Because the IA is not in the business of lending money, a special agreement is drawn up specifying the terms of the loan. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers

would be considered a testimonial and require that disclosure be made of any compensation received by the client.

A client of an investment adviser representative of a federal covered investment adviser wishes to place a favorable comment on the investment adviser's website. This action

a living will

A client of yours is getting older and is concerned about having her wishes met relating to medical issues when she is no longer capable of communicating them. The most appropriate vehicle for her would be

the minimum denomination is $50,000 the maximum maturity is 270 days it is rated in 1 of the 3 highest rating categories by a recognized rating agency

A client wants to purchase commercial paper. The licensed agent may indicate to the client that the security need not be registered if

the present value This is a present value computation where the future value, time period, and earnings rate are known.

A client who wishes to have $50,000 available to help fund a 3-year-old child's college education in 15 years estimates that if the portfolio can earn 7%, a deposit of $18,122.30 will be required today. This deposit is referred to as

common stocks With 25 years until retirement, the customer should invest primarily in stocks. Historically, over long time periods, equity securities have provided the greatest returns.

A client with 25 years until retirement should invest primarily in

amend Form ADV promptly

ABC Advisers changes its name to XYZ Advisers and also changes its location. Under the Investment Advisers Act of 1940, it must

current dividend yield has increased Current dividend yield is income dividend divided by price. If the price of a stock decreases and the dividend remains the same, dividend yield will increase.

A company has paid a dividend every quarter for the past 20 years. If the stock's price has fallen dramatically over the past quarter, but the dividend has remained the same, it may be concluded that

$922.78 When a bond has a yield to maturity that is greater than its coupon rate, the bond must be selling at a discount and that only leaves one possible answer. The only way to get a 10% return on an 8% bond is to buy it at a price below par.

A corporate bond that pays interest semiannually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. What is the value of the bond today if the coupon rate is 8%?

$185,000.

A corporation's balance sheet shows total assets of $930,000 of which $400,000 are current assets. It also shows $525,000 of total liabilities of which $215,000 are current liabilities. The company's working capital is

For gift-tax purposes, the value of the gift is $7,000. The son's cost basis on the stock is $3,000.

A customer buys 100 XYZ at $30. Two years later, with the stock trading at $70, the customer makes a gift of the securities to his son. Which of the following statements are TRUE?

Consult a qualified tax specialist.

A customer has just died. If his wife asks you what amount of federal estate tax will be imposed on the transfer of their personal property to her name, which of the following responses would be best?

20%

A customer of a broker-dealer has purchased stock in a margin account. The customer's exposure in the account is 50%. If the stock falls by 10%, what's the customer's percentage of loss in the account?

Expectations related to the markets Analysis of risks and rewards Asset allocation models

A customer's investment policy statement may contain which of the following?

he owns the stock and must submit payment

A customer's limit order to buy 500 shares of QRS at 60 is executed and the agent reports the trade execution to the customer. One hour later, the customer notices that QRS is down 2 points and informs the agent that he no longer wants the stock and is not planning to pay for it. The agent should tell the customer that

States A, B, and C

A federal covered investment adviser has an office in State A. The adviser also has five clients in State B and five clients in State C. A client files a complaint against the adviser, accusing the adviser of unsuitability, excessive trading, and misappropriation of funds. The Administrator(s) of which of the following states have/has the authority to take action against the adviser?

disclosure that the performance compensation may create an incentive for the adviser to take greater risks

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

could not sell without being an agent

A federally chartered credit union is domiciled in Texas. The credit union is making an offering of securities in Nebraska. To comply with the Uniform Securities Act's exclusion from the definition of agent, any individual offering the security in Nebraska

the price-to-book-value ratio

A financial ratio used by some analysts to help determine if a company's stock is over or undervalued is

the grantor

In a trust, the person who establishes the trust and decides on its terms is

a price change upon the announcement.

A firm declares a $3.00 cash dividend to its shareholders. The firm has issued dividends of only $.07 per share for each of the last 15 quarters, and market analysts had anticipated a similar dividend this quarter. In an efficient market, one would expect

A P/E analysis of the stocks included in the Dow Jones Industrial Average

A fundamental analyst would be most interested in which of the following?

A Section 529 plan

A grandparent wishes to contribute funds to an account for the benefit of the college education of a grandchild. In which of the following does the donor have the greatest amount of control over the assets in the account?

A limited liability company An S Corporation Since none of the group is willing to be liable personally for the business's obligations, they cannot form a general partnership or a limited partnership. All general partners have unlimited liability for any obligations that the business incurs. A limited partnership requires at least one general partner. Also, they all want to be involved in management and a limited partner who becomes actively involved in management loses the shield of limited liability.

A group of investors is starting a business to explore and drill for oil. All want to be actively involved in the business, but none wants to be personally liable for the venture's debts. Which of the following business structures would meet their objectives?

Partnership Options were: Partnership Coverdell ESA UTMA account IRA

A margin account could be opened for which of the following?

The 7-day redemption rule is required by the Investment Company Act of 1940.

A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption?

$101 per share the realization of the $2 per share gain has no effect, but, the new $1 in unrealized appreciation increases the NAV by that amount.

A mutual fund's computed NAV on April 24 is $100 per share. On April 25, the portfolio realized gains of $2 per share, and enjoyed $1 per share in unrealized appreciation. What would the NAV be on April 26 assuming an unchanged market?

Barbell The barbell strategy gets its name from the fact that the holdings are split into two maturity ranges The bullet strategy has all of the bonds maturing at the same time; some target date in the future Laddering a bond portfolio has bonds maturing every year, just like the steps on a ladder Contrarian is most often an equity strategy.

A new client's principal objective is income with a moderate degree of capital preservation. When reviewing his existing portfolio, you notice that the client's bond holdings are evenly split between those maturing in the next 1 to 2 years and those maturing in the next 10 to 11 years. This indicates that the client has been using which of the following strategies?

An income fund An income fund is just what the name implies; it invests for income (receipt of interest and/or dividends) that it can then distribute to investors in the form of dividends.

A new customer has a $35,000 CD maturing in 2 weeks. With the objective of maximizing his income on capital invested, he wishes to invest the proceeds in a mutual fund. Which of the following types of funds should be recommended?

IAR The abbreviation could signify that the individual has met some type of regulatory qualification. The use of the designation IAR is improper since it is not a designation approved by any professional organization. An IAR only needs to file with the state Administrator.

A partner of an investment adviser may put all of the following information on her business card, EXCEPT the designation:

Clients are provided with a disclosure of the agent's total compensation

A partner of an investment advisory firm is also an agent of an affiliated broker-dealer. When a recommendation is made for an advisory client to trade a security, the agent (partner) earns a commission and the IA collects an advisory fee. The firm's fiduciary duty is only satisfied when:

structuring.

A pattern of currency deposits designed to avoid currency reporting requirements is termed

federal covered advisor

A person (usually a firm, rather than an individual) that, for compensation, engages in the business of advising others as to the value of securities or the advisability of purchasing or selling securities. The firm is required to register with the SEC.

Selecting and monitoring third-party service providers

A person providing which of the following services to an ERISA plan would be performing in a fiduciary capacity?

a private equity fund. Venture capital funds invest in start-up companies.

A pooled investment fund buys all the shares of a publicly-traded company. The fund takes the company private, reorganizes the company, and replaces its management team. Three years later, the fund exits the investment through an initial public offering of the company's shares. This pooled investment fund is best described as

a closed-end fund.

A pooled investment with a share price generally different from its net asset value (NAV) per share is most likely

Systematic

A portfolio manager using index options is trying to hedge which of the following types of risks?

sector rotation

A portfolio manager who routinely shifts portfolio assets to take advantage of the business cycle is said to be engaging in

S&P 400. Stocks with a market capitalization between $2 billion and $10 billion are considered mid-cap stocks. The S&P 400 is the index for those.

A portfolio manager whose universe of stocks is those with market caps of $4 - $6 billion would most likely be graded against

a limited partnership.

A private equity fund would most likely be structured as

Form 13D Any investor that acquires more than 5% of the common stock of a reporting company is required to file Form 13D with the SEC.

A publicly traded corporation has 20,000,000 shares of common stock outstanding and an investor buys 1,400,000 of the shares in the open market. Which of the following forms is the investor required to file with the SEC?

the Form ADV-E

A unique requirement for those investment advisers who maintain custody of customer assets is the filing of

The original value plus any appreciation is taxed as part of the grantor's estate.

A wealthy individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed?

sell part of the stock in the portfolio

A well-diversified investor following a rebalancing portfolio strategy in a rising market will most likely

There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: commissions; markups and markdowns advisory fees for those firms that are also registered as investment advisers.

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees except

Account closing fees There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are: commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclosing which of the following fees?

Is a savings institution, bank, or trust company Is in a profession such as accounting or law, where the performance of this service is incidental

According to the Uniform Securities Act, persons providing investment advice are NOT required to register as investment advisers if the adviser:

Variable annuities

According to the Uniform Securities Act, sales literature is required to be filed with the Administrator if it relates to:

3.33% The current yield on mutual funds is calculated by dividing the annualized yield ($0.25 × 4 = $1) by the POP. In this case, $1 ÷ $30 = 0.0333 × 100 = 3.33%.

ABC Combination Fund has dual objectives of capital appreciation and current income. Last year, the fund paid quarterly dividends of $0.25 per share and capital gains of $0.10 per share. The annualized growth rate of the fund was 15%. The current net asset value (NAV) of the fund is $28.50, and the current public offering price (POP) is $30. Advertising and sales literature of the fund may report the fund's current yield to be

This is a legitimate use of a professional consultant by the advisory firm and Block & Tackle need not register as an adviser

Ace Financial Consulting is a registered investment adviser specializing in financial planning. Although Ace's IARs are experienced and knowledgeable, they have many clients with complex tax issues. Ace has a consulting agreement with Block & Tackle, a local law firm that specializes in taxation. Block & Tackle is paid a fee whenever Ace calls them in to consult on the tax issues in a complex financial plan. Which of the following statements is TRUE?

members of AT's board of directors who are active in the firm's business

Active Technicians (AT) is a state-registered investment adviser. In its brochure supplement, it would include information relating to each of the following individuals EXCEPT

Sell bonds with a short duration and buy those with a longer duration Prices of bonds decline when interest rates rise. An investor expecting an increase in interest rates should sell more volatile bonds and purchase less volatile bonds.

Adam has a portfolio of bonds worth approximately $125,000. He is concerned that interest rates will increase in the near term. Which of the following would be the least desirable strategy for Adam?

ADV-W

Advisers that are filing for a full or partial withdrawal of registration must file Form ________ with the appropriate regulator

receipt of a completed options agreement Customers do not have to complete (sign) the options agreement prior to entering an order; under current rules, the agreement must be signed and returned by the customer within 15 days of account approval.

All of the following actions must be completed prior to customers entering their first option trade EXCEPT

it has a high beta and is safest in periods of low market volatility reason: A money market fund has almost no price volatility, because the underlying portfolio consists of low-beta instruments

All of the following are characteristics typical of a money market fund EXCEPT

The bond's yield-to-maturity at the time it was originally issued Customer confirmation statements for bonds must include the investor's purchase price, the date of the transaction, whether the bond is callable, and the investor's yield-to-maturity.

All of the following are found on a customer's confirmation statement for a bond, EXCEPT:

an investment adviser representative in the firm was fined $1,000 by FINRA for making unsuitable recommendations Legal and disciplinary action successfully brought against an investment adviser must be disclosed to customers, as well as disciplinary actions that resulted in a fine in excess of $2,500. Convictions for a misdemeanor or felony involving securities or money within the past 10 years must also be disclosed.

All of the following must be disclosed by an investment adviser EXCEPT

Clients' tax returns used to obtain their annual income

All of the following records must be retained by an investment adviser and broker-dealers, EXCEPT:

the contract must not permit assignment without the client's consent the contract must detail any prepaid fees to be refunded to the client upon termination the contract must be renewed in writing NOT: the contract's term may not exceed 1 year The contract must set forth the term of the contract, which need not be for only 1 year.

All of the following statements regarding investment advisory contracts under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers are true

premiums are fixed for the life of the policy The single most distinguishing characteristic of universal life is the fact that premiums are flexible and not fixed.

All of the following statements regarding universal life insurance are correct EXCEPT

Charging a performance-based fee to an elderly client whose net worth, excluding the equity in the principal residence, is $2.3 million, with only $150,000 under the adviser's management Performance fees may be charged, regardless of the client's age, to anyone with a qualifying net worth in excess of $2.2 million or with at least $1.1 million under management with the firm.

Although generally prohibited, there are conditions under which a state-registered investment adviser is permitted to charge performance-based fees. Which of the following meets the necessary criteria?

they are traded on listed exchanges.

Among the characteristics of exchange-traded funds (ETFs), which distinguish them from mutual funds is that

leveraged ETFs may be purchased on margin

Among the characteristics of leveraged exchange-traded funds is that

Payment for the purchase may be made in the case of a private placement, while no money changes hands in a preorganization subscription. It is expected that noninstitutional buyers of the private placement are purchasing for investment only, while no such requirement exists for the investors in a preorganization certificate.

Among the many exempt transactions under the Uniform Securities Act are the private placement and the preorganization certificate or subscription. While these two exemptions have several requirements in common, they have which of the following differences?

Current yield is higher than nominal yield. Nominal yield is lower than YTM. A bond offered on an 8.25 basis is the same as at a YTM of 8.25%. Because the yield quoted is higher than the 8% coupon, the bond is trading at discount to par. For discount bonds, the nominal yield is lower than both the current yield and the yield to maturity.

An 8% corporate bond is offered on a 8.25 basis. Which of the following statements are TRUE?

A copy of the written agreement between the parties if the compensation exceeded $1,000 over a 12-month period

An IA hires a third-party promoter to solicit for new clients. Which of the following records is the IA required to keep?

convertible bonds it has issued Accounts receivable, marketable securities, and cash are short-term assets included in the calculation of working capital.

An IAR is viewing the balance sheet of a corporation. Included in the computation of the company's working capital are all of the following EXCEPT

The price of the underlying shares fluctuates. A set dollar amount is invested regularly.

An advantage of dollar cost averaging is that it results in an average cost per share that is less than the stock's average price, assuming which of the following?

Verify the identity of the fiduciary

An adviser was a fiduciary for a client who has recently died. What's the first thing that an IAR should do when she meets with the person who has power of attorney for the estate?

continue to manage the account unless the advisory contract called for termination upon death or informed otherwise by the executor

An advisory client of yours dies in 2019, and you transfer the $1.4 million of securities in the individual's name to the estate account. You will

Setting up a partnership is easier than establishing a corporation

An advisory client owns a small business and inquires about whether he should set up his business as a partnership or as a C Corporation. Which of the following would be the BEST reason to set the business up as a partnership?

prohibited because the broker-dealers are not under common ownership or control

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

The agent's broker-dealer must already be registered in Arizona or complete the Arizona registration process within a time period specified by the act. The agent must complete the Arizona registration process within a time period specified by the act.

An agent is registered in Illinois and Ohio. One of her substantial clients has just moved from Ohio to Arizona, and the agent would like to continue to do business with her. Under the Uniform Securities Act, which of the following statements is TRUE?

If the client has $5,000 in her brokerage account Loans may be made to clients if the person making the loan is in the lending business. Broker-dealers are permitted to lend money against securities held in client's portfolios. This is known as a margin loan. In fact, with $5,000 in the account, current regulations would permit a loan of up to $2,500.

An agent of a broker-dealer has a client who lost her job but will be starting a new job in 3 weeks. The client is in need of $900 for the 3-week gap. Under what circumstances may the agent arrange a loan for the client?

The content of the e-mail is not required to be filed with the Administrator because the securities are federal covered. Advertisements, including standardized emails, are generally required to be filed with the state Administrator before they're used. However, advertisements for exempt securities and securities that are sold in exempt transactions are not required to be filed. Since registered investment companies are federal covered and exempt from registration with the state Administrator, the agent's email is not required to be filed.

An agent of a broker-dealer has written an electronic marketing piece that recommends the purchase of a new investment company which is being offered by his firm. He wants to send it by e-mail to 40 non-institutional clients. If the product is suitable for each client who's on the agent's distribution list, which of the following statements is TRUE?

The agent will only conduct business in the state if registered or exempted. Follow-ups will only be handled by agents who are registered or exempt.

An agent of a broker-dealer publishes a Web page that discusses the benefits of dollar cost averaging and why investors should invest with long-term goals in mind. If a customer in a state where the agent is not registered explores the Web site, which TWO of the following legends must be on the Web site in order to take advantage of the safe harbor rule and not register in the state?

borrow money, with written permission of the customer and the broker-dealer, from an immediate family member who is a client Money may never be borrowed from a client, unless something in the question indicates that the client is in the business of lending money or an affiliate of the firm.

An agent registered with a broker-dealer in this state would be permitted to do all of the following EXCEPT

current ratio. Current ratio is a balance sheet computation involving current assets and current liabilities.

An analyst viewing a corporate income statement will be able to review all of the following except

Attorney who writes an offering circular for a company Brother of a company's president

Under the Insider Trading and Securities Fraud Enforcement Act of 1988, which of the following are insiders for purposes of insider trading?

The bank employee needs to be registered as an agent

An employee of a federally chartered bank would like to sell mutual funds to the bank's current customers. Which of the following statements is TRUE?

plan participant

An employer whose 401(k) plan complies with ERISA Section 404 is placing investment risk with the

an inverse fund.

An exchange-traded fund whose strategy is to generate performance opposite that of the designated index is called

a credit union organized and supervised under the laws of State A.

An individual has been hired by a person to assist in the selling of securities it is issuing to residents of State A. The individual would be defined as an agent under the Uniform Securities Act if the issuer is

on December 31 of the same year.

An individual has been registered in State C and State D as an agent of a broker-dealer for the past three years. Due to a number of this agent's clients moving to State F, the agent registers there in early November. The individual's new registration in State F will expire

Zero, since the death benefit from an insurance policy is only taxable to the deceased's estate.

An individual has recently inherited a life insurance policy. What's the individual's tax liability on the insurance policy's death benefit?

defined as an IAR because the individual is rendering investment advice

An individual is employed by a federal covered investment adviser for the sole purpose of giving advice related to monitoring investment portfolios, but only to qualified employee benefit plans. Under the Uniform Securities Act, this individual is

unless the Administrator, by rule or order, authorizes such employment

An individual may NOT act as an agent for more than one broker-dealer

Where its principal office is located

An investment adviser (IA) has its primary office in State A. They have branches in states B and C, and they advertise in states D, E, and F. What net capital requirements must they meet?

receiving a check made payable to that broker-dealer

An investment adviser affiliated with a broker-dealer would be considered to be maintaining custody when

Client's stamp collection Financial considerations are those which can be categorized as an asset or a liability (something that can be assigned monetary value).

An investment adviser cannot adequately advise a client without knowing the client's financial status. When determining that status, it is important to differentiate between financial and nonfinancial considerations. Which of the following would be considered a financial consideration rather than a nonfinancial one?

an investment constraint

An investment adviser has a client who wants to save for college for her child. The child will be entering college in 5 years. This would be an example of

This is permissible as long as proper disclosure is made in the adviser's brochure.

An investment adviser is a member of a country club and provides substantial fee reductions to those members who become clients. The adviser justifies this because these club members are known for great referrals. The IA charges regular clients a fee that was larger for the same services because they were not members of the country club. Is this permissible?

A sofa in the reception area

An investment adviser must meet the net worth requirements of the Administrator. When doing the computation, which of the following assets would be included?

its principal business consists of rendering investment advice a substantial portion of its business involves investment supervisory services does not maintain full investment discretion

An investment adviser registered with the SEC could use the term investment counsel if

an agency cross transaction

An investment adviser representative for ABC Money Managers, a wholly owned IA subsidiary of ABC Securities, Inc., sold 1,000 shares of registered securities traded on the NYSE to one of her advisory clients. ABC Securities charged commissions for both the buyer and the seller of these securities. This is known as

9%. Adding the $40 + $50 = $90 total return on an investment of $1,000 which = 9%.

An investor purchases a 5% callable convertible subordinated debenture at par. Exactly one year later, the bond is called at $104. The investor's total return is

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 the client are inconsistent with those for the IAR's own account

An investment adviser representative is required to make disclosure to the client when

the Administrator. Registration of IARs is done solely on the state level. IARs register with the Administrator of each state in which they are required to be registered.

An investment adviser representative of a federal covered investment adviser registers with

need not disclose that fact to the clients

An investment adviser representative who makes extensive use of third-party research to formulate portfolio recommendations to clients

an agricultural commodity Forward contracts are available on commodities, such as agricultural products

An investment adviser who is discussing forward contracts with a client would most likely be referring to an investment in

compensation may not be sales related the solicitor must not be subject to statutory disqualification Third-party solicitors are not required to be registered as IARs and therefore may not receive sales-related compensation.

An investment adviser wishes to engage the services of a third party to solicit new clients for the firm. To be in compliance with the Investment Advisers Act of 1940,

Exculpatory provisions are prohibited in any contract

An investment company has entered into a contract with an investment adviser. The investment adviser seeks to have an exculpatory provision included in the contract. According to the Investment Advisers Act of 1940, which of the following statements is TRUE?

expected returns of the recommended strategy and the expected range of these returns recommended allocations among differing asset classes strategies used for selecting specific stocks in the equity portion of the portfolio NOT:disclosure of the fees that the adviser will earn for implementing the recommended strategy

An investment policy statement would likely include

both the buyer and the seller are obligated to perform

An investor goes short 5 soybean futures contracts on the Chicago Mercantile Exchange (CME). When the contract expires,

60.06

An investor has her agent enter a sell stop order at 60, limit 60. Following the order entry, trades occur at 62.12, 60, 59.95, 60.06, 61. More than likely, the investor received

$3,000.00 The maximum deduction of net capital losses against other income in any one year is $3,000; any remaining loss can be carried forward into the next year.

An investor in the 28% tax bracket has a $5,000 loss after netting all capital gains and losses realized. How much may the investor deduct from income that year?

Long-term capital gain of $5,500 Upon death, the beneficiary inherits closed-end funds at their bid price (what the estate could have sold them for), or $9.00 per share. The sale two years later takes place at the bid ($14.50) for a profit of $5.50

An investor inherits 1,000 shares of the ABC Global Growth Fund when the NAV is $9.50, the bid price is $9.00, and the ask price is $9.15. Two years later, the investor sells all shares when the NAV is $14.25, the bid is $14.50, and the ask is $14.60. What are the tax consequences of this sale?

less reinvestment risk and more interest rate risk.

An investor is considering a 10-year stripped U.S. Treasury and a 10-year U.S. Treasury note, both with a yield to maturity of 4.8%. Compared to the note, the strip has

ETFs offer tax benefits similar to a limited partnership. Equity ETFs are organized as regulated open-end investment companies or unit investment trusts, not as as limited partnerships

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

interest rate risk Treasury STRIPS are zero-coupon bonds and, as such, have a longer duration than those paying semiannual interest. The longer the duration, the greater the interest rate risk.

An investor is considering the purchase of some bonds to diversify his portfolio. If he should decide to purchase Treasury STRIPS instead of Treasury Bonds, his major risk would be

the bullet strategy.

An investor plans to fund the college education for her newborn child by purchasing $5,000 of investment-grade bonds on an annual basis. She is most likely using

14% This question is asking for the total return, which is 14% (12% appreciation + 2% dividend). Had the question asked for the inflation-adjusted return, (which it doesn't), that is 14% minus the 4% CPI.

An investor purchases 100 shares of RIF common stock. In the year following the purchase, the RIF shares appreciated by 12% and paid a 2% dividend. If inflation, as measured by the CPI, was at a 4% rate, the investor's total return on the RIF shares is 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.

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

Loss of principal Price volatility of preferred stock is closely related to interest rates If the stock is callable, the client's income can be suddenly lowered NOT: Preferred stock cannot be traded as readily as bonds

An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks?

this would be a prohibited transaction.

An investor wishes to use funds in his IRA to purchase a condominium for personal use. Under current regulations,

Almost no noticeable impact. A +.95 correlation means that the "new" stock will perform close to exactly the same as the existing one so its addition should have little to no impact on performance.

An investor's portfolio consists of a single stock. If a stock with a correlation of +.95 was added to the portfolio and the stock market turned bearish, what would be the likely effect of having added this additional security?

be volatile. An advantage of the high-water crediting method is that the interest is calculated using the highest value of the index during the term. Therefore, in a volatile market, where prices are going up and down, it picks up the highest price.

An owner of an equity index annuity would be wise to use the high-water crediting method if the underlying index was expected to

Tuesday If an IA falls below the minimum financial requirement, it must notify the state Administrator by the next business day.

As of the close of business on Monday, a state-regulated IA has fallen below its minimum financial requirement. When must the deficiency be reported to the state Administrator?

preferred stock in the XYZ Corporation whose common stock is listed on the NYSE Springfield, Illinois, municipal bonds sold to a resident of Springfield, Missouri

As referred to in the NSMIA, the term "covered security" would apply to

send a copy of its brochure, or a summary of the changes, to all clients within 120 days of the end of its fiscal year

Associated Wealth Managers (AWM) is registered with the SEC as a registered investment adviser. As a consequence, if there have been any material changes, AWM must

−0.9375%, underperform (10.5% - 3%) - (1.25 × [9.75% − 3%]) = 7.5% - (1.25 x 6.75) = 7.5% - 8.4375 = -.9375

Assume Frank has a portfolio with an actual return of 10.50% for the past year. The portfolio beta equals 1.25, the return on the market equals 9.75%, and the risk-free rate of return equals 3%. Based on this information, what is the alpha for Frank's portfolio and did it out outperform or underperform the market?

it must be filed with the Administrator of the state in which the broker-dealer's principal office is located. There is no requirement that the fee schedule be filed with the Administrator

Broker-dealers are required to furnish clients with a fee disclosure document. All of the following are true statements about that document except

Trustee and beneficiary Under trust law, the grantor of a trust, sometimes referred to as the settlor, may also be the beneficiary and the trustee.

One of your clients approaches you about setting up a trust. If your client assumes the role of grantor, what additional roles may be taken?

the sale of restricted securities and control (affiliated) securities.

Rule 144 regulates

is acting in a fraudulent manner by failing to include material information

In an effort to make things easier for her clients, an agent redacts(leaves out) certain material information from sales literature relating to a sophisticated investment product her firm is offering. The agent

Have $100,000 minimum capitalization prior to making a public offering Provide semiannual reports to shareholders

The Investment Company Act of 1940 requires that a mutual fund do which of the following?

20 shares With a par value of $1,000 and a conversion price of $50 per share, this bond is convertible into 20 shares ($1,000 / $50).

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

have a check drawn on the account payable to the trustee for trustee expenses

Because a trust account is managed for the beneficial interest of the beneficiary, the investment adviser representative handling the account can

Up to $5,000 for expenses related to the birth or adoption of a child

Because the SECURE Act expanded the uses of withdrawals from a 529 plan, all of the following expenses are now eligible, EXCEPT:

the same as they would be for written correspondence.

Both state and federal law have record keeping requirements for broker-dealers. When it comes to email correspondence, the requirements are

It is supplied with the initial registration and remains on file permanently.

When filing the consent to service of process, which of the following is TRUE?

Alpha = 0.78%; the adviser outperformed the market by 0.78% A positive alpha indicates that Pelf outperformed the market on a risk-adjusted basis. 12% - [3.5% + 1.05 (10.85% - 3.5%)]

Cecil has a discretionarily-managed account with Pelf Reliable Advisors (PRA), an investment adviser registered in States C, D, and G. Over the past year, the portfolio produced a 12% return with a beta of 1.05. The risk-free rate is 3.5%, and the overall market returned 10.85%. Based on this information, calculate alpha and determine if PRA added any value to the portfolio.

increase the average duration of the portfolio As interest rates go down, prices of bonds rise. Those with the longest duration will have the greatest price increase.

Charlie Mindel is the portfolio manager for the Steady Yield Bond Fund. If Charlie was of the opinion that interest rates were going to fall, he would

uses an artifice or scheme that could reasonably be considered misleading in connection with a securities offering effects a sale of a nonexempt new issue of securities before filing a registration statement in that state

Civil liability may arise under the Uniform Securities Act if an agent

Class A shares usually have front-end loads, but have small or nonexistent 12b-1 fees Although Class B shares generally have no up-front sales charges, higher 12b-1 fees are usually assessed. Investors are subject to contingent deferred sales charges (CDSC) if the shares are redeemed before a certain period Class C shares assess what's referred to as a level load, which means there's an ongoing fee (typically 1.0%) for as long as the investor holds the shares. Although there's no front-end load, a back-end load may be assessed if shares are redeemed within one year.

Class A,B,C shares

disclose less information about its financial performance.

Compared to a publicly-traded fund, a private equity fund is most likely to

leveraged.

Compared to traditional investments, hedge funds and private equity are most likely to be more

the beta for the subject security.

Computing the Sharpe ratio for a specific stock requires using all of the following EXCEPT:

an investment adviser will be acting in the capacity of a principal

Consent of the client before completion of a trade made between the firm and a client must be made when

disclosure to the client and consent prior to completion of the transaction

In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under the Investment Advisers Act of 1940, this activity requires written

Potential for economic gain Tax write-offs Liquidity and marketability

In discussing a direct participation program with your customer, rank the following items in order of importance from most to least.

The amount of a company's past earnings company's past earnings is a factor used in the fundamental analysis of securities, but not technical analysis. Technicians rely on market trends and supply and demand factors, as well as chart indications such as resistance and support levels.

In the technical analysis of the value of securities, which of the following items is NOT important?

Financial risk—market risk Financial risk is an unsystematic risk; generally, the concern that an issuer will be unable to meet its debt obligations as they come due. It could be paired with either credit risk or default risk. Market risk is a systematic risk.

In this industry, many words have similar meaning. Which of the following choices consists of a pair which are NOT properly considered synonyms?

A traditional IRA (not roth)

In which of the following retirement plans would there be mandatory withdrawal requirements once you are past age 72?

The fund's net asset value per share

Investment adviser representatives are often called upon to help clients select an appropriate mutual fund. When making a recommendation, which of the following would not be a consideration?

anchoring.

Your client often makes irrational financial decisions because she bases her decisions on information that should have no influence on the decision at hand. The client's behavior is known as

a free lunch seminar

One of the most prevalent schemes abusing seniors is one where the individual or couple receives an invitation to attend an educational seminar held at an upscale location. This scheme is commonly referred to as

offering a proprietary product an agent having a financial interest in a recommended security a broker-dealer publishing a favorable research report after underwriting the issuer's stock offering the sponsor of a mutual fund offering a trip to Key West for all agents reaching a minimum sales level of any of the sponsor's funds

Examples of potential conflicts of interest include

Interest on a private purpose municipal bond The interest received on private purpose municipal bonds is considered a tax preference item for the AMT.

If a high-income taxpayer is subject to AMT, which of the following preference items must be added to adjusted gross income to calculate his tax liability

the face amount.

In a life settlement, the seller receives more than the premiums paid into the policy but less than

institutional traders are able to execute large block trades without impact to public quotes or prices.

One of the primary benefits of dark pools of liquidity is

Marjorie would automatically be registered as an IAR in State Z When DEF's registration becomes effective in State Z, those individuals included in the filing are granted automatic registration - they don't have to file an individual Form U4

DEF Investment Advisers, organized as a partnership, is currently registered with State Y. Marjorie is one of the partners and is registered as an IAR. If DEF were to register with State Z,

the dividend discount model the dividend growth model

Discounted cash flow is commonly thought of as applying solely to fixed-income securities. However, forms of DCF used for the valuation of common stock also include

Policy I—owned by Dr. Howard; he is the insured and his wife is the beneficiary. Policy IV—owned by Dr. Howard; Mrs. Howard is the insured and he is the beneficiary.

Dr. Howard dies. Which of the following life insurance policies will be included in his gross estate?

a measure of a bond's price sensitivity with respect to a change in interest rates

Duration is

must register with the SEC When the annual updating amendment filed by a state-registered investment advisory firm indicates that the $110 million threshold has been reached, the firm has 90 days to register with the SEC.

Emmet opened an investment advisory service 3 years ago and raised $50 million in capital from family, friends, and contacts and then closed to new investors. If Emmet's stock picks expanded assets under management to $110 million, Emmet

must distribute their distributable net income each year.

One of the ways in which a simple trust differs from a complex trust is that simple trusts

Securities issued by the U.S. government and U.S. government agencies Securities issued by municipalities Securities issued by non-profit organizations Securities issued by domestic banks and trust companies (including savings and loan associations, but not bank holding companies) Securities issued by small business investment companies Securities issued by railroads Securities issued by religious, educational, or charitable institutions Short-term corporate debt issued by a corporation that has a maximum maturity of 270 days (commonly referred to as commercial paper)

Exempt Securities Due to the quality of the issuer or the sufficient regulation that applies, the SEC considers the following securities to be exempt from registration:

are exempt from registration under the USA can be required to pay state filing fees

Federal covered securities

more than the par value . The discount rate here is the current market rate of 5%. Because this investor's debenture is paying at a rate of 6%, its cash flow is more valuable than a 5% bond; therefore, it will sell at a premium (above par).

Five years ago, an investor purchased an ABC Corporation BBB-rated debenture with a coupon of 6% maturing in 2037. Currently, new BBB-rated debentures maturing in 2037 are being issued with coupons of 5%. Based on the discounted cash flow method, one could say that the present value of the investor's security is

universal variable life Only universal and universal variable life policies have flexible premium payments.

Flexible premium payments are a feature of

The customer's

For an agent to share in the profits of a customer's account, whose approval is required?

A margin account in the name of Mary Beth Simmons The term covered account does not apply to institutional customers, such as banks, pension funds, and investment companies.

For purposes of safeguarding customer information, which of the following would be considered a covered account?

SEC-registered advisers with at least $150 million in private fund assets under management

Form PF must be filed by

ADV-H

Form _________ is filed by an adviser that's unable to file forms electronically

Promptly

How quickly must a broker-dealer notify the Administrator if material information relating to that broker-dealer's registration should change?

1. The IA has no place of business in the state and has only institutional investors 2. The IA has no place of business in the state and has no more than five non-institutional clients in the state

Identify the two exemptions from state registration as an investment adviser:

Rockland, Gibraltar, and Wallace

If 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?

Any unusually excessive fees

If a client executes a secondary market trade through a broker-dealer, what information must be disclosed to the client?

universal life.

If a client wishes to purchase a life insurance policy that doesn't invest in the market, but allows the holder to pay additional premium if desired, the recommendation is

term life A term life policy would not provide future capital as it does not accumulate cash value. A whole life policy would accumulate cash value, though generally at a low rate. Universal life would also accumulate cash value that can be used to pay the premium, which reduces the cash value. With a variable life policy, a portion of the premium is invested in the separate account, which historically would provide a higher market based return.

If a client's objective is long-term capital appreciation, all of the following insurance policies may be recommended by an adviser, EXCEPT:

below par A bond with a basis, or yield to maturity, greater than its coupon is trading at a discount, or below par.

If a customer buys a 6% bond maturing in 8 years on a 7.33 basis, the price of the bond is

January 29, 2018 The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal-year end.

If a federal covered adviser's fiscal year ends on October 31, 2017, it must file its annual updating amendment to its Form ADV no later than

The registered investment adviser must be properly registered as an investment adviser under the Investment Advisers Act of 1940. There must be a separate written agreement between the solicitor and the registered investment adviser.

If a federal covered investment adviser intends to pay a third party solicitor to solicit clients for investment advisory services, which of the following must be TRUE?

If the loan is based on a verbal agreement that the agent has with a non-registered person and the agent repays the loan in full A person who is associated with a member firm in any registered capacity may NOT borrow money from or lend money to a customer of the firm unless the firm has an existing written policy which allows the practice and one of the following criteria is met: The customer is a registered person with the same firm The customer is an immediate family member The loan is based on a business relationship that exists outside of the broker-customer relationship The customer is a financial institution that regularly engages in the business of providing credit, financing, or loans

If a member firm has written procedures which allow for the borrowing and lending of funds between agents and customers, in which of the following situations is an agent NOT allowed to borrow from a customer?

−20.5 and +37.9% A security with a normal distribution has a 95% probability of falling within 2 standard deviations of its anticipated return. In this case, that would be −20.5% and +37.9%, which is computed by calculating return movements of 29.2% (14.6 × 2) in either direction.

If a security has an anticipated return of 8.7% and a standard deviation of 14.6%, you would expect the returns to have a 95% probability (assuming a normal distribution) of falling between

Amendment This is an example of succession by amendment, as the ADV is simply amended to reflect the new control structure. If the advisory firm were sold, then a change in ownership occurs and the new firm must submit a new application or ADV. Once effective, a Form ADV-W is filed to withdraw the registration of the acquired adviser.

If an IA has recently changed the number of partners, but not control of the firm, the IA registration must be amended within 30 days. Since there is no change in control or ownership of the firm, a Form ADV-W is not filed. This type of change, however, is known as succession by:

Disclosed to clients on Form ADV Part 2 An investment adviser is required to provide clients with disclosure of certain disciplinary events on Form ADV Part 2 and then must complete a Disclosure Reporting Page (DRP) to provide details regarding the event.

If an IA or any advisory affiliate pleads nolo contendere to a felony that was committed in a foreign jurisdiction, this action is:

ADV-NR

If an adviser has general partners or managing agents who are non-residents of the U.S., it must submit Form ___________

have to register in California

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

is disabled

If an individual makes a withdrawal from her IRA at age 52, she pays no penalty tax if she

The full year's fee must be paid.

If an investment adviser files an initial registration with a state on June 30, which of the following statements regarding the filing fee to be paid is TRUE?

The representative must notify the Administrator.

If an investment adviser representative of a federal covered adviser that transacts business in a state terminates employment with that investment adviser, which of the following statements is TRUE?

Change its brochure to reflect the new fee schedule Deliver a copy of its brochure with the new fee schedule to all new clients (not all current clients)

If an investment advisory firm decides to increase its fees for all new business, which of the following steps must it take to properly disclose its new fees?

$12,500 72 divided by 8 equals 9 years. Over an 18-year period, there will be 2 doublings. So, dividing the future value ($50,000) by 4 solves for the present value required.

If an investment can be expected to return 8%, using the rule of 72, what is the present value needed to have $50,000 for a child's education in 18 years?

remain the same Because the portfolio of a UIT is fixed, the income generated by that portfolio will not change. Remember, a UIT does not have a portfolio manager.

If general interest rates increase, the interest income of a bond unit investment trust will probably:

increase

If general interest rates increase, the interest income of an open-end bond fund whose sales exceed redemptions will likely

20-year zero-coupon Treasury bond currently trading at a deep discount As a rule, the longer the duration, the greater the price appreciation. In this case, all the fixed-income securities have 20-year maturities. Another general rule is that the lower the coupon on the bond, the longer the duration. The zero-coupon bond has the lowest coupon and would likely appreciate the most.

If interest rates were to decline sharply, which of the following securities is likely to appreciate the most?

15 days Registration of professionals takes place at noon of the 30th day and an appeal for review of an Administrator's order must be filed within 60 days.

If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within

−6% (0.4 × 10%) + (0.4 × −20%) + (0.2 × −10%), or +4% − 8% − 2%, which equals -6%.

If you knew a given stock had a 40% chance of earning a 10% return, a 40% chance of earning −20%, and a 20% chance of earning −10%, the expected return would be equal to

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 who receive a nominal fee for assisting employee benefit plan administrators select investment managers for the plan's assetspersons

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?

Buy and hold

Investors wishing to employ a passive strategy for their bond portfolios would most likely elect which of the following?

Life stage Retirement savings

It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients?

utilizes derivatives to achieve its objectives.

It would be correct to state that an inverse ETF

as well as commissions based on an hourly rate based on a percentage of the aggregate value of funds under management

It would not be considered an unethical business practice under NASAA's policies for an investment adviser to charge fees

Duplicate statements may not be sent unless you obtain written consent from each client

Jerry is a successful divorce attorney in your community. Based on a favor you did for him involving one of his cases, he offers to send brokerage business to your firm but asks that you provide him with duplicate confirmations and statements on all clients he refers. What is the best practice in this situation?

Be terminated through the filing of Form U5 The registration of an agent is only effective for the period during which he is associated with a broker-dealer. If an agent resigns from employment with a broker-dealer, the agent's registration will be terminated.

Jim is an agent of a broker-dealer who has received an employment offer from another broker-dealer. If Jim resigns from his present firm, his registration will:

His annuity payments are partly taxable and partly tax-free return of capital.

John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments?

Both Kim and Tim

Kim is an investment adviser representative (IAR) of a registered investment adviser (RIA). Tim, one of Kim's clients, shares with her that his company is announcing some significant news that will negatively impact the company's earnings. If information was used for trading, who could be in violation of insider trading laws?

mortgage-backed securities

Knowing the average maturities would be most important when doing a cash flow analysis on

Their owners are not liable for the company's debts They have more flexible management structures than regular corporations They are taxed similar to partnerships Can be estsablished in any state

LLC:

He will offset $1,000 ordinary income this year.

Last year, an investor had a $5,000 loss after netting all realized capital gains and losses. This year the investor has a $1,000 capital gain. After netting his gains and losses, what will be his tax situation this year?

Mortgages and home equity loans Automobile loans Credit card balances Student loans Debit balances used to buy stock on margin

Liabilities:

Any number of accredited investors No more than 35 nonaccredited investors Both accredited and nonaccredited investors

Limited partnerships are offered to the public or are sold through private placement. To avoid registration with the SEC, partnership interests can only be sold to which of the following persons?

LTFSI is responsible for ensuring that a copy of the LTFSI corporate charter is preserved for at least three years after the acquisition.

Long-Term Financial Solutions, Inc. (LTFSI), an investment adviser registered in five states, files a Form ADV-W indicating the business is closing. It is being acquired by another federal covered adviser, Gold and Sylver Advisers, LLC. Which of the following statements is correct?

Mammoth's federal registration is sufficient to do business in all states and state registration of the firm is not required

Mammoth Investments is a federal covered investment adviser with offices in 42 states. Which of the following statements concerning the firm's registration is TRUE?

a 457 Plan.

Maria, age 49, was discussing with some coworkers the recent family vacation she took. She commented that she was able to afford it by taking a penalty-free withdrawal from her retirement plan. Based on that statement, Maria must be covered under

Treasury bond issued at par carrying a 7% coupon All other factors being equal, bonds of higher quality experience less price volatility than do bonds of lower quality. Treasury securities have higher quality than other debt securities due to the elimination of default risk. When market interest rates rise, bonds having higher coupons will decline less than bonds having lower coupons.

Market interest rates rise by 50 basis points. If each of these bonds has about the same maturity date, which of the following would decline the least?

Liquidity Creditworthiness of the buyer

One of your advisory clients indicates that he would like to sell forward contracts in soybeans. It would be wise to warn the client that he will be facing the following risks:

Treasury bond issued at par carrying a 7% coupon Options were: AA corporate bond carrying a 7% coupon AAA corporate bond carrying a 6% coupon Treasury bond issued at par carrying a 7% coupon Treasury bond issued at par carrying a 6% coupon All other factors being equal, bonds of higher quality experience less price volatility than do bonds of lower quality. Treasury securities have higher quality than other debt securities due to the elimination of default risk. When market interest rates rise, bonds having higher coupons will decline less than bonds having lower coupons.

Market interest rates rise by 50 basis points. If each of these bonds has about the same maturity date, which of the following would decline the least?

Tactical asset allocation

Market timing is normally associated with which of the following portfolio management styles?

A vacation trip to Orlando Although the custodian has wide latitude in how money in this account may be spent, in general, it is not permitted to use it for the basic necessities, such as food, clothing, and shelter.

Money in an UTMA may be used to pay for certain expenses relating to the minor. Which of the following would be permitted usage of funds in an UTMA?

Placement Layering Integration

Money laundering generally takes place in the following three stages:

2.00%.

Moonglow Specialties, Inc., is paying a quarterly dividend per share of $0.05. Based on a current share price of $10, the dividend yield is closest to

Mountain High Securities must meet the recordkeeping requirements of the SEC

Mountain High Securities is a broker-dealer registered in Wyoming and Colorado with its principal office located in Colorado. With reference to the Uniform Securities Act, it would be correct to state that

Write covered calls

Mr. Smith holds a portfolio of blue-chip stocks that have appreciated in value. To generate additional current income from his holdings, Mr. Smith would:

Assets 7 & 8: with a correlation coefficient of −0.88 The highest level of diversification will occur when the correlation coefficient is closest to −1.

Of the 4 pairs of assets below, which pair provides the highest level of diversification?

The quickest way to answer a question like this on the exam is to look for the largest negative number (in this question, -.78).

On the basis of these findings, combining which funds would provide the highest level of diversification?

The bond would be selling at a discount.

On the initial public offering, an investor buys a $10,000 Aa-rated, 20-year corporate bond with a 4% coupon rate. One year later, the prevailing market rate is 5% and the bond has had its rating increased to Aa1. Which of the following statements is most likely TRUE with reference to the current market price of this bond?

the CIP requires date of birth while the regulators only require proof of legal age The CIP has no interest in the goals of the investor, just the identity.

One major difference between the customer identification program (CIP) and the new account opening rules of the regulatory bodies is that

Goodwill Long-term debt Retained earnings Par value of the preferred stock

One measure of a corporation's liquidation value is its book value per share. When performing this computation, which of the following must be taken into consideration?

the coupons were reinvested at a rate below the yield to maturity

One measure of an investor's total return is called holding period return. The computation includes both income and appreciation and is used for both debt and equity securities. An investor's holding period return would be less than the bond's yield to maturity if

Participation rate

One of the features of an index annuity is the ability for the principal value to increase based on the performance of the specified index. Which of the following is NOT used as a method to compute the amount of interest to be credited to the account?

Forward contracts may not be offset without permission In a forward contract, however, both parties involved in the contract must agree before the contract may be bought or sold.

One of the main differences between futures contracts and forward contracts is that:

a house call Margin call: Set by the Federal Reserve Board under Regulation T. This is the initial 50% deposit required when purchasing securities on margin. Minimum maintenance: Set by the SROs. This is the minimum equity that must be maintained in a margin account. Should the equity fall below the minimum required, a maintenance call (sometimes called maintenance margin) will go out demanding an immediate deposit of enough equity to bring the account above the required level. House maintenance: Set by the individual broker-dealer firm. As a cushion, and to reduce the possible sellout caused by failure to meet a maintenance call, most firms set a minimum equity level above the SRO minimum. Falling below this amount triggers a house call.

One of your clients has a margin account. There is a drop in the value of the stock owned in the account, and additional funds are required based on the terms of the firm's margin agreement. This would be known as

it may contribute a specified percentage of the employee's pay to a regular 401(k) In order to have matching contributions, participants in a Roth 401(k) plan must actually have 2 accounts—the Roth and a regular 401(k).

One of your clients has told you that his employer has just instituted a Roth 401(k) plan. If the employer wishes to make matching contributions,

This is not permitted because a prohibited party will benefit.

One of your clients wishes to reallocate the assets in his 401(k) plan. Specifically, he plans to assist his parents in the purchase of a retirement home. He claims that it makes sense to have about 10% of his plan assets in real estate.

a Totten trust. A Totten trust allows for the transfer of ownership of a bank account to a beneficiary or beneficiaries after the owner's death.

One of your customers has a substantial savings account at the local S&L. The customer has several grandchildren and wants the flexibility of being able to change the beneficiary allocations as their financial conditions change. You should recommend that the customer investigate the use of

there is no statutory limit on the number of investors in an LLC There is no limit to the number of investors (members) in an LLC, while current regulations limit the number of investors (shareholders) in an S corporation to 100. The tax treatment is the same, and both can be formed with a single owner.

One respect in which an LLC differs from an S corporation is that

shall obtain client consent before completion of the transaction In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: The client receives full written disclosure as to the capacity in which the adviser proposes to act Consent of the client

One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser

shall obtain client consent before completion of the transaction In order to act as an agent (or principal) in a trade with an advisory client, there are 2 requirements: The client receives full written disclosure as to the capacity in which the adviser proposes to act Consent of the client Both of these are required before the completion of the transaction.

One way in which an investment adviser acting in the capacity of an agent in a transaction with a client differs from a broker-dealer performing the same task is that the investment adviser

fines of up to $5,000 and/or imprisonment for up to 3 years

Penalties for violations of the Uniform Securities Act include

Investment expenses, such as taxes and transaction costs, are relevant in investment decision making.

Professor William Sharpe stipulated that certain assumptions must be present for the capital asset pricing model (CAPM) to be useful. Which of the following is not one of these assumptions?

1. Investment adviser has custody of funds or securities 2. Investment adviser has full discretionary authority over a client's account 3. Investment adviser requires prepayment of advisory fees in excess of $1,200 and six months or more in advance (for federal covered advisers) 4. Investment adviser requires prepayment of fees in excess of $500 and six months or more in advance (for state-registered advisers)

Recognize when an audited balance sheet must be provided by an investment adviser

manages $13 million in assets for 4 clients Under the Dodd-Frank Bill, investment advisers with less than $100 million in assets under management must register with the states.

Registration with the state as an investment adviser would be required for a person with an office in this state who

all investors must be qualified clients.

Reticent Asset Management (RAM) is claiming an exemption from registration with the state because it is an adviser to private funds. One of the requirements to qualify for this exemption is

8.19% Because anytime a bond is purchased at a premium over par (103½% is a premium), the YTM must be less than the nominal (coupon) rate.

Richard purchased a 30-year bond for 103½ with a stated coupon rate of 8.5%. What is the approximate yield to maturity for this investment if Richard receives semiannual coupon payments and expects to hold the bond to maturity?

Form D.

Sales made under the provisions of Rule 506(b) of Regulation D must be reported on

be required to obtain registration as a registered investment adviser representative

Sally is registered as an agent with ABC Securities Co., a major brokerage house with offices in most states. ABC has recently introduced a fee-based asset management program and has asked Sally to devote one hour per day soliciting her existing clients for this program. Under the USA, Sally would

It must be filed within 10 days of acquisition of the stock It must be filed with the SEC, the issuer, and the appropriate exchange It must disclose the purchaser's purpose for acquiring the stock

Schedule 13D is required to be filed with the SEC by any person, or those acting together, who acquire more than 5% of the voting stock of a public corporation. Which of the following statements is TRUE regarding Schedule 13D?

bonds issued by the city of Berlin, Germany

Section 402(a) of the Uniform Securities Act contains a lengthy list of securities that are exempt from the registration and advertising filing requirements of the Act. Included in that list would be all of the following EXCEPT

discount rate.

Selmer Jones has just inherited some money and wants to set some of it aside for a vacation in Hawaii one year from today. His bank will pay him 5% interest on any funds he deposits. In order to determine how much of the money must be set aside now and held for the trip, he should use the 5% as a

less than 4.6%. A bond with a 6% coupon is showing a YTM below 6%, the bond must be selling at a premium. When bonds selling at a premium are called in advance of the maturity date, the "loss" (the difference between the premium and the par value") is recognized sooner than expected. This results in a yield to call (YTC) that is less than the YTM.

Several years ago, an investor purchased an investment-grade bond with a 6% coupon. Today that bond is priced to yield 4.6% to maturity in 5 years. If the bond is called at par in one year, the bond's yield would be

Sharon must be registered in State X in order to accept the order

Sharon Smith is an agent for Highwater Securities, a broker-dealer registered in all 50 states. Sharon receives an unsolicited order from a bank located in State X, a state in which she has no place of business. Under the Uniform Securities Act,

because Sharon has no place of business in State X, she does not have to register as an IAR in State X.

Sharon Smith is an investment adviser representative with Highwater Advisers, a federal covered investment adviser with its principal office in State X. Sharon provides advisory services to a bank located in State X, a state in which she has no place of business. Under current regulations,

S corporations

Small corporations that satisfy certain criteria can elect not to pay income tax at the corporate level but instead pass their earnings through to their shareholders. These corporations are known as

blogs blogs are interactive

Social media can be static or interactive. Examples of static content typically available through social networking sites include all of the following EXCEPT

Traditional research reports and related publications − Discussions with research analysts − Software for analyzing portfolios − Certain types of trading software − Market and economic data services − Coverage of attendance fees for a conference/seminar where company executives discuss their company's performance

Soft dollar arrangements may be used to acquire

Regulation S-P egulation FD requires public companies to make full disclosure of material information to all investors at the same time. HIPAA deals with privacy regarding health matters, and the ACA is the Affordable Care Act—better known as Obamacare.

The federal law dealing with privacy matters for financial institutions is

Investment adviser representatives The USA specifically excludes IARs from its definition of investment adviser. Excluded are banks but not subsidiaries offering investment advice. Once broker-dealers receive special compensation, such as in a wrap fee program, they lose their exclusion. Economists are not included in the list of exclusions.

State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act?

compensation earned on dealings with clients It is compensation beyond that paid by the client (such as a sales award or other prize) that must be disclosed.

Strategic Capital Asset Managers (SCAM) is preparing its Form ADV Part 2B relating to certain individuals. On this form, SCAM must disclose all of the following information EXCEPT

Not considered an agent since she is not involved in sales or trading

Susan is a high-ranking official in the Comptroller's Office of Zanzibar Securities. Her title is Executive Vice President. Under the Uniform Securities Act, Susan is:

The death benefit from a life insurance policy passes tax-free to its beneficiary. However, if the deceased owned the policy, the death benefit will be included in his estate for the purpose of calculating estate taxes

Taxation of life insurance policies

copy of the IA's Form ADV a filing fee

The Administrator may require which of the following from a federal covered adviser?

$100 per share Parity means equal. With a conversion ratio of 8 shares per bond, the investor can convert the bond into 8 shares. If the bond is currently selling for $800, then, to be of equal value (parity), the 8 shares must be selling at $100 each.

The DERP Corporation has an outstanding convertible bond issue that is convertible into 8 shares of stock. If the current market price of the bond is 80, the parity price of the stock is

when the client is an investment company when the contract is for an impersonal advisory service requiring payment of less than $500

The Investment Advisers Act of 1940 requires delivery of a brochure containing information about the adviser's background and business practices in all of the following situations EXCEPT

an adviser whose only clients are banks Advising banks only does not qualify one for the exemption. Advisers who only service insurance companies or venture capital funds are exempt, as are advisers performing intrastate who do not give advice to private funds or on listed securities.

The Investment Advisers Act of 1940 would consider each of the following investment advisers to be exempt from registration EXCEPT

for two individuals employed by the same broker-dealer and with the same category of license to share in commissions without telling the client

The NASAA Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents contains an extensive list of prohibited practices. However, it would NOT be considered a violation

results do not reflect the deduction of fees actual market conditions during the referenced period are not disclosed the advertisement did not disclose that it applied to only a specific group of clients

The SEC has determined that advertising regarding past recommendations made by investment advisers is misleading if

results do not reflect the deduction of fees actual market conditions during the referenced period are not disclosed the advertisement did not disclose that it applied to only a specific group of clients

The SEC has determined that advertising regarding past recommendations made by investment advisers is misleading if

5 years

The SEC requires investment advisers registered under the Investment Advisers Act of 1940 to maintain certain books and records for a minimum of

minus the risk-free rate for the period divided by the security's standard deviation

The Sharpe ratio is the average annual return of a security

excess return earned compared to its total risk.

The Sharpe ratio measures a stock's

any offer or sale to a pension or profit-sharing trust as long as the plan has assets of no less than $750,000 In general, the USA does not consider a transaction with an employee benefit plan to be exempt unless the plan has assets of at least $1 million.

The USA considers certain transactions to be exempt from the requirements to register and the filing of advertising material. Included in that group are all of the following EXCEPT

Agents (the employees involved in securities transactions) Issuers Banks, savings and loan companies, savings institutions, and trust companies (Bank holding companies or bank subsidiaries are not excluded from the definition.)

The USA excludes the following persons from the broker-dealer definition:

Maintains a sufficient level of net capital

The Uniform Securities Act authorizes the Administrator to waive the surety bond requirement for a broker-dealer if the firm:

either oral or written qualification examinations of investment adviser representatives and officers of investment adviser partnerships or corporations officers of investment advisers to pass a qualification examination an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in the state investment adviser representatives to pass a qualification examination

The Uniform Securities Act authorizes the state Administrator to require

Any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association Any investment contract issued in connection with an employees' stock purchase, savings, pension, profit-sharing, or similar benefit plan if the Administrator is notified in writing 30 days before the inception of the plan

The Uniform Securities Act contains a number of security exemptions. The Act empowers the Administrator to revoke the exemption for which of the following?

A gift of assessable stock An investor exercising preemptive rights previously received directly from the issuer

The Uniform Securities Act defined many terms. Among them is the term sale. Which of the following would be included in the definition of sale?

waiving the requirement to take the licensing exam due to prior experience issuing a cease and desist order issuing a subpoena for a witness to appear at a hearing NOT: citing a witness for contempt of court for failing to appear at a hearing

The Uniform Securities Act invests a great deal of power in the Administrator. These powers include all of the following

matched orders Although all of these practices are prohibited, only matched orders are an attempt to manipulate market prices.

The Uniform Securities Act prohibits broker-dealers from engaging in activity that has the effect of manipulating stock market prices. These would include:

U.S. government securities municipal bonds issued by another state

The Uniform Securities Act provides an exemption from registration for certain securities and for certain transactions. However, the Administrator is not empowered to deny an exemption from state registration to

15 x 1. after the 7.5 to 1 split, the market price will drop to $30 per share ($225 ÷ 7.5) and the earnings per share are now $2 per share ($15 ÷ 7.5). That 30:2 is still a 15-to-1 P/E ratio.

The Zxion Corporation has just distributed a 7½ to 1 split of its common stock. Prior to the split, Zxion had EPS of $15, the market price of Zxion common stock was $225 per share, and the price of its $75 par preferred stock was $82.50. As a result of the split, the price-to-earnings (P/E) ratio is now

the consent to service of process

The agreement that the Administrator can receive subpoenas on behalf of a registered agent, broker-dealer, or investment adviser involved in any securities sale that violates the Uniform Securities Act is

3 times the amount of the profit gained or loss avoided on the transaction

Under the Insider Trading and Securities Fraud Enforcement Act of 1988, a person who has violated the prohibition against insider trading is liable for a civil penalty of

the Russell 2000 The appropriate benchmark for a small-cap fund is the Russell 2000 because it is composed of similar companies.

To assess the performance of a small-cap stock fund you compare its results against

Sophisticated investment strategies (advantage)

The disadvantages of hedge funds for investors include all of the following choices, EXCEPT:

expected return

The capital asset pricing model (CAPM) is most commonly used to determine an investor's

10.0% 12% (the return on the market is a beta of 1.0) minus the risk-free rate of 2%, or 10%. Then, multiply that by the beta of this stock (0.8) to arrive at 8%. That is, the stock should return 8% above the risk-free rate of 2%, or 10%. The correlation coefficient is not relevant to this computation.

The capital asset pricing model (CAPM) is used by many to assess the expected return of a security. If the current risk-free rate is 2%, the current return on the market is 12%, and a particular stock's beta is 0.8 with a correlation coefficient of 0.60, the expected return would be

long term

The capital gains distributions that are made by mutual funds are assumed to be __________. The reason for this is that any short-term capital gains that are realized by mutual funds are automatically included with the ordinary dividends.

5% In this case, it is the annual interest of $55 ($1,000 x 5.5%) divided by $1,100 and that equals 5%.

The current yield on a bond with a coupon rate of 5.5% selling at 110 is

the ability for others to change it

The most common way in which to distinguish whether social media content is static or interactive is

Hedge

The offering document for a fund states that the minimum initial investment is $500,000. This is most likely what type of fund?

longevity risk.

The owner of a fixed annuity is protected against

Her initial investment plus any unpaid amounts to which she had committed to pay

The potential loss for a limited partner in a real estate limited partnership is limited to:

the internal rate of return (IRR).

The rate that produces a net present value of a series of discounted cash flows equal to zero is called

the SEC

The responsibility for administering the Investment Advisers Act of 1940 lies with

is registered as such under the Investment Advisers Act of 1940

The term "federal covered investment adviser" would apply to a person who

An employee who solicits new business for an adviser A supervisor who oversees employees who manage client portfolios for an adviser

The term "investment adviser representative" includes which of the following?

The blending of illicit money with legitimate money

The term "layering" refers to:

maintenance margin

The term used to describe a broker-dealer contacting a margin account client with a demand for additional funds is

central tendency

The terms mean, median, and mode are all measures of

the internal rate of return

The time value of money is part of the computation for

ease of formation

There are many different legal ways to structure a new business entity. One of these is the general partnership. Among the benefits of using this structure would be

Sole proprietorship Subchapter S corporation Investments

There are many sources of taxable income to an individual. Included might be money received from which of the following?

cancellation withdrawal Cancellation and withdrawal are nonpunitive methods of termination of a person's registration. Suspension, revocation, and denial are considered forms of punishment.

There are several ways that a securities professional's registration can be terminated. Nonpunitive termination of a securities professional's registration could be done through

IARs

Therefore, __________ whether they work for state-regulated or federal-regulated investment advisers, must be registered in at least one state. An IAR of a federal covered adviser is required to register in any state in which he maintains an office.

the plan must offer at least 3 different investment choices, such as a stable value option, an income option, and a conservative growth option

To comply with Section 404(c) of ERISA,

Providing Advice about securities 2. Offering this service as a regular part of doing Business 3. Receiving Compensation for these services

To meet the definition of an investment adviser, a person must satisfy all three parts of the ABC test by:

. Make a reasonable inquiry into the customer's background 2. Provide only suitable recommendations

To satisfy the Know Your Customer part of this obligation, an adviser must:

The client is violating federal criminal laws. The transaction involves funds related to illegal activity. The transaction is designed to evade the reporting requirements (structured transactions). The transaction has no apparent business or other legitimate purpose and the broker-dealer cannot determine a reasonable explanation after examining all the available facts and circumstances surrounding the transaction

Today, a firm must file an SAR whenever a transaction (or group of transactions) equals or exceeds $5,000 and the firm suspects one of the following activities:

the amount of commission charged Commissions must always be disclosed. Markup or markdown has to be disclosed under certain, but not all, situations. The trade price, not the current market price, is always disclosed.

Trade confirmations sent by broker-dealers to their customers must always include

stock risk premium market risk premium

Two of the major factors involved in the capital asset pricing model (CAPM) are

makes advice his regular activity is compensated directly or indirectly for advice

Under IA-1092, an investment adviser

purchasing shares from advisory clients that were originally acquired as a result of the adviser's previous buy recommendation

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

Material conflicts of interest must be disclosed in writing before rendering advice. Material conflicts relating to the adviser, adviser representative, or adviser employees must be disclosed.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements about material conflicts of interest is (are) TRUE?

Material conflicts of interest must be disclosed in writing before rendering advice. Material conflicts relating to the adviser, adviser representative, or adviser employees must be disclosed. NOT TRUE: Any conflicts of interest must be disclosed either orally or in writing before rendering advice.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements about material conflicts of interest is (are) TRUE?

An adviser may use a report prepared by someone else if the source of the report is disclosed.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements regarding the distribution of reports prepared by 3rd parties that are not affiliated with the adviser is TRUE?

An affiliated broker-dealer The SEC, FINRA, and the IRS are regulatory agencies that could obtain the information without the client's approval.

Under NASAA's Statement of Policy on Unethical Business Practices, an adviser may NOT release unauthorized client information to:

Advisers may not charge fees that are unreasonably high in relation to fees charged by other advisers for similar services

Under NASAA's Statement of Policy on Unethical Business Practices, which of the following statements is TRUE regarding investment advisory fees charged to customers?

issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state

Under Section 401 of the Uniform Securities act, the term agent does not include an individual who represents an issuer in effecting transactions in a security

net redemptions

Under adverse market conditions, it is not unusual for mutual fund investors who had been investing on a regular basis to cease or reduce their level of financial commitment. This can have the effect of

picks the specific security that is the subject of a transaction

Under both federal and state law, the concept of a discretionary account is defined. It would be considered discretion when an agent

A publisher of a newsletter that is paid to make reports to be used in the sale of specific securities

Under both state and federal law, there are a number of exclusions from the definition of investment adviser. Which of the following would not qualify for an exclusion?

pleading no contest to a misdemeanor involving a financial matter 65 months ago An individual who is convicted of, or has pleaded guilty or no contest to, any felony or certain misdemeanors in the previous 10 years (120 months) is subject to statutory disqualification.

Under federal law, an application for becoming an associated person of a broker-dealer would be denied for an individual

When authority is given by a written document

Under industry regulations, when may an agent be given discretionary power to buy or sell securities for a client?

a limited partnership with partners as passive investors An investment company is not a limited partnership. Investment companies are organized as open-end companies (mutual funds), closed-end companies, unit investment trusts, or face-amount certificate companies

Under the 1940 Investment Company Act, an investment company may take all of the following forms EXCEPT:

Assistance concerning its compliance responsibilities

Under the Investment Advisers Act of 1940, offering which of the following goods or services would be a violation of soft-dollar practices if the broker-dealer provides them to the adviser in exchange for executing transactions?

The person regularly gives advice on securities. The person receives compensation from rendering advice on securities.

Under the Investment Advisers Act of 1940, which of the following criteria are considered in determining whether a person is in the business of rendering investment advice?

The contract may not be unilaterally assigned to another adviser.

Under the Investment Company Act of 1940, which of the following statements about advisory contracts between an investment company and an outside adviser is TRUE?

a check from a client for a purchase that is made payable to a third party and does not forward the check within 3 business days stock certificates from a client and does not return them within 3 business days

Under the NASAA Model Custody Rule, an investment adviser would be considered to have custody of client assets if that adviser inadvertently receives

notification was given to the Administrator and custody was not prohibited by that state's rules

Under the NASAA Model Rule on Custody Requirements for Investment Advisers, an investment adviser would be permitted to maintain custody of customer cash and/or securities if

registered with the SEC under the Investment Advisers Act of 1940 excluded from the definition of investment adviser under the Investment Advisers Act of 1940

Under the NSMIA, the term "federal covered adviser" includes a person

20

Under the Securities Act of 1933, a registration statement for a security generally becomes effective how many days after it is filed?

Institutional investment managers who exercise discretion over accounts valued at $100 million or more of 13(f) securities must file reports quarterly. The requirement for reports of beneficial ownership is that anyone who becomes the owner of more than 5% of a security registered under the Securities Exchange Act of 1934 must file a report within 10 days; therefore, neither 2 days nor 5 days is correct

Under the Securities Exchange Act of 1934, which of the following statements regarding reports required to be filed with the SEC is TRUE?

Both New York and Ohio Administrators have jurisdiction over offers made in the originating state (New York), the state to which the offer is directed (Ohio), and the state in which the offer is accepted.

Under the USA, if an agent in New York calls a prospective client in Ohio recommending the purchase of a listed security, the Administrators of which state(s) has (have) jurisdiction?

The Administrator requires all broker-dealers to post bonds even if they maintain net capital in excess of minimum amounts. Firms that maintain net capital in excess of minimum requirements may be exempted from the requirement of posting surety bonds. Agents exercising discretion over client accounts may be required to post a surety bond.

Under the USA, which of the following statements regarding the posting of surety bonds is NOT true?

Ralph must open the account and name himself as the custodian.

Under the Uniform Gifts to Minors Act, Ralph wants to give some stock to his brother's son, Jose. His nephew's father, Bob, is the legal guardian. If Ralph wants to name himself as custodian, which of the following needs to be done?

not required to be a registered investment adviser in the state The Uniform Securities Act excludes futures contracts from the definition of security. To be defined as an investment adviser, the advice must be on securities.

Under the Uniform Securities Act, a person who is in the business of providing advice on trading futures contracts in addition to advising clients on securities issued or guaranteed by the U.S. government is

Represents an issuer in effecting exempt transactions

Under the Uniform Securities Act, all of the following meet the definition of an agent, EXCEPT an individual who:

This security is approved by the Administrator. reasoning: The state Administrator does not approve any security.

Under the Uniform Securities Act, an agent may NOT make which of the following statements to a customer?

State of Michigan City of Calgary, Alberta Any state or Canadian province, or political subdivision thereof, is considered an exempt issuer.

Under the Uniform Securities Act, securities issued by which of the following entities are included in the definition of exempt security?

When the Administrator has not prohibited custodial arrangements When the adviser has notified the Administrator that he has custody

Under the Uniform Securities Act, when may an investment adviser legally have custody of money or securities belonging to a client?

The exercise of an option A gift of assessable stock

Under the Uniform Securities Act, which TWO of the following transactions would be considered a sale?

Lawyers Teachers Lawyers, accountants, engineers, and teachers are excluded from the definition when the advice provided is incidental to the practice of their profession.

Under the Uniform Securities Act, which of the following are excluded from the definition of investment adviser, provided the advice is incidental to their profession?

A corporation that sells interests in an oil and gas limited partnership to investors with the proceeds going to the issuer Options were: An issuer A credit union that sells its own stock A corporation that sells interests in an oil and gas limited partnership to investors with the proceeds going to the issuer An agent

Under the Uniform Securities Act, which of the following is a broker-dealer?

An individual who effects securities transactions for commissions The Uniform Securities Act defines an agent as any individual (other than a broker-dealer) who represents a broker-dealer in effecting securities transactions.

Under the Uniform Securities Act, which of the following is an agent?

A broker-dealer who gives advice for which he charges a specific fee

Under the Uniform Securities Act, which of the following persons has to register as an investment adviser?

Federal covered securities must be registered with the states. Federal covered securities are not required to be registered with the states, but issuers of federal covered securities may be required to pay fees to the states (notice filing). Private placements (Regulation D) and investment companies both describe types of federal covered securities.

Under the Uniform Securities Act, which of the following statements about federal covered securities is NOT true?

It is used to cover the costs of possible legal actions.

Under the Uniform Securities Act, which of the following statements is TRUE regarding the posting of a surety bond by a broker-dealer?

A registration becomes effective at noon, 30 days after the application has been filed, providing the registration is not in the process of denial.

Under the Uniform Securities Act, which of the following statements relating to the registration requirements of investment advisers is TRUE?

An issuer would be: An accountant A lawyer An engineer

Under the Uniform Securities Act, which of the following would NOT be considered a broker- dealer?

An agent sells U.S. Treasury notes to an individual client Even though the bonds are an exempt security, the sale to an individual client is not an exempt transaction. Sales to institutions, sales by fiduciaries, or unsolicited transactions are all exempt.

Under the Uniform Securities Act, which of the following would NOT be considered an exempt transaction?

Name Date of birth (for an individual, not a business) Address (For an individual this must be a residential or street address. For other corporate accounts, it must a principal place of business or local office.) An identification number:

Under the new regulations, the minimum information required to be obtained from a customer includes:

XYZ is a federal covered security

Under the registration provisions of the Uniform Securities Act, it is unlawful for an agent in the state to sell XYZ securities unless

Required to pay an initial and renewal filing fee to State A Since the Advisory firm has assets under management of less than $100 million, it must register with State A and pay a registration fee and annual renewal fee

Walck Asset Management has $67.5 million in assets under management. Under the Uniform Securities Act (USA), if Walck transacts business with clients in State A, it is:

securities issued under Rule 506(c) are federal covered, while those under Rule 506(b) are not Under the NSMIA, any security issued under the federal transaction exemption offered under Rule 506, either (b) or (c), is considered a federal covered security.

Ways in which offerings under Rule 506(c) of Regulation D of the Securities Act of 1933 differ from those under Rule 506(b) include each of these except

A soft-dollar arrangement In a soft-dollar arrangement, an investment adviser sends client transactions to a particular broker-dealer even though that broker's commissions may not be the lowest ones available. In return, the investment adviser receives research or other services from the broker-dealer

West Side Advisers manages several mutual funds. It uses South End Brokerage to execute many of its transactions, even though South End charges higher commissions than many other brokerage firms. West Side has access to all of South End's research reports. This is an example of:

The commissions on transactions in a fund's portfolio

What are 12b-1 fees used to pay?

The names and addresses of the agents the broker-dealer intends to register

What information is not included on the application for registration of a broker-dealer?

Proceed with the account, but make a supervisory person aware of this.

What is the appropriate procedure to follow when a customer fails to sign the form provided by the investment adviser stating that he has received a copy of the investment adviser's brochure?

It can be discriminatory. However, non-qualified plans are not required to be offered to all employees (i.e., they may be discriminatory), which is the main advantage for an employer.

What's an advantage of a non-qualified retirement plan over a qualified retirement plan?

It reduces estate taxes and speeds up the probate process

What's the benefit to creating a will?

disclaiming the IRA When one wishes to refuse (abjure) the receipt of an IRA, the procedure is known as disclaiming the IRA.

When Felicity died, she left her estate, including her IRA, to her daughter, Courtney. Because of her financial circumstances, Courtney decided to abjure the inheritance. This would lead to her

After the purchase has been completed, if requested

When a client purchases mutual fund shares from a broker-dealer, she receives a summary prospectus. When will the broker-dealer send the client a statutory (final) prospectus?

highly leveraged

When a company's debt-to-equity ratio is higher than typical for that industry, it might be said that the company is

As ordinary income based on an exclusion ratio

When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed?

to the designated beneficiary without going through probate.

When a participant in a 401(k) plan dies before retirement, the proceeds are distributed

obtain a review of the order in an appropriate court of law request that additional evidence be presented to the court

When an Administrator issues a final order, an agent subject to the order may

unqualified Unqualified opinions of auditors are typically considered the best, since they're issued without reservation. On the other hand, a qualified opinion is issued when an auditor questions at least one part of a company's finances (e.g., unusual expense). Adverse opinions are issued when an auditor doesn't believe that a company's finances represent the true results.

When an accounting firm is auditing an issuer's balance sheet and income statement, which of the following auditor's opinions is the BEST?

ADV-E

When an adviser has custody of client funds and securities, Form __________ must be filed by an independent public accountant following the audit of the adviser's books

only the investment adviser representative must notify the Administrator promptly

When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office,

only the investment adviser representative must notify the Administrator promptly If you go to work for a federal registered investment adviser, it becomes your duty to notify the state securities Administrator that you are working there, as well as when you terminate.

When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office,

holding period return

When an investor's original value is subtracted from the ending value, and then has the income received over that time period added to it, which is then divided by the original cost, the result is

Approximately two-thirds, or 68%, of observations will be within one standard deviation on either side of the mean. Approximately two-thirds, or 68.26%, of observations will be within one standard deviation on either side of the mean. Approximately 95% will be within two standard deviations and approximately 99% will be within three.

When analyzing a security's standard deviation, which of the following statements accurately describes observations according to a normal frequency distribution curve?

With sales of investment company securities and variable contracts

When can an issuer use an omitting or summary prospectus?

stronger governance.

When comparing a private equity fund to a public one, it would be incorrect to state that the private fund has

the length of time the fund manager has been managing the fund

When comparing mutual funds, one of the factors to consider is

If a client refuses to supply complete information about her financial resources, the adviser may assume she has other assets that have not been disclosed If a client refuses to disclose fully her assets, an adviser must assume that the only assets the client has are those that have been disclosed.

When considering the suitability of investment advice, which of the following statements is NOT TRUE?

only preemptive rights and warrants are issued by the underlying corporation.

When contrasting call options, preemptive rights, and warrants, it would be correct to state

maintain custody of client funds and securities, whereas an IAR may not be required to be bonded, whereas an IAR may not be required to maintain a minimum net worth, whereas an IAR may not

When describing the differences between an investment adviser and an investment adviser representative, it would be correct to state that the investment adviser may

Information about the client's life insurance policies

When determining the risk tolerance of a client, which of the following choices will an investment adviser representative consider to be the LEAST important?

An IA or IAR is permitted to publish testimonials if (1) they are shown as they originally appeared on an independent third party social media site, (2) are unedited (3) the IA or IAR has no direct or indirect influence or control over the independent site.

When is an IA or IAR permitted to publish a testimonial regarding the adviser?

A "like" from a client on an investment adviser representative's Facebook post that announced the birth of her most recent child

When it comes to advertising by investment advisers and their representatives, which of the following would most likely be acceptable to the SEC?

If the adviser makes trades in his own account that are inconsistent with advice given to a client If the adviser makes trades that are designed to take advantage of the impact caused by recommendations to clients

When must an investment adviser disclose personal securities transactions to a client?

Due to the daily resetting of the portfolio, a leveraged ETF's performance does not provide true tracking of the underlying index over long periods

When recommending a leveraged ETF to a client, an agent should disclose that:

disclose the potential conflict of interest

When the compensation arrangements or incentives for the broker-dealer or its agents could affect whether employees recommend or offer a particular security or transaction to a client, it is required that the firm

Defined benefit plan The investment policy statement (IPS), although not required under Department of Labor (DOL) rules, is generally found in corporate qualified plans, such as the defined benefit or defined contribution plan.

Where would you be most likely to find an IPS?

An account with $2,500,000 under management A partner of the investment adviser with annual income of more than $200,000

Which TWO of the following clients may enter into an advisory contract that includes a performance-based fee?

Royalties Long-term disability benefits received prior to minimum retirement age

Which TWO of the following items does the IRS consider earned income?

Bonds with long durations Bonds with low coupons bonds with low coupons are more sensitive to interest changes than bonds with high coupons.

Which bonds would have the greatest sensitivity to interest rate changes?

Investment performance of the fund

Which factor is least important when assessing a defined benefit pension?

Weak

Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns?

Weak The weak form holds that current stock prices reflect all historical market data and that historical price trends are, therefore, of no value in predicting future prices. However, this form holds that credible fundamental analysis and insider information may produce above-market returns

Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns?

Indexing

Which investment style does NOT take into consideration whether a specific security is under or overvalued?

Individual Joint tenants with rights of survivorship

Which of the following accounts could be opened with a TOD designation?

Announcing that the first 50 new clients to sign up will receive a 25% discount on their fees for the first year

Which of the following actions by an investment adviser registered in 3 states is permitted?

Review with the client the risks involved when trading options before the first options trade

Which of the following actions should be taken by an agent when a client decides to open an options account?

Market appreciation of portfolio securities Market decline in the value of portfolio securities not: The sale of securities from the portfolio Automatic reinvestment of dividends by the shareholders

Which of the following activities would have an effect on the NAV of a mutual fund?

An investment advisory partnership admits a renowned securities analyst to the partnership without informing its clients of this highly desirable addition. An investment advisory firm incorporated in Illinois charges clients a share of the capital gains on the basis of a guaranteed performance level above a designated benchmark.

Which of the following activities would violate the Uniform Securities Act?

Charging a fee of 5% on the highest value of the account each month

Which of the following advisory fees is prohibited?

Charging the client a flat fee regardless of how much management has been provided

Which of the following advisory fees is prohibited?

Business Liquidity

Which of the following are considered unsystematic risks?

A customer sends a check for $25,000 to an agent and instructs the agent to purchase bank and insurance company stocks when the price appears favorable. A customer instructs an agent to purchase as many shares of XYZ as the agent considers appropriate.

Which of the following are discretionary orders?

An investment manager purchases 100,000 shares of XYZ on the NYSE. An investment adviser sells a block of YYY Corp. shares to an overseas investor in a private transaction. The president of Dot.com, Inc., sells his personal shares of Dot.com on the NYSE. Dot.com purchases its own shares on the open market in order to place them in treasury.

Which of the following are nonissuer transactions?

An investment adviser transferred a client's account to a brokerage house because the account went below the firm's minimum size and then informed the client. An investment adviser organized as a partnership did not notify its clients of the departure of a partner who had only a very small interest in the firm.

Which of the following are prohibited practices?

Broker-dealers Transfer agents

Which of the following are regulated under the Securities Exchange Act of 1934?

A consent to service of process A fee Disclosure as to whether the applicant will have discretionary powers over client funds and/or securities Disclosure as to whether the applicant will have custody of client funds or securities

Which of the following are required for an initial application for registration as an investment adviser?

Broker-dealers must maintain customer ledgers for 3 years. Investment advisers must keep partnership records for 3 years after the partnership is terminated.

Which of the following are required in order to be in compliance with the recordkeeping requirements of the Uniform Securities Act?

The portfolio consists of securities of companies domiciled throughout the world, including the United States.

Which of the following best describes a global mutual fund?

C corporation Because the C corporation is an entity separate from its shareholders, suitability for a C corporation account is based solely on the company itself.

Which of the following business accounts does not require considering the suitability of the owners?

Real assets Traditional investments include cash, bonds, and stocks, regardless of the adjective used. Alternative investments include four major categories: real assets, hedge funds, private equity, and structured products.

Which of the following categories of assets is most likely classified as an alternative asset?

Buy stop Buy stop orders are placed above the market, and as prices increase, the stops are hit, creating additional buying.

Which of the following could accelerate a rise in a bull market?

A mutual fund prospectus provided by e-mail Prospectuses for new issues (e.g., mutual funds) must be sent to a client who buys a new issue even if the customer doesn't specifically request it. Electronic delivery (e.g., e-mail) of a prospectus is acceptable without a client's consent.

Which of the following documents may be sent to a client without the client's consent?

Limited partnership Schedule K-1s are issued to owners of partnerships (limited or general), LLCs with more than one member, and S corporations. Sole proprietors use a Schedule C, C corporations report dividends and/or interest paid on a Form 1099, and the same is true for distributions from a REIT.

Which of the following entities would issue a Schedule K-1?

An assessment A partner's basis for tax purposes is generally composed of all his contributions to the partnership (both cash and property). An assessment requires the partner to give additional cash to the partnership, which would increase his basis. (63045)

Which of the following events would increase a partner's basis in a limited partnership?

A large-cap growth fund A large-cap growth fund is the most appropriate choice for a moderate-risk client because large capitalization stocks are generally less volatile than small-cap stocks and provide long-term capital growth

Which of the following funds would you recommend to a moderate-risk client seeking long-term capital gains who also values professional stock selection?

Common stock

Which of the following has the least exposure to inflation risk?

A firm whose exclusive business is placing clients' assets into model portfolios

Which of the following investment advisers would be permitted to use the term "investment counsel"?

Closed-end management investment companies Only the closed-end company is legally permitted to issue senior securities (preferred stock and bonds).

Which of the following investment companies registered under the Investment Company Act of 1940 can include senior securities in its capital structure?

Strategic asset allocation

Which of the following investment strategies is used to determine an appropriate allocation based on the long-term goals and risk tolerance of the client?

Holding more stock Holding less cash Holding fewer bonds

Which of the following investment strategies would be appropriate for an advisory client with a 20-year time horizon before retirement?

ETNs

Which of the following investments is not registered under the Investment Company Act of 1940?

Money market funds Money market funds are the most liquid investment. In virtually all cases, they come with check-writing privileges.

Which of the following investments is the most liquid?

Forwards

Which of the following investments would NOT be considered an exchange-traded derivative?

An investor using a buy-and-hold strategy dollar cost averaging into an S&P 500 Index fund. The strong form of EMH maintains that there is no information, public or private, that can assist an investor in achieving consistently superior investment returns. The strong form holds that stock prices follow a random walk and no technical analysis (price charting) or fundamental analysis (annual report or industry publication research) is of value in obtaining superior results

Which of the following investors aligns most closely with the strong form of the efficient market hypothesis (EMH)?

Acting as agent for both buyer and seller on a transaction

Which of the following is NOT a fraudulent business practice when committed by a registered broker-dealer?

Investing in a company with a large amount of debt outstanding When a person leverages a portfolio, he acquires a loan in order to buy more securities. This activity is done in a margin account, which allows him to magnify his investment results by increasing the number of shares or bonds that he is able to purchase.

Which of the following is NOT a leveraged investment strategy?

an attorny required elements are: A settlor's intention to create the trust Specific subject matter Trustee

Which of the following is NOT a required element of a trust?

Price-to-earnings ratio The P/E ratio is only used with common stock.

Which of the following is NOT a valuation method for a fixed-income security?

States in which the investment adviser is registered or intends to register INCLUDED: Types of investments made by the adviser A description of how the adviser is compensated Investment policy of the adviser

Which of the following is NOT included in Form ADV Part 2A?

The exchange and bond's rating Confirmations must include account information, execution price, and transaction fees.

Which of the following is NOT included on a trade confirmation?

General advertising is permitted, but all investors must be accredited. Under Rule 506(c) of Regulation D, issuers may raise an unlimited amount of capital and they may solicit all types of investors; however, the issuer can only accept accredited investors.

Which of the following is TRUE concerning the private placement of securities being distributed under Rule 506(c) of Regulation D?

A QDRO is a court order that provides an alternative payee the right to receive all or a portion of the benefits that are payable to a participant under a qualified retirement plan

Which of the following is TRUE of a Qualified Domestic Relations Order (QDRO)?

The number of potential investors is limited. sub chapter s are limited to 100 investors

Which of the following is a characteristic of a Subchapter S corporation, but is not a characteristic of a limited partnership?

Deferred compensation is not deductible to the employer. Non-qualified deferred compensation plans allow employees to wait to receive a part of their compensation (e.g., salary, bonus, etc.) in the current year. The employee is not required to pay taxes on their deferred income immediately; instead, they pay taxes when they're paid, often in retirement (i.e., the income is tax-deferred). Unlike the employer match in a qualified plan, employers are not permitted to deduct the deferred income.

Which of the following is a disadvantage of a non-qualified deferred compensation plan?

Implying that registration of a security means approval of the security

Which of the following is a fraudulent or prohibited activity for an agent under the Uniform Securities Act?

improve market completeness.

Which of the following is a motivation for creating structured products? Structured products

Price-earnings

Which of the following is a stock valuation ratio?

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

Which of the following is an allowable early withdrawal from a traditional IRA without a tax penalty?

A dealer charges commissions for securities it sells from its inventory and discloses the amount of the commission to the customer. Dealers who act as principals in transactions charge markups, not commissions.

Which of the following is an improper activity under the Uniform Securities Act?

Belief in the random walk theory Belief in efficient markets Use of index investing

Which of the following is associated with passive investment management approaches?

Variable annuities

Which of the following is designed primarily as a retirement vehicle to help protect contract owners from a decline in purchasing power?

Time-weighted return

Which of the following is generally believed to present a more accurate picture of a portfolio manager's performance?

Risk tolerance

Which of the following is least likely to be considered an investment constraint when preparing an investment policy statement?

Risk tolerance Options were: Legal and regulatory factors Liquidity needs Risk tolerance Tax concerns

Which of the following is least likely to be considered an investment constraint when preparing an investment policy statement?

Dow Jones Industrial Average Market cap-weighted indexes: FTSE 100 and FTSE All-Share S&P 500 Morgan Stanley Capital International

Which of the following is not a market cap-weighted index?

State licensing fee The consent to service of process is a permanent document submitted with the initial application for registration.

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

Investment companies investing money into other investment companies The firm that serves as a mutual fund's custodian and holds its assets

Which of the following is/are regulated under the Investment Company Act of 1940?

Accounts payable, wages payable, and short-term debt

Which of the following items would be included in a current ratio computation?

A client agrees to compensate an adviser on a percentage of capital gains in excess of the S&P 500 in return for guaranteeing the S&P return.

Which of the following methods of compensation to an investment adviser may be in violation of the USA?

A sales assistant who takes orders on behalf of agents in a branch office An administrative assistant who provides securities quotes to clients is not functioning as an agent and need not register.

Which of the following must register as an agent under the Uniform Securities Act?

Preferred stock fund

Which of the following mutual funds should an investment adviser representative recommend to a client whose objective is current income with moderate risk?

A broker-dealer with no office in the state that effects trades exclusively with other broker-dealers in the state A trust company with an office in the state that deals with the general public A broker-dealer with no office in the state that effects securities trades exclusively with trust companies or other broker-dealers

Which of the following persons are excluded from the definition of, or exempt from registration as, a broker-dealer under the Uniform Securities Act?

An investment adviser who manages client accounts and has less than $25 million in total assets under management An investment adviser representative with a place of business in the state

Which of the following persons are required to register in a particular state?

ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly.

Which of the following regarding the registration of investment advisers and their representatives is TRUE?

Payroll deduction plan

Which of the following retirement plans is NOT legally required to establish vesting, funding, and eligibility requirements?

Municipal securities Government securities Stock or bonds issued by an insurance company authorized to do business in this state

Which of the following securities is (are) exempt from registration under the Uniform Securities Act?

Real estate limited partnership programs (RELPs) Not; annuities dpp listed stock

Which of the following securities is eligible for a Section 1031 exchange?

Both provide flow-through of losses

Which of the following statements BEST describes the similarities between an S Corporation and a general partnership?

Diversification is a way to reduce unsystematic risk in a portfolio. Diversification is a defensive investment strategy.

Which of the following statements about diversification through asset class allocation are true?

The annuity feature protects investors from capital losses If an investor is interested in principal protection and a guaranteed rate of return, he should consider a fixed annuity.

Which of the following statements about variable annuities is FALSE?

Federal covered advisers are advisers with federally imposed exemptions from state registration as investment advisers. Federal covered securities include those issued by investment companies registered under the Investment Company Act of 1940.

Which of the following statements are TRUE?

Equities would grow relative to fixed income Lower taxes and transactional costs Easy to manage

Which of the following statements are generally TRUE of the buy-and-hold strategy?

Duration is a measurement of a given bond's sensitivity to interest-rate swings

Which of the following statements concerning duration is CORRECT?

Investors who accept the efficient market hypothesis (EMH) usually adopt an active investment strategy. Investors who accept the EMH usually adopt a passive investment strategy; investors who do not accept the EMH, pursue an active investment strategy.

Which of the following statements concerning market efficiency is not correct?

A final order may be appealed in the appropriate court within 60 days of the order being issued. No final order may be issued without the opportunity for a hearing.

Which of the following statements describes procedures under the Uniform Securities Act with regard to the issuance of orders by the Administrator?

A self-employed person may participate.

Which of the following statements describing traditional IRAs is NOT true of 403(b) qualified plans?

There is no bond requirement if the broker-dealer does not have custody or discretionary authority over client funds or securities The Administrator may require broker-dealers to post bonds if they have custody of or discretionary authority over client funds or securities. The bond may be waived if the broker-dealer's net capital exceeds a specified amount. The Administrator may determine this amount.

Which of the following statements is TRUE concerning the posting of a bond by a broker-dealer?

An investor must be informed that she should read the full prospectus

Which of the following statements is TRUE regarding an omitting prospectus for an investment company?

Futures contracts are standardized, and forward contracts are not standardized

Which of the following statements is TRUE regarding futures and forward contracts?

Dividends have a significant influence on the value of the corporation's stock.

Which of the following statements is TRUE?

Shareholders pay tax on income that was already taxed to the company

Which of the following statements is a disadvantage of investing in a C Corporation?

The investment adviser may be compensated on the basis of the average total assets of the portfolio over a period of time.

Which of the following statements is true about the compensation of a registered investment adviser?

I am a registered agent for the XYZ broker-dealer. This security I am recommending to you is registered on both the state and federal level.

Which of the following statements may be made by an agent of a broker-dealer?

After-tax contributions of up to an indexed maximum per student per year are allowed. Contributions may not be made for students past their 18th birthday.

Which of the following statements regarding Coverdell Education Savings Accounts are TRUE?

The letter may be backdated 90 days. Some shares purchased are held in escrow until the letter is completed. (valid for 13 months)

Which of the following statements regarding letters of intent used in connection with mutual fund purchases are TRUE?

The optimal portfolio will always lie above the efficient frontier. The optimal portfolio for an investor will always lie on the efficient frontier.

Which of the following statements regarding modern portfolio theory is not correct?

Duration measures the holding period return on a bond. Duration does not measure the holding period return on a bond; it measures the effect of an interest rate change on the price of a bond or bond portfolio. Duration measures a bond's price volatility by weighting the length of time it takes for a bond to pay for itself. Duration is also a weighted-average term to maturity of a bond's cash flows.

Which of the following statements regarding the properties of duration is NOT true?

Sales of registered nonexempt securities by agents to their individual clients The term "exempt transaction" includes sales by fiduciaries, private placements and isolated nonissuer transactions. Any solicited sale to an individual client, even of a properly registered security, is not an exempt transaction.

Which of the following would NOT be included in the USA's definition of "exempt transaction"?

An individual representing a registered broker-dealer in the sale of securities to the general public An assistant to the president of a broker-dealer who accepts orders from clients on behalf of the senior partners

Which of the following would be an agent as the term is defined in the Uniform Securities Act?

An individual representing a registered broker-dealer in the sale of securities to the general public An assistant to the president of a broker-dealer who accepts orders from clients on behalf of the senior partners Not: A subsidiary of a major commercial bank registered as a broker-dealer that sells securities to the public Under the USA, only individuals can be agents. A person who sells securities for a broker-dealer is an agent.

Which of the following would be an agent as the term is defined in the Uniform Securities Act?

Investors have pooled their money together

Which of the following would be common features of mutual funds and hedge funds?

Agents correcting execution orders in their customer's accounts

Which of the following would be considered an unethical business practice?

A loan is made to an investment adviser representative by one of her clients who happens to be the chief loan officer where she maintains her principal banking relationship.

Which of the following would be considered unethical under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers?

All of the stock in NLT Advisers, a corporation, is acquired by MMS Advisers, Inc. The Lucky Seven Partnership is an investment adviser with 7 partners. Four of the partners make a fortune and decide to retire. They are replaced by new partners. Albert is an investment adviser. His clients' accounts are automatically debited monthly for his fee. Because of this steady cash flow, his banker readily accepts a pledge of these accounts as collateral for a loan.

Which of the following would be deemed to be an assignment of an investment adviser's contracts?

Transfers, for value, of unit trusts to a nontaxable organization For a security to be sold, it must be exchanged for value.

Which of the following would be included in the Uniform Securities Act's definition of a "sale"?

The relationship between the current market price of an issuer's common stock and most recently reported earnings per share A chartist is interested in the volume of shares traded, and the short interest for that particular stock. The advance/decline line is another technical indicator. The price-to-earnings ratio is used in fundamental as opposed to technical (charting) analysis.

Which of the following would be of least interest to a chartist?

Flipping houses Flipping houses generally requires work on behalf of the investor. That makes it active rather than passive.

Which of the following would not generally be considered a passive form of real estate investing?

The Coverdell offers greater investment flexibility. A Coverdell ESA works similar to a self-directed IRA where stocks, bond, mutual funds, ETFs, and other investment vehicles are options. With a 529 plan, the donor is limited to whatever is available in the state plan chosen

Which of these is an advantage of using a Coverdell ESA rather than a 529 plan to fund a child's future education?

On average, variable annuities have lower fees and expenses than mutual funds Variable annuities have additional expenses that are not found in a mutual fund and as a result are more expensive.

Which one of the following statements regarding variable annuities is NOT TRUE?

Form ADV is filed with the SEC within 90 days of a federal covered adviser's fiscal year end, or with the state Administrator(s) within 90 days of the calendar year end.

Which statement about an investment adviser's annual renewal is TRUE?

Time-weighted returns are generally of more use than dollar-weighted returns to evaluate portfolio manager performance. Dollar-weighted returns are generally of more use than time-weighted returns to evaluate individual investor performance.

Which two of the following statements are CORRECT?

Information this particular investor needs in order to make an investment decision

While acting in a fiduciary capacity, what must an investment adviser provide to a customer who's intends to make an investment?

it is filed through the IARD system

With regard to a state-registered investment adviser using Form ADV Part 2 as its brochure, it would be correct to state that

a tactical approach to investing Because one of the key benefits to the wrap fee program is the elimination of transaction fees (commissions), it is most suitable for those who are active traders, such as those who take a tactical approach to investing.

Wrap fee accounts would tend to be most suitable for investors who follow

Defined contribution plan The obligation of the employer in a defined contribution plan is to add a specified contribution to the plan. Based on the performance of the investment, the employee will receive a lump sum upon retirement.

You are discussing features of qualified pension plans with a client. You state that in one type of plan "the eventual amount of pension benefits will depend upon the fund's investment performance." You must be referring to which of the following?

Annual renewable term Options were: Whole life Universal life Annual renewable term Variable life At any given age, term insurance always carries the lowest premium and, of the term policies available, annual renewable term always has the lowest initial premium.

You have a 37-year-old client whose wife has just given birth to triplets. Because of the added responsibilities, he wants to maximize the amount of life insurance he can acquire. Which of the following types of insurance will give him the greatest amount of coverage for the lowest initial premium?

an annuity. One of the unique characteristics of an annuity (variable or fixed) is that it guarantees monthly payments for the life of the annuitant.

You have a 70-year-old client who is in excellent health. Both parents lived into their late 90s and the client is concerned about outliving her money. One product that should be considered to alleviate this concern is

this exchange is considered a taxable event as of the date of the exchange.

You have a client who invested in the PQR Growth Fund 10 years ago and now, as retirement age approaches, asks you about using the exchange privilege to move into the PQR Balanced Fund. The client should know that

the new owner receives the $5 million death benefit.

You have a client who sold her $5 million whole life insurance policy through a life settlement broker. If she dies 2 years later,

The order was not triggered. The subject of the question is a limit order and then it asks for the trigger price. Stop orders are the only orders that have triggers so there is no trigger for this limit order. If the question had asked about the execution price, a buy limit order will be executed at the limit price or better (lower).

Your client turns in a buy limit order for 100 shares of ABC at $58. Following the entry of the order, trades occur at 59, 59, 58.80, 58.20, 58.40, 57.95, 57.85. At what price was this limit order triggered?

a JBE account requires the consent of both parties to make a trade.

Your clients, a married couple, are trying to decide whether to open an account as joint tenants with right of survivorship or tenants by the entirety. You might point out to them that one of the differences to consider is that:

FIFO When a customer does not choose a method, the IRS uses FIFO (first-in, first-out).

Your customer redeemed 200 of her 500 Kapco common shares without designating which shares were redeemed. Which of the following methods does the IRS use to determine which shares she redeemed?

ARG Stock Index Fund The customer requires a mutual fund that offers potential for long-term capital growth. Because the client believes that money managers cannot outperform the market, an index fund, which simply mimics the market, is the appropriate investment.

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?

the financial resources of the account the objectives of the account

Your manager is reviewing the activity in your customer accounts to detect trading irregularities. Among the factors the manager will look for to determine if churning is occurring are

Does not meet the definition of an agent under any circumstances Zack is not considered an agent under any circumstances since he is representing an issuer and is selling securities that are exempt from registration (bank-issued securities).

Zack is employed at Indiana Trust Company, a federally chartered bank. The CFO of the company asks Zack to help sell the bank's securities to some potential institutional clients as well as some select few retail investors who do not have accounts with the bank. Under the USA, Zack:

ETFs Some examples of ETFs include: SPDRs (Spiders), which tracks the S&P 500 Index QQQs (Cubes), which tracks the Nasdaq 100 Index DIA (DIAMONDS), which tracks the Dow Jones Industrial Average

_______ issue shares each of which represent an interest in an underlying basket of securities that mirror a specific index. Some ________ may also be linked to indexes that represent the securities of a particular country or industry.

static content; interactive content

__________ is content that remains posted until it is changed by the firm or an individual who established the account. __________content is generally real-time communications, such as the other three choices shown here.

Tenure

__________ refers to the length of time that a manager has been running a mutual fund portfolio.

adoption

___________ is the term used to describe material posted to a securities professional's social media site by a third party where the securities professional explicitly or implicitly endorses or approves of the content, but plays no role in its development.

interval funds

_____________ are a type of closed-end investment company. Unlike most closedend funds, interval fund shares don't trade on exchanges; instead, investors typically buy new shares directly from the fund (like shares of an open-end company). However, since interval funds are not exchange-traded, investors cannot easily sell their shares

Leveraged ETFs

______________ are products that use debt instruments orfinancial derivatives such as swaps, futures, and options to amplify the returns of a specific index.

affilliated person

______________ is an officer, director, partner, or employee of the investment company, the company's investment adviser, a member of the company's advisory board, or an owner of at least 5% of the company's voting stock

Tactical asset allocation

________________continuously adjusts the asset allocation in an attempt to take advantage of changing market conditions.

ETN

________________is a type of unsecured debt security, but differs from other types of fixed-income securities since ETN returns are often linked to the performance of an index (minus applicable fees). Some ETNs may be linked to a commodity or currency

structured product

__________are derivative securities that may be linked to a variety of underlying (reference) assets including a single security, a basket of securities, a stock index, a foreign currency, a commodity, the change in spread between asset classes, or an interest-rate or inflation-linked product. A structured product typically consists of a fixed-income instrument (a note) and a derivative product

12.5% The expected return = 5% + (10% - 5%) × 1.5 = 5% + (5% x 1.5) = 5% + 7.5% = 12.5%.

f the current risk-free rate is 5%, and the expected return from the market is 10%, what return should we expect from a security that has a beta of 1.5?

The Investment Adviser Registration Depository (IARD)

is also an electronic filing system that facilitates investment adviser registration, regulatory review, and the public disclosure of information. Although FINRA has no regulatory control over advisers, it developed and operates the IARD. More detailed information on Form ADV and the IARD will be found in the next chapter.

earned income

is the compensation a person receives for providing goods or services. It includes salaries, commissions, and wages earned through employment

Custody of client assets $35,000 at all times Limited discretionary authority over client accounts (but not custody) $10,000 Prepaid fees of more than $500, six months or more in advance Positive net worth at all times

minimum financial requirements

total net assets/number of outstanding shares

net asset value

= Dividends + Interest - Expenses

net investment income=

broker dealer: Form BD Agent: Form U4 IA: Form ADV parts 1 and 2 IAR: Form U4

registration forms:

arithmetic mean

regular mean =

The Central Registration Depository (CRD)

system is a computerized database that contains information about most broker-dealers and their agents. Information includes the states in which a person is registered, any reported disciplinary problems with regulators, and serious complaints from investors.

Distribute red herring - Receive non-binding indications of interest - Register securities at the state level (Blue-Sky) - Hold final due diligence meeting

when the cooling off period begins:

Variable life, as with whole life, has fixed premiums paid at fixed intervals

which statement is true

decreasing working capital decreasing net worth

A corporation calls in a portion of its long-term debt at 101. This will have the effect of

somewhat below $48 per share A conversion price of $40 means the debenture is convertible into 25 shares of the common stock (par of $1,000 divided by $40 = 25 shares). With a current market price of $1,200, the parity price of the stock would be $48 (1200/25). Because convertible securities generally sell at a slight premium over their parity price, the stock should have a current market value a bit less than $48 per share.

DERP Corporation's 5% convertible debentures maturing in 2030 are currently selling for 120. The conversion price is $40. One would expect the DERP common stock to be selling

Company A can be either open-end or closed-end; Company B must be closed-end. All open-end investment companies sell at NAV plus sales charge (if any). Therefore, the asking price can never be less than the NAV. Closed-end company asking prices are determined by supply and demand, so their prices are independent of the fund's NAV.

What can you tell about these investment companies from the information below? Company A nav 12.34 ask 12.85 Company B nav 15.45 ask 14.90

the agent, the former broker-dealer, and the current broker-dealer must all notify the Administrator

When an agent transfers employment from a broker-dealer registered with the SEC to a broker-dealer registered solely in this state

the geometric mean could never be greater than the arithmetic mean

When it comes to computing market returns, it is TRUE to state that

A Certified Financial Planner who, while affiliated with a broker-dealer and an investment adviser, prepares comprehensive financial plans and whose only compensation is commissions generated from the purchase of recommended securities. An insurance agent affiliated with the company's advisory division, who prepares comprehensive financial plans and receives compensation only on insurance products purchased by his clients

Which of the following is (are) not exempt from registration as an investment adviser representative in the state in which they conduct business?

An investment adviser who manages client accounts and has less than $25 million in total assets under management An investment adviser representative with a place of business in the state

Which of the following persons are required to register in a particular state?

An investment adviser who manages client accounts and has less than $25 million in total assets under management (100 million or less) An investment adviser representative with a place of business in the state

Which of the following persons are required to register in a particular state?

The minimum holding period required to qualify for long-term capital gains treatment is 1 day longer than 12 months. The highest federal income tax rate on long-term capital gains is less than the highest federal income tax rate on ordinary income. If an investor holds stock for 12 months or less and has no other transactions, any gain on the sale of the stock is taxed at the same rate as ordinary income.

Which of the following statements about capital gains are TRUE?

Earned income includes salary, bonus, and income as an owner of a limited partnership. Earned income includes salary and bonus but not income as an owner of a limited partnership. Passive income is derived from rental property, limited partnerships, and enterprises in which an individual is not actively involved. Each of the other choices is true.

Which of the following statements regarding taxation is NOT true?

When a good-faith error is made, only the firm can make the correction; the regulators are concerned that giving that power to an agent could lead to covering up unethical activity.

Which of the following would be considered an unethical business practice?

provides recommendations on securities to the firm's bank clients Unless subject to an exemption, any employee of an investment adviser (SEC or state-registered) who makes recommendations of securities, regardless of the client, must register as an IAR.

Strategic Capital Asset Managers (SCAM) is an investment adviser registered with the SEC. Registration as an investment adviser representative would be required of an employee who

Net present value A key component of a DCF computation is using the time value of money. None of these, other than NPV, consider the time value of money.

Which of the following is a discounted cash flow computation?

INCLUDED: investment advisers Attorneys Credit unions NOT INCLUDED: an agent, (2) an issuer, (3) a bank, savings institution, or trust company.

Which of the following is included in the definition of broker-dealer as found in the Uniform Securities Act?

7.95% First, compute Dan's after-tax rate of return of 10.95% as follows: .15 × (1 − .27), or .73 = .1095. Then, compute Dan's inflation-adjusted, or real, rate of return by subtracting the 3% inflation rate from his 10.95% after-tax return.

Dan is the owner of a mutual fund that returned him a before-tax return of 15% last year. Inflation is running at an annual rate of 3%, and Dan is in a 27% marginal income tax bracket. What has been Dan's approximate inflation-adjusted after-tax return on the fund over the course of the last year (rounded to the nearest 2 decimal points)?

be considered an assignment of the advisory contracts and would require consent of the clients.

In an effort to benefit from the economies of scale, Liquid Assets Management, Inc. (LAMI) and Strategic Assets Management Company (SAMCO), both registered with the Administrator as investment advisers, have merged into a new firm with the name of Strategic and Liquid Assets Management Company (SLAMCO). This would

As ordinary income based on an exclusion ratio Life with 20-year period certain is an annuitization option. When an annuity is annuitized, ordinary income taxes are paid based on an exclusion ratio (cost basis divided by expected return = how much of the distribution is a return of cost basis (the original principal invested), and not subject to income taxes).

When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed?