Simulated 2
If a retiree is paid an annual amount equal to 30% of the average of his last 3 years' salary, which of the following retirement plans offers this type of payment? A) Defined benefit pension B) Deferred compensation C) Profit-sharing D) Money purchase pension
A) Defined benefit pension A retirement plan that establishes the retiree's payout in advance is a defined benefit plan. Profit sharing and money purchase pension plans are defined contribution plans.
Which of the following have equity positions in a corporation? 1. Common stockholders 2. Preferred stockholders 3. Convertible bondholders 4. Mortgage bondholders A) I and II B) I and III C) III and IV D) II and IV
A) I and II Common and preferred stockholders have equity or ownership positions. Bondholders (mortgage or otherwise) are creditors, not owners.
Under the Uniform Securities Act, the Administrator may deny or revoke the exemption from registration for which of the following? 1. A security issued by a nonprofit organization 2. Investment contracts of employee benefit plans 3. An exempt transaction not involving a federal covered security A) I, II, and III B) I only C) I and III D) II and III
A) I, II, and III The Administrator may deny or revoke any transaction exemption except those involving a federal covered security. The only security exemption where the Administrator has this power is in the case of securities issued by nonprofit organizations and investment contracts of employee benefit plans. The order must pertain to a specific transaction or security.
Which of the following statements regarding the alternative minimum tax is true? A) The excess of the alternative tax over the regular tax is added to the regular tax. B) The tax bracket will determine whether the regular tax or the alternative tax is paid. C) The lesser of the regular tax or the alternative tax is paid. D) The alternative minimum tax is added to the regular tax.
A) The excess of the alternative tax over the regular tax is added to the regular tax. The excess of the alternative tax over the regular tax is added to the regular tax amount. The taxpayer does not have the option of paying the alternative tax or the regular tax depending on his tax bracket. The purpose of the alternative minimum tax is to ensure that certain taxpayers pay a tax consistent with their wealth and income.
The type of trust created by a will that becomes operative at death is A) a testamentary trust. B) a living trust. C) a revocable trust. D) a Q-tip trust.
A) a testamentary trust. As in "last will and testament."
In an effort to make things easier for her clients, an agent redacts certain material information from sales literature relating to a sophisticated investment product her firm is offering. The agent A) is acting in a fraudulent manner by failing to include material information B) is offering better service to her clients by making the decision-making process easier C) is properly including information necessary for an investor to make an informed investment decision D) has violated the Uniform Securities Act by adding information to sales literature
A) is acting in a fraudulent manner by failing to include material information Material information must always be disclosed. There is never a case where it may be omitted from sales literature (or any other presentation).
The term federal covered investment adviser would apply to a person who A) is registered as such under the Investment Advisers Act of 1940. B) limits the advice offered strictly to securities issued or guaranteed by the U.S. government or one of its political subdivisions. C) is registered as such under the Investment Company Act of 1940. D) limits the advice offered strictly to securities listed on the New York Stock Exchange (NYSE).
A) is registered as such under the Investment Advisers Act of 1940. Only federal covered investment advisers register under the Investment Advisers Act of 1940. Even if the person only gives advice on exchange-listed securities (which are federal covered securities), that does not make the person federal covered. After all, if the AUM is under $100 million, registration is only possible with the state(s), unless meeting an exception. Although the term federal covered adviser does apply to those who limit their advice to securities issued or guaranteed by the U.S. government, it would not apply if advice is given on political subdivisions (states, cities, etc.).
One of the ways that individuals can accumulate funds for retirement is through individual retirement arrangements (IRAs). There are a wide range of investments eligible for inclusion in an IRA and would include all of the following except A) life insurance contracts. B) exchange-traded funds. C) specified collectibles. D) fixed annuity contracts.
A) life insurance contracts. Life insurance policies are prohibited investments in an IRA and, in general, collectibles are prohibited as well. There are some important exceptions to the collectible prohibition. The IRS states that an IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.
Under the Uniform Securities Act, the Administrator may A) make rules, orders, and forms the Administrator considers necessary to carry out the provisions of the act. B) relax the antifraud provisions for investment adviser representatives not residing in the state. C) waive any requirement of the act he deems inappropriate. D) waive only those requirements of the act that are nonbinding.
A) make rules, orders, and forms the Administrator considers necessary to carry out the provisions of the act. The Administrator has power to make, amend, and rescind such rules, forms, and orders it has issued as necessary to carry out the provisions of the act. The state Administrator may not waive provisions of the act.
The capital asset pricing model (CAPM) is an investment theory that serves as a model for A) pricing securities based on their systematic risk B) pricing securities based on their unsystematic risk C) measuring the correlation between a security and the overall market D) pricing securities based on their total risk
A) pricing securities based on their systematic risk Under the CAPM, securities are priced based on their systematic risk only, because this risk cannot be eliminated through diversification. The expected return of a security or portfolio is calculated by adding the rate on a risk-free security to a risk premium multiplied by the asset's systematic risk.
All of the following are unethical business practices of investment advisers as determined by NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers except A) releasing confidential customer information because of a court subpoena B) exercising discretionary authority in a client's account within 15 business days of the account being opened without written authorization C) inducing trading in a customer's account that is excessive in frequency D) omitting material facts about the nature of the advisory services offered
A) releasing confidential customer information because of a court subpoena The investment adviser is required to release confidential information under a court subpoena; therefore, it is not a violation. Omitting material facts about the nature of advisory services offered or inducing excessive trading in a customer's account are considered unethical practices under the Model Rule. Finally, exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within 10 business days (not 15) after the date of the first transaction placed pursuant to oral discretionary authority is unethical, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both (the price and time exception).
Under the Investment Advisers Act of 1940, what is an IA that uses a website required to do? 1. Maintain a copy of the screens used on its site in the firm's advertising file. 2. Place copies of new screens into the firm's advertising file each time a change is made. 3. File copies of the web design with the SEC. 4. Password protect the site to limit access to existing clients only. A) I and III B) I and II C) III and IV D) II and IV
B) I and II A website is considered advertising, and the Investment Advisers Act of 1940 requires that a file copy be maintained of all advertisements. Whenever the site is changed, it is considered new advertisement copy and must be placed into the firm's advertising file. Advertisements are never filed with the SEC.
A registered investment adviser runs a promotion offering free information to all who request it. Which of the following statements to people who respond do not comply with the advertising interpretation of the Uniform Securities Act? 1. "The offer is yours, free of charge; all I need are the names of five friends who might be able to use our service." 2. "Such a deal; our information about the market is free to anyone who makes only one trade with our broker-dealer affiliate." 3. "Thank you for responding; if we can help you after you read our information, please let us know." A) I and III B) I and II C) I, II, and III D) II and III
B) I and II If an advertisement claims to offer something for free, it must be free of any obligation. Choices I and II have strings attached and are not free.
Under the Uniform Securities Act, any partner, officer, or director of a registered investment adviser is an investment adviser representative if that individual does which of the following? 1. Offers advice concerning securities 2. Manages client accounts or portfolios 3. Determines securities recommendations for representatives to disseminate 4. Supervises personnel engaged in the above activities but does not sell these services to the public A) I and IV B) I, II, III, and IV C) II and III D) I and II
B) I, II, III, and IV The Uniform Securities Act defines any individuals associated with an investment adviser as investment adviser representatives if they manage accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the listed activities, including any partner, officer, or director who offers advice concerning securities. Persons who manage client accounts or portfolios, determine securities recommendations, or supervise personnel engaged in the listed activities are investment adviser representatives.
Under SEC Release IA-1092, which standards are used to define an investment adviser? 1. Provides advice, reports, or analyses concerning securities 2. Is in the business of providing securities-related advice or analyses 3. Receives compensation 4. Is the principal business activity A) I, III, and IV B) I, II, and III C) II, III, and IV D) I, II, and IV
B) I, II, and III The release establishes three criteria in defining an investment adviser. First, the person must provide advice, reports, or analyses concerning securities. Second, the person must be in the business of providing securities-related advice or analyses. Third, the person must receive compensation. Investment advising does not have to be the person's principal business. They need only hold themselves out as advisers and provide investment advice on a frequent or regular basis.
Which of the following are restrictions on the operations of registered open-end investment companies under the Investment Company Act of 1940? 1. No registered investment company may commence a public offering with less than $1 million of capital. 2. No investment company may own more than 3% of the voting stock of another registered investment company. 3. No investment company may purchase portfolio securities on margin. A) I and III B) II and III C) I, II, and III D) I and II
B) II and III Investment companies are restricted from owning more than 3% of the voting stock of another registered investment company. Unless an exception is stated, no margin purchases may take place for the fund's portfolio. The act requires an investment company to have a minimum of $100,000 in initial capital, not $1 million.
Differences between static and interactive content on social media include which of these? 1. Only static content can be reused by others. 2. Only static content needs preapproval. 3. Only static content can be changed by the person who originated it. 4. Only interactive content can be commented on by others. A) I and III B) II and IV C) I and IV D) II and III
B) II and IV Static content requires preapproval. Interactive content can be reused by others and can be commented on by others. Both static and interactive content can be changed by its originator, but static can be changed only by its originator and interactive by the originator or others.
Which of the following would be permitted to contribute to an IRA? 1. An individual whose sole income consists of dividends and capital gains 2. A divorced mother whose sole income is alimony and child support under the terms of a divorce agreement signed on October 31, 2018 3. A self-employed attorney who has a Keogh plan 4. A corporate officer covered by 401(k) A) I, II, III, and IV B) II, III, and IV C) I and II D) III and IV
B) II, III, and IV An IRA contribution can only be made by someone who has earned or otherwise eligible income. Earned income is defined as salary, wages, commissions, and tips. Alimony (but not child support) is considered eligible income for an IRA as long as the divorce decree was signed prior to January 1, 2019. Individuals can contribute to an IRA even if they are covered by a corporate pension plan or Keogh plan. Although a contribution can be made, it may or may not be deductible depending on the individual's income. Dividends and capital gains are not considered earned income.
Which of the following is true of the weak form of the efficient market hypothesis? A) It implies that throwing darts is just as efficient as analyzing the market. B) It implies that market information cannot be used to identify future price movements. C) It implies that insiders cannot make a profit from their trading. D) It implies that stock prices react to information when it becomes publicly available.
B) It implies that market information cannot be used to identify future price movements. The weak form of the EMH states that all market information has already been incorporated into the current stock price. Therefore, having that information is of no help in predicting movements in the market. It is the strong form that says that inside information won't work, and from there the ultimate conclusion is that in an efficient market, throwing darts works as well as anything else.
An investor purchased a 20-year bond with a duration of 11 years for $1,323.18. Which of these statements is correct? A) The coupon rate is higher than the YTM, and the YTM is higher than the current yield. B) The yield to maturity (YTM) is less than both the current yield and the coupon rate. C) The current yield is higher than both the coupon rate and the YTM. D) The coupon rate is lower than the YTM, and the current yield should be higher than the coupon rate.
B) The yield to maturity (YTM) is less than both the current yield and the coupon rate. CR = coupon rate CY = current yield YTM = yield to maturity Premium bonds: CR > CY > YTM Par bonds: CR = CY = YTM Discount bonds: CR < CY < YTM Because the bond was purchased at a premium, the yield to maturity is less than both the current yield and the coupon rate. The duration has nothing to do with the question.
A third-party post has been made on a broker-dealer's Facebook page. If the firm has involved itself in the preparation of the content, this would be known as A) misrepresentation. B) entanglement. C) disgorgement. D) replacement.
B) entanglement. The entanglement theory means the firm is or its personnel are entangled (take part in) the preparation of the third-party post. A similar concept is that of adoption. This is when the broker-dealer explicitly or implicitly endorsed or approved the content posted by the third party but had no role in its preparation.
An agent made written disclosure to her employing broker-dealer that she intends to execute a series of private securities transactions with individuals who do not have accounts with her broker-dealer. The agent did not acquire express written permission from the broker-dealer and did not receive compensation for executing the transactions, but she did receive written acknowledgment of receipt of the agent's notice. In this case, the agent A) engaged in an agency cross transaction. B) is guilty of selling away. C) performed a matched order. D) is required to register as a broker-dealer.
B) is guilty of selling away. When selling securities, agents are prohibited from enacting transactions that are not recorded on the broker-dealer's books unless the transactions are authorized in writing by the broker-dealer prior to execution. Failure to do this is known as selling away. Receipt of notification is not the same as authorization.
A country decides to nationalize its sugar industry. This is an example of A) financial risk. B) political risk. C) sovereign risk. D) business risk.
B) political risk. The decision to take over private enterprise is a political one. The nationalization of the sugar industry happened in Cuba after the Castro regime took over. Business risk is generally related specifically to actions taken by the company, such as bad management decisions. Financial risk is also company related, such as when the company incurs more debt than it can handle. Sovereign risk is when the investment is made in the country itself (buying its bonds) not private enterprise.
If an agent recommends the purchase of a technology company with an impressive growth record but fails to inform the client that the company's technology will become obsolete pending the approval of a competitor's patent, the agent has A) committed a prohibited business practice by selling an unsuitable investment. B) violated the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents. C) not violated the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents because no untrue statements were made. D) not committed a prohibited business practice.
B) violated the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents. The agent has violated the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents by failing to inform the client of the potential downside in the sale of a security.
Which of the following is not a market cap-weighted index? A) FTSE 100 and FTSE All-Share B) S&P 500 C) Dow Jones Industrial Average D) Morgan Stanley Capital International
C) Dow Jones Industrial Average The Dow Jones Industrial Average is a price-weighted index. All other options are market cap-weighted indexes.
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? A) He will have a $1,000 loss to carry over to the next year. B) He will have a $1,000 gain. C) He will offset $1,000 ordinary income this year. D) There will be no tax consequences.
C) He will offset $1,000 ordinary income this year. Only $3,000 of last year's loss can be deducted against that year's income. Therefore, the losses carried forward from the previous year are the remaining $2,000. These losses are netted against the gain of $1,000 for a net loss of $1,000. That loss can be used to offset $1,000 of ordinary income. There are now no longer any losses to carry forward.
Publicly traded corporations are subject to an annual audit of their financial records. Those audits must comply with GAAP (generally accepted accounting principles). When preparing to recommend a stock to a customer, you would most likely want to see that the auditor gave A) a comprehensive opinion. B) a certified opinion. C) an unqualified opinion. D) a qualified opinion.
C) an unqualified opinion. An unqualified, or clean, opinion is the best type of report a business can get. The term qualified means that the auditor has some reservations about the information contained in the financial statements.
An investment adviser whose primary business is the rendering of investment advice providing investment supervisory services is entitled to use the term: A) senior adviser. B) financial planner. C) investment counsel. D) pension consultant.
C) investment counsel. The term investment counsel may only be used by those advisers whose primary function is the rendering of investment advice with individual continuous monitoring of the accounts.
Harry Thomas has turned 19 and decided that he is going to join the Marines and postpone going to college. If Harry decides to stay in the military, the unused funds contributed to his Coverdell ESA A) must be returned to the donor with tax plus a 10% penalty on the earnings B) must be distributed to Harry no later than 30 days after his 21st birthday C) may be transferred into another Coverdell ESA for Harry's 25 year-old cousin, Julia D) must remain in the plan until Harry's 30th birthday
C) may be transferred into another Coverdell ESA for Harry's 25 year-old cousin, Julia Funds that are not used for qualified education expenses may be withdrawn, but the earnings are subject to income tax plus a 10% tax penalty. To avoid this, the IRS permits the funds to be transferred into another Coverdell ESA for someone related to the first beneficiary (Harry), who is under 30 years of age. In the case of the Section 529 plan, the transferee has no age limitations. Related parties include immediate family members of the original beneficiary, parents, cousins, aunts and uncles, and even in-laws. If funds remain unused in the Coverdell ESA, they must be distributed to the named beneficiary on the account by 30 days after the child's 30th birthday, not the 21st. By statute, there is no age limit for the Section 529 plan, but some states set a time limit for distribution of unused funds. In either case, there would be the tax and penalty.
With regard to the state registration requirements of agents of registered broker-dealers, all of the following statements are correct except A) registration is required if they solicit the sale of securities by telephone to fewer than six individuals residing in that state. B) registration is required when they limit their activity to the sale of exempt securities. C) registration is required in each state in which the employing broker-dealer has a place of business. D) registration is not required in a state where the agent has no place of business and only deals with existing clients who are vacationing in that state.
C) registration is required in each state in which the employing broker-dealer has a place of business. The fact that the broker-dealer does business in a state has nothing to do with a specific agent. Many broker-dealers are registered in all states; very few agents are. Agents must register in each state where they are selling or offering securities, even if the security or the transaction is exempt. That exemption only applies to the need for the security to be registered, not the agent. Soliciting the sale of securities by telephone is considered making an offer, and there is no de minimis exemption available. Finally, registration is not required when making use of the snowbird exemption.
Federal covered investment advisers must comply with the SEC's Model Marketing Rule for Investment Advisers. That rule includes A) a requirement that a copy of all advertisements be sent to the SEC at the time they are disseminated to the public. B) a prohibition against showing the adviser's past performance. C) requiring a written agreement between an investment adviser and a promoter who receives more than $1,000 over a 12-month period for endorsing the services of the adviser. D) a prohibition against reduced-fee introductory offers.
C) requiring a written agreement between an investment adviser and a promoter who receives more than $1,000 over a 12-month period for endorsing the services of the adviser. SEC-registered investment advisers must comply with the SEC Model Marketing Rule for investment advisers. This SEC rule incorporated significant amendments to the Investment Advisers Act of 1940. Among the requirements of the rule is that an adviser who compensates a nonaffiliated third-party promoter for endorsing the services of the IA must have a written agreement with that promoter if the compensation will exceed $1,000 over a 12-month period. Advertisements may not contain false statements, refer selectively to past recommendations, refer to a chart or device for evaluating securities without explaining its limitations and difficulties, or offer anything free of charge if, in fact, there will be some requirement (however minor) for obtaining the free item. There is no federal filing requirement for advertisements of covered IAs. As long as the past performance is displayed in a manner consistent with the rules, there is no problem.
XYZ, Inc. is a C corporation in the 21% federal income tax bracket. Which of the following investments offers the company the highest after-tax return? A) Corporate bond with a 6.75% coupon B) Municipal bond with a 5% coupon rate C) REIT paying a 6.5% dividend D) ABCD, Inc. preferred stock paying a 6% dividend
D) ABCD, Inc. preferred stock paying a 6% dividend The key to this answer is that corporations have a 50% dividend exclusion on dividends received from other companies. The math looks like this: Only half of the 6% dividend is taxable. That means 3% per year is tax free and the other 3% is subject to tax at the 21% rate. So, we have 3% + 79% of the taxable 3% = 3% + 2.37% = 5.37% after-tax return. The municipal bond is not taxed, but that only produces 5% after tax. The corporate bond is subject to 21% tax so the corporation gets to retain the other 79%. That computes to 6.75 x 79% = 5.33%, just a bit less than the preferred stock. In most cases, dividends paid to corporations by REITs are fully taxable. That makes the after-tax return on the 6.5% dividend only 5.14%.
Andrew voluntarily leaves his position as an agent with Gibraltar Securities. Which of the following best describes the reporting requirements relative to this termination? A) Only the firm must notify the Administrator, and it must do so within 30 days of Andrew's resignation. B) Only Andrew must notify the Administrator, and it must do so within 30 days of his resignation. C) Notification to the Administrator is not required, presuming that Andrew was not terminated for cause. D) Both Andrew and the firm must notify the Administrator of Andrew's resignation promptly.
D) Both Andrew and the firm must notify the Administrator of Andrew's resignation promptly. On termination of an agent from a firm with which he is registered, both the agent and the firm must notify the Administrator of such termination promptly.
Which of the following is a method for determining the internal rate of return to an investor based on cash flow in and out of the portfolio? A) Time-weighted return B) Discounted cash flow C) Dollar cost averaging D) Dollar-weighted return
D) Dollar-weighted return The dollar-weighted return measures the internal rate of return (IRR) of a portfolio's actual performance between 2 dates, including all cash inflow and outflows. Because of this, the IRR of a portfolio can be significantly affected by both the timing and the size of any contribution or distribution. Luck in the timing of the investor's inflows or outflows can drastically swing numbers one way or the other.
The Jones family has scheduled an initial visit with a financial planner. Mr. Jones has an annual salary of $70,000, and this is their first attempt at financial planning. Which of the following should be the first step taken by the financial planner? A) Pay off credit card debt B) Determine a reasonable fee for designing the plan C) Set goals and dates for reaching them D) Establish an emergency fund
D) Establish an emergency fund There are many questions on the exam where you will be forced to choose between two possible answers, only one of which is correct. In many cases, it is strictly a matter of opinion, but only NASAA's opinion counts. This is one of them. Goal setting is important, but the regulators feel that the first step in any plan is making sure that there is a "rainy day" fund. We can argue about that because some will say that a good plan can be used to establish that fund where none has existed before. But, please go with the right choice.
For which of the following is there no active secondary market? A) Futures contracts B) Options C) ETFs D) Forward contracts
D) Forward contracts One of the disadvantages when investing in forward contracts is that there is no active secondary market. Because each contract is between one buyer and one seller and there is no standardization, no exchange trading is possible.
Many investment advisers prepare an investment policy statement (IPS) when counseling their clients. Which of the following should least likely be included as a constraint in an investment policy statement? A) Asset classes the client specifically forbids or limits based on past experience B) Any unique needs or preferences an investor may have C) Constraints put on investment activities by regulatory agencies D) How the funds are spent after being withdrawn from the portfolio
D) How the funds are spent after being withdrawn from the portfolio How funds are spent after withdrawal would not be a constraint of an IPS. Anything that might be an obstacle to reaching the goals, such as regulatory restrictions and specific investor preferences, are considered constraints.
Which of the following are characteristics of negotiable jumbo CDs? 1. Issued in amounts of $100,000 to $1 million or more 2. Typically pay interest on a monthly basis 3. Always mature in one to two years with a prepayment penalty for early withdrawal 4. Trade in the secondary market A) II and III B) II and IV C) I and III D) I and IV
D) I and IV Negotiable jumbo CDs are issued for $100,000 to $1 million or more and trade in the secondary market. Most jumbo CDs are issued with maturities of one year or less. Being negotiable, there is no prepayment penalty. These CDs generally pay interest on a semiannual basis, not monthly.
Under the Uniform Securities Act, an investment adviser who has custody of or discretionary authority over client assets or who charges fees of more than $500 six or more months in advance is required to disclose which of the following to its clients? 1. The financial condition of the adviser that could impair its ability to meet contractual commitments to clients 2. A legal or disciplinary event that would be material to evaluating the adviser's integrity or ability to meet its contractual commitments to clients 3. That the adviser was convicted of or pleaded no contest to a felony within the past 10 years or is currently subject to a criminal proceeding involving a felony 4. That the adviser was found to have violated SRO rules, which resulted in suspension, expulsion, or a fine of more than $2,500 A) III only B) I, II, and III C) I only D) I, II, III, and IV
D) I, II, III, and IV An adviser who has control of or discretionary power over client assets or who charges fees of more than $500 six or more months in advance is required to disclose any condition that might affect its ability to carry out contractual obligations to its clients. Any adviser is also required to disclose almost any legal or disciplinary proceeding that would involve its integrity.
Which of the following statements regarding brokerage and advisory activities under the USA are true? 1. It is not unlawful for an investment adviser or broker-dealer to employ any device, scheme, or artifice to defraud in the sales of securities to institutional investors because the USA is designed to protect individual investors. 2. Under the USA, it is unlawful for an investment adviser to deceive a person when not providing advice to that person. 3. Sanctions for both investment advisers and broker-dealers include administrative proceedings, judicial injunctions, and civil and criminal prosecutions. 4. It is unlawful for any person, whether technically defined as an investment adviser or not, to deceive another person for compensation as to the value of securities. A) I and III B) II and IV C) I and II D) III and IV
D) III and IV Sanctions for violations are administrative proceedings, judicial injunctions, and civil and criminal prosecutions. It is also true that any individual, whether technically defined as an adviser or not, may not deceive another person when providing investment advice if he is compensated for providing the advice. However, the Uniform Securities Act has no jurisdiction over an investment adviser when the deceitful action occurs in a nonadvisory situation, such as social interaction.
Which of the following is true regarding ETNs? A) They are suitable for conservative investors seeking income. B) As fixed-income investments, they do not have market risk. C) They are noncallable prior to maturity. D) Their value can be impacted by changes in the issuer's credit rating.
D) Their value can be impacted by changes in the issuer's credit rating. ETNs are unsecured debt obligations carrying credit risk based on the issuer's credit rating. Fixed-income investments have the market risk more commonly referred to as interest rate risk, and they are usually callable. These are sophisticated instruments that are not suitable for conservative investors.
Under the USA, all the following statements regarding the registration of agents are true except A) an agent can only sell securities that have been registered in a state or that are exempt from registration. B) if an agent resigns and affiliates with another broker-dealer, both firms and the agent must notify the Administrator. C) a nonresident agent can solicit business in another state only if the agent and the broker-dealer are registered in that state. D) if a broker-dealer's registration is revoked by a state, it has no effect on the agent's registration.
D) if a broker-dealer's registration is revoked by a state, it has no effect on the agent's registration. If a broker-dealer's (or investment adviser's) registration is revoked by a state, the registrations of all its agents (or IARs) are suspended. That is, those individuals can no longer function in a registered capacity until they register with another active firm.
An investor purchased 100 shares of GRA stock at $100 per share in a margin account. Two years later, the GRA was sold for $120 per share. If the investor's account was charged $700 in margin interest, it would be proper to state that this is an example of A) negative margin. B) a long-term capital gain of $1,300. C) a speculative investment. D) positive margin.
D) positive margin. Positive margin means that, after taking into consideration the interest paid on the borrowed money in a margin account, a specific transaction was profitable (negative margin is the reverse). In this case, the sale resulted in a long-term capital gain of $2,000 (100 shares at $120 = $12,000 proceeds less 100 shares at $100 = $10,000 cost), which is $1,300 more than the interest cost.
Under provisions of the Investment Advisers Act of 1940, investment advisers that maintain custody of client securities are required to do all of the following except A) arrange for a surprise audit by an independent public accounting firm at least annually and subsequently file a report of the examination with the SEC. B) keep copies of all confirmations sent to clients. C) maintain a separate ledger for each client, showing all purchases and sales. D) send an itemized statement to clients at least monthly.
D) send an itemized statement to clients at least monthly. Investment advisers that maintain custody of customer securities and/or cash are required to send statements to customers on a quarterly basis, not monthly. All the other choices are correct statements and therefore not exceptions to the requirements.
The term investment counsel can be used by investment advisers A) who are also registered as broker-dealers. B) who are registered with the SEC under the Investment Advisers Act of 1940. C) who are also attorneys. D) with a primary business of rendering investment advice.
D) with a primary business of rendering investment advice. While this choice is only half correct, under the Investment Advisers Act of 1940, the term investment counsel may be used by any adviser that meets two standards: the adviser performs investment supervisory services, and the adviser provides advice as the primary business of the firm. No other special qualifications or registrations are needed.
