3/5 exam
A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the security's 5-year term, the inflation rate is 4%. What is the principal value of the bond at the end of 5 years? A) $1,200. B) $1,219. C) $1,000. D) $1,440.
$1,219
Under the Investment Advisers Act of 1940, which of the following would be excluded from the definition of an investment adviser? A) The publisher of an investment advisory newsletter that plans issues based on market events. B) A bank that charged a fee for providing investment advice. C) A broker/dealer that managed clients' portfolios for a fee. D) An individual who made recommendations regarding which types of securities would meet a client's investment objectives but who did not recommend specific securities.
A bank that charged a fee for providing investment advice.
According to the Uniform Securities Act, a consent to service of process must accompany which of the following? Agent's registration application. Civil complaint against a broker/dealer. Broker/dealer's initial registration application. A cease and desist order. A) II and III. B) I and III. C) II and IV. D) I and IV.
I and III.
From first to last, in what order would claimants receive payment in the event of bankruptcy? Holders of secured debt. Holders of subordinated debentures. General creditors. Preferred stockholders. A) I, II, III, IV. B) III, I, II, IV. C) I, III, II, IV. D) IV, I, II, III.
I, III, II, IV.
Under the rules of the Securities Exchange Act of 1934, trading in a client's account would be considered excessive if: the agent receives a commission from trading. trading was conducted without considering the client's investment objectives. trading is inappropriate in view of a client's resources. A) I, II and III. B) II only. C) II and III. D) I only.
II and III.
Which of the following is NOT TRUE concerning a Coverdell Education Savings Account (ESA)? A) In order for the withdrawal to be considered qualified, it may only be used for post-secondary education expenses. B) The beneficiary may be the contributor's child or grandchild or child of a friend of the contributor. C) The maximum contribution is $2,000 per beneficiary. D) A beneficiary's unused balance may be rolled over to an ESA account for another child.
In order for the withdrawal to be considered qualified, it may only be used for post-secondary education expenses.
State laws provide for exclusions from the definition of investment adviser. Which of the following persons is specifically excluded under the Uniform Securities Act? A) Economists whose advice is strictly incidental to their professional activity. B) Investment adviser representatives. C) Broker/dealers receiving special compensation. D) Bank subsidiary offering investment advice.
Investment adviser representatives.
XYZ Corporation has been in business for more than 20 years. They need additional capital for expansion, and they determine that a public offering in their home state and neighboring states is appropriate. Which method of securities registration would most likely be used to register this initial public offering? A) Registering by coordination. B) Providing notice filing to those states in which shares are to be issued. C) Registering by notification. D) Registering by qualification.
Registering by coordination.
Tammy Jones is retiring from her company next month on her 62nd birthday. Her 401(k) has $300,000 and offers her four different mutual funds. After calculating what she will receive from Social Security, she concludes that she will need an additional $500 a month to retain her current lifestyle. Which of the following would be the most appropriate recommendation? A) Leave the money in her current 401(k) account. B) Roll the money into a mutual fund withdrawal plan. C) Take a lump-sum distribution of the entire $300,000. D) Roll the money into a traditional IRA.
Roll the money into a traditional IRA.
Which of the following statements concerning transactions exempt from registration under the Uniform Securities Act is TRUE? A) An unregistered, nonexempt security may be lawfully sold in a nonexempt transaction. B) A security sold under an exempt transaction must be registered. C) The Administrator may require that a security be registered and a prospectus delivered in an exempt transaction. D) The antifraud provisions of the Uniform Securities Act apply to exempt transactions.
The antifraud provisions of the Uniform Securities Act apply to exempt transactions.
Of the following bonds, which has the greatest price volatility? A) Corporate bond fund. B) Zero-coupon bond with 15 years to maturity. C) AA corporate bond with 7 years to maturity. D) Zero-coupon bond with 5 years to maturity.
Zero-coupon bond with 15 years to maturity.
A manufacturing company is in the process of registering a securities issue with the SEC. In order to make the shares available for sale in this state, the method of registration that would most likely be used is: A) notice filing. B) qualification. C) notification. D) coordination.
coordination.
The National Securities Markets Improvement Act of 1996 (NSMIA): A) overcame the restrictions of selling securities in interstate commerce. B) created a national market system. C) defined the term" federal covered adviser". D) created the concept of fraud, as used in the Uniform Securities Act.
defined the term" federal covered adviser".
If a nonexempt company has authorized a stock split that will give each shareholder two shares for every one share owned without charge, this action A) need not be registered because the shares of the corporation have already been registered B) need not be registered because it is neither an offer to sell nor a sale C) must have the prior written approval of each state Administrator in which the shares trade D) must be registered because it is the issuance of new nonexempt securities
need not be registered because it is neither an offer to sell nor a sale
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 exceed the bond's yield to maturity if: A) the investor purchased a put option on the bond. B) the coupons were reinvested at a rate exceeding the yield to maturity. C) the bond was redeemed at a discount. D) the bond was called at a premium.
the coupons were reinvested at a rate exceeding the yield to maturity.
Which of the following securities would most likely have the lowest expense ratio? A) Exchange-traded fund. B) Variable annuity. C) Balanced mutual fund. D) Hedge fund.
Exchange-traded fund.
Which of the following statements regarding SEC Commissioners are CORRECT? The maximum number that may serve at any one time is five Political affiliation plays a role in limiting who may be appointed They are appointed by the POTUS with the advice and consent of the SCOTUS Upon confirmation, other than holdings in U.S. government securities, all securities positions must be liquidated. A) I, II, III and IV. B) II and IV. C) I and II. D) I and III.
I and II.
An agent's recommendation for the purchase of a municipal security to a customer who wants fixed income and is in a relatively low tax bracket would in most cases be: unsuitable and unethical. a securities felony. grounds, in extreme cases, for suspension or revocation of the agent's license. outside regulatory jurisdiction. A) IV only. B) I only. C) I and III. D) II and III.
I and III.
Which of the following are TRUE under the Uniform Securities Act? An agent's license is suspended when the broker/dealer license is suspended. The broker/dealer license is suspended when an agent's license is suspended. The Administrator may suspend a broker/dealer's license because on his best judgment, the broker/dealer's business would be detrimental to investors. A person associated with a broker/dealer firm who has passed the Series 7 and the Series 66, but whose license has not yet been issued, may accept unsolicited orders only. A) I and II. B) I only. C) II and IV. D) I and III.
I only
Under the USA, the definition of person includes which of the following? An unincorporated investment club. An individual who buys and sells securities only for his own account. Associations and partnerships whether or not they issue certificates. The U.S. government. A) I, II, III and IV. B) III and IV. C) II and III. D) I and II.
I, II, III and IV.
Among the many definitions found in the Securities Exchange Act of 1934 is that of "associated person of a broker/dealer". Which of the following individuals would fall into that definition? A registered representative possessing a Series 6 limited registration A university president who sits on the broker/dealer's board of directors The newest member of the firm's research department who has not yet passed the licensing exam The receptionist at the front desk who directs visitors to the carousel where mutual fund prospectuses are available. A) I and IV. B) I, II, III and IV. C) I, II, and III. D) II and III.
I, II, and III.
A client who purchased a variable life insurance policy 15 months ago has suffered a stroke. In addition, he has developed adult onset diabetes. When receiving treatment for the stroke, he was diagnosed with lung cancer. He has decided to convert his variable policy to a whole life policy. Which of the following statements is CORRECT? He will not be able to convert to a whole life insurance policy because his health has deteriorated to such a severe level. The new policy will bear the same issue date and age as the original policy. The face amount must remain the same. The premium will be rated as his health has taken a marked turn for the worse. A) II, III and IV B) I, II, III and IV C) I and IV D) II and III
II and III
Which of the following investments gives the investor the least exposure to reinvestment risk? A) Treasury STRIPS/zero-coupon bonds. B) Common stock in an electric utility. C) Preferred stock in a growth company. D) Treasury notes.
Treasury STRIPS/zero-coupon bonds.
The three parts of a family balance sheet are: A) income, liabilities, and net worth. B) income, liabilities, and balance. C) assets, liabilities, and net worth. D) assets, expenditures, and balance.
assets, liabilities, and net worth.
A federal covered investment adviser feels that some recent industry regulations will limit his ability to provide the returns to clients that both he and they desire. He communicates this to his clients and urges those who are willing, to sign an agreement waiving their rights to take any legal action in the event of loss due to his refusal to follow those rules. This means: A) that as long as this is part of the agreement with the IA, no legal action can be taken. B) clients would still be permitted to sue because there is no way that legal rights can be waived. C) a suit would be possible, but only if agreed to by the IA. D) clients would not be able to sue because they have executed a document waiving their rights.
clients would still be permitted to sue because there is no way that legal rights can be waived.
Working capital is: A) current assets - inventory. B) current assets - current liabilities. C) only the cash and equivalents. D) total assets - total liabilities.
current assets - current liabilities.
An agent explains dollar cost averaging to a mutual fund prospect, and implies that by investing the same number of dollars each month and reinvesting the distributions, the value in a mutual fund will increase. In this situation, the agent has: A) made a misleading statement to the customer. B) made a misleading statement to the customer only if the fund has not increased in value within the previous 10 years. C) accurately explained the result of dollar cost averaging. D) accurately explained the result of dividend and capital gain reinvestment.
made a misleading statement to the customer.
One of the most important risk measurement tools is standard deviation. If one were analyzing some mutual funds, the one with the highest standard deviation would most likely be a: A) specialized fund concentrating in public utility stocks. B) large-cap fund. C) small-cap fund. D) balanced fund.
small-cap fund.
Which of the following is (are) advantages of irrevocable insurance trusts? Provide estate liquidity. Insurance proceeds are removed from the estate of the insured for tax purposes. The insured has the flexibility to alter the trust arrangements. Once set up, no changes may be made. A) II and IV. B) I and III. C) III and IV. D) I and II.
I and II.
Which of the following must be registered under state blue-sky laws? Investment adviser representatives. Broker/dealers. Securities issued by the US government. Securities issued by a municipality not in the state. A) I and IV. B) I and II. C) III and IV. D) I, II and IV.
I and II.
An agent encourages his client to buy 1,000 shares of RB, Inc. (RBI), on the NYSE and simultaneously sell the shares at a slightly higher price on the AMEX. The agent receives a separate commission for each transaction. Under the USA, this strategy is which of the following? Prohibited. Permissible. Arbitrage. Churning. A) I and IV. B) II and IV. C) II and III. D) I and III.
II and III.
The Investment Advisers Act of 1940 requires that investment advisers make certain disclosures to their customers through the delivery of the adviser's brochure. However, there are instances where the Act grants an exemption if the client is a broker/dealer an insurance company an investment company a person receiving impersonal advice for which the annual fee is less than $500 A) III and IV B) I and II C) I, II, III and IV D) I, II and III
III and IV
In a scheduled premium variable life insurance policy, all of the following are guaranteed EXCEPT A) a minimum death benefit B) a minimum cash value C) the ability to borrow at least 75% of the cash value after the policy has been in force at least 3 years D) the right to exchange the policy for a permanent form of insurance, regardless of health, within the first 24 months
a minimum cash value
An investor owns 500 shares of RIF, a well-established company with a long history of paying liberal dividends. If this individual wishes to increase his income without any cash outlay and without increasing his risk, it would be most appropriate for him to: A) buy five calls on the RIF. B) exercise his preemptive rights. C) write five puts on the RIF. D) write five calls on the RIF.
write five calls on the RIF.
An investment adviser representative who makes extensive use of third party research to formulate portfolio recommendations to clients: A) is in violation of his fiduciary responsibility as IARs may only use research provided by the firm. B) need not disclose that fact to the clients. C) must disclose that fact to the clients. D) must obtain consent of the clients to use third-party research.
need not disclose that fact to the clients.
Suzie McQueen has a very successful interior design shop she has run as a sole proprietorship. She has just celebrated her 60th birthday and has been giving thought to an eventual sale of the business. She wants your opinion on whether she should incorporate or change to a partnership. You might respond A) the partnership form of business structure would be the easiest for ultimate transfer of ownership B) the corporate form of business structure would be the least expensive to form C) the corporate form of business structure would be the easiest for ultimate transfer of ownership D) the partnership form of business structure would enable Suzie to maximize her sale price
the corporate form of business structure would be the easiest for ultimate transfer of ownership
Under the Investment Company Act of 1940, an investment company may initially retain the services of an investment adviser only with approval of: A) the majority vote of the outstanding shares. B) the majority vote of the outstanding shares and a majority of that portion of the board of directors that are considered noninterested members. C) the majority vote of the noninterested directors. D) the majority vote of the board of directors.
the majority vote of the outstanding shares and a majority of that portion of the board of directors that are considered noninterested members.
A broker/dealer operating on the premises of a bank would have to make certain disclosures in an advertisement unless it A) was only sent to existing customers of the bank B) was a television spot of 30 seconds or less C) was published in a general circulation magazine D) was a radio spot of 30 seconds or less
was a radio spot of 30 seconds or less
ABC Corporation, a newly formed company, has filed a registration statement with the SEC under the Securities Act of 1933. If they wish to use coordination to register in this state, which of the following statements is true? A) If registered by coordination, the state registration may become effective before the federal registration. B) A statement of the maximum and minimum proposed offering prices and maximum underwriting discounts and commissions must be on file with the Administrator for two full business days prior to the date the federal registration statement becomes effective. C) If registered in state X by coordination, the state registration will become effective 30 days after the federal registration becomes effective. D) The federal registration makes state registration unnecessary.
A statement of the maximum and minimum proposed offering prices and maximum underwriting discounts and commissions must be on file with the Administrator for two full business days prior to the date the federal registration statement becomes effective.
Which of the following statements best explains an agency cross transaction for an advisory client? A) A transaction in which an investment adviser offers securities in exchange for securities owned by another registered investment adviser. B) A broker/dealer activity that involves selling securities from one client to another client of the firm. C) A sales transaction where the investment adviser receives a commission rather than a fee. D) A transaction in which a person acts as an investment adviser in relation to a transaction in which the investment adviser acts as broker/dealer for both an advisory client and for another person on the other side of the transaction.
A transaction in which a person acts as an investment adviser in relation to a transaction in which the investment adviser acts as broker/dealer for both an advisory client and for another person on the other side of the transaction.
A federal covered investment adviser would like to charge a client a performance fee based on a selected benchmark. The client has $400,000 invested with the adviser, but has a net worth of $2,150,000, of which $350,000 represents an investment account, 50% of which is shared with his cousin. A) Because the total of the amount invested with the adviser ($400,000) plus the individual's personal net worth ($1,800,000 without counting the joint property) exceeds $2 million, this client has the necessary net worth to qualify for a performance-based compensation program. B) Because we can allow none of the jointly-held property, this client does not have the necessary net worth to qualify for a performance-based compensation program. C) Because we can allow all of the jointly-held property, this client has the necessary net worth to qualify for a performance-based compensation program. D) Because the client's 50% share of the investment account is only $175,000, this client does not qualify for a performance-based compensation program.
Because we can allow none of the jointly-held property, this client does not have the necessary net worth to qualify for a performance-based compensation program.
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: A) disclosure that the performance compensation may create an incentive for the adviser to take greater risks. B) the client must meet certain minimum financial standards. C) the formula used to calculate compensation includes realized capital losses and unrealized depreciation. D) compensation is based on gains, less losses, for a period of no less than 1 year.
disclosure that the performance compensation may create an incentive for the adviser to take greater risks.
What is the proper course of action for the fiduciary of a trust that has a portfolio made up of 10% cash and 90% stock of one company that has recently experienced a 40% market gain? A) Increase the cash position to 25% by taking some of the profits off the table B) Use the cash to acquire more shares of the stock C) The fiduciary can maintain the current allocation if ,while acting in the capacity of trustee, he believes it aligns with the goal of the trust D) Begin diversifying the equity portfolio
The fiduciary can maintain the current allocation if ,while acting in the capacity of trustee, he believes it aligns with the goal of the trust
Under the Uniform Securities Act, which of the following is NOT an exempt transaction? A) The sale of a non-Nasdaq over the counter stock to a closed-end investment company. B) The sale of U.S. government securities to an individual with a net worth in excess of $2 million by a registered government securities dealer. C) A sale of stock through a rights offering to existing shareholders of the issuing corporation if no commission is paid. D) A sale of securities by the executor of an estate.
The sale of U.S. government securities to an individual with a net worth in excess of $2 million by a registered government securities dealer.
ABC Advisers, Inc., a federal covered investment adviser, is a wholly owned subsidiary of ABC Corporation, a holding company that also owns ABC Securities, a full-service broker/dealer that is a member of the New York Stock Exchange and FINRA. One of the clients of ABC Advisers calls his IAR to explain that he has just received a margin call in his ABC Securities account. Under these circumstances, it would not be prohibited for the IAR to use securities owned in the advisory account to obtain a loan for this client A) when the client has furnished ABC Advisers, Inc., with a proper discretionary trading authorization B) if the client agreed to repay the loan within 30 days C) because the 2 firms are affiliated D) because ABC Advisers, Inc., is in the money lending business
because the 2 firms are affiliated
With respect to taxation, an investment adviser representative should NOT: A) discuss the tax implications of investments. B) consider tax implications as a way of improving a client's after-tax returns. C) draft tax and estate documents to insure compliance with current law to provide substantial after-tax returns. D) explain the taxable status of particular investments.
draft tax and estate documents to insure compliance with current law to provide substantial after-tax returns.
A client purchased a security per an agent's recommendation, and soon after, it declined by more than 50%. To compensate for the loss, the agent promised the client 1,000 shares in an oversubscribed IPO. In this situation, the agent has A) acted properly provided the client pays for the IPO in full prior to resale for a profit B) engaged in a fraudulent activity C) acted properly because he did not guarantee the profit on the IPO D) engaged in an unethical business practice as outlined in NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker/Dealers and Agents
engaged in an unethical business practice as outlined in NASAA's Statement of Policy on Dishonest and Unethical Business Practices of Broker/Dealers and Agents
