65 #2
For which of the following business entities would suitability be based on the objectives of all the owners on a collective basis? A) C corporation B) Pension plan C) Sole proprietorship D) General partnership
D) Because all the partners in a general partnership share collective liability, the investment policy to be followed in the business's account is based on the collective suitability of all partners. Although the suitability is based on the owner of a sole proprietorship, there is only one owner, so a question asking about collective suitability doesn't ring true for that.
Alex Alexander is planning on registering as an agent for a broker-dealer. Which of the following would be the least likely requirement for a successful application? A) Paying the filing fees B) Submitting fingerprints C) Filing an application for registration D) Taking and passing an examination
B) Submitting fingerprints Fingerprints are not a specific requirement of the Uniform Securities Act.
One respect in which an LLC differs from an S corporation is that A) not only income, but losses, if generated, pass through to investors in an LLC B) there is no statutory limit on the number of investors in an LLC C) an LLC can be formed with as little as a single investor D) there is more favorable tax treatment afforded to members of an LLC
B) 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.
Which of the following is true regarding ETNs? A) Their value can be impacted by changes in the issuer's credit rating. B) As fixed-income investments, they do not have market risk. C) They are suitable for conservative investors seeking income. D) They are non-callable prior to maturity.
A 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.
Beverly has two stocks with a correlation coefficient of zero. Which of the following is correct? A) These stocks are not well diversified because they move in unison. B) These stocks will move independently of each other. C) These stocks are well diversified because they will move in unison. D) These stocks are well diversified because as one stock appreciates in value, the other decreases in value.
B A correlation coefficient of zero means that the two stocks will move independently. They may move in the same direction, or they may not. The zero correlation coefficient indicates that there is no pattern to the relationship between their price movements.
Which of the following could reduce the amount that an individual may contribute to a Traditional IRA? Roth IRA contributions made for the year High income level Participation in an employer-sponsored plan Marital status A) I and II B) I, II, III and IV C) I only D) I, II and III
C) I only The maximum annual contribution applies as a total among your Roth and your traditional IRA. So, if the maximum is $6,000 and you put $3,000 into your Roth, you could only put $3,000 into your traditional IRA. You could do a total of $7,000 if you were 50 or older. High income level and participation in an employer-sponsored plan will affect the amount you may deduct but not the amount you may contribute. Even though a married couple can have their own IRAs or set up a spousal IRA if one is nonworking, that doesn't reduce the amount that either spouse can contribute.
An investor is looking to add some bonds to her portfolio. One of the bonds she is analyzing has a 3% coupon and the other a 6% coupon. Assuming both bonds have the same maturity date, a change in interest rates will have a more profound effect upon the market price of which bond? A) Changes in interest rates affect both bonds equally B) The 6% coupon C) The bond with the lower rating D) The 3% coupon
D) The 3% coupon The longer a bond's duration, the more its price is affected by changes to interest rate. When bonds have the same maturity, the one with the lowest coupon has the longest duration. Ratings have little or nothing to do with price changes caused by interest rate changes.
Under the NASAA Model Rule on Custody Requirements for Investment Advisers, an adviser who has custody of client securities or funds must submit to a surprise audit of client accounts by an independent accountant each year provide an audited balance sheet to the Administrator each year and include a balance sheet with his disclosure statement (brochure) to all prospective clients send monthly statements to clients on the status of their accounts A) I and III B) I and II C) I, II, and III D) II and III
B) I and II An adviser who has custody must submit to an annual surprise audit by an independent accountant and include an audited balance sheet with Part 2A of Form ADV, which must be filed with the Administrator and also forms the basis of the information that must be contained in the disclosure brochure. Other requirements include segregation of client securities, deposit of client funds into separate bank accounts, written notification to clients of the location of their property, and quarterly (not monthly) reports to clients on their accounts.
With regard to an SEC-registered investment adviser employing the services of a promoter to solicit business, it would be correct to state that A) cash referral fees may be paid pursuant to a written or oral agreement to which the investment adviser is a party. B) referral fees may be paid only if the solicitor is also registered with the SEC. C) the investment adviser may not compensate a solicitor who is subject to a statutory disqualification. D) delivery of the solicitor's brochure must take place within five days after the entry into the advisory contract.
C) the investment adviser may not compensate a solicitor who is subject to a statutory disqualification One of the important requirements when hiring a solicitor is making sure that the person is not statutorily disqualified from registration. That is, any person who would be unable to register as a securities professional because of prior conduct cannot act as a solicitor for a registered investment adviser. Promoters do not have to prepare (much less deliver) a brochure. If the promoter is to be compensated more than the de minimis amount, there must be a written, not oral, agreement.
According to the USA, under what circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent? A) The transaction is exempt. B) The securities are federal covered securities. C) The employee is not paid any commission or salary. D) Under no circumstances is an employee of a licensed broker-dealer in a state allowed to sell exempt securities as an unregistered agent.
D It is unlawful for a person to transact business on behalf of a broker-dealer unless that person is registered as an agent in the state. Only individuals selling on behalf of the issuer may qualify to be exempt from registration as an agent.
Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns? A) Weak B) Semi-weak C) Semi-strong D) Strong
A) 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. Those who truly believe in the EMH are of the opinion that none of these will do any better than the market; random selection is as good as anything else.
If a client wanted an investment that would eliminate interest risk as to principal, you would recommend A) a bank-insured certificate of deposit B) preferred stock C) a 91-day Treasury bill D) TIPS
A) a bank-insured certificate of deposit ecause bank-insured CDs are nonnegotiable (we're not discussing the $100k minimum jumbos), there is no market fluctuation caused by changes in interest rates as with marketable securities. If you invest $10,000, you will always get back that $10,000 whenever you cash in the CD, regardless of current interest rates. This is true even when cashing in early. There may be a prepayment penalty, but that is considered separate from interest rate risk. TIPS offer inflation protection and preferred stock is interest rate sensitive in the same manner as a bond. The 91-day T-bill doesn't have much interest rate risk, but if an investor was to attempt to liquidate the holding prior to maturity and interest rates increased, there could be a loss.
Under the Uniform Securities Act, one method of securities registration is qualification. When that method is used, which of the following statements is CORRECT? The registration is valid for 1 year from the effective date. The registration is valid for 1 year from the effective date unless the underwriter or issuer still has some unsold shares. The registration is valid until the next December 31st. The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation is not changed. A) II and III B) I and III C) I and IV D) II and IV
D) II and IV Under the USA, when a security is registered, the registration is valid for 1 year after the effective date. However, the act provides that if the issuer or underwriter still has unsold shares from the offering, the effective date may be extended, so this is a more accurate choice. The act also allows the registration statement to be amended to allow for an increase in the number of shares to be offered as long as the public offering price and the underwriter's compensation is not changed.
