66 Final #2 - Part 1
The maximum contribution that an individual who earns $1,000 per year can make to an IRA in 2017 is: A. $1,000 B. $2,000 C. $4,500 D. $5,500
A. $1,000
Investment A requires a $15,000 initial investment with a 3 year investment time horizon. It is expected to generate $4,000 of positive cash flow in Year 1, $6,000 of positive cash flow in Year 2, and $8,000 of positive cash flow in Year 3. Assuming that the market rate of return for investments of similar risk and investment time horizon is 10%, the NPV of this investment is: A. -$394.44 B. +$1,000.00 C. +$2,000.00 D. +$3,000.00
A. -$394.44 Net Present Value takes the cash flows from an investment and discounts them back to today's present value. The "Net" part of the formula, is that the initial investment outlay ($15,000 in this case) is deducted from the present value of the positive future cash flows. If the NPV is positive, this is a good investment. In this example, in Year 0, -$15,000 is the initial cash outlay. At the end of Year 1, $4,000 of cash flow is received, discounted to today's present value using the 10% market rate of return = $4,000/1.10 = $3,636.36. At the end of Year 2, $6,000 of cash flow is received, discounted to today's present value using the 10% market rate of return = $6,000/(1.10 x 1.10) = $4,958.68. At the end of Year 3, $8,000 of cash flow is received, discounted to today's present value using the 10% market rate of return = $8,000/(1.10 x 1.10 x 1.10) = $6,010.52. The NPV is -$15,000 + $3,636.36 + $4,958.68 + $6,010.52 = -$394.44 Because the NPV is negative, this indicates that the investment is generating a lower return than the market rate of return for similar investments and that the investment should not be made.
Which of the following is an acceptable formation of a limited partnership? A. 1 General partner and 1 Limited partner B. 2 General partners C. 2 Limited partners D. A minimum of 10 partners, with a least 1 partner being a general partner
A. 1 General partner and 1 Limited partner
If market interest rates increase, which statement is TRUE? A. Current yields will increase B. Dividend yields will decrease C. Price-earnings ratios will increase D. Bond prices will increase
A. Current yields will increase If market interest rates increase, the prices of fixed income securities will drop, raising their yields in the marketplace to current higher levels. Thus, current yields will increase.
Annual audited reports are required to be sent by investment advisers to their clients if the adviser: I holds customer funds II has discretionary control under a full power of attorney over customer accounts III has solicited the customer for advisory business IV has a conflict of interest that has been disclosed to the customer A. I and II B. III and IV C. I, II, III D. I, II, III, IV
A. I and II
Under the Uniform Securities Act, in a civil suit brought by a purchaser against a seller that is alleged to have violated the Uniform Securities Act, the burden of proof rests with the I buyer of the securities II seller of the securities III plaintiff in the lawsuit IV defendant in the lawsuit A. I and III B. I and IV C. II and III D. II and IV
A. I and III
Which TWO of following investments offer tax benefits? I Municipal bonds II REITs III Real Estate IV Index Funds A. I and III B. I and IV C. II and III D. II and IV
A. I and III
Which of the following are characteristics of growth stocks? I Low dividend payout ratios II Low price to book value ratios III Low price-earnings ratios A. I only B. I and II C. II and III D. I, II, III
A. I only
Which business structure has limited liability? A. S corporation B. Sole proprietorship C. General partnership D. Association
A. S corporation
At the initial discussion phase with a customer about portfolio planning, which of the following is NOT necessary? A. Testamentary letter B. Listing of customer brokerage accounts C. Life insurance coverage held by the customer D. Listing of assets owned by the customer
A. Testamentary letter
A broker-dealer holds a sales contest that will award a $3,000 trip to Europe to the registered representative in the firm that sells the highest dollar value of mutual funds during the month of September. Which statement is TRUE? A. The holding of a mutual fund sales contest is permitted under NASAA rules B. The holding of a mutual fund sales contest is only permitted if the customer is offered a sales charge reduction C. The holding of a mutual fund sales contest is prohibited because it violates the Anti-Reciprocal rule D. The holding of a mutual fund sales contest is prohibited unless the winner receives a prize that has educational value about securities
A. The holding of a mutual fund sales contest is permitted under NASAA rules
Two young professionals each make $50,000 per year. They are getting married and meet with an Investment Adviser Representative for advice about how their tax status will change once they "tie the knot." The IAR should inform them that they will likely: A. pay higher taxes B. pay lower taxes C. reduce future estate taxes D. increase future estate taxes
A. pay higher taxes
If an agent opens a joint account with a customer, the agent is permitted to: A. place a trade in the account without having a written power of attorney from the customer B. withdraw funds from the account in the form of a check made payable to the agent's name C. share in investment gains in the account but not in investment losses D. effect transactions in the account only at the direction of the customer
A. place a trade in the account without having a written power of attorney from the customer
A registration statement which has been filed for a security is effective for: A. 6 months B. 1 year C. 2 years D. 5 years
B. 1 year
A customer buys a security position for $20 per share and holds it for exactly 1 year. At the end of the year, the stock is worth $29; and the stock paid a quarterly dividend of $.25 during the year. The customer is in the 35% tax bracket for earned income and the 15% tax bracket for dividends. What is the after-tax rate of return, assuming that the stock's holding period is still short term? A. 29.25% B. 33.50% C. 41.50% D. 42.50%
B. 33.50% This customer bought the stock for $20 per share; and the stock is worth $29 per share at the end of one year; for a $9 short term capital gain. In addition, the customer received four $.25 dividend payments, for a total dividend received of $1. Since the stock was held short term, the gain on the stock is taxed at the customer's tax bracket of 35%. The after tax return for the gain on the stock is $9 (100% - Tax Bracket %) = $9 (.65) = $5.85. Dividends are taxed at 15%. The after tax return for the dividend is $1 (100% - 15%) = $1 (.85) = $.85. $5.85 + $.85 = $6.70 / $20 investment = 33.50% after-tax rate of return on investment.
Given the set of the following numbers: 5, 4, 11, 6, 8, 5, 12, 13, what is the range? A. 8 B. 9 C. 10 D. 13
B. 9 The range is the difference between the highest and lowest numbers in the set.
Under NASAA rules, the "Brochure" must be: I provided to clients at least 48 hours prior to entering into a written advisory contract II provided to clients at least 48 hours prior to entering into an oral advisory contract III filed with NASAA at least 48 hours prior to entering into a written or oral advisory contract A. I only B. I and II C. II and III D. I, II, III
B. I and II
If an investment adviser maintains an account that will hold customer securities positions at a broker-dealer, but the broker-dealer does not know the identity of the individual customers: I this is known as an omnibus account II this is known as a prime brokerage account III trade confirmations and statements are sent by the broker-dealer to the IA's customers IV trade confirmations and statements are sent by the IA to its customers A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
Under the Investment Advisers Act of 1940, if an investment adviser wishes to effect an agency cross transaction for a customer, which of the following statements are TRUE? I Agency cross transactions cannot have been recommended to both the buyer and seller by the investment adviser II Each client must be sent an annual statement identifying the total number of agency cross transactions effected; and the remuneration received by the adviser for these transactions III Each client must be sent a monthly account statement detailing activity in the account for that period IV To effect an agency cross transaction, written consent from the client must be obtained A. I and III B. I, II, IV C. II, III, IV D. I, II, III, IV
B. I, II, IV
When looking at the Price/Book Value ratio of a corporation, "Book Value" is best described as: A. Net Intrinsic Value B. Net Accounting Value C. Net Market Value D. Net Liquidation Value
B. Net Accounting Value
An individual works as both a registered agent for a broker-dealer and a representative of an investment adviser, both of which are owned by the same parent company. The individual's sister has started up a successful e-tailing company that she wishes to expand. She asks her brother to sell private placement units of her company to his customers in return for a 20% commission that she will pay. Which statement is TRUE? A. This action is prohibited because the commission amount to be paid is excessive B. The action cannot be taken unless the brother obtains written permission of the broker-dealer C. The partnership units cannot be sold to the agent's customers unless they are registered in the State D. The partnership units cannot be sold to the agent's customers unless separate records are kept covering these transactions
B. The action cannot be taken unless the brother obtains written permission of the broker-dealer
An Investment Adviser Representative uses a graph/chart to illustrate investment results for a client. Which of the following MUST be disclosed by the IAR to the customer? A. The performance of prior recommendations over the past 5 years B. The fact that a chart, by itself, can be misleading and may not represent true performance C. The fact that prior performance as shown in the chart is an accurate predictor of future results D. The performance of the Standard and Poor's 500 Index over the same period
B. The fact that a chart, by itself, can be misleading and may not represent true performance
A portfolio manager would sell calls against the securities in the managed portfolio in order to: A. protect the positions against a bear market B. increase income and cash flow C. increase the diversification of the portfolio D. speculate on the direction of the market
B. increase income and cash flow
A customer in the 28% tax bracket has $4,000 of capital gains and $12,000 of capital losses. How much unused loss is carried forward to the next tax year? A. 0 B. $3,000 C. $5,000 D. $8,000
C. $5,000
Under the Investment Advisers Act of 1940, copies of all advertising, notices and circulars must be retained if distributed to at least: A. 1 person B. 5 people C. 10 people D. 15 people
C. 10 people
A 4 1/2% $1,000 par bond is selling in the market for $900. What is the bond's current yield? A. 4 1/2% B. Between 4 1/2% and 5% C. 5% D. Over 5%
C. 5% Current yield is: Annual Income / Market Price.
Which of the following would NOT be considered to be fraudulent under the Uniform Securities Act? A. A seller of a security misstates a material fact about that issue to the potential buyer, but a trade does not result B. A seller of a security misstates a material fact about that issue to the potential buyer, and a trade results C. An uninterested third party, in connection with the sale of a security, misstates a material fact to the potential buyer, but a trade does not result D. An interested third party, in connection with the sale of a security, misstates a material fact to the potential buyer, and a trade results
C. An uninterested third party, in connection with the sale of a security, misstates a material fact to the potential buyer, but a trade does not result
At which Standard and Poor's rating is a bond first considered to be speculative ("junk bond")? A. AA B. BBB C. BB D. C
C. BB
Which of the following is NOT a portfolio management "style?" A. Active management B. Passive management C. Diversification D. Indexing
C. Diversification
Premiums deposited to a variable annuity contract are invested: I in the insurance company's general account II a separate account III primarily in equity securities IV primarily in fixed income securities A. I and III B. I and IV C. II and III D. II and IV
C. II and III
Which of the following statements about a 529 plan and a UTMA account are TRUE? I Section 529 plan distributions can be used to pay for qualified educational expenses, but UTMA distributions can only be used to pay for higher education expenses II Section 529 plan contribution and UTMA can be made by high-income taxpayers III Section 529 plans allow rollovers of unused account balances to other family members, but UTMAs do not permit rollovers IV Section 529 plans allow deductions for contributions made, but UTMAs do not A. I and III B. I and IV C. II and III D. II and IV
C. II and III
Which of the following statements are TRUE about capital gains taxes for single filers with under $400,000 of income? I The maximum tax rate on a short term capital gain is 15% II The maximum tax rate on a short term capital gain is 39.6% III The maximum tax rate on a long term capital gain is 15% IV The maximum tax rate on a long term capital gain is 39.6% A. I and III B. I and IV C. II and III D. II and IV
C. II and III
Which statements are TRUE about ERISA's fiduciary requirement? I The plan accountant is a fiduciary II The plan trustee is a fiduciary III The investment adviser is a fiduciary IV The plan actuary is a fiduciary A. I and II only B. III and IV only C. II and III only D. I, II, III, IV
C. II and III only
Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, which of the following is(are) considered to be a manipulative and prohibited practice(s)? I Arbitrage II Churning III Painting the tape IV Wash trades A. I only B. II only C. II, III, IV D. I, II, III, IV
C. II, III, IV
Which of the following are violations of the Uniform Securities Act? I Recommending the purchase of a security from a listing provided by a broker-dealer's research department II Recommending the purchase of a security based on material inside information III Recommending the purchase of a security based on overheard rumors IV Recommending the purchase of a security without fully describing the material facts about the transaction A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV
C. II, III, IV
The sharing of commissions is allowed between which of the following individuals? I An unlicensed employee of a member firm and a licensed employee of a member firm II A licensed employee of a member firm and an insurance agent licensed only with the State Insurance Department III Two licensed employees of the same member firm A. I only B. II only C. III only D. I and III
C. III only
Which item is used when computing a corporation's Current Ratio? A. Net Working Capital B. Long Term Debt C. Inventory D. Sales
C. Inventory
An investment adviser has a fee structure that states: Assets Under Management Annual Fee 0 - $1,000,000 2.00% >$1,000,000 - $5,000,000 1.50% >$5,000,000 - $10,000,000 1.00% >$10,000,000 Negotiable With Client Which statement is TRUE about such an arrangement? A. This is prohibited under NASAA rules because it favors customers with more assets under management B. This is prohibited because advisers cannot have negotiable fees C. This is permitted as long as the negotiated fee is less than 1% D. This is permitted without restriction
C. This is permitted as long as the negotiated fee is less than 1%
If a customer wishes to purchase an initial public offering of a non-exempt security, then the customer must receive a: A. preliminary prospectus at, or prior to, confirmation of sale B. preliminary prospectus at, or prior to, settlement of the transaction C. final prospectus at, or prior to, confirmation of sale D. final prospectus at, or prior to, settlement of the transaction
C. final prospectus at, or prior to, confirmation of sale
The market capitalization of a company is the: A. net present value of the company's earnings stream projected infinitely into the future B. book value of the company, excluding the value of intangible assets C. number of common shares outstanding times the price per share D. future value of today's stock price times the earnings multiple times the number of outstanding shares
C. number of common shares outstanding times the price per share
2 brothers, Joe and Bob get equal dollar amounts of securities as a gift. Joe immediately sells his securities and deposits the money to a bank account. On the other hand, Bob keeps his securities positions and holds them in a brokerage account. After 5 years, Joe has $10,000 in his bank account, while Bob has $30,000 in his brokerage account. The $20,000 difference between the account balances is explained by: A. duration B. standard deviation C. opportunity cost D. reinvestment risk
C. opportunity cost
The sale of securities to an insurance company is exempt under the Act under the: A. blue chip exemption B. exempt security C. sophisticated investor exemption D. non-issuer exemption
C. sophisticated investor exemption
The target allocation for a specific asset class has been set at 20% of total assets under an asset allocation scheme. The manager is permitted to reduce this percentage to 15%; and can increase it to 25%; as he or she sees fit. If this action is taken by the manager, this is termed: A. portfolio rebalancing B. strategic asset management C. tactical asset management D. active asset management
C. tactical asset management
In connection with a new issue offering, a broker-dealer would be permitted to send which of the following to a customer if it were accompanied by a copy of the final prospectus? A. An internal report prepared by the issuer that projects increasing product line market share over the next 3 years B. Copies of advertisements used by the issuer to promote its products during the past year C. An advance copy of the broker-dealer's research report on that issuer that will be released after the restriction period ends D. A copy of the tombstone announcement prepared by the underwriter in connection with the offering of the issue
D. A copy of the tombstone announcement prepared by the underwriter in connection with the offering of the issue
An agent omits to state material facts which are needed by an investor to make an informed decision. Under the NASAA Statement of Policy on Dishonest and Unethical Business Practices, this action is fraudulent if the statements refer to: A. U.S. Government Bonds B. Municipal Bonds C. Corporate Bonds D. All of the above
D. All of the above
Which term is NOT defined under the Uniform Securities Act? A. Investment Adviser B. Investment Adviser Representative C. Broker-Dealer D. Broker-Dealer Representative
D. Broker-Dealer Representative
The Administrator is empowered to revoke the registration of an investment adviser if the investment adviser has: I ceased operating as a business in that State II been judged to be mentally incompetent III relocated, and has not notified the Administrator of the new business location A. I only B. III only C. I and II D. I, II, III
D. I, II, III
If an individual's registration has been revoked by the Administrator within the past 10 years due to a felony conviction resulting from a securities law violation, this individual is prohibited from being registered as a(n): I Agent for another broker-dealer II Principal of another broker-dealer III Representative for an investment adviser IV Principal of an investment adviser A. I only B. I and III only C. II and IV only D. I, II, III, IV
D. I, II, III, IV
When evaluating an investment in a limited partnership, an investor should consider which of the following? I Economic soundness of the program II Program objectives III Sponsor track record IV Sponsor conflicts A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
D. I, II, III, IV
Under the Investment Advisers Act of 1940, the SEC policy regarding emails maintains that: I business related emails are required to be recorded and maintained II both business related and personal emails are required to be recorded and maintained III records must be retained for 3 years IV records must be retained for 5 years A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
Which of the following BEST describes S corporations? I S corporations have a limited life II S corporations have an unlimited life III S corporations are taxable entities IV S corporations are not taxable entities A. I and III B. I and IV C. II and III D. II and IV
D. II and IV S corporations are limited to 100 shareholders or less; and give limited liability to investors. S corporations are not taxable entities - all items of income and loss flow-through onto the shareholders' personal tax returns. As with any corporation, these have an unlimited life.
Who administers the Uniform Securities Act? A. SEC B. MSRB C. FINRA D. NASAA
D. NASAA
An investment adviser representative of a Federal Covered adviser with no office in the state only has insurance companies as clients. Where must the adviser representative register? A. SEC B. State C. Both the SEC and the State D. Neither the SEC nor the State
D. Neither the SEC nor the State
When can an agent represent that a mutual fund is "no load"? A. When the fund does not impose an up-front sales load B. When the fund does not impose a contingent deferred sales charge C. When the fund does not impose annual 12b-1 fees in excess of .25% D. When the fund does not impose an up-front sales load, a contingent deferred sales charge or annual 12b-1 fees in excess of .25%
D. When the fund does not impose an up-front sales load, a contingent deferred sales charge or annual 12b-1 fees in excess of .25%
Under so-called "soft dollar" arrangements, investment advisers are permitted to accept all of the following from broker-dealers in return for directing their portfolio trades (and thus paying commissions) to that broker-dealer EXCEPT: A. research reports provided by the broker-dealer B. asset allocation software provided by the broker-dealer C. recommendations of securities made by that broker-dealer D. computer equipment provided by that broker-dealer
D. computer equipment provided by that broker-dealer
Under IRS regulations, a gain or loss upon current disposition of an asset is first considered to be long term if the asset has been held for: A. 6 months or less B. over 6 months C. 1 year or less D. over 1 year
D. over 1 year
A registered securities agent solicits a customer to buy shares of stock that the agent personally owns. The customer buys 100 shares of the stock and sends a check made out to the agent. The agent does not record the trade on the books of the broker-dealer. This action is considered a(n): A. allowed exempt transaction B. prohibited exempt transaction C. allowed private securities transaction D. prohibited private securities transaction
D. prohibited private securities transaction
An officer of a publicly-traded company who receives a stock option grant is: A. not taxed, since no money changes hands B. taxed at the time the options are granted C. taxed at the time the options are exercised D. taxed if the options are exercised and the stock is subsequently sold
D. taxed if the options are exercised and the stock is subsequently sold
