Checkpoint Exam Q's

Jason required to take $10K RMD.. He only made $8K. What is dollar amount of penalty?

$1000 penalty for failure to make RMD is 50% of the difference between the RMD and the actual distribution

SEC registered IAs with at least ___________ in private fund assets use what form

$150MM Use Form PF

Under USA, criminal penalties up to

$5000 and or 3 years in jail

Which would be substantial prepayment of fees? - $1000 covering next month - $600 covering entire contract year - $600 covering next calendar quarter - $500 covering next 6 months

- $600 covering entire contract year Defined as MORE THAN $500 SIX OR MORE MONTHS IN ADVANCE

When open end MGMT company computes NAV/share, all would have an impact except -capital gains distribution - greater value of shares being redeemed than purchased - interest payments made on debt securities in portfolio - drop in value of securities in the funds portfolio

- greater value of shares being redeemed than purchased BC shares are purchased and redeemed at NAV, net redemptions have no effect on the NAV

In a scheduled premium variable life insurance policy, all are guaranteed except - minimum death benefit - right to exchange policy for a permanent form of insurance within 24 months - minimum cash value - ability to borrow at least 75% cash value after policy in for 3 years

- minimum cash value

All must be specified in state registration statement of security except - total amount of security that will be offered in this state - stop order from any other state that affects the offering of the security within that state - total amount of security that will be offered in each state - all other states where security is currently registered or will be registered

- total amount of security that will be offered in each state

Which true regarding economics of fixed income securities - long term rates more volatile than short term rates - short term rates more volatile than long term rates - short term bond prices react more than long term bond prices given change in rates - long term bond prices react more than short term bond prices given change in rates

-- short term rates more volatile than long term rates ---- long term bond prices react more than short term bond prices given change in rates

Client wants to sell forward contracts soybeans. Warn him of following risks

1. Liquidity 2. Creditworthiness of buyer

True of Coverdell Education savings accounts (2 things)

1. after tax contributions of up to an indexed max per student / yr are allowed 2. no contributions post students 18th bday

3 primary expenses with brokerage accounts that are not included in the fee disclosure template

1. commissions 2. markups and markdowns 3. advisory fees for those firms also registered as IAs

USA exemptions to register as an IA for those with no place of business in the state

1. deal exclusively with broker dealers 2. deal exclusively with insurance companies 3. deal exclusively with investment companies 4. have no more than 5 clients in that state in a 12 month period

True of 529 plans

1. funds withdrawn for qualified education expenses are always free of federal income tax 2. max contribution limits determined on a state level

2 effects of country devaluing its currency

1. increase in that nations exports 2. credit to that nations trade account balance

LMN closed end shares selling at $45 while NAV $40. Safe to say they are trading at a

12.5% premium ($5 / $40)

Statute limitations civil

3 years from date of event or 2 years from discovery

IAR commits criminal violation. Under USA, subject to legal action for

5 years

Statute limitations criminal

5 years

Statute of limitations criminal

5 years

Under USA, agent may file for review of Administrator's revocation order within how many days of revocation

60 days

Letter of intent for a mutual fund purchase may be backdated to include previous investments in same fund during the past

90 calendar days

Rate used as a basis for a RFR of return is the

91 day T bill rate

In order to qualify for private fund investment adviser exemption, AUM must be

< $150MM

IA exemption with SEC for foreign advisers

< 15 clients in USA And aUM < $25MM

IA registered 5 states. In lieu of preparing fancy brochure, it can give its clients a copy of

ADV Part 2A and 2B

Registration with SEC for IA not mandatory until

AUM hits $110MM

Activity considered by SEC as meeting business standard element in definition of IA

Advertising investment services to public and providing them routinely

Advisers must disclose

Any material conflicts of interest in writing before rendering advice.

Blanket exclusion from definition of IA applies to

Banks

Prohibited practice of an investment adviser placing same security in the accounts of all of the firms clients known as

Blank recommendations

Economy is slowing down. Orders durable goods declining and unemployment has been increasing. Which cycle?

Contraction

Client is sole beneficiary of dads IRA. She would rather $ go to her kids. She would have to

Disclaim the IRA

Completing a futures contract _________the delivery of the commodity

Does NOT Require

Funds in ESA must be used by beneficiary by age _____ Funds in 529 must be used by _____

ESA- used by age 30 529- no age restrictions

Least suitable for a qualified money purchase plan account

Investment grade muni bond----because money in a qualified retirement account grows tax deferred, tax exempt securities are unsuitable

Any IAR with federal covered adviser who has no place of business in a state is ________ in that state even when the # of clients > the de minimis level

NOT REQUIRED TO REGISTER

Individual with place of business State A manages client asses on behalf of a covered investment adviser. Employee wants to expand his client base by working 1 day/week out of office in State B. He must

Register in State B- individuals managing client assets while employed by federal covered IAs must register as IARs if they maintain a place of business in the state

If the dollar weakens, what may help strengthen it?

Rise in US interest rates (foreign investors would invest in USD securities)

Client owns 91 day T bill, 2 year T note, 20 year T bond, and 20 year STRIP. Market price of which is likely to have smallest movement when changes to discount rate occur?

T Bill- as a short term instrument (short duration), price fluctuations will be very small. Longer term instruments have much larger price movements

Which would be appropriate when PM wants to reduce inflation risk to portfolio

Tangible assets (real estate, precious metals, etc)

Kapco Advisers < $120MM AUM lays off IAR. Who notifies State Administrator?

The IAR

Under USA, agent may NOT make statement:

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

Yankee bonds

U.S. dollar-denominated debt securities issued by foreign governments or corporations and traded in U.S. securities markets

IA Contracts USA (State)- SEC (Federal)-

USA- must be in WRITING SEC- can be orally

guaranteed security

Under the Uniform Securities Act, the term guaranteed means guaranteed by a third party as to payment of principal, interest, or dividends, but NOT CAPITAL GAINS

Best accounting opinion a business can get

Unqualified

Common stock of companies within this industry most adversely affected by an increase in interest rates

Utilities

Advisers $140MM drops to $75MM. What must they do?

Withdraw from SEC registration using Form ADV-W within 180 dates of FYE

Under USA, employee whose only role is soliciting new investment advisory clients for the firm

Would be included in the definition of IAR and must register

XYZ Corp has beta of 1.0; ABC beta 1.4 XYZ returned 12% ABC returned 14.8%. ABC had alpha of?

XYZ beta 1 = market beta ABC 1.4 so expected to perform 40% better in up market 12% X 1.4 = 16.8 Only returned 14.8% so underperformance of 2%

When a corp domiciled in UK issues USD bonds in the US, it is issuing

Yankee bonds

Investment to guarantee funds for college education

Zero Coupon Bonds

BD sends email stating anyone purchasing 100 shares of IPO will at no cost receive 10 shares of another company stock. Under USA, delivery of this stock would represent

a SALE

Exempt reporting adviser refers to ______. Do they file anything?

advisers that rely on VC fund adviser exemption or private fund exemption although exempt from registration, they must file certain portion of Form ADV

Under USA, registration of which of the following expires on Dec 31

agents, BDs, IAs, and IARs

12b-1 fees

annual fees charged by a mutual fund to pay for marketing and distribution costs

Form 13F applies to

any institutional investor with DISCRETION over $100MM or more

Unethical for an IA to borrow money from

anyone NOT in business of lending money including immediate family

Advisers with custody must

arrange for annual unannounced audit by independent accountant that will report results to SEC

Unless a specific exemption applies, IA fees based on ___________ are prohibited

based on a share of capital gains or appreciation in an account are prohibited

When engaging in securities transactions with retail clients, agents must

be registered in the state of residence of that client

During application process for registration as an agent, Administrator may request information about the applicants

citizenship

Increases in personal income ____ indicator

coincident

NOT A security - US T Bills - unlisted stock - commodity futures - debentures

commodity futures

Joh convicted 5 years ago failure to pay child support, a misdemeanor in his home state. John would now like to register as IAR in neighbor state where that crime is a felony. Under USA, the Administrator of neighboring state will

disregard that conviction when determining John's qualifications

The internet exemption applies to BDs when the firm limits its communications to the

dissemination of general information

Under USA, if IA terminated, they must preserve entity docs for ____ years and emails for _____ years

entity docs- 3 years emails- 5 years

When a bank borrows from another member bank, the rate charged is known as

federal funds rate

Fearing loss of potential sale, agent omits facts that a prudent investor requires to make decisions. Under USA, this action is

fraudulent for both exempt and nonexempt securities

BC a trust account is managed for the beneficial interest of the beneficiary, the IAR Can

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

To a tech analyst, the resistance level signifies price at which stocks supply would be expected to

increase substantially (selling represents an oversupply which results in downward pressure pressure on stock)

Viatical sale would involve

individual with terminal illness

Prospecuts

is a legal document and CANNOT be altered

Any broker dealer with an office in the state, regardless of the nature of its clients

is defined as a broker dealer under USA

IA that becomes registered may state on stationery

it is registered with the SEC

Buildup inventories ____ indicator

lagging

Increases in building permits _______ indicator

leading

US T bonds subject to all risks below except - reinvestment risk - inflation risk - liquidity risk - purchasing power risk

liquidity risk

States cannot required IAs registered with SEC to

maintain net capital requirements

IF clients has 100 shares ABC and it undergoes a split, afterward the client will have

no effective change in value of ownership share

IA need not register in a state if it has

no place of business in the state and advise institutional clients such as insurance companies or banks

Under USA, private placement considered exempt transaction if

number noninstitutionalized investors limited to max of 10 in any 12 month period

Feature of convertible preferred stock

owner has opportunity to participate in growth of the company

When a co tenant in a TIC dies, the individuals share

passes to the individuals estate, not the other cotenants

Wrap fee brochure must contain statement that

program may cost client more or less than purchasing those services seperately

Anyone ACCEPTING ORDERs for a BD must

register as an agent

Kapco Advisers registered as IA with SEC. Only office is in NJ and all IARs are registered there. Felicia conducts quarterly presentation at Augusta CC to discuss market developments. Seminar restricted to member only. Felicia must

register in GA---considered having a place of business there since on quarterly basis

Once BD has ____ Retail clients who reside in a state they must

register in that state

Total return mutual fund =

return attained by reinvestment of all dividend and capital gains distributions plus unrealized gains or minus unrealized losses

Exempt securities under USA

security issued by life insurance company issuing stock in state where authorized to do business railroads under jurisdiction of other state or federal regulators commercial paper is $50K foreign govt securities if US maintains diplomatic relations with them

IA would have to disclose that the firm was acting in a principal capacity when

shares held in the account of an advisory client are purchased by the investment adviser

No included in the definition of agent

silent partners and outside directors. Clerical staff

There is no __________ for forward contracts

standardization

Used to effectuate annual renewal of IAR with a fed covered adviser

state licensing fee

Stock prices fully reflect all information from public and private sources can be attributed to what form or EMH

strong form

Adviser who has custody of clients funds must

submit to a surprise audit of client accounts by independent accountant each year AND provide an audited balance sheet to Administrator and include balance sheet with disclosure to all prospective clients

Primary duty of supervising IAR who is with a fed covered adviser lies with

the IA

Unless exemption applies, under Investment Advisers Act of 1940, IA is required to provide ____________ within _____ of the end of its fiscal year

the client with a brochure or a summary of material changes within 120 days of the end of its fiscal year

Administrator has jurisdiction over an offer to sell securities if it is made in a newspaper out of state

under no circumstances

Valued investors seek securities that are

undervalued or selling for less than their intrinsic value