Exam 2

alpha formula

(total portfolio return - risk-free rate) - (portfolio beta x [market return - risk-free rate])

The SEC is required by the Investment Advisers Act of 1940 to either grant an adviser registration or begin proceedings to determine whter the registration should be denied within how many days of application:

- 45 days of application

Broker-dealers do not include:

- an agent - an issuer - a bank, savings institution, or trust company.

"Covered Account" does not apply to:

- banks - pension funds - investment companies

If an investor purchases 500 shares of an aggressive growth stock, which strategy would limit the investor's downside risk?

- buying 5 puts on the stock

Investment Adviser Reg. Depository (IARD)

- electronic filing system that facilitates IA registration, regulatory review, and the public disclosure info of investment adviser firms. - IARD is used for filing Form ADV pt 1 & 2

When is the delivery of a brochure NOT required?

- if the client is a registered investment company - if the advisory service is of an impersonal nature and costs less than $500

A variable annuitant bear the following risk:

- inflationary - mkt risk -int. rate risk

As a bond's duration changes:

- measures its sensitivity to changes in market interest rates.

Rule 506(b) (Reg D)

- provides a private placement exemption for securities that are sold to no more than 35 nonaccredited investors. - no limit to the number of shares that can be issued nor the number of accredited investors who may purchase the shrs.

Alternative assets examples:

- real assets - hedge funds - private equity - structured products

Under the USA, the recordkeeping requirements established by the Admin for out-of-state IAs wishing to register in his state are subject to the limitations of:

- the limitations of the requirements set by the Admin of the adviser's home state.

Treatments of estates by IRS

- the max. tax rate on estate and gifts is 40%. - alternative valuation date is 6 months after death - 9 months after death is when the tax is due

Under what circumstances would an agent NOT have to obtain client consent when acting in a principal capacity?

- where the transaction is strictly based on the BD relationship rather than on the advisory one, no consent is necessary.

When an individual registered with a broker-dealer has a change of residence, an amended Form U4 must be filed

30 days

When is a disclosure brochure required?

A brochure is required when the service provided is an individual supervisory service and the client's net worth has no bearing on brochure delivery requirements.

Asset-based sales charges will generally be lowest when holding which of the following mutual fund share classes?

Class A

Portfolio of a UIT is:

Fixed

Tax purposes: When a partial withdrawal is made from an annuity, the earnings are considered:

For tax purposes LIFO

Which of the following may be done only with the approval of the shareholders of an investment company? I. A change from diversified to nondiversified status II. The purchase of particular bonds on the open market III. Personnel changes in the transfer agent's organization IV. A change in the fund's objectives

I and IV Any substantive change in an investment company's form, structure, investment objective, or business op must be approved by a majority vote of the outstanding shrs.

A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened?

Options

Form ADV

Part 1: reg purposes P 1B: only used by state-registered advisers P2: Appendix 1 is used for IAs who offer wrap fee programs both part2a and part2b is acceptable for use as the firms brochure.

HSA

Requires that the employee enroll in a health insurance plan with a high deductible

An investment adviser representative of a federal covered investment adviser registers with:

The Admin; strictly on state level

All of the major equity indexes have been making new highs. A portfolio manager employing which of the following management styles would be the most likely to have significant short positions?

The contrarian side of portfolio management is to do the opposite of the rest of the market.

A REIT and a Direct Part. Program are similar because they both:

are operated by a centralized management

Mutual Fund NAV per shr

fund's assets - all liabilites

An insurance COMPANY issuing the variable annuity bears what kind risk?

mortality risk

Rule 506 of Reg D

permits advertising as long as the issue is sold exclusively to accredited investors.

If an investment adviser wishes to engage in an agency cross transaction involving advisory clients, it would be prohibited from:

recommending the trade to both sides

One of your clients currently holds a long position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss?

sell stop

A major benefit of a revocable trust is that:

the grantor retains control of the assets

Moving averages

used in technical analysis in an attempt to modify fluctuations of stock prices over the long term into a smoothed trend

What all is found in an investment policy statement?

- investment objectives - investment policy - investment selection criteria - monitoring procedures

Universal life insurance

- offers the policyowner exceptional flexibility in adjusting the premiums, cash value, and death benefit

A stop order can be used to do:

- protect a short position - protect a long position - become a market order once the security trades through the stop price