Kaplan Simulated Exam #4

A stock traded on the Nasdaq Stock Market has a beta of 1.20. One could expect the stock's volatility compared to the S&P 500 would be

20% more volatile Beta is a measurement of a security's volatility when compared to the overall market, best measure by the S&P 500. The "market" is assigned a beta of 1.00, so when the beta is higher than 1.00, the stock has greater volatility, and when lower than 1.00, the volatility is less.

Which of the following would not be an issuer?

A corporation selling certificates of interest in a mining lease

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclosing which of the following fees?

Account closing fees

What is the latest date that an IRA participant may make a contribution based on the current year's income?

April 15 of the following year or the first business day following if the 15th is a Saturday or Sunday

Under the Investment Advisers Act of 1940, which of the following are excluded from the definition of an investment adviser?

Banks and trust companies

While reviewing nationwide industrial production figures, an analyst notices that inventories have been rising. From that information, one would gather that the economy is most likely in which phase of the business cycle?

Contraction Downturns in the business cycle (a contraction) tend to be characterized by rising inventories due to a lack of consumer demand

Which of these is not considered to be a systematic risk?

Default risk

Net present value (NPV) is the

Difference between the initial cash outflow (investment) and the present value of discounted cash flows (NPV = PV of CF − cost of investment).

One of your ultra-high net worth clients has extensive real estate holdings and is concerned about his children being forced to liquidate some of them in order to pay the estate taxes after his death. One tool that could be suggested to solve this problem would be

Estate taxes must be paid within nine months of death. If the client doesn't want to have to liquidate his real estate holdings, then another source for the tax payment must be found. A frequently-used tool is the irrevocable life insurance trust (ILIT) where a policy is purchased on the life of the client, but owned by the trust.

Samantha Wells, a British citizen temporarily working in the United States, wants to form a business venture with other investors. She is looking for favorable tax treatment of earnings and losses. She also wants to limit the number of investors, but is willing to share control of the enterprise with others to attract them. What business form do you advise to her?

General Partnership

When the beta is higher than 1.00, the stock has a?

Greater Volatility

Which of the following statements regarding REITs are not true?

Investors receive flow-through benefits of income as well as loss and Equity REITs are prohibited from using leverage to acquire properties.

Matched orders are?

Matched orders violate trading rules because they create the illusion of trading volume where such volume would not otherwise occur.

Which of the following is (are) advantages of irrevocable insurance trusts?

Provide estate liquidity and Insurance proceeds are removed from the estate of the insured for tax purposes.

Which of the following investments could be found in an UTMA but not an UGMA?

Real estate

Systematic Risk includes?

Recall the P.R.I.M.E. acronym for systematic (or nondiversifiable) risk: Purchasing power, Reinvestment, Interest rate, Market, and Exchange rate risks

George owns XYZ stock. Based on recent analyst projections and George's own research, he believes XYZ's price will remain flat over the next few months. Accordingly, which strategy would George most likely employ?

Sell a Call. When the price is expected to stay flat, selling an option is a way to profit with little risk of the option being exercised

A portfolio manager using index options is trying to hedge which of the following types of risks?

Systematic

The common stock of companies within which industry sector would be most adversely affected by an increase in the general level of interest rates?

The utilities industry Utilities are generally very heavily funded with debt. If interest rates go up, their new debt will be at higher interest rates, causing lower earnings available for common stocks.

The issuance of a long-term debt instrument, such as a bond, by a company would have an immediate effect on which of the following balance sheet items?

Total assets Total liabilities Working capital

GNMA mortgage-backed securities are

a direct obligation of the U.S. government.

An investment adviser representative for ABC Money Managers, a wholly owned IA subsidiary of ABC Securities, Inc., sold 1,000 shares of registered securities traded on the NYSE owned by one of her advisory clients to another one of her advisory clients. ABC Securities charged commissions for both the buyer and the seller of these securities. This is known as

an agency cross transaction.

One way in which futures contracts differ from options contracts is that

both parties are obligated on futures contracts whereas only the seller is obligated on an options contract.

There are three primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are

commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

A buy stop order may be used for?

commonly used by short sellers who either wish to protect a profit they've already made, or protect against a loss if the stock should go up.

The weak form of the efficient market hypothesis

implies that technical analysis is not worthwhile.

Hybrid REITs are?

own properties, as well as make loans on others.

Cost basis is increased by?

the amount reinvested

One of your clients invested $10,000 into a mutual fund. The client elected to reinvest all dividends. As a consequence of this,

the investor's cost basis is increased by the amount of the reinvested dividends.

When comparing mutual funds, one of the factors to consider is

the length of time the fund manager has been managing the fund.

When the beta is less than 1.00, the volatility of a stock is?

the volatility is less.