Practice Exam 7 - 73%
Treasury bills are A) issued in book entry form B) issued in bearer form C) callable D) issued at par
A) issued in book entry form All Treasury securities are issued in book entry form. Treasury bills are always issued at a discount and are never callable.
During your annual review with a client, you go over all the year's transactions. The beginning of the year balance in the account was $3,000. The client purchased 100 shares of ABC on February 1 at $30 per share and sold it on June 1 at $33 per share. During that period, ABC paid 1 quarterly dividend of $.30. The client used the proceeds of the ABC sale to purchase 66 shares of DEF on June 15 at $50 per share and sold it on December 15 at $60 per share. DEF pays quarterly dividends of $0.25 on the 1st of each month on a cycle beginning with February. Based on this information, you would inform the client that the account's total return is A) 34.10% B) 102.70% C) 100% D) 46%
A) 34.10% Total return in an account is computed by taking all income plus capital gains and dividing that by the original investment. In this example, the client received a $0.30 dividend on 100 shares ($30) and two $0.25 dividends (August 1 and November 1) on 66 shares ($33). Add that $63 of income to the gain of $300 on the first transaction, and $660 on the second, to come up with a total of $1,023 divided by $3,000, which equals a total return of 34.1%.
Which of the following statements regarding the Investment Advisers Act of 1940 and the adviser's brochure is CORRECT? A) Each client must receive the brochure no later than the entry into the advisory contract. B) Each client must receive the brochure no later than 48 hours after entering into the advisory contract. C) Annual delivery of a summary of material changes relieves the adviser of the obligation to deliver a brochure. D) Advisers must deliver the brochure to clients for whom they offer impersonal advisory service only when the annual charge does not reach $500.
A) Each client must receive the brochure no later than the entry into the advisory contract. SEC rules require that a brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year. If there are no material changes, a brochure does not have to be sent. The summary includes an offer to provide a copy of the updated brochure and information on how the client may obtain it. There is no 48-hour rule under federal law, as there is for state law, and in any event, that law has a 48-hour in advance requirement. Only when the charge for the impersonal advice is $500 per annum or more is there a requirement to deliver the brochure.
George and Martha Washington are both in their mid-70s, are very active in their community, and both plan to start working part time at the local community bank. They would like to contribute a small portion of their earnings to some form of retirement plan. Which of the following choices would be the most appropriate for this couple? A) A Keogh Plan B) A Roth IRA C) A traditional IRA D) The bank's 401(k) plan
B) A Roth IRA One of the distinguishing characteristics of the Roth IRA is that there are no required minimum distributions (RMDs) once the taxpayer attains age 72. At their age, opening a traditional IRA would mean they would be investing into the plan, but withdrawing at the same time. That does not help them accumulate funds for the future. Because they will be employed by the bank, they are not eligible for a Keogh plan. If the bank offers a 401(k) plan, it is unlikely they would be eligible. Although part-time employees who work at least 500 hours per year may be covered, coverage does not start until they've worked for at least three years.
Which of the following statements regarding registration of investment advisers is (are) TRUE under the Investment Advisers Act of 1940? I. If any material information filed in the registration becomes inaccurate, an amendment must be filed promptly. II. If any nonmaterial information filed on Form ADV changes, an amendment must be filed within 90 days of the end of the fiscal year. III. Material information requires a prompt amendment, but nonmaterial changes do not require amendment. A) II only B) I and II C) III only D) I only
B) I and II The SEC requires prompt amendment of any material information changes on Form ADV (e.g., names, location, control, custody, organization) and also requires nonmaterial amendments within 90 days of the end of the adviser's fiscal year.
A customer of an investment adviser inadvertently mails some stock certificates to the IA. The IA does not maintain custody of customer assets. If the certificates were received on a Monday, NASAA rules would requires that the certificates be A) returned the same day B) returned no later than Thursday C) forwarded to the broker-dealer promptly D) returned no later than Tuesday
B) returned no later than Thursday NASAA's custody rules require that an investment adviser who does NOT maintain custody must return certificates that are mistakenly sent within 3 business days. When it comes to checks, it depends on how the check is drawn. If made out to the investment adviser, it must be returned; if made out to a third party (usually the executing broker-dealer), it must be forwarded to that third party. In either case, the time limit is 3 business days (might be shown as 72 hours on the exam).
Under the Investment Advisers Act of 1940, if an investment adviser's sales literature describes an investment system, the description must include I. the length of time the system has been used II. the difficulties and limitations of using the system III. the performance history of the system A) I, II, and III B) I and III C) II only D) II and III
C) II only References to charts, tables, formulas, or other devices used to forecast securities prices without setting forth difficulties or limitations in their use is prohibited. It is not necessary to indicate how long the system has been used or its performance history. However, nothing prevents this information from being included. The question asks only what must be included.
Under the Uniform Securities Act, which of the following persons is responsible for proving that a securities issue is exempt from registration? A) Underwriter B) State Administrator C) Issuer D) No need to prove eligibility for an exemption
C) Issuer The burden of proof for claiming eligibility for an exemption falls to the person claiming the exemption. In the event the registration statement was filed by someone other than the issuer, such as selling stockholders or a broker-dealer, that person must prove the claim.
A 69-year-old client of yours indicates that she is interested in changing the portfolio mix of her IRA. She wishes to sell most of the bonds in the account and replace them with 3x leveraged ETFs. You would probably infer from this that the client A) has recently retired. B) is risk averse. C) has insufficient retirement savings. D) is preparing for her minimum required distributions.
C) has insufficient retirement savings. Most studies have indicated that seniors with insufficient retirement savings attempt to compensate by being tempted to reach for higher returns to maximize retirement assets. They frequently do so without full consideration of the increased risk that comes along with the possibility of higher returns.
All of the following statements regarding a closed-end investment company whose shares are listed on the NYSE are true except A) it differs from a mutual fund B) it is a type of management company C) it sells at the market price based on supply and demand D) it may redeem its own shares
D) it may redeem its own shares A closed-end investment company does not redeem its own shares. The term "mutual fund" refers to an open-end management investment company that issues redeemable shares. Although there is a category of closed-end funds that do redeem their shares, (interval funds), those do not trade in the secondary markets like the NYSE.
Investors who are subject to the alternative minimum tax (AMT) will lose the tax benefits normally associated with A) gains associated with variable annuity portfolios. B) capital losses. C) losses on options positions. D) tax preference items.
D) tax preference items. Certain items receive favorable tax treatment from the IRS. One example is tax-exempt interest on private purpose municipal revenue bonds. Another example is accelerated depreciation. These types of items are known as tax preference items. For investors who are subject to the alternative minimum tax (AMT), the benefits normally associated with tax preference items are lost, because these items must be added back into the investor's taxable income.
Under modern portfolio theory (MPT), all portfolios that can be constructed from a given set of stocks is referred to as A) the correlation coefficient B) the efficient set C) the capital market line D) the feasible set
D) the feasible set A feasible portfolio is defined as a portfolio that an investor can construct given the assets available. The feasible set is the collection of all feasible portfolios. Once we have the feasible set, we can select the efficient set (the most return for a given amount of risk, or the least risk for a given amount of return).
An investment adviser representative is evaluating DEF stock to see if it is a good fit for a client's portfolio. Using the security market line (SML), what is the expected return for DEF when the return on the market is 8%, the 91-day Treasury bill is yielding 6%, DEF's beta is 1.50, and the inflation rate, as measured by the CPI, is 4%? A) 9% B) 12% C) 5% D) 8%
A) 9% The formula for this computation is as follows: 8% (the return on the market is a beta of 1.0) minus the risk-free rate of 6%, or 2%. Then, multiply that by the beta of this stock (1.5) to arrive at 3%. That is, the stock should return 3% over the risk-free rate of 6%, or 9%. Inflation rate is only important if we are looking for the real (inflation-adjusted) return, not the expected return.
Identify the accredited investors from the list below. I. An individual with a net worth of $800,000 and an annual salary of $150,000 II. A married couple with a net worth of $2 million consisting of net equity in their primary residence of $500,000 and pension plans and other assets worth $1.5 million III. An insurance company IV. A corporation with a net worth of $3 million A) II and III B) I and IV C) III and IV D) I and II
A) II and III Institutional investors such as insurance companies are regarded as accredited investors. An individual with a net worth of $800,000 and a salary of $150,000 does not meet either of the 2 qualification criteria for individuals, while the married couple with a net worth of $2 million, which after excluding the net equity in the primary residence is still in excess of $1 million, is accredited. In order for a corporation to meet the definition, it must have a net worth of at least $5 million.
Your customer, age 60, is retired and living at home with a fully paid-off mortgage. Her portfolio contains growth stocks and high-quality bonds, and she is a longtime investor and comfortable with moderate risk. Her objective is a moderate level of current income to supplement her corporate pension plan distributions and the earnings from her IRA. Which of the following mutual funds is the most suitable for this customer? A) QRS Capital Appreciation Fund B) LMN Stock Index Fund C) ABC Equity Income Fund D) XYZ Biotechnology Fund
B) LMN Stock Index Fund An equity fund that aims to achieve both current income and growth of income best suits the objectives and investment profile of the client. A stock index fund does not offer the current income that the client requires. The capital appreciation and biotechnology funds not only fail to provide income; they are too risky for this retired person.
As a fiduciary, the investment adviser representative owes his clients an affirmative duty of utmost good faith, and full and fair disclosure of all material facts. This affirmative duty of disclosure is required by the IAR in all of the following situations EXCEPT A) the advice he is providing is outside the scope of his brokerage employment and is not under the control or supervision of his employer B) he has donated funds to a nonprofit medical research institute that owns securities that the investment adviser representative has recommended C) he receives compensation from his employing broker for transactions that are executed through the brokerage house D) his family has a beneficial interest in a private medical equipment firm that he recommends to the client
B) he has donated funds to a nonprofit medical research institute that owns securities that the investment adviser representative has recommended The investment adviser representative need not disclose that he donated funds to a nonprofit research institute. No conflict of interest is present that requires an affirmative duty to disclose. The fact that the institute owns securities consistent with the IAR's recommendations is not relevant to his relationship with his client. The IAR has an affirmative duty to disclose all material facts in all the other choices.
A portfolio manager using index options is trying to hedge which of the following types of risks? A) Financial B) Purchasing power C) Systematic D) Selection
C) Systematic Systematic risk (sometimes called market risk) refers to the impact the overall market has on an equity portfolio's value. Index options help insure portfolios against systematic risk. The purchase of index puts to protect a portfolio by hedging is termed portfolio insurance.
One measure of a corporation's liquidation value is its book value per share. When performing this computation, which of the following must be taken into consideration? I. Goodwill II. Long-term debt III. Retained earnings IV. Par value of the preferred stock A) II, III, and IV B) I and II C) II and III D) I, II, III, and IV
D) I, II, III, and IV The computation of book value per share is basically net tangible worth per share of common stock. Included in the net worth are all assets and liabilities (such as long-term debt), as well as the stockholders equity (par value of the preferred stock and par + paid in surplus of the common stock and retained earnings). Subtracted from this to get tangible book value would be the par value of the preferred stock and the value of intangible assets such as goodwill.
Yield curve analysis plays an important role as a benchmarking and forecasting tool for the future direction of interest rates. In most cases, this analysis involves examining A) bonds of varying quality over a number of maturities. B) bonds of varying quality of similar maturities. C) bonds of similar quality over varying maturities. D) bonds of a single issuer over varying maturities.
D) bonds of a single issuer over varying maturities. The most common yield curves are drawn using U.S. Treasury securities. The curve is plotted using maturities ranging from the short-term T-bills to the long bonds. There are other curves drawn with bonds from other sectors, such as corporate bonds, to show the "yield spread", but that is going beyond the scope of this question.
A broker-dealer makes a market in XYZ stock and places large orders for it on the open market either at or slightly above its current price with the aim of stabilizing the price. This unethical practice is best described as A) front running B) straddling C) matched orders D) pegging
D) pegging Pegging involves entering buy orders for the purpose of supporting a stock price (i.e., to keep it from falling). This is a form of market manipulation and is illegal. Front running involves a representative or firm entering orders ahead of client orders. Straddles are an option position that combines a put and a call on the same stock; there is nothing improper with that strategy. Matched orders involve buying and selling a stock from one hand to the other to create the false appearance of trading volume and is another form of market manipulation.
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) an LLC can be formed with as little as a single investor C) there is more favorable tax treatment afforded to members of an LLC D) there is no statutory limit on the number of investors in an LLC
D) 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.
A single individual earning $250,000 a year may I. open a Coverdell ESA II. not open a Coverdell ESA III. open a 529 college savings plan IV. not open a 529 college savings plan A) II and III B) II and IV C) I and IV D) I and III
A) II and III There are income limits that apply to Coverdell ESAs. Single individuals earning more than $110,000 per year are not permitted to open a Coverdell account, and married couples lose the ability to contribute when earnings exceed $220,000. However, there are no income limits restricting who is eligible to open and contribute to a Section 529 college savings plan.
An investor bought a parcel of raw land for $50,000 several years ago. A developer has offered to exchange another property, currently valued at $100,000, with this investor. Under Section 1031 of the Internal Revenue Code, the investor's tax consequences would be A) $50,000 short-term capital gain. B) $0.00. C) $50,000 ordinary income. $50,000 long-term capital gain
B) $0.00. Section 1031 permits a tax-free exchange of one property for another. This has the effect of deferring any gain until final disposition of the property. This is a parallel to Section 1035 for annuity products.
The most common way in which to distinguish whether social media content is static or interactive is A) the ability for others to like it B) the ability for others to change it C) the ability for others to comment on it D) the ability for others to link to it
B) the ability for others to change it Static content can only be changed by the originator (or someone under that person's control).
You have a client who sold her $5 million whole life insurance policy through a life settlement broker. If she dies 2 years later, A) her estate can invoke the right of rescission and receive the policy proceeds minus the sale proceeds. B) the new owner receives the $5 million death benefit. C) the insurance broker must return all commissions to the insurance company. D) the insurance company is not obligated to pay the death benefit because she no longer owns the policy.
B) the new owner receives the $5 million death benefit. A life settlement contract involves the sale of a life insurance policy to a party other than the insured. In exchange for the payment, the new owner is entitled to the death benefit when the seller passes away. The right of rescission applies to illegal securities sales and this is not a security nor has any illegal activity been described.
An investor purchases shares of ABC stock at $50 per share. One year later, ABC is selling for $54 per share and, at the end of the 2nd year, the price is $52 per share. ABC has paid dividends of $2 per year. Upon liquidation, the investor would have earned a return of A) $4 per share B) $2 per share C) $6 per share D) $8 per share
C) $6 per share The investor paid $50 and sold it for $52 for a $2 per share gain. During the 2-year holding period, $4 in dividends were paid. That is a total return of $6 per share.
Beth Jamison is an agent and an IAR for Consolidated Wealth Planning, a FINRA member broker-dealer and SEC- registered investment adviser. An advisory client purchases 300 shares of RMBN and the sale is made from Consolidated's inventory. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives and Federal Covered Advisers, A) Beth must obtain consent of any advisory client whenever a sale is made as principal B) the amount of commission charged for this transaction must be clearly disclosed C) Beth would not be required to obtain consent for this principal transaction if it was not the subject of a recommendation D) selling out of inventory to advisory clients would be considered an unethical business practice
C) Beth would not be required to obtain consent for this principal transaction if it was not the subject of a recommendation When acting in the capacity of IA (or IAR), that is, when making recommendations or advising a client to purchase (or sell) a security, any transaction in which the firm is a principal requires disclosure in writing to and consent from the client prior to the completion of the trade. However, if merely accepting a client order (no advice rendered), consent is not required.
The potential for the market price of common stock in the ABC Corporation to fluctuate due to its tendency to move with all securities of the same type represents what kind of risk? A) Inflation B) Market C) Business D) Interest rate
C) Business Changes in the market price of common stock due to movement in the market, rather than changes in the underlying business, is known as market risk. This is why it is a systematic risk. Inflation risk and interest rate risk are also systematic risks, but their effect is primarily on fixed income securities rather than common stock.
According to the Uniform Securities Act, a person who sells securities in violation of state securities laws is civilly liable for which of the following? I. Principal II. Interest III. Court costs IV. Attorney's fees A) I and II B) II and III C) I, II, III, and IV D) I and IV
C) I, II, III, and IV The person illegally selling the securities is liable for the purchase price of the securities plus interest from the date of purchase, court costs, and reasonable attorney's fees. Punitive damages will not be assessed, but any income received from the securities will be subtracted from the total.
All of the following statements regarding convertible bonds are true EXCEPT A) holders have a fixed interest rate B) holders may share in the growth of the common stock C) holders receive a higher interest rate D) the issuer pays a lower interest rate
C) holders receive a higher interest rate Because of the possibility of participating in the growth of the common stock through an increase in the market price of the common, the convertible can be issued with a lower interest rate.
During the analysis of XYZ stock, a technical analyst concludes that XYZ's support level has been broken. Being a technician, the most appropriate decision should be to A) purchase additional shares of the stock. B) rate the stock as a buy. C) rate the stock as a sell. D) rate the stock as a hold.
C) rate the stock as a sell. If a support level is broken, this provides a sell signal. Once the stock has lost its support, expectations are that it will continue to fall. The breaking of a resistance level, as the price of the asset gathers momentum to the upside, indicates a buying opportunity.
Which of the following transactions on the NYSE in ABC common stock would meet the minimum size requirement to be considered a block trade? A) 100,000 shares B) $100,000 total market value C) 200,000 shares D) 10,000 shares
D) 10,000 shares A block trade is defined as at least 10,000 shares of stock or a trade with a total market value of at least $200,000.
An agent has 4 clients who have purchased variable annuities, all of who are about to enter the annuitization phase. Client 1 purchased a single premium deferred annuity 20 years ago with a premium of $30,000. Client 2 purchased a single premium deferred annuity 10 years ago with a premium of $50,000. Client 3 purchased a periodic payment annuity 15 years ago and has made monthly premium payments totaling $60,000. Each of these 3 annuities has a current surrender value of $100,000. Client 4 just purchased an immediate annuity with a premium of $100,000. Assuming that all of these clients are of the same sex and the same age, when the annuity payout begins, which of the clients will receive the lowest amount of taxable income? A) Client 3 B) Client 2 C) Client 1 D) Client 4
D) Client 4 When it comes to taxation on annuitization, each payment consists of a combination of income and return of principal, how much of which depends on the exclusion ratio. In the case of Client 4, with an immediate annuity, it is unlikely that there is much in the way of income - almost all of the monthly payout will represent a nontaxable return of principal. Each of the other clients has tax-deferred income ranging from Client 1's $70,000 to Client 3's $40,000. When using the exclusion ratio to determine how much is income and how much is return of principal, Client 1 will have the greatest amount of taxable income followed by Client 2 and then Client 3.
Which of the following types of mutual funds would be most likely to have capital appreciation as its stated objective? A) Municipal bond B) Balanced C) Income D) Growth
D) Growth As the name implies, a growth fund looks for growth of capital (capital appreciation). Income funds are looking for income, municipal bond funds for tax-free income, and balanced funds for both income and growth with minimal risk to capital.
A client is risk averse and is planning on retiring in 16 years. As the client's investment adviser, which of the following would you recommend? A) A diversified open-end investment company concentrating in small-cap stocks B) 50% in an S&P 500 index fund; 50% in a portfolio of high-quality bonds C) A high-yield bond fund D) A government bond fund
B) 50% in an S&P 500 index fund; 50% in a portfolio of high-quality bonds Even though the government bond fund carries less market risk, with a 16-year retirement goal, some inflation protection is necessary. The index fund carries some market risk, but does offer purchasing power protection. The 50/50 mix would seem to be most appropriate.
An analyst is viewing a subject company's financial statements. She notices that the company has current assets of $20 million, fixed assets of $50 million, and total liabilities of $45 million (of which $10 million is considered long-term). This company's debt-to-equity ratio is A) 64.3% B) 22.2% C) 40% D) 28.6%
D) 28.6% The debt-to-equity ratio is computed by dividing the issuer's long-term debt by their total capitalization. Total capitalization is the company's net worth (assets minus liabilities) plus the long-term debt. In this example, the net worth is $70 million minus $45 million, or $25 million. Adding the long-term debt of $10 million results in total capital of $35 million. Divide the $10 million by that $35 million to arrive at 28.57%. As we point out in the LEM, this is really a misnomer—it should be called the debt-to-total-capital ratio, but probably will not be shown that way on the exam.
One of the components of a cash flow statement is cash flow from investing activities. Included would be A) cash proceeds from issuing stocks or bonds. B) cash receipts (money coming in) from items such as interest and dividends. C) payments to retire bonds and the payment of dividends. D) transactions and events involving the purchase and sale of land, buildings, and equipment.
D) transactions and events involving the purchase and sale of land, buildings, and equipment. Investing activities include transactions and events involving the purchase and sale of securities, land, buildings, equipment, and other assets not generally held for resale as a product of the business. The proceeds from issuing securities (stocks or bonds) is a financing activity as is using funds to retire bonds and/or pay dividends. Cash receipts are included in cash flow from operating activities, even when generated through investments such as interest or dividends.
Which of the following must register as a broker-dealer under the USA? A) A broker-dealer with a place of business in the state that effects transactions exclusively with broker-dealers registered in other states B) A broker-dealer with no place of business in the state that has directed offers to clients who have more than 30 days' temporary residency in the state C) A broker-dealer with no place of business in the state that deals exclusively with broker-dealers with offices in that state D) A broker-dealer with no place of business in the state that effects transactions exclusively with issuers of securities in that state
A) A broker-dealer with a place of business in the state that effects transactions exclusively with broker-dealers registered in other states If a broker-dealer has an office in the state, it must register with the state, regardless of what types of clientele it serves. The term "broker-dealer" excludes anyone without a place of business in the state who effects transactions exclusively with issuers, other broker-dealers, or institutions, or who directs an offer in the state to an existing customer who temporarily resides in the state where the offer is received, regardless of the length of time. As long as the broker- dealer is properly registered in the vacationer's state of permanent residence and does not maintain an office in the state being visited, it is not defined as a broker-dealer.
One of your prospective clients is considered a key employee at his place of business. This individual has a net worth of almost $6 million, currently earns in excess of $500,000 per year, and is married with 2 teenage children. He currently has a little over $1 million in his 401(k), more than half of which is invested in his employer's common stock. The company is the beneficiary of a $1.5 million key person life insurance policy on his life. Given these facts, what is your greatest concern as his adviser? A) Inadequate life insurance coverage B) Too high a percentage of the retirement plan invested in the company's stock C) Inadequate funding for college savings D) Alternative minimum tax
A) Inadequate life insurance coverage Because the client's only life insurance seems to be that with the company as beneficiary, it does not appear that he has adequately planned for his premature death and the potential estate taxes.
Washington, Adams, and Jefferson, Inc. (WAJI) is an investment adviser whose principal and only office is in Alexandria, VA. WAJI's sole business is advising institutional investors. Rutherford Buchanan is employed by the firm in the main office and has the responsibility of servicing the firm's bank and insurance company clients. Which of the following statements is correct regarding Rutherford's licensing requirements? A) Rutherford must register as an IAR of WAJI with the state of Virginia. B) Rutherford is exempt from registration because his only clients are institutions. C) Rutherford cannot register as an IAR of WAJI because providing advice exclusively to institutions exempts the firm from registration. D) Rutherford is exempt from registration because he has fewer than 6 retail clients.
A) Rutherford must register as an IAR of WAJI with the state of Virginia. Regardless of whom the clients are, Rutherford has a place of business in Virginia and that requires registration with the Administrator as an IAR. If WAJI does business in other states where it does not have a place of business, it is exempt from registration because the only clients are institutions. If WAJI is not registered in the state, Rutherford can't register as their IAR. The de minimis exemption for fewer than 6 retail clients only applies when there is no place of business in the state.
A person providing which of the following services to an ERISA plan would be performing in a fiduciary capacity? A) Selecting and monitoring third-party service providers B) Determining the age at which benefits are to be provided C) Amending the plan D) Changing the level of employer contributions
A) Selecting and monitoring third-party service providers ERISA defines fiduciary not in terms of formal title but rather in functional terms of control and authority over the plan. ERISA provides that a person is a fiduciary with respect to an employee benefit plan to the extent that such a person does any of the following: exercises any discretionary authority or control over the management of a plan or over the management or disposition of plan assets; renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of such plan; or has any discretionary authority or discretionary responsibility in the administration of such plan including appointing other plan fiduciaries or selecting and monitoring third-party service providers. The other choices given in the question are known as settlor functions. The most common settlor functions are design decisions involving: establishment of the plan, defining who are the covered employees and benefits to be provided, and amending or terminating the plan
This is the performance of your portfolio over the previous 4 years: Year 1 - 10% Year 2 - 45% Year 3 + 20% Year 4 + 35% In order for the portfolio to be equal to the starting investment, the return in Year 5 must be nearest to A) 20%. B) 25%. C) 33%. D) 0%.
B) 25%. Suppose the initial value of your portfolio is $1,000. In Year 1, you lose 10%. Your portfolio is now worth $1,000 x (1 - 0.1) = $1,000 x 0.9 = $900. In Year 2, you lose 45%. Your portfolio is now worth $900 x (1 - 0.45) = $900 x 0.55 = $495. In Year 3, you gain 20%. Your portfolio is now worth $495 x (1 + 0.2) = $495 x 1.2 = $594. In Year 4, you gain 35%. Your portfolio is now worth $594 x (1 + 0.35) = $594 x 1.35 = $801.9. You would like to know by how much your portfolio needs to appreciate in Year 5 to be worth its original value of $1,000. Let's set "y" to be this number. Then we have: $801.9 x (1 + y) = $1,000. Solving this equation for "y" gives: y = ($1,000 ÷ $801.9) - 1 = 0.247 = 24.7%. Rounding this answer in percentage terms (24.7%) to the nearest integer yields the desired answer of 25%. Your portfolio thus needs to increase by nearly 25% in Year 5 for it to be worth its original value of $1,000. Some might find it easier to look at the shortfall ($1,000 - $801.90) = $198.10. Divide that by the current value and you have 198.10 ÷ 801.90 = 24.7%. Somemightjustlookatthenumberandrecognizethatyouareabout$200shortonavalueof$800andthatis25%.
If a federal covered investment adviser intends to pay a third party solicitor to solicit clients for investment advisory services, which of the following must be TRUE? I. The solicitor must be a registered investment adviser representative with the state. II. The registered investment adviser must be properly registered as an investment adviser under the Investment Advisers Act of 1940. III. There must be a separate written agreement between the solicitor and the registered investment adviser. IV. The agreement between the solicitor and the registered investment adviser is contained as part of the investment adviser's brochure. A) I and III B) II and III C) II and IV D) I and IV
B) II and III Under federal regulations, if an investment adviser intends to pay a third party (nonemployee) solicitor to solicit clients for investment advisory services, the investment adviser must be properly registered with the SEC, there must be a written agreement between the investment adviser and the solicitor, and there can be no outstanding or pending orders or disciplinary actions against the solicitor involving finance or dishonesty
When contrasting preemptive rights and warrants, it would be correct to state that, at issuance, A) rights have time value while warrants have intrinsic and time value. B) rights have intrinsic and time value while warrants only have time value. C) rights have intrinsic and time value while warrants only have intrinsic value. D) rights have intrinsic value while warrants have intrinsic and time value.
B) rights have intrinsic and time value while warrants only have time value. At the time of issuance, preemptive rights always offer the stock at a price below the current market thus creating intrinsic value. Although rights rarely are effective for longer than 45-60 days, that does represent time value. On the other hand, warrants are always issued with an exercise price above the current market (no intrinsic value) but do have time value.
Ebony sets up a revocable trust, naming her daughter, Sylvia, as the sole beneficiary. Ebony has appointed the Pacific Atlantic Trust Institution (PATI) as the trustee. Any distributed income will be taxable to A) the beneficiary B) the grantor C) the trust D) the trustee
B) the grantor In almost all cases, income received into a revocable (grantor) trust, whether distributed or not, is taxable to the grantor.Thingsaredifferentwhenthetrustisirrevocable,butmuchmorecomplicatedandnotlikelytobetested
If you were describing an investment that trades on an exchange with a price set by supply and demand, rather than its underlying value, it would be A) an open-end fund B) a forward contract C) a hedge fund D) a closed-end fund
D) a closed-end fund The stock of closed-end investment management companies trades on exchanges and, like any other exchange security, is priced based on supply and demand. Although closed-end funds compute their NAV, market forces determine price.
