Practice Exam Questions Missed

They are not subject to exchange rate, or currency, risk.

A client is considering the purchase of American depositary receipts (ADRs). The client is looking to further diversify her portfolio. Which of the following is not a feature of this type of investment vehicle?

Partnership

A margin account could be opened for which of the following?

average annual net assets

A mutual fund's expense ratio is found by dividing its expenses by its

give the broker-dealer discretion regarding time and price

A stop order can be used to do all of the following EXCEPT

45

According to the Investment Advisers Act of 1940, the SEC must either grant investment adviser registration or begin proceedings to determine whether registration should be denied within how many days of filing?

variable annuities issued by a major insurance company

All of the following are exempt from state registration EXCEPT

the identity of the specific securities to be chosen for the portfolio

Although not required by DOL regulations, if a plan administrator prepared a written investment policy statement meeting ERISA requirements, you would expect to find all of the following EXCEPT

capital gains treatment on any realized gains upon withdrawal

Among the reasons to consider investing in a variable annuity would be all of the following EXCEPT

written discretion authority has been received by the broker-dealer before executing the first discretionary transaction

An agent may determine which securities to purchase or sell for a client when

receiving a check made payable to that broker-dealer

An investment adviser affiliated with a broker-dealer would be considered to be maintaining custody when

The municipal yield is higher than the corporate yield on an after-tax basis.

An investor in the 28% income tax bracket is considering purchasing either an 8% municipal bond or a 10% corporate bond. Which of the following regarding the bonds is TRUE?

reinvestment risk

An investor purchases a 30-year zero-coupon corporate bond. The bond was issued by a Fortune 500 company. Her investment is subject to all of the following risks except

Positive

Anytime the IRR is more than the required rate of return the NPV is

True

CAPM uses BETA

$0

Gail's minimum required distribution this year from her IRA is $5,000. If she takes $8,000, the penalty will be

Sell futures contracts on the S&P 500 Index

Ian is a technical analyst who believes the market, as represented by the S&P 500 Index, is overbought. Over the next several months, there is a 12% correction. Which of the following strategies would have been successful for Ian?

a C corporation

If 150 investors want to form a corporation to limit their financial liability to the amount of money they invest and do not want to be responsible for any debt that the corporation incurs, they would most likely form

the prices of securities will not differ from their justified economic values for any length of time

In a financial market that is efficient,

Interest rate risk—money rate risk

In this industry, many words have similar meaning. Which of the following choices consists of a pair which are NOT properly considered synonyms?

Value

Janice is investing in stocks that are temporarily neglected by the market and often have high-dividend yields. Which of the following investment styles might she be following?

SRA is considered to be maintaining custody of client funds and securities

Lamar is an investment adviser representative for Southeast Retirement Advisers (SRA), a wholly owned subsidiary of Southeast Retirement Solutions (SRS), a broker-dealer registered in a number of southeastern states. Lamar is also a registered agent with SRS. If one of Lamar's advisory clients sends a check made payable to SRS for a stock purchase, under NASAA's Model Rule on Custody

Total return

One of the important roles of an investment adviser representative is assisting clients in analyzing the performance of securities held in their portfolios. Which of the following is the best measurement of a security's performance?

gains on an ISO are always short-term while those on an NQSO are long-term.

One way in which incentive stock options (ISOs) differ from nonqualified stock options (NQSOs) is that

State Y

Pontourny Advisory and Investment Services (PAIS) is a federal covered investment adviser. Its principal office is in State X. PAIS also maintains branch offices in States Y and Z. Brenda is the manager of the branch office in State Y. Some of the individuals being supervised by Brenda have clients in States X and Y, and others have clients in States Y and Z. Brenda must register as an IAR in

because Sharon has no place of business in State X, she does not have to register as an IAR in State X.

Sharon Smith is an investment adviser representative with Highwater Advisers, a federal covered investment adviser with its principal office in State X. Sharon provides advisory services to a bank located in State X, a state in which she has no place of business. Under current regulations,

$44.12 This is a middle school math question. It is asking, 3.75 is 8.5% of what number? The computation is: 3.75 ÷ 0.085 = $44.12.

Sortel Industries has preferred stock outstanding that pays annual dividends of $3.75 a share. If an investor wants to earn a rate of return of 8.5%, how much should she be willing to pay for a share of Sortel preferred stock?

2 and 3

Tax considerations are frequently an important factor when determining appropriate recommendations for advisory clients. In which of the following accounts is the tax status of the individual a critical factor? 1. An account opened in the name of the XYZ Corporation, organized as a C corporation, by their chief investment officer 2. An account opened by a sole proprietor in the name of the company 3. An account opened in the name of ABC Corporation, an S corporation by one of its shareholders 4. An account opened in the name of the GHI Fund, a regulated investment company, by the fund's portfolio manager

Debt securities issued by the ABC Savings and Loan Association, organized under the laws of a neighboring state, but not authorized to do business in your state

The Uniform Securities Act grants exemptions to the securities of a number of issuers. If you were the Administrator, which of the following securities would NOT be eligible for an exemption in your state?

Hedge

The offering document for a fund states that the minimum initial investment is $500,000. This is most likely what type of fund?

1% of the increase in account value over the next quarter

There are various ways in which an investment adviser may be compensated for services rendered. All of the following would be permitted under the Uniform Securities Act EXCEPT

The adviser must report the location of funds or securities at 6-month intervals.

Under the Investment Advisers Act of 1940, which of the following statements is NOT true regarding custody of a client's funds or securities?

capital gains

Under the USA, the term guaranteed refers to all of these EXCEPT

2 and 4

Under the Uniform Securities Act, one method of securities registration is qualification. When that method is used, which of the following statements is CORRECT? 1. The registration is valid for 1 year from the effective date. 2. The registration is valid for 1 year from the effective date unless the underwriter or issuer still has some unsold shares. 3, The registration is valid until the next December 31st. 4. The registration statement may be amended to increase the number of shares in the offering as long as the public offering price and the underwriter's compensation is not changed.

Company A can be either open-end or closed-end; Company B must be closed-end.

What can you tell about these investment companies from the information below? NAV ASK Company A 12.34 12.85 Company B 15.45 14.90

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

What is the latest date that an IRA participant may make an IRA deposit for the current year?

keeping the money in the deceased's IRA

When a nonspouse inherits an IRA, the beneficiary can choose from all of the following options except

Compound interest is interest earned on the initial investment.

Which of the following statements regarding the time value of money is NOT correct?

Preferred Stock Funds

are appropriate for income-oriented investors.

has a zero net present value

A client owns an investment-grade bond with a coupon of 7%. If similarly rated bonds are being issued today with coupons of 5%, and the market is efficient, it would be expected that the client's bond

$101 per share

A mutual fund's computed NAV on April 24 is $100 per share. On April 25, the portfolio realized gains of $2 per share, and enjoyed $1 per share in unrealized appreciation. What would the NAV be on April 26 assuming an unchanged market?

Both are incorrect.

Julian and Jane are discussing risk-return measures. Julian states that "beta is used when looking at the performance of a fund or portfolio and refers to the extent of any outperformance against its benchmark." Jane disagrees and says that "outperformance of a fund or portfolio is actually measured by standard deviation." Which of the following statement is correct?

If the customer is a bank

Under which of the following circumstances may an agent borrow money from a customer?

within 30 days

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

Insurance agents who discuss the merits of whole life insurance verses nonsecurities financial instruments and who receive commissions on the sale of life insurance only

Which of the following is NOT considered to be in the business of investment advising?

Dollar-weighted return

Which of the following is a method for determining the internal rate of return to an investor based on cash flow in and out of the portfolio?

The security's rating

Which of the following is not a component of the discounted cash flow method of determining the value of a fixed-income security?

The dividend discount model

Which of the following might be used by an analyst to approximate a reasonable price for a common stock?

1 and 3

Which of the following situations would require registration as an investment adviser? 1. A broker-dealer provided investment research services to a customer and charged a fee for the service. 2. An agent of a broker-dealer recommends the purchase of ABC securities to a customer, who then purchases 100 shares, and the agent earns a commission. 3. A broker-dealer has its agents prepare complete financial plans for customers for a nominal fee. The plans recommend specific securities transactions, and when the customers place orders, the agents earn commissions on those securities transactions. 4. A broker-dealer charges its customers for collecting dividends and maintaining their accounts in addition to commission charges for transactions executed.

2 and 3

Which of the following statements regarding letters of intent used in connection with mutual fund purchases are TRUE? 1 The letter can cover a period totaling 16 months. 2 The letter may be backdated 90 days. 3 Some shares purchased are held in escrow until the letter is completed. 4 During the period covered by the letter, the customer may not redeem his shares.

70% large-cap stock fund, 20% balanced fund, 10% money market fund

Your 30-year-old client has $100,000 to invest and willing to assume a moderate amount of risk, but she would also like to have $10,000 available for a down payment on a home in 6 months. Which of the following asset allocation strategies would best suit her situation?

Represent mature, well-established companies

As a rule, which of the following is NOT a characteristic of micro-cap stocks?

Treasury bond issued at par and carrying a 4% coupon

Assuming all of the following mature at about the same time, which of the following bonds should experience the greatest price decline if interest rates rise by 1%?

1%

If the Consumer Price Index (CPI) rose 5% during the past year, during which time your client held a 6% bond, what would be the approximate annualized inflation-adjusted return?

The order was not triggered.

Your client turns in a buy limit order for 100 shares of ABC at $58. Following the entry of the order, trades occur at 59, 59, 58.80, 58.20, 58.40, 57.95, 57.85. At what price was this limit order triggered?

Large-cap stock fund

Your firm's market analyst believes the current bullish market in equities will continue. Which of the following would be most suitable for a growth-oriented investor?

2 and 3

Which of the following statements regarding the brochure delivery requirements of the Investment Advisers Act of 1940 are TRUE? 1. The brochure must be updated each time Part 1A of Form ADV is updated. 2. The brochure delivery requirement does not apply to investment companies or clients who are serviced on an impersonal basis, such as with a newsletter, with an annual cost of less than $500. 3. 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.