S66
ABD Corporation's income statement reports net sales of $100 million; cost of goods sold, $60 million; administrative costs, $20 million; and interest on debt, $5 million. Based on this information, ABD's gross margin is A.) 40% B.) 15% C.) 35% D.) 20%
A.) 40%
Which of the following stocks would probably be most appealing to a value investor? A.) A stock with a relatively low P/E ratio B.) A stock with a relatively low dividend yield C.) A stock with a relatively high price-to-book-value ratio D.) A stock that has relatively high volatility
A.) A stock with a relatively low P/E ratio
When an individual registered with a broker-dealer has a change of residence, an amended Form U4 must be filed A.) within 30 days B.) within 60 days C.) within 2 business days D.) within 90 days of the end of the fiscal year
A.) within 30 days
Which of the following items would be included in a current ratio computation? A.) Accounts receivable, inventory, and long-term debt B.) Accounts payable, wages payable, and short-term debt C.) Cash, dividends payable, and shareholders' equity D.) Inventory, equipment, and cash
B.) Accounts payable, wages payable, and short-term debt Current ratio is computed by dividing current assets by current liabilities. Current assets include cash, accounts receivable, and inventory. Current liabilities include accounts payable, wages payable, dividends payable, and short-term debt. Equipment is a fixed asset, and shareholders' equity is net worth.
High-yield bonds are frequently called junk bonds. Which of the following expresses the highest rating that would apply to a junk bond? A.) BBB B.) BB C.) CCC D.) CC
B.) BB
Which of the following would you expect to see in the investment policy statement of a qualified plan? I. The information in the summary plan document specified by the Department of Labor II. The method to be used to measure the investment performance of the plan III. A listing of the portfolio assets as of the most recent quarter IV. Investment limitations placed on the portfolio managers A.) II and III B.) II and IV C.) I and IV D.) I and III
B.) II and IV
An investor plans to fund the college education for her newborn child by purchasing $5,000 of investment-grade bondson an annual basis. She is most likely using A.) the barbell strategy. B.) the bullet strategy. C.) the laddering strategy. D.) the 529 plan strategy.
B.) the bullet strategy. The bullet strategy is used when aiming at a target. In this case, the target is having sufficient funds about 18 years from now. This strategy involves buying bonds at different intervals, but all with approximately the same maturity date. The barbell strategy has all bonds purchased at the same time with two different sets of maturities - half of the bonds mature near term and half mature intermediate term. Laddering requires purchasing bonds on a regular basis, but not with new funds as this investor is doing. As bonds mature, the proceeds are rolled over into new bonds. She may be doing this in a 529 plan, but the plan is not a strategy, it is a type of account.
Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle? A.) Strategic portfolio management B.) Tactical portfolio management C.) Segment rotation D.) Cyclical rotation
C.) Segment rotation
A registrant's registration may be canceled by the Administrator A.) as long as there is opportunity for a hearing B.) upon the order of a court of competent jurisdiction C.) if the Administrator is unable to locate the registrant D.) when the registrant has been found in violation of the Uniform Securities Act
C.) if the Administrator is unable to locate the registrant
Which of the following terms best describes ETNs and leveraged ETFs? A.) Forms of hedge funds B.) Speculative investments C.) Registered investment companies D.) Alternative investments
D.) Alternative investments
When communicating with clients, which of the following designations may NOT be used? A.) MBA B.) CLU C.) CFP D.) RIA
D.) RIA
A life insurance policy where the premium increases each time the policy is renewed while the face amount remains level is A.) variable universal B.) increasing term C.) decreasing term D.) renewable level term
D.) renewable level term
A broker-dealer receives a written complaint from one of its customers. The most appropriate action to take is to immediately A.) notify the Administrator B.) notify NASAA C.) freeze the client's account D.) reply to the client in writing
D.) reply to the client in writing
A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. The value ofthe separate account is now $30,000. If the customer takes a withdrawal of $10,000, what are the tax consequences? Two-thirds of the withdrawal is taxable as ordinary income. The entire $10,000 is taxable as ordinary income. Any tax due is deferred. There is no tax because the withdrawal is considered return of capital
The entire $10,000 is taxable as ordinary income.
Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, advertisements must comply with rules set out under the Investment Advisers Act of 1940. Those rules include a prohibition against testimonials from clients a prohibition against showing the adviser's past performance a prohibition against reduced-fee introductory offers a requirement that a copy of all advertisements be sent to the SEC at the time they are disseminated to the public
a prohibition against testimonials from clients
If the risk and return profiles of all the possible risky portfolios were plotted on a graph, those portfolios that would be the most attractive to investors would lie on the security market line the capital market line the y-axis the efficient frontier
the efficient frontier
ABC Corporation's 5% mortgage bond is currently trading at a premium. The bond is callable at par in 10 years andmatures in 15 years. When comparing the returns available to an investor, it would be accurate to state the yield to call is higher than the current yield. the current yield is higher than the nominal yield. the yield to maturity is higher than the yield to call. the yield to maturity is higher than the current yield.
the yield to maturity is higher than the yield to call.
There are many different legal ways to structure a new business entity. One of these is the general partnership. Among the benefits of using this structure would be A.) ease of formation limited liability substantial capital can be raised with little effort and low cost the 50% dividends received exclusion B.) limited liability C.) substantial capital can be raised with little effort and low cost D.) the 50% dividends received exclusion
A.) Ease of formation
Under the National Securities Markets Improvement Act of 1996 (NSMIA), states are prevented from I. registering securities II. establishing capital and custody requirements that exceed those provided for in the Securities Exchange Act of1934 III. establishing recordkeeping requirements for broker-dealers or investment advisers that exceed those required under federal securities law IV. registering investment advisers A.) II and III B.) I and IV C.) I and III D.) III and IV
A.) II and III
A client of yours owns some convertible preferred stock. She notices an article in the business section of her local newspaper that reports the company is going to pay a 20% stock dividend on their common stock. She wants to know how this will affect her? A.) If there is an antidilution clause, her conversion privilege will permit her to acquire20% more shares than before the stock dividend. B.) There will be no effect. C.) More than likely, the price of the preferred stock will rise. D.) She will also receive 20% more shares because preferred stock has a priority claim ahead of common
A.) If there is an antidilution clause, her conversion privilege will permit her to acquire20% more shares than before the stock dividend.
Which of the following statements regarding an agent's registration is CORRECT? A.) Revocation of the registration of that agent's broker-dealer will result in that agent's effective registration being put "on hold." B.) If the broker-dealer with which that agent is registered should have its registration revoked, the agent may continue to do business only with existing clients and may not acquire any new ones until registered with an active broker-dealer. C.) If the broker-dealer with which that agent is registered should have its registration revoked, the agent's license will be held by the D.) Administrator and the agent will be required to register with an active broker-dealer within 30 days. Agents may be licensed in a state even if their broker-dealer is not.
A.) Revocation of the registration of that agent's broker-dealer will result in that agent's effective registration being put "on hold."
Risk-adjusted return is calculated by A.) dividing the security's return in excess of the risk-free rate by its standard deviation B.) dividing the price of the stock by the standard deviation C.) dividing the security's price by its beta D.) multiplying the return of an investment by its standard deviation
A.) dividing the security's return in excess of the risk-free rate by its standard deviation
Five years ago, an investor purchased an ABC Corporation BBB-rated debenture with a coupon of 6% maturing in2037. Currently, new BBB-rated debentures maturing in 2037 are being issued with coupons of 7%. Based on the discounted cash flow method, one could say that the present value of the investor's security is A.) less than the par value B.) negative C.) equal to the par value D.) more than the par value
A.) less than the par value
A closed-end investment company is registered under the Investment Company Act of 1940. Its shares trade on the Nasdaq Stock Market. To qualify their shares for sale in the state, they would probably use A.) notice filing B.) supplementation C.) qualification D.) coordination
A.) notice filing
Which of the following offers the opportunity to realize a capital gain rather than ordinary income? A.) Section 529 plans B.) Stock dividends C.) Deferred annuities D.) Cash dividends
B.) Stock dividends
private foundation is required by statute to pay out a minimum percentage of its asset value each year as qualifyingdistributions. This investment constraint is best classified as A.) unique circumstances. B.) legal and regulatory. C.) time horizon. D.) liquidity.
B.) legal and regulatory.
When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office, A.) the investment adviser representative and the employing adviser must notify the Administrator promptly B.) only the investment adviser representative must notify the Administrator promptly C.) the investment adviser representative and the federal covered advisers must notify the Administrator promptly D.) only the terminating investment adviser must notify the Administrator
B.) only the investment adviser representative must notify the Administrator promptly
All of the following statements regarding the registration of an investment adviser in a state are true EXCEPT A.) the initial application must include a consent to service of process along with Form ADV and the appropriate fees B.) the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process C.) the adviser's registration expires on December 31 each year D.) if the investment adviser is not an individual, any officer or partner active in the advisory business is automatically registered as an investment adviser representative
B.) the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process
The capital asset pricing model (CAPM) is used by many to assess the expected return of a security. If the current risk-free rate is 2%, the current return on the market is 12%, and a particular stock's beta is 0.8 with a correlation coefficient of 0.60, the expected return would be A.) 11.6% B.) 7.2% C.) 10.0% D.) 9.6%
C.) 10.0% The formula for this computation is as follows: 12% (the return on the market is a beta of 1.0) minus the risk-free rate of2%, or 10%. Then, multiply that by the beta of this stock (0.8) to arrive at 8%. That is, the stock should return 8% above the risk-free rate of 2%, or 10%. The correlation coefficient is not relevant to this computation
You have a 37-year-old client whose wife has just given birth to triplets. Because of the added responsibilities, he wants to maximize the amount of life insurance he can acquire. Which of the following types of insurance will give him the greatest amount of coverage for the lowest initial premium? A.) Variable life B.) Whole life C.) Annual renewable term D.) Universal life
C.) Annual renewable term At any given age, term insurance always carries the lowest premium and, of the term policies available, annual renewable term always has the lowest initial premium. Of course, because the premium tends to increase each year the policy is renewed, at older ages it can become unaffordable. But remember, this question is only asking about initial cost.
Based on the following information, which stock is most likely to appeal to a growth investor? A.) Book value of $22 per share, current market value of $17 per share B.) P/E ratio of 8:1 C.) Dividend yield of 0.3% D.) Dividend payout ratio of 65%
C.) Dividend yield of 0.3%
For which of the following business entities would suitability be based on the objectives of all the owners on a collective basis? A.) Pension plan B.) C corporation C.) General partnership D.) Sole proprietorship
C.) General partnership
What is the risk measure associated with the capital market line (CML)? A.) Beta B.) Alpha C.) Standard deviation D.) Systematic risk
C.) Standard deviation
Which of the following statements regarding the Sharpe ratio is TRUE? A.) Portfolios with lower Sharpe ratios provided higher excess returns per unit of risk assumed than those with higher Sharpe ratios. B.) The Sharpe ratio uses beta in its formula. C.) The Sharpe ratio is often used to measure risk-adjusted return of an entire portfolio. D.) The Sharpe ratio cannot be used to measure risk-adjusted performance for a single security.
C.) The Sharpe ratio is often used to measure risk-adjusted return of an entire portfolio.
An investment adviser is servicing a group of physicians and will offer a discounted fee to the doctors in that particular partnership. In what way would this be considered ethical? A.) This would be permitted as long as each physician has a unique contract. B.) This would be permitted if all the physicians had a minimum net worth of at least $1.5 million. C.) This would be permitted as long as a disclosure is made in the IA's brochure that fees are negotiable. D.) This would be permitted as long as the adviser is not a patient of any of the physicians in that group.
C.) This would be permitted as long as a disclosure is made in the IA's brochure that fees are negotiable.
A viatical sale would generally involve A.) the sale of a term life insurance policy. B.) a security with a large increase in value. C.) an individual with a terminal illness. D.) a leveraged ETF
C.) an individual with a terminal illness.
An investor is considering a 10-year stripped U.S. Treasury and a 10-year U.S. Treasury note, both with a yield to maturity of 4.8%. Compared to the note, the strip has A.) more reinvestment risk and less interest rate risk. B.) more liquidity risk and less interest rate risk. C.) less reinvestment risk and more interest rate risk. D.) more interest rate risk and less liquidity risk
C.) less reinvestment risk and more interest rate risk.
RAP mutual fund had the following returns over the past 3 years: Year 1: 15%. Year 2: -5%. Year 3: 7%. What is the arithmetic mean of the returns for the RAP fund? A.) 9.00% B.) 7.00% C.) 20.00% D. )5.67%
D.) 5.67%
Which of the following expressions describes the current yield of a bond? A.) Yield to maturity divided by current market price B.) Yield to maturity divided by par value C.) Annual interest payment divided by par value D.) Annual interest payment divided by current market price
D.) Annual interest payment divided by current market price
Which of the following is generally believed to present a more accurate picture of a portfolio manager's performance? A.) Real rate of return B.) Net present value C.) Dollar-weighted return D.) Time-weighted return
D.) Time-weighted return
In order to compute the real rate of return for a security, it would be necessary to know all the following EXCEPT A.) the annual dividend B.) the purchase price C.) the CPI D.) the beta of the security
D.) the beta of the security
The capital asset pricing model (CAPM) is used by many to assess the expected return of a security. If the current risk-free rate is 3%, the current return on the market is 10%, and a particular stock's beta is 1.4 with a standard deviation of2.2, the expected return would be A.) 12.8% B.) 9.8% C.) 14.0% D.) 17.0%
A.) 12.8% 10-3=7 7 x 1.4 = 9.8 9.8 + 3 = 12.8
An investment adviser who believes that we are in the early recovery portion of the business cycle would most likely recommend A.) cyclical stocks. B.) value stocks. C.) long-term bonds. D.) defensive stocks
A.) cyclical stocks.
All of the following factors have an inverse relationship to a bond's duration except A.) time to maturity. B.) current yield. C.) coupon rate. D.) yield to maturity.
A.) time to maturity. The relationship between the time to maturity (length) and duration is a linear one. That is, the longer the time until the bond matures, the higher (longer) the duration - it is a direct relationship. Yields, on the other hand, have an inverse relationship with duration. That is, the higher the yield, the lower (shorter) the duration.
An individual works for an accounting firm that does not have a retirement fund. She is paid $18,000 per year. During her spare time, she is a commercial artist and earned $16,000 doing this work last year. What is the basis for her contribution under a Keogh plan (HR-10)? A.) $34,000.00 B.) $0.00 C.) $18,000.00 D.) $16,000.00
D.) $16,000.00
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? A.) General Partnership B.) Limited Partnership C.) C Corporation D.) S Corporation
A.) General Partnership Limited partnerships would not work because the other investors have limited say in how the enterprise is run. C corporations do not provide favorable tax treatment of gains or losses. While an S corporation appears to be the right answer, only U.S. citizens or resident aliens can own one.
A company that has issued cumulative preferred stock A.) pays the current dividends on the preferred, but not the past dividends on the preferred, before paying a dividend on the common B.) pays the preferred dividend before paying the coupons due on its outstanding bonds C.) pays past and current preferred dividends before paying dividends on common stock D.) forces conversion of the preferred that is trading at a discount to par, thereby eliminating the need to pay past-due dividends
C.) pays past and current preferred dividends before paying dividends on common stock
All of the following statements are features of a straight life, fixed, single-premium immediate annuity except A.) the annuitant may die before a return of the principal is realized. B.) payments stop when the annuitant dies. C.) the income level may drop if the underlying investments go down in value. D.) payments do not increase with inflation.
C.) the income level may drop if the underlying investments go down in value.
The weak form of the efficient market hypothesis A.) implies that fundamental analysis is not worthwhile. B.) implies that inside traders cannot earn superior risk-adjusted returns. C.) reinforces the value of technical analysis. D.) implies that technical analysis is not worthwhile
D.) implies that technical analysis is not worthwhile The weak form implies that information contained in historical stock prices is fully incorporated into current stock prices;therefore, technical analysis (the study of historical prices and volume) is not worthwhile in predicting future prices. This form neither refutes fundamental analysis nor implies that traders using insider information cannot earn superior profits.
Moonglow Specialties, Inc., is currently trading at $20 per share. Recently, the company reported net income of $1million. The company is capitalized with 200,000 common shares and $5 million of 20-year debentures with a couponof 4%. Given the data, Moonglow's price-to-earnings (P/E) ratio is closest to A.) 4 times. B.) 3 times. C.) 2 times. D.) 5 times.
A.) 4 times. P/E ratio = market price per share ÷ earnings per share. Earnings per share = net income ÷ shares = $1 million ÷ 200,000 shares = $5. P/E = 20 ÷ 5 = 4. The net income is after all expenses including the interest on the debentures. As is frequently the case, the question includes information irrelevant to the answer.
If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio? A.) Tangible assets B.) Fixed annuities issued by an insurance company with Best's highest rating C.) Preferred stock D.) AAA bonds
A.) Tangible assets
A major benefit of a revocable trust is that A.) the grantor retains control of the assets. B.) the settlor cannot also be the beneficiary. C.) the assets are not included in the grantor's estate. D.) the grantor saves on income taxes
A.) the grantor retains control of the assets.
In general, the Administrator would require that a broker-dealer's social media policies A.) be left up to the manager of each branch office B.) be committed to writing and communicated firmwide C.) be limited to defining the responsibilities of supervisory personnel D.) be updated at least once every 3 years
B.) be committed to writing and communicated firmwide
An investment adviser with $20 million under management exercises investment discretion over client portfolios. If the firm's accounting manager were to discover that the firm's net worth was only $8,500, the USA would require the firm to I. cancel all discretionary powers II. immediately raise an additional $1,500 III. send notice to the Administrator before the close of business on the day following discovery IV. send a financial report to the Administrator before the close of business on the day following the sending of notice A.) I and IV B.) I and II C.) III and IV D.) II and III
C.) III and IV
Which of the following would be considered a prohibited practice if performed by an investment adviser representative without appropriate disclosure? A.) Acting as an agent of the brokerage firm that executes the trades he recommends and receiving commissions on them as a result B.) Inheriting 200 shares of a New York Stock Exchange-listed company he recommends C.) Owning shares of a mutual fund that is not on his firm's recommended list D.) Offering his client tickets to a game of a professional football team in which his son is the star quarterback and a principal stockholder
A.) Acting as an agent of the brokerage firm that executes the trades he recommends and receiving commissions on them as a result An investment adviser representative must disclose to the client the capacity in which he is acting so the client can make an informed decision as to the objectivity of the advice and whether to sustain the relationship. The fact that an IAR inherited a small amount of stock in a publicly traded company does not, of itself, present a conflict of interest that must be disclosed. No conflict of interest exists unless the IAR recommended companies in which he also has a significant beneficial ownership. It would not be required to disclose personal ownership of a mutual fund not on the firm's recommended list. Unless there is some kind of conflict of interest, an IAR's personal holdings do not have to be disclosed to clients.
In an efficient market: A.) any information that could affect a stock's value is quickly reflected in its price B.) information is disseminated slowly C.) it is fairly easy to predict major market swings D.) investors have a good chance of beating the market
A.) any information that could affect a stock's value is quickly reflected in its price
When an investment adviser representative terminates employment with a federal covered investment adviser and thenregisters with a different federal covered investment adviser in the state where the individual has an office, A.) only the investment adviser representative must notify the Administrator promptly B.) the investment adviser representative and the federal covered advisers must notify the Administrator promptly C.) only the terminating investment adviser must notify the Administrator D.) the investment adviser representative and the employing adviser must notify the Administrator promptly
A.) only the investment adviser representative must notify the Administrator promptly If you are working for a registered investment adviser within a specific state, that state securities Administrator wants to know who you are. The problem becomes a question of who is responsible for notifying the state securities Administrator of your employment. A federal registered investment adviser is exempt from registration at the state level and therefore has very little contact with the state. If you go to work for a federal registered investment adviser, it becomes your duty to notify the state securities Administrator that you are working there, as well as when you terminate.
The concept of creating a model portfolio, through asset allocation principles, that both increases return and reduces risk is known as A.) portfolio optimization B.) corrective adaptation C.) risk reduction fundamentals D.) rebalancing
A.) portfolio optimization
Which of the following business entities has an income tax filing due date (disregarding possible extensions) of March15? I. Sole proprietorship II. Single-member LLC III. Multiple-member LLC electing to be treated as a corporation IV. S corporation A.) I and IV B.) III and IV C.) II, III, and IV D.) I and II
B.) III and IV
Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns? A.) Random walk B.) Weak C.) Strong D.) Semi-strong
B.) Weak The weak form holds that current stock prices reflect all historical market data and that historical price trends are, therefore, of no value in predicting future prices. However, this form holds that credible fundamental analysis and insider information may produce above-market returns. Those who truly believe in the EMH are of the opinion that none of these will do any better than the market; random selection is as good as anything else. Random walk is not one of the 3 forms
The purpose of the Investment Advisers Act of 1940 is to provide A.) standards among the various states for the regulation of investment advisers B.) standards at the federal level for the regulation of investment advisers C.) regulation for investment companies and their operations D.) minimum standards of performance for those registered as investment advisers
B.) standards at the federal level for the regulation of investment advisers
If a security has an anticipated return of 8.7% and a standard deviation of 14.6%, you expect the returns to have a 95% probability (assuming a normal distribution) of falling between A.) 8.7 and 23.3% B.) −20.5 and +37.9% C.) 0 and 37.9% D.) −5.9 and +23.3%
B.) −20.5 and +37.9% A security with a normal distribution has a 95% probability of falling within 2 standard deviations of its anticipated return. In this case, that would be −20.5% and +37.9%, which is computed by calculating return movements of 29.2%(14.6 × 2) in either direction.
Which of the following regarding the registration of investment advisers and their representatives is TRUE? An investment adviser representative, terminated his employment with ABCA advisers and, 6 months later, was employed as an advisory representative by KLM, a federal covered adviser. Each firm is required to notify the Administrator of each event. ABC Advisers, Inc., is an investment advisory firm registered with the Administrator; therefore, its representatives need not be registered with the Administrator. XYZ Advisers, Inc., is a federal covered investment advisory firm registered with the SEC; therefore, its representatives need not be registered with the Administrator. ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly.
BC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly.
Which of the following statements regarding Coverdell ESAs and QTPs is NOT correct? A.) Coverdell ESAs are designed to offer tax benefits to those individuals who wish to save money for a child/grandchild's higher-education expenses. B.) QTPs are extremely useful tools that provide significant tax savings, allow for substantial investments for a child's education and provide a tool for avoidance of gift and estate taxes, if used correctly. C.) Coverdell ESAs currently permit up to $5,000 in annual contributions, whereas QTPs allow large contributions reaching as high as $250,000 and above. D.) If a portion or all of the withdrawal from a QTP is spent on anything other than qualified higher-education expenses, the the recipient of the money (the owner or the beneficiary) will be taxed at their own tax rate plus a 10% penalty on the earnings portion of the withdrawal.
C.) Coverdell ESAs currently permit up to $5,000 in annual contributions, whereas QTPs allow large contributions reaching as high as $250,000 and above. Coverdell ESAs currently permit up to $2,000 in annual contributions, whereas QTPs (Section 529 plans) allow large contributions reaching as high as $250,000 and above.
An investment adviser representative specializes in the senior market. A number of his clients have reached the age where they are contemplating selling their homes and moving into an assisted living facility. The profit made on the sale of their homes will be used to defray the costs of their new residence. Under current tax laws, which of the following are TRUE? I. A single person pays no tax on the first $250,000 of net profit realized on the sale of a primary residence that has been occupied for at least 2 of the past 5 years. II. A single person pays no tax on the first $500,000 of net profit realized on the sale of a primary residence that has been occupied for at least 2 of the past 5 years. III. A married couple pays no tax on the first $250,000 of net profit realized on the sale of a primary residence that has been occupied for at least 2 of the past 5 years. IV. A married couple pays no tax on the first $500,000 of net profit realized on the sale of a primary residence that has been occupied for at least 2 of the past 5 years. A.) II and III B.) I and III C.) I and IV D.) II and IV
C.) I and IV
A bond with a par value of $1,000 and a nominal yield of 6% paid semiannually is currently selling for $1,300. The bond matures in 25 years and is callable in 15 years at $1,080. In the computation of the bond's yield to call, which of these would be a factor? A.) 50 payment periods B.) Present value of $1,080 C.) Interest payments of $30 D.) Future value of $1,300
C.) Interest payments of $30
A client has been contributing to a periodic payment annuity for 20 years. The M&E charge is 1.25% per year. What happens to that charge when the client annuitizes at attained age 68? A.) It continues B.) It increases because the client's mortality risk is higher at the older age C.) It ceases D.) It continues but at a reduced rate
C.) It ceases
The Administrator of a state securities department conducted a hearing regarding misconduct by an investment adviser registered at the state level. The Administrator required the adviser, as well as several clients who had lodged complaints against the adviser, to take a sworn oath that their testimony was true. Does the Administrator have the power to require sworn oaths? A.) Yes, the Administrator may require witness oaths because the Administrator is appointed as a judge. B.) Yes, the Administrator has the power to require witness oaths because an Administrative hearing is functionally a legal proceeding. C.) Yes, because the Administrator is empowered to administer oaths as provided in the Uniform Securities Act, as enacted in the Administrator's state of jurisdiction. D.) No, the Administrator was merely attempting to emphasize the seriousness of the hearing, but he holds no such power
C.) Yes, because the Administrator is empowered to administer oaths as provided in the Uniform Securities Act, as enacted in the Administrator's state of jurisdiction.
A securities analyst reviewing the financial statements of the XYZ Corporation observes that the company's total liabilities are in excess of its total assets. From this information, the analyst could conclude that XYZ has A.) a highly leveraged capital structure. B.) a high current ratio. C.) a negative book value per share. D.) a low price-to-earnings ratio.
C.) a negative book value per share.
A registered broker-dealer would not be able to open an account for A.) the estate of a deceased individual. B.) two unrelated individuals. C.) a person deemed mentally incompetent. D.) the CEO of a company whose stock is NYSE-traded.
C.) a person deemed mentally incompetent.
Under the USA, all of the following are exempt transactions EXCEPT A.) unsolicited customer orders B.) transaction executed by a trustee in bankruptcy C.) a sale of a primary offering registered with the SEC D.) isolated nonissuer transaction
C.) a sale of a primary offering registered with the SEC
Western Securities, Inc. (WSI) is a broker-dealer that also offers portfolio management. One of WSI's portfoliomanagers notices an article on asset allocation that harmonizes with WSI's investment philosophy. If WSI should post alink to this article on its website, it would probably be considered A.) fulfillment B.) estrangement C.) adoption D.) entanglement
C.) adoption
Risk-adjusted return is calculated by A.) multiplying the return of an investment by its standard deviation B.) dividing the price of the stock by its standard deviation C.) dividing the remainder of the risk-free rate subtracted from the security's actual return by its standard deviation D.) dividing the security's price by its beta
C.) dividing the remainder of the risk-free rate subtracted from the security's actual return by its standard deviation The return from a security can be adjusted for the risk associated with it by subtracting the risk-free rate from the security's actual return and then dividing that by its standard deviation, the basic measure of unsystematic risk. This is commonly known as the Sharpe ratio.
Reasons why a corporation might issue a convertible preferred stock would include A.) giving those shareholders the ability to convert into the issuer's bonds B.) a lower cost to the issuer than would be incurred by the issuance of convertible bonds C.) giving those shareholders an opportunity to participate in the future success of the company D.) tax savings to the issuer
C.) giving those shareholders an opportunity to participate in the
Growth companies tend to have all of the following characteristics EXCEPT A.) potential investment return from capital gains rather than income B.) high earnings retention ratio C.) low P/E ratios D.) low dividend payout ratios
C.) low P/E ratios
In order to compute an investor's real rate of return on a common stock holding, all of the following are necessary EXCEPT A.) dividends B.) appreciation C.) marginal tax bracket D.) inflation rate
C.) marginal tax bracket
Amie Lear is a securities analyst employed by Empyreal Benefits, Inc., a registered broker-dealer. She is assigned tocover a number of different equity and debt investments. One of the investments is Taylor, Inc. (Taylor), a manufacturerof a wide range of children's toys. Based on her extensive analysis, she determines that her expected return on thestock, given Taylor's risks, is 10%. However, when applying the capital asset pricing model (CAPM), the result is a 12%rate of return. Based on Lear's analysis, Taylor's stock is A.) correctly valued. B.) undervalued. C.) overvalued. D.) neither overvalued nor undervalued.
C.) overvalued. The CAPM gives us the expected rate of return on an investment. It is sometimes referred to as the required rate of return. That is, based on the risks, the CAPM reveals the return that should be earned. In this example, that return is12%. Lear's computation expects the return to be only 10%. Therefore, Lear is showing that instead of providing the required return of 12%, she believes the stock will only return 10%. That makes the stock overpriced (a lower price will generate a higher rate of return). As a result, Lear would not recommend this stock because her calculations indicate it will not return as much as it should for the risk being taken.
If the net present value of a series of discounted cash flows is less than zero, one could conclude that A.) the return on investment is higher than the internal rate of return. B.) the internal rate of return equals the discount rate. C.) the discounted cash flows are lower than the investment outlay. D.) the rate of return is higher than the cost of capital.
C.) the discounted cash flows are lower than the investment outlay. A negative net present value of a series of discounted cash flows means the investment outlay exceeds the discounted cash flows. Net present value is the difference between the initial cash flows and the present value of future cash inflows. If the net present value is negative, the present value of future cash flows is less than the initial investment. An investment with a negative net present value is generally an undesirable investment.
Securities regulators have taken a strong position on the need for registered broker-dealers to disclose the fees theycharge. Among the most common ways for making this disclosure are I. presenting a chart with all of the fees II. preparing a list of all of the fees III. displaying the fees in tabular form A.) II and III B.) I and III C.) I and II D.) I, II, and III
D.) I, II, and III
When computing a company's quick ratio, which of the following assets is NOT counted? A.) Marketable securities B.) Accounts receivables C.) Cash D.) Inventory
D.) Inventory The formula for the quick ratio takes the quick assets (all current assets other than inventory) and then divides that by the current liabilities. Or, it takes all of the current assets, subtracts the inventory, and divides the remainder by the current liabilities
A man is planning to start his own glass-sculpturing business. He wants to be able to deduct his anticipated losses for the first 2 years. He anticipates that the enterprise will borrow money from lenders and is willing to personally guarantee the debt. He also wants to attract other investors but does not want to give up control of the day-to-day business decisions. What business form do you recommend? A.) General partnership B.) C corporation C.) S corporation D.) Limited partnership
D.) Limited partnership A limited partnership with him as general partner would allow for additional investment capital without giving up management control. C corporations do not allow deductibility of losses; S corporations do not allow guaranteed debt to be included in the taxpayer's basis. General partnerships could allow the other partners to more easily control the day-to-day operations than a limited partnership, in which the other investors (presumably limited partners) would not be permitted to take a role in the running of the business.
While managing a client's portfolio, an investment adviser representative attempts to take advantage of perceived market inefficiencies. The IAR is not concerned with the client's long-term goals; rather the interest lies in continuously changing the investment mix in an attempt to take advantage of overall investor sentiment. Based on this information, what type of portfolio management style is the investment adviser representative using to manage the client's money? A.) Strategic asset allocation B.) Portfolio ratio analysis C.) Buy and hold D.) Tactical asset allocation
D.) Tactical asset allocation
An exchange specialist is A.) a trader who makes a market in OTC stocks and ADRs B.) a floor broker on the New York Stock Exchange who only executes trades for other brokers in return for commissions C.) an electronic brokerage concern that executes trades online and through specialized trading order executing services D.) a dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks
D.) a dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks
Associated Wealth Managers (AWM) is registered with the SEC as a registered investment adviser. As a consequence, if there have been any material changes, AWM must A.) send a copy of its brochure, or a summary of the changes, to all clients within 90days of the end of its fiscal year B.) send a copy of its brochure, or a summary of the changes, to all clients within 60days of the end of its fiscal year C.) send a copy of its brochure, or a summary of the changes, within 7 days of receiving a request from a client D.) send a copy of its brochure, or a summary of the changes, to all clients within120 days of the end of its fiscal year
D.) send a copy of its brochure, or a summary of the changes, to all clients within120 days of the end of its fiscal year
