Section 3 [11/26]
A frequent concern of parents initiating a savings plan for the college education of their child is the lack of control over the assets, particularly if the child decides to forego higher education. When you have a client who shares this concern with you, it would be most appropriate to suggest A) a Section 529 plan. B) opening a new account in the client's name for this purpose. C) an UTMA account. D) U.S. Treasury zero-coupon bonds.
A
An investor purchased 100 shares of GRA stock at $100 per share in a margin account. Two years later, the GRA was sold for $120 per share. If the investor's account was charged $700 in margin interest, it would be proper to state that this is an example of A) negative margin. B) a speculative investment. C) positive margin. D) a long-term capital gain of $1,300.
C
One of the primary benefits of dark pools of liquidity is A) trading is not limited to daylight hours, a major advantage for international investors. B) market transparency is reduced. C) institutional traders are able to execute large block trades without impact to public quotes or prices. D) insiders are able to trade without being recognized.
C
Trade confirmations sent by broker-dealers to their customers must always include A) the amount of markup or markdown charged when the firm has acted in a principal capacity. B) the current market price of the security traded. C) the amount of commission charged when the firm has acted in an agency capacity. D) the tax identification number of the customer.
C
An investment adviser representative recommending investments for an IRA should give primary consideration to A) the beneficiary's tax status B) liquidity C) maximum current income D) risk
D
One of your clients wishes to reallocate the assets in his 401(k) plan. Specifically, he plans to assist his parents in the purchase of a retirement home. He claims that it makes sense to have about 10% of his plan assets in real estate. A) This would only be permitted if the home were for his personal use. B) This is prohibited as qualified plans cannot own real estate. C) An asset allocation model would not have 10% in real estate. D) This is not permitted because a prohibited party will benefit.
D
When comparing a private equity fund to a public one, it would be incorrect to state that the private fund has A) lower reporting costs. B) less liquidity. C) higher risk. D) stronger governance.
D
Amie Lear is a securities analyst employed by Empyreal Benefits, Inc., a registered broker-dealer. She is assigned to cover a number of different equity and debt investments. One of the investments is Taylor, Inc. (Taylor), a manufacturer of a wide range of children's toys. Based on her extensive analysis, she determines that her expected return on the stock, 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) undervalued. B) overvalued. C) correctly valued. D) neither overvalued nor undervalued.
B 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 is 12%.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.
Investment company portfolio managers are apt to classify common stocks into groups. One measurement is the product of multiplying the market price per share times the number of shares outstanding. The result is known as A) market capitalization B) total value C) market value D) debt-to-equity ratio
A
