Series 65

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The administrator ha the authority to amend or rescind a provision of the USA:

if the deemed appropriate and in the public's best interest

Who is not required to file a consent to service of process

Agents for an Issuer

Which of the following is true regarding trust accounts?

A system of checks and audits must be in place to protect the trust from fraudulent activities and potential conflicts of interest.

After the beneficiary of a Coverdell reaches 30 years of age, within how many days must the funds be withdrawn?

30 days

What is the penalty for excess contributions to an IRA?

At what age may an individual make withdrawals from an HSA for nonhealth purposes without being penalized?

What is the maximum front-end sales charge for a mutual fund?

8 1/2% of the public offering price

GO bonds are paid back by

Ad valorem taxes

The bond feature that states that the conversion formula will be adjusted for any stock dividends or splits is called the:

Anti-dilutive covenant

Who are reduced sales charges allowed to?

Any single account holders. Things like JTIC = is an investment club only joint accounts with spouses can get a reduced sales charge

An investor had a series of bonds in his portfolio "called" by the issuer. What "value" can he expect to receive for the bonds when he redeems them with the issuer?

Call premium value

A mutual fund that charges the maximum sales charge of 8½% allowable by the Investment Company Act of 1940 does NOT have to offer

Exchange Rights

The ADV-W becomes effective when?

Immediately

Orders that are considered market manipulation

Matched orders and wash sales

IRA contributions

Must be made in cash

Are commodity future contracts securites?

Which of the following are not required to file an annual report with the SEC?

Privately held corporations

For a financial goal to be ultimately successful, it must be:

Quantifiable

On a premium bond, yield to call is

Quoted to the customer yield to call is the lowest yield on a premium bond and the "yield to worst" is always quoted to the customer

An investment adviser may share in the profits and losses of a client's account, provided that

UNDER NO CIRCUMSTANCES Investment advisers may never receive compensation based on the capital appreciation of a client's funds. Their compensation may be based on the average value of the total assets under management, but not on the fund's appreciation.

An investment adviser must exercise care, caution, and control while managing a client's funds, which is the basis of the

Uniform Prudent Investor Act

Authorized stock that has not been sold or distributed is referred to as

Unissued stock

The only activity that would cause the NAV per share of a mutual fund to change is if the fund a)Distributes capital gains. b)Redeems shares. c)Issues new shares. d)Sells a security at a gain.

a) Distributes capital gains

An equity mutual fund is least likely to have an investment objective of a)Preservation of capital. b)Dividend income. c)Long-term appreciation. d)Appreciation and income.

a) Preservation of capital Preservation of capital is pursued by investing in high quality, short-term debt, such as T-bills.

A person wishes to open an account with you without giving financial status and is not certain of objectives. you may:

accept an order only if it is unsolicited

According to Rule 206 of the Investors Advisers Act of 1940, communications that offer advisory services on an adviser's website

are advertising

Increasing unemployment presents what type of risk? a)Default b)Credit c)Business d)Financial

c) Business Business risk may occur when consumer demand for a company's goods and services decreases due to internal factors or to a general change in economic conditions, such as increasing unemployment.

An indexed annuity is a type of

fixed annuity

as interest rates rise...

generally the more the dollar is worth

In order for a 401(k) plan to comply with ERISA 404(c), the plan must:

have at least 3 different investment alternatives

What is the federal funds rate?

he interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis

An option contract that gives the right to sell is a

put contract

Capital gains from municipal bond trading are:

tax free if the investor lives in the same state as the issuer

Which of the following is false regarding a letter of intent?

A letter of intent can be backdated 6 months The letter of intent can only be backdated for 3 months to include previous investments and will allow another 10 months of investments.

An investment adviser is prohibited from doing all of the following EXCEPT

Charging a retainer fee

A pbulicly raded limited partnership is called a

MLP or Master Limited Partnership

Which is not affected by the sale of a bond?

Net worth

According to ERISA, what are the rules that a 401(k) plan fiduciary must follow regarding participants' choice of investment options?

The plan must allow participants the opportunity to change investment options at least once per quarter.

The Administrator has the right to request examination of all broker/dealer records for the previous a)3-year period. b)5-year period. c)7-year period. d)10-year period.

a) 3-year period Broker/dealers are required to maintain all customer files for 3 years, and the administrator may examine all broker/dealer files

Which of the following best fits the definition of an "issuer"? a)A person proposing to issue a security b)A market maker in an over-the-counter security c)A company director selling new shares to the public d)A trader on a national exchange floor

a) A person proposing to issue a security An "issuer" is defined as a person who issues or proposes to issue a security.

An agent is found guilty of a fraudulent act. Under the Uniform Securities Act, he may be subject to a maximum criminal penalty of a)$10,000 fine and 5 years in prison. b)$5,000 fine and 3 years in prison. c)$5,000 fine and 5 years in prison. d)$10,000 fine and 3 years in prison.

b) $5,000 fine and 3 years in prison The maximum criminal penalty for a fraudulent act is a $5,000 fine and 3 years in prison.

How often does the fund's 12b-1 fee need to be approved by the board of directors? a)Periodically as outlined in the fund's prospectus b)Annually c)Quarterly d)Monthly

b) Annually

The difference between CPI and noncore CPI is that a)Noncore CPI excludes food and fuel. b)CPI excludes food, clothing and fuel c)Noncore excludes food, clothing and fuel. d)CPI excludes food and fuel.

d) CPI excludes food and fuel

A loose money supply leads to?

inflation

Which of these statements is INCORRECT concerning broker/dealers?

A firm can act in both the capacity of a broker and a dealer when selling securities from its own inventory.

Which of the following is used to identify the expected risk-adjusted return of a security? a)Net present value b)Discounted rate of return c)Internal rate of return d)Capital asset pricing model

d) Capital asset pricing model

Ms. Curtis is a teacher in School District #12. The value of her TSA (Tax Sheltered Annuity) is $75,000. The district has contributed $35,000 and Ms. Curtis has contributed $20,000. What is Ms. Curtis' cost basis?

$0 All contributions were made pre-tax therefore her cost basis is zero and all withdrawals will be taxed as income

Sally divorces Andrew at age 35 and collects distributions on their retirement plan as a result. What taxation/penalties will she have to pay?a)10 percent penalty taxb)15 percent penalty taxc)Age-based penalty stipulated in the contractd)None

d) None When there is a divorce there is no early withdrawal penalty

An investor in a limited partnership has established a basis, for tax purposes, of $20,000. During the year, her distribtued share of the partnership losses was $18,000. and she received a cash distribution of $15,000. How much of the loss can be used to offset her other ordinary income?

$0 Passive loss from partnerships may not be offset against earned income or capital gain, only against passive income from other sources.

Which of the following is true of incentive stock options?

They may trigger AMT

William's broker/dealer sends him a newsletter each quarter, monthly email account updates, and a Christmas card each holiday season. Which of these mailings require some form of recordkeeping in the office file system?

A record or copy of all of these items should be placed in the file system as they constitute correspondence with a client.

A securities registration contains misstatements of material facts. All of the following may be held responsible for this violation of the Uniform Securities Act (USA) EXCEPT

Agents

REITs are traded

Both in OTC and on exchanges

An agent was found guilty of a criminal liability; however, he also proved he had no prior knowledge of the rule. What are his maximum penalties? a)$5,000 fine b)3 years in prison c)5 years in prison d)$10,000 fine

a) $5,000 fine There can be a $5,000 fine but no prison sentence if the agent proves he has no prior knowledge of the rule that was violated.

Which of the following are not allowable under UGMA

Commodity futures contract as they trade on margin. Anything that trades on margin is not allowed

ERISA 404(c) requires that employers provide participants with which of the following? I. Current prospectus for each investment alternative II. Disclosure of all fees and expenses associated with each alternative III. Historical performance for each alternative, including the 1-, 5-, and 10-year returns IV. Annual consultation with an investment counselor regarding asset allocation

I and II

Costs associated with variable annuities that are not included in the sales charge may include: a)Investment management fees and administrative expenses.b)Premium taxes.c)Mortality risk fee and expense risk fee.d)All of the above.

D) All of the above

How often does a mutual fund calculate NAV?

Daily

When a firm effects trades for its own account, it is acting in a principal capacity and is considered to be a/an

Dealer

When an issuers credit rating is downgraded, which of the following products is negatively affected?

ETNs ETNs are senior unsecured debt issued by by an underwriting bank or other large institution

In the course of an investigation conducted by the administrator, failure to comply with a subpoena to testify or produce documentation I. can be enforced by petitioning the courts II. Is referred to as contumacy III is not punishable as contempt of court IV is not protected by the fifth amendment

I and II A person can be compelled to testify but may then invoke fifth amendment rights against self-incrimination. The administrator may enforce such a subpoena by petitioning the courts and failure to comply is punishable as contempt of court

The state administrator has the ability to cancel the registration of an individual who I. Has been found mentally incompetent by the courts. II. Has violated the USA. III. Cannot be located within a reasonable time and effort. IV. Has violated a fiduciary responsibility to one or more clients within the state.

I and III

An investor using the total return calculation must assume which of the following I. Reinvestment of all distributions from the investment; II all taxes will be paid by the investor without selling the investment itself; III Dollars are represented in current dollars without any adjustment for inflation; IV only the principal sum is redeemed at the end of the accumulation period

I, II and III. The entire investment is considered redeemed at the end of the investment period to determine the total return calculation.

Which of the following are prohibited activities for an investment adviser? I. Signing an investment advisory contract that does not outline the compensation; II. Failing to notify the Administrator that the investment adviser has taken custody of a client's funds; III. Entering into an advisory contract where the compensation is based on the capital appreciation of the client's funds.

I, II, and III

Which of the following are examples of exempt transactions? I. A stock sale by a registered representative or agent; II. A stock sale by a bankruptcy trustee; III. A stock sale by an estate's executor; IV. A stock sale by a giftee

II and III

Under the Uniform Securities Act, which of the following would be considered a person? I. The beneficial owner of an UGMA; II. A government; III. A joint stock company; IV. A recently deceased individual

II and III It is not I because a beneficiary of a UGMA is a MINOR and deceased people do not count

The term for active stock that represents the # of shares owned by the public is

Outstanding stock

Which of the following are not affected by the sale of debentures?

Shareholders equity

When interest rates are fluctuating

Short term rates move more sharply

What are the two types of voting processes used by corporations?

Statutory and Cumulative

A simultaneous investment in different types options on the opposite side of the market is a

Straddle

If an investor had $1,000 to invest in a 2-year CD that paid 5% interest a year but instead used the money to pay for a vacation, what was the investor's opportunity cost? a)$50 b)$100 c)$1,050 d)$1,100

b) $100 Opportunity cost is the price an investor pays for choosing an alternative course of action. In this case, the investor could have made 5% a year by investing her $1,000 in a 2-year CD. Instead, the investor used the money for a vacation, so the opportunity cost of that vacation was $100.

A corporation has a $4 million profit. The corporation is in the 34% tax bracket. What is pre-dilutive EPS? Common stock: 1,000,000 shares ($10 par) = $10,000,000; 5% preferred: 50,000 shares ($100 par) = $5,000,000; 7% debentures: 5,000 bonds ($1,000 par convertible at $10) = $5,000,000 a)$2.59 b)$2.16 c)$2.41 d)$2.66

b) $2.16 $4,000,000 (profit) minus $350,000 (interest 7% X $5 million) = $3,650,000 (pre-tax profit) X .66 (converse of 34% tax bracket) = $2,409,000 (post-tax profit) minus $250,000 (preferred dividends) = $2,159,000 earnings divided by 1,000,000 shares = $2.16 EPS

The USA does not mandate registration of which of the following

issuers

Which form of registration is available only to seasoned companies in certain states?

notification filing

The Uniform prudent investor act

sets standards by which investment advisors should manage discretionary accounts

An investor owned stock in the corporation where he was an officer. Two days before it was made public that the company would file for a financial restructure, he sold his stock for $50,000. After the news became public, the stock would have been worth $10,000. What is the maximum civil penalty that can be imposed on this investor?

$120,000 Insider trading allows a maximum penalty of 3 times the profit gained or loss avoided

A mutual fund's net asset value (NAV) is listed at $18.60. The sales charge is 5%. What is the offering price?

$19.58 To find the offering price, divide the NAV by the complement of the sales charge. Offer Price = NAV / (100%-Sales Charge %). In this case: Offer Price = $18.60 / (100% - 5%).

The Prime Care Fund is quoted at $25 - $26.70. The prospectus shows that the maximum sales charge for purchases of $25,000 to $49,999 is 4%. Approximately how many shares can a customer buy with $40,000?

1536 To find the answer, first calculate the sales charge. $40,000 at 4% means $1,600 will be used for sales charges, leaving $38,400 left to purchase shares. $38,400 divided by the net asset value (NAV) of $25 will purchase 1,536 shares.

TIPS are NOT issued in which of the following maturities?

20 year They are issued in 5, 10, and 30 year

Your client is long 100 shares of XYZ at $20. You enter a sell stop limit at 20. The tape indicates the following trades: 19, 19.75, 20.13, 20. At what price is the order executed?

20.13 At 19, the order is triggered and becomes a live limit order to sell at 20 or better; the first tic or trade at or above 20 is 20.13.

An investment adviser's compensation may come from

A percentage of all assets under management NOT a percentage of all capital gains or commissions from trades effected for the customer

A feasibility study is most likely used in conjunction with the issuance of which of the following?

A revenue bond!

If representatives of federal covered advisor terminate their employment who is required to inform the state adminstrator?

the advisor representatives not eh employee

John and Mary are husband and wife, and are both 55 years old. They plan to retire together at age 65. They are very active and are in great physical shape. What would be the most appropriate estimate of the time horizon for their retirement portfolio?

At least 20 years

In considering a stock for listing on the NYSE, which of these is NOT a requirement? I. Market value of publicly held shares; II. Number of outstanding shares; III. Total employees of 2,500; IV. Net income for the most recent year

III and IV

To assure a client who has objections about the proposed purchase of a security, the agent may state that the security

An agent cannot state that a security is safe because that infers that it is guaranteed against a loss

The term "yield" refers to

An annualized rate of distribution or "pay-out" from a security such as bond interest payments, stock dividends or investment income distributions from a mutual fund.

An unmarried couple applies for a joint brokerage account and says they wish to open a JTWROS account together. What should the registered representative do before starting the application?

Ask them why they want to open that type of account?

For a roth IRA to be tax-free how long must the investor have the plan established for?

the investor must have the plan held for 5 years and she must be above 59 and 1/2

Which of the following is used in calculating working capital? A. Long-term debt B. Current Liabilities C. Inventory D. Fixed Assets

B. Current Liabilities

Which of the following balance shseet items does not appear in the net worth section?

BONDS bonds are debt instruments that appear in the long-term debt section

A young client with a low to moderate risk tolerance is seeking a long-term investment with some growth potential. Capital preservation is a concern; however, the client is willing to accept a moderate amount of volatility. An appropriate mutual fund for this investor is

Balanced fund Balanced funds invest in both stocks and bonds and capital preservation is a priority. Because the fund holds stocks, there is potential for growth.

Moody's MIG rating would apply to which of the following?

Bond anticipation notes

What is the discount rate?

the rate of interest which a central bank charges on its loans and advances to a commercial bank

Short swing profits made by the IRS result from:

trades or sales of securities held by the insurer for less than 6 months. These profits are paid back to the corporation

A bridge authority issues a revenue bond through a competitive bid underwriting. Twenty years after construction is finished, the bridge is condemned due to weather damage and faulty construction. What provision is in place to protect the bond holders?

Catastrophic call under the insurance covenant

An investor has $1,500 to invest in a mutual fund for her retirement twenty years from now. To qualify for a breakpoint she would have to invest at least $5,000. Which class of mutual fund shares is the most apporpriate, considering her time horizon and the size of her investment?

Class B shares Class A shares have a high front-end sales load and are good for high net-worth investors. They have low expenses during the holding period and are good for long-term Class B shares CDSC decline each year the investment is held, eventually reaching 0%. At that time, Class B shares convert into Class A shares. Class C shares are purchased at NAV but over the long termhave higher expenses because they never convert to A shares.

Which of the following does NOT describe a defined benefit plan?

Contributions are tied to company profits

A registered representative recommends a 529 education savings plan to a customer who lives in kansas and wants to start saving for his daughter's college expenses. Which of the following characteristics of this plan is an important consideration?

Contributions may be deductible from state taxes if the child attends school in Kansas

According to the Uniform Securities Act, the registration of an agent

Expires every December 31st

How are employee stock options taxed?

They are subject to income taxes in the year exercised.

When you BUY the higher strike price in a put transaction it creates a:

Debit spread

The taxes on dividend and capital gain distributions in a mutual fund IRA account are

Deferred until withdrawn

The money supply is loosening. Which is likely to happen?

Economic activity rises A growing money supply lowers rates, fostering an increase in economic activity

Under the Uniform Securities Act, investment contracts issued in conjunction with employee stock purchase, profit-sharing, pension, or other employee benefit plans are Exempt or Nonexempt?

Exempt securities

A CPA for XYZ Corp. knew in advance that XYZ would report a quarterly earnings loss. Based on this knowledge and prior to the release of the company's quarterly earnings report, the CPA sold short a large block of XYZ stock which drove down the price of the stock. Another investor who had entered an order to sell XYZ at the market around the same time sold at a very low price due to CPA's block trade. What legal recourse does the investor have against this CPA?

File a lawsuit for damages

Time-weighted return is also called

Geometric mean return

All of the following sources of income may be used to contribute to an IRA EXCEPT

Gifts Alimony, wages, and spouse's salary are all accepted

A stock without a long earnings history and a higher than average P/E ratio is considered a:

Growth Stock

The most aggressive portfolio for a short time frame

Hedge funds are even more aggressive than aggressive growth funds

Mrs. Johnson bought 200 shares of Intec at 18 in March. When she passed away in June, the market price of Intec was 21. What is the taxation to her daughter, who inherited the shares?

Her cost basis is 21 and the holding period is long term The cost basis on inherited securities is the market value at the time of death and the holding period is always long-term, no matter how long the securities were actually owned.

A cash purchase of heavy equipment will affect which of the following? I. Current Assets; II. Working capital; III. Shareholder's equity; IV. Liabilities

I and II

If the Federal Reserve Board through the FOMC (Federal Open Market Committee) lowers the discount rate, which of the following will decline? I. T-Bill discount rate; II. Federal Funds rate; III. Prime rate; IV. Lending levels at banks

I and II

If the adviser inadvertently commingles client funds and securities with his own, what steps would the adviser be required to take? I. Inform the state administrator in the principal state of residency by the end of the next business day; II. File a report with the state administrator by the day after notification of the deficiency; III. Contact the SEC immediately and cease all operations; IV. E-mail FINRA about the commingling and await instructions

I and II

Which of the following orders are reduced by the DMM of the NYSE on the ex-dividend date of a listed stock? I. Open buy limits; II. Open sell stops; III. Open sell limits; IV. Open buy stop limits

I and II Only orders that are placed at or below current market price are adjusted: buy limits, sell stops, and sell stop limits. Sell limits, buy stops and buy stop limits are placed above the current market value.

Which of the following statements regarding advertisements for an investment adviser is/are correct? I. A correspondence offering advisory services to a single prospect is not considered advertising. II. All customer testimonials are prohibited by the Investment Advisers Act of 1940. III. Advertising a market timing methodology is illegal. IV. Offering a free research letter in return for signing an advisory contract is permitted as long as it truly free.

I and II Testimonials are strictly prohibited. It is permissible to advertise a market timing methodology as long as the advertisement contains required disclosures. Written communications offering advisory services to more than one person would be considered advertising, and a research letter is not free if a prospect must sign a contract to receive it.

Capital market theory I. Is based on the premise that capital markets are essential to economic growth. II. Blends the Keynesian and supply side economic theories. III. Adds validation to the analysis and selection of securities in a managed investment strategy. IV. Seeks to provide optimum returns as a given risk level.

I and III

Community Investors is a subsidiary of Community National Bank. Community Investors operates in many of the bank's branch facilities, typically with three agents and a part-time principal who oversees several branches. Which of the following is NOT true regarding Community Investors? I. The broker/dealer must have a separate entrance and distinct signage. II. The broker/dealer must operate in its own separate space. III. A Chinese Wall prevents bank personnel from communicating sensitive information to broker/dealer personnel. IV. Community Investors' space must be clearly identified as an area where securities business takes place.

I and III

Under what circumstances may the Administrator issue a stop order denying the effectiveness of a registration statement? I. The security is subject to a stop order in another state. II. The issuer's method of business includes illegal activities in the state of domicile. III. The issuer is ineligible for the registration method applied for. IV. The agents are inexperienced.

I and III

Under which of the following circumstances may a state administrator cancel an investment adviser representative's (IAR) registration? I. The IAR is deceased. II. The IAR has been found guilty of a securities related felony. III. Letters the administrator sent to the IAR are returned marked "addressed unknown" and the IAR's phone is disconnected. IV. The IAR's investment adviser filed Form ADV-W.

I and III

Which of the following are true concerning margin trading accounts? I. The owner must also have a cash account with the same broker/dealer. II. the acount must meet weekly margin requirements to maintain active trading. III. the margin account allows trading of securities on a short sale basis. IV. The margin allows dramatic leverage for the broker/dealer

I and III

Which of the following are true of duration? I. A zero coupon bond's duration equals its maturity. II. Duration is a measure of credit risk. III. It identifies when an investor can expect return of principal. IV. It quantifies the relationship between maturity and credit risk.

I and III

Which of the following changes to an investment adviser would be considered a change in management that requires consent from clients to assign their advisory contracts? I. A majority partner retires and sells his interest in the firm to his daughter. II. A shareholder of 30% of the outstanding stock sells his stake in the firm. III. A minority shareholder buys out two other shareholders and now owns a majority of the investment adviser's stock. IV. An investment adviser replaces their CFO and CEO.

I and III

Which is true of restricted stock? I. The purchase must be paid for in entirety. II. It must be held for 2 years before resale. III. A broker/dealer can act as an agent. IV. Shares are registered with the SEC.

I and III If a selling company is subject to the SEC reporting requirements, the securities must be held at least 6 months. Otherwise, they must be held at least 1 year. The holding period begins when the securities are bought and fully paid for. A broker/dealer can act as an agent, but restricted stock is not registered with SEC.

A customer was inadvertently sold an illegal issue. The customer may do which of the following: I. Sue under civil liabilities; II. Sue under criminal liabilities; III. Recover the purchase price plus 6% interest; IV. Sue for punitive damages.

I and III With the absence of willful intent only civil liabilities apply

A customer shorts 1 XYZ October 50 put for 2 and buys 1 XYZ October 60 put for 7. He will experience a profit from this position if: I. Both puts are exercised; II. The premium difference narrows to less than $5 per share; III. The premium difference widens to more than $5 per share.

I and III YOU KNOW THIS IS A DEBIT SPREAD BECAUSE YOU BOUGHT THE HIGHER PUT. DEBIT SPREADS BENEFIT FROM PREMIUM WIDENING AS STATED BEFORE

Dollar cost averaging plans have which of the following features? I. They are voluntary plans. II. They entail purchasing the same number of shares each period. III. Investors are penalized for missing subsequent investment periods. IV. The investor's personal share cost will be lower than the share price over the period.

I and IV

Which of the following would be excluded from the definition of an agent? I. A person who represents issuers in the trading of commercial paper; II. A person who represents a broker/dealer in the sale of an exempt security III. A person who represents issuers in the sale of mortgage bonds to the public; IV. A person who represents issuers in private placements.

I and IV

The Uniform Prudent Investor Act sets standards by which investment advisers should manage funds over which they exercise discretionary control and includes such things as I. Self-control on the part of the adviser. II. Using caution based on the adviser's desires. III. Discretionary control by the investor. IV. Managing based on the character of the account.

I and IV The Act calls for an investment adviser who has discretionary control of a client's account to manage based on the character of the account, using a strategy that is prudent based on the client's desires, and demonstrating self-control in the process.

A registration fee I. Is required for all initial applications. II. Is not required for renewal applications. III. Will be refunded in full if the registration is denied. IV. Will be partially refunded if the registration is denied.

I and IV The administrator can take a portion of the fee if it gets denied

Which of the following statements is/are correct concerning the basis of a mutual fund's redemption price? I. The price is based on the next calculated bid price. II. The redemption price is the next computed NAV at the time the request is made. III. If the fund charges a redemption fee, the fee will be based on a percentage of the NAV.

I, II, and III

An investor writes an XYZ May 25 put and buys an XYZ May 35 put. This position I. Is a credit spread; II. Is a debit spread; III. Loses money if premiums narrow; IV. Loses money if premiums widen.

II and III

Your client is bearish on ABC stock. Which of the following option spreads might you recommend? I. Buy 1 ABC July 50 call, sell 1 ABC July 55 call. II. Buy 1 ABC July 55 call, sell 1 ABC July 50 call. III. Buy 1 ABC July 55 put, sell 1 ABC July 50 put. IV. Buy 1 ABC July 50 put, sell 1 ABC July 55 put.

II and III II and III are both bearish. II is a credit call and III a debit put spread.

ACE Financial is a registered investment adviser that accepts prepayment fees in excess of $500. ACE's chief compliance officer notices on Tuesday that the firm's capital has fallen below the minimum requirement. What steps must the officer take? I. Cease doing business until he can bring the net capital back to the required level; II. Inform the administrator of the deficiency by the end of business on Wednesday; III. File a report with the administrator by the end of business on Thursday; IV. Report the deficiency to FINRA by the end of business on Tuesday

II and III If the adviser's net worth falls below the minimum requirement and it has taken prepayment fees, the adviser would be required to inform the state administrator by the end of the next business day, which would be Wednesday in this situation. Additionally, the adviser must file a report with the state securities administrator by the following business day, in this case Thursday.

If an investment advisory firm offers an optional wrap account for its clients, I. The advisory contract does not need to be preceded by a brochure. II. Information contained in Part 2 of Form ADV must be furnished to prospective clients. III. A wrap fee brochure must be furnished to the client prior to entering into a contract. IV. Both an IA brochure and a wrap fee brochure must be furnished.a)II and IIIb)II and IVc)III and IVd)I and II

II and III In wrap accounts, a wrap fee brochure is furnished in lieu of the IA brochure. It must be furnished 48 hours prior to entering into a contract and must include all of the information contained in Part 2 of Form ADV. Alternately, it may be furnished at the signing of the contract if the customer is given a 5-day free-look period during which they may opt out of the contract without cost.

Vera is an agent at Dewey Securities. Vera's church is selling bonds to finance a new sanctuary. Vera helps sell her church's bonds on weekends. Which of the following is true? I. She may deduct a reasonable hourly rate as a charitable deduction on her taxes. II. She is guilty of selling away, which is grounds for termination and is a violation of the USA. III. She may sell the bonds with her employer's permission. All Vera's trades must be run through her employer's books. IV. She may not sell the bonds under any circumstances.

II and III Selling without employer permission is called selling away and is illegal

Buy one ABC Jan 40 call and write one ABC Jan 30 call. This position I.is a Debit spread. II is a Credit spread. III. Loses money if premiums widen. IV. Loses money if premiums narrow.

II and III Write a 30 call, buy a 40 call is a vertical (price) spread. The short call with lower strike price will have the higher premium, so the spread is established for a credit. You make money on this position if the spread narrows (becomes less expensive) if it widens (becomes more expensive) you lose money. This is a bear call spread.

A client reveals material inside information to an agent. The agent should I. Confirm the information with other sources. II. Notify his supervisor and await instructions. III. Notify the firm's trading desk. IV. Not effect any trades based on the information.

II and IV

The definition of an investment adviser representative includes I. Employees of an investment adviser who solely perform clerical duties. II. An individual associated with an investment adviser who only manages accounts for others. III. Employees of investment advisers who only perform administrative duties. IV. Investment adviser employees who supervise activities of IA representatives.

II and IV

Which of the following are characteristics of auction rate securities? I. They are money market debt instruments. II. They have regularly resetting interest rates. III. They are extremely liquid. IV. They are issued by corporations and municipalities.

II and IV

Which of the following describe the interbank system? I. National banks under supervision of the FRB II. Central banks and large multi-national corporations III. Borrowing and lending dollars overnight IV. Foreign currencies traded in large blocks

II and IV

A Canadian broker/dealer has a client who relocated to California. The client has a tax-qualified account. To transact business in California, the broker/dealer must meet which of the following requirements? I. Register with the SEC, FINRA and the California state administrator; II. Be in good standing with Canadian SROs; III. Submit a Consent to Process to the California State Administrator; IV. Only transact business in the client's tax-qualified account.

II, III, and IV

What are some characteristics of a tenants in common account?

If one owner dies, the assets of the deceased are distributed according to their will or state law. A tenants in common account is a type of joint account in which the owners (potentially more than two) May have unequal ownership. Upon the death of an owner, the decedent's assets pass to the owner's estate. The distribution of these assets is governed by the decedent's will or, if there is no will, by state law.

XYZ Corporation is evaluating a proposed business project using IRR. Which of the following is true?

If the IRR is greater than the project's cost of capital, or hurdle rate, the project will add value.

A Canadian broker/dealer has customers who winter in Florida and Texas. Which of the following is true?

If the broker/dealer has no office in Texas or Florida, it does not have to register in those states to transact business with its existing customers.

If the customer moves to Miami and opens a taxable account, the broker/dealer must register with the SEC.

When compared to long-term debt securities, short term debt securities have less

Interest rate risk A rise in the interest rate will cause a proportionate decline in the market value of the bond. The longer the maturity, the greater the decline in the bond value.

After extensive research, an agent found a great mutual fund investment for a customer who is also the agent's partner in a real estate business. The customer has $22,000 to invest and the fund has a breakpoint at $25,000. The agent lends the customer $3,000 so he can reach the breakpoint. Which of the following statements is correct?

It is a violation for an agent to lend money to the customer for the purchase of securities because the customer is not an immediate family member or an agent with the same B/D.

In order to reduce trade execution costs, an Investment Adviser combined several customer accounts that use the same model portfolio. Which of the following statements regarding combining customer accounts is correct?

It is commingling and only permitted with prior written consent from the customers.

An investor likes the safety of a government bond fund, but will forfeit a portion of this safety for a slightly higher return. She would most likely choose which of the following?

Mortgage-backed security fund

An agent can be a

Natural person a natural person who effects securities transactions or attempts to do so is an agent

A corporation's capitalization consists of: Debenture - 7% - $1,000 par, maturity 2022: $4,000,000; Common Stock - $1 par, 200,000 shares outstanding: $200,000; Capital in excess of par: $800,000; Retained earnings: $5,000,000. The corporation, for the year 2010, earns $1,500,000 before interest and taxes and is in the 50% tax bracket. What is the return on common equity? a)6.1% b)10.2% c)30.5% d)61%

Net income = $1,500,000 gross earnings - $280,000 bond interest (7% x $4m) = $1,220,000 x 50% tax = $610,000 net income. Common shareholder equity = $5,000,000 retained earnings + $800,000 capital excess par + $200,000 par value outstanding shares = $6,000,000 total common equity. $610,000 / $6,000,000 = 10.16%

Is failing to disclose all information a prohibited practice?

Private placement securities are subject to

No registration process because they are exempt securities.

Capital Market theory assumes:

No taxes or transaction costs

Alex, a representative of a registered investment adviser, has a friend at Fast Paced Funds that mentioned to him at a cocktail party that his company will pay bonus commissions to advisers who sell higher volumes of Skyward Bound Fund. Skyward has not performed very well over the past 5 years due to market declines, but has achieved 30% annualized growth in the last 6 months. Can Alex inform his clients that the fund has enjoyed a 30% rate of return during the past 5 years?

No, the average investor would be misled by such a statement as it overemphasizes the short-term performance of the fund

Under the Uniform Securities Act, an over-the-counter security, such as a corporate bond trading on the OTC market, is considered a(n)

Nonexempt security

According to the Uniform Securities Act, investment adviser advertising must

Not violate the Investment Advisors act of 1940

A minority stockholder in an ABC Investment Adviser corporation sells her stock to a new investor. With regards to client contracts, what is required?

Nothing Changes in minority stock interest do not require any action.

When is an investment adviser representative's registration effective?

Only during employment with an adviser

A corporation has issued 10 million shares of common stock that are currently trading for $5 per share. There are 2 million shares of treasury stock. What is the total value of outstanding common stock shares?

Outstanding stock = Common stock - Treasury stock so 10 million - 2 million = 8 million * $5/share = 40 million

The amount of money that an investor pays for newly issued common stock in excess of its par value is called

Paid in capital surplus

Which of the following is not a characteristic of Brady Bonds?

Paid semi-annually

All of the following are contained in a fund's prospectus EXCEPT: a)The fund's current portfolio of securities.b)Methods of redemption.c)Method of calculating the fund's net asset value.d)The fund's policy concerning loans.

a) the funds current portfolio of securities

The Bank Secrecy Act was designed to do all of the following EXCEPT

Protect the privacy of customers The Bank Secrecy Act was designed to help identify the source, volume, and movement of currency transported into or out of the United States, or deposited in financial institutions, and to maintain records of financial transactions and to report any suspicious transactions.

An annuity contract holder is considering a 1035 exchange from one annuity contract to another. Which of the following should she take into consideration prior to effecting a 1035 exchange?

Surrender chargers

In a stock trading account, "churning" is defined as effecting transactions solely to generate commissions. A similar practice with regard to mutual funds is known as

Switching

Which of the following joint accounts is designed specifically for married couples?

Tenancy by the entirety

All of the following apply to business continuity planning EXCEPT

The SEC requires business continuity planning for all investment advisers.

Under which of the following circumstances may an Administrator cancel an agent's registration without a hearing?

The agent cannot be located

The highest price a dealer is willing to pay for a security is known as the

The bid price

A Toronto broker/dealer's existing customer relocates to Seattle. The customer regularly trades in stocks, bonds, and uncovered options. If the Canadian broker/dealer wishes to continue transacting business with the customer in her brokerage account,

The broker/dealer and the representative must be registered with the FINRA and with the state of Washington.

During a meeting regarding the advisory contract renewal, a client mentioned that she wanted to reduce her overall advisory expenses since she was using dollar cost averaging now to build her portfolio. The adviser informed the client that she would reduce her expenses by $300. What, if any, are the potential problems with this arrangement?

The client has entered into a verbal contract for services without knowing what fees are being charged for what services.

In compliance with FINRA conduct rules, customer recommendations should be based on

The customer's suitability for the investment

Net present value represents

The discount rate at which the net present value of all cash flows and final market value of an investment becomes zero.

If CPI increases during the time of an investment what happens to the dollars

The dollars in the investment are worth less, they have less purchasing power.

Frederick sells a municipal bond at 103 which he held for 13 months. He originally purchased the bond at 101. What is the consequence of this sale?

The gain is taxed at 15% Because Frederick held the bond for more than one year, he experiences a long-term capital gain, taxed at 15%. Only municipal bond interest is tax-free; capital gains are taxed. IDR interest is an AMT preference item.

UITs have fixed portfolios, which means that

The holdings in the portfolio are fixed for the life of the trust.

Whose SS # must appear on an UGMA account

The minor's only

A technician or chartist would most likely enter a sell stop order a)At or above the resistance level for the stock. b)At or above the support level for the stock. c)At or below the resistance level for the stock. d)At or below the support level for the stock.

d) At or below the support level for the stock

The broker call rate is based on:

The rate banks charge broker/dealers for loans secured by securities

A customer wants to give her daughter all of the shares in her growth mutual fund. Since the initial purchase of the shares, the value of the shares has increased steadily over the life of the investment. When the shares are gifted, the daughter's cost basis will be

The same cost basis as Rhonda had for the shares When a security is received as a gift, the cost basis depends on the relationship of the market value of the securities to the donor's cost basis. If the market value is higher than the donor's basis, the recipient's cost basis is equal to the donor's. If the market value is lower than the donor's cost basis, the recipient's basis is equal to the market value of the securities at the time of the gift.

A security will be registered by qualification. What can an agent say to a prospective buyer?

The security will be registered in the state

BABs

Their interest is taxable and proceeds go to public projects

Which advisers must become federally registered?

Those with assets exceeding a certain amount Advisers with assets over $110 million must register with the SEC

The entire amount that the return earns on an investment including capital gains, paid dividends, and any appreciation/depreciation in the price of the security is called

Total Return

The term used to describe the computation that takes into consideration reinvested dividends, capital gains and changes in the NAV, and refers to the average return per year in a period of many years as opposed to a cumulative return for that period is

Total return

An mature client wants to liquidate his assets and start enjoying what he has earned. He comments that he just wants to pay regular premium and leave the worry to the insurance company. Based on his comments, which product would best suit his expectations?

Whole Life Whole life is simpler in that it provides a guaranteed rate of return and requires a level premium. Variable would require him to make separate account decisions and universal would require him to direct his premiums. Term is not the most cost effective coverage for mature clients.

An agent enters into an arrangement with a customer to share trading profits in a brokerage account. Under what circumstances is this arrangement permissible?

With written consent from the customer and the broker/dealer, and if profits and losses are shared in direct proportion to the funds invested by each party

When must form ADV-E be filed?

Within 120 days of the audit

D bought a variable life insurance policy and the separate account has been performing poorly, can the death benefit decrease?

Yes but it cannot go below the minimum guaranteed

Nelda wants to save for her ten year old niece's college expenses. Which of the following investments is probably most suitable? a)Money market fund b)Zero coupon bonds c)Tax-free bond fund d)Aggressive growth stock fund

ZERO-COUPON BONDS Nelda's intermediate time horizon makes debt instruments the most appropriate choice. We cannot assume that Nelda is in a high tax bracket and will benefit from the tax-free bond fund. The aggressive growth fund is more suited to a long horizon because of its higher risk. The lower yielding money market fund provides safety for a shorter horizon.

Some broker/dealers that have no place of business in the state can be exempt from registration. Which of the following does NOT qualify for this exemption?: a) A broker/dealer that has a customer who moves to a state where the broker/dealer is not registered, but the client chooses to continue the brokerage arrangementb)A broker/dealer that only had 2 customers during the previous 12-month periodc)A broker/dealer that transacts business only with other broker/dealers, issuers, institutional buyers, or financial institutionsd)A broker/dealer licensed in the state where it maintains a place of business and makes offers only to existing customers who are not residents of that state

An investment adviser of a mutual fund manages the fund's portfolio. The adviser is compensated for these services by a) A percentage of the assets managed valued at the public offering price b) A percentage of the fund's net asset value managed over a specific period

a percentage of the fund's net asset value managed over a specific period

When an investment adviser has custody of customer assets through a qualified custodian and both the custodian and the adviser send out customer statements, what type of disclosure is required on the statements sent by the adviser? a)"Please compare this statement to the statement provided by the account custodian." b)"Even though you are receiving two statements, you only have one account." c)"We are in no way responsible for errors or discrepancies on your custodial account statement." d)"An annual audit by a certified public accountant is required for this account."

a) "Please compare this statement to the statement provided by the account custodian."

An employee quits her job where she has a balance of $10,000 in her employer-provided qualified plan. If she decides to move the balance to a traditional IRA through a direct transfer, how much will be transferred from one plan administrator to another, and what is the tax consequence? a)$10,000, no tax consequence b)$8,000, no tax consequence c)$8,000, tax on growth only d)$10,000, tax on growth only

a) $10,000, no tax consequence During an IRA custodian-to-custodian transfer, the full amount gets reinvested from one plan to the other, and there is no tax consequence.

An investor has $3,500 in capital gains during the year and $7,000 in unrealized losses. If she takes the losses before the end of the year, how much can be carried over to next year? a)$500 b)$3,000 c)$3,500 d)$7,000

a) $500 Net capital gains and capital losses dollar-for-dollar to find the final position, a $3,500 net long-term capital loss. Of this, the investor may write off (deduct) $3,000 (which is the maximum annual limit) from her other income on the tax return for the year. The remaining $500 net capital loss may be carried over and used to offset $500 in capital gains next year.

Assuming the same amount was invested, which type of plan would generate the most taxable income? a)403(b) tax-sheltered annuity b)Roth IRA c)Nonqualified deferred annuity d)Nondeductible traditional IRA

a) 403(b) tax-sheltered annuity Since all contributions to a 403(b) tax-sheltered annuity are made with before-tax dollars, the participant has a zero cost basis in the plan. Upon distribution, both the contributions and the earnings will be taxable as ordinary income. All of the other choices present in this question are funded with after-tax dollars and there are either no taxes due upon qualified distribution (Roth IRA) or only the earnings will be taxable (nonqualified deferred annuities and traditional IRAs funded with after-tax dollars).

The following is a quoted price for a mutual fund: $19.76 - $21.34 - +.02. What is the percentage of sales charge for this fund? a)7.40 % b)2.00% c)Not enough information provided d)8.00%

a) 7.4% The sales charge percentage equals the POP - NAV divided by the POP or ($21.34 - $19.76 = $1.58) divided by the POP of $21.34 for a charge of 7.40%. The .02 positive change from the previous day's POP is irrelevant.

Hunter Investment Advisers is experiencing financial difficulty. Which of the following clients are they required to notify pursuant to the USA? a)A client who has prepaid $500 for the next 6 months b)A client who has signed promissory note for $1,000 c)A client who has prepaid $250 in advisory fees d)A client who has paid $1,000 for last year's services

a) A client who has prepaid $500 for the next 6 months When an investment adviser becomes financially impaired, any clients who have prepaid $500 or more for at least the next 6 month's services must be notified of the financial impairment

Which of the following is true of GNMA? a)Interest payments are semi-annual. b)It issues $25,000 bonds. c)It lends funds to savings institutions. d)It is a direct obligation of the government.

b) It issues $25,000 bonds GNMA is a serial, pass-through certificate making monthly payments of principal and interest. It is also a government agency which buys only government-guaranteed mortgages.

Bill is considering a mutual fund with a high portfolio turnover. Bill's agent tells Bill that he should not expect a)A higher sales load. b)A higher expense ratio. c)A higher capital gains distributions. d)Greater transaction costs.

a) A higher sales load The sales load assessed by the fund is unrelated to portfolio turnover. The other three alternatives are symptoms of a fund with a high portfolio turnover.

XYZ Investments believes that Acwak is a great buy for its customers. Acwak is launching a new product soon that should be very successful, and XYZ Investments would like its customers to benefit from this upward price move of Acwak's stock. Because XYZ Investments is still presenting the purchase idea to a few of its best customers, XYZ Investments is publicly downplaying the new product launch to delay the upward price move. This is a)A violation of the Uniform Securities Act. b)A violation of the short-swing profit rule. c)A violation of the Insider Trading Act of 1988. d)Standard industry discretion.

a) A violation of the USA

Of the funds listed below, which would most likely have the highest portfolio turnover ratio? a)Aggressive growth fund b)Government bond fund c)Corporate bond fund d)Strategic income fund

a) Aggressive growth fund Aggressive growth funds traditionally have the highest turnover ratios because the fund manager is constantly buying or selling issues to attempt to meet investor expectations.

Which of the following is true regarding estate taxes? a)All assets not passed on to a spouse are subject to estate taxes b)IRAs are not taxed as part of an estate. c)Real estate is excluded from estate taxes. d)Estates are taxed at preferential capital gains rates.

a) All assets not passed on to a spouse are subject to estate taxes Any assets left to a spouse or lef to charity are not subject to estate tax until the spouse also dies

The best measurement of investment performance over a period of time is a)Annualized return. b)Holding period return. c)Inflation-adjusted return. d)Total return.

a) Annualized return. Holding period return is the total return on an investment over a variable time period. Converting holding period return to annualized return makes rates of return easier to compare.

Which of the following is NOT an NYSE listing requirement? a)Approval by the SEC b)Minimum stock price c)Minimum market value d)Minimum number of publicly traded shares

a) Approval by the SEC Listing requirements of the NYSE include defined minimums for the number of publicly traded shares, total market value, stock price, and number of shareholders. The SEC does not approve the trading of a company's shares on an exchange.

Which of the following is NOT considered an equity security? a)Bonds b)Common stock c)American Depository Receipts d)Preferred stock

a) Bonds Bonds are debt, not equity.

If an investor is looking for current income, which of the following would be most suitable? a)Bonds b)Limited partnership units c)REITs d)Growth stocks

a) Bonds Current income first and foremost relates to interest income. Considering that, bonds would be the best of the choices provided.

A limited partner who receives a direct flow through of operating losses from a limited partnership a)Can write them off only against passive income. b)Can write them off up to a maximum of $3,000 a year. c)Cannot write them off. d)Can write them off against income from other sources.

a) Can write them off only against passive income Although limited partnerships are a type of direct participation program where profits and losses flow through directly to the limited partners, limited partners are considered to be passive investors. As such, they can only write off their share of partnership losses against passive income, which generally means income they receive from other limited partnerships.

Which one of the following statements regarding Coverdell Education Savings Accounts is correct? a)Contributions are made with after-tax dollars and grow tax-deferred. b)Contributions must cease when the beneficiary turns 30. c)Funds not used for education may be rolled over into an IRA for the beneficiary. d)All distributions are taxable to the beneficiary.

a) Contributions are made with after-tax dollars and grow tax-deferred COVERDELL ACCOUNTS ARE ROTH

Which of the following is correct with regard to the withdrawal of funds from a tax-qualified retirement plan?: a)Contributions can be deducted from that year's taxable income.b)The employee will be taxed at the ordinary income rate on his cost basis.c)Funds may be withdrawn at retirement tax free.d)All early withdrawals are subject to a penalty.

a) Contributions can be deducted from that year's taxable income

Under the Uniform Securities Act, if the order is in the public interest, the Administrator may deny a person's application for registration for all of the following reasons EXCEPT a)Conviction of a misdemeanor for assault 7 years ago. b)Being barred from the securities business by the SEC. c)Conviction of any felony. d)Being barred from the securities industry by a state court.

a) Conviction of a misdemeanor for assault 7 years ago. Misdemeanors cannot be used as grounds to deny a person's application for registration under the USA unless they occurred during the last 10 years and involve securities. The misdemeanor had nothing to do with securities

Alvetech Inc. wishes to offer an initial public offering for sale in several states. They can register the security by a)Coordination. b)Qualification. c)Combination. d)Filing.

a) Coordination They can only register by coordination. Registration by filing is reserved for seasoned companies only. An initial public offering cannot be defined as a seasoned company issue. Registration by qualification does not apply to IPOs that must be registered with the SEC.

All of the following are advantages of investing in a real estate investment trust (REIT) EXCEPT a)Deductibility of losses. b)Diversification. c)Marketability. d)Higher returns.

a) Deductibility of losses A REIT issues a fixed number of shares which trade in the secondary market either on an exchange or OTC. IRS rules require that at least 75% of a REIT's income be from real estate related investments and that in order to avoid double taxation, they must distribute at least 90% of their net investment income to investors annually. This requirement generates high yields to investors. A REIT is not considered to be a direct participation program since it only distributes income, not losses.

A couple is saving to purchase a home within the next 18 months. Their main investment goals are liquidity and safety of principal. Which of the following investments is the LEAST suitable for this couple? a)T-bills b)Short-term bond fund c)T-bonds d)Money market fund

c) T-bonds It is asking what is LEAST SUITABLE

The taxes on dividend and capital gain distributions in a mutual fund IRA account are a)Deferred until withdrawal. b)Deferred only if the IRA funding contribution was tax deductible by the account owner. c)Reducing the cost basis of the investment. d)Payable by the owner in the year of distribution.

a) Deferred until withdrawal IRA accounts enjoy tax deferral on all reinvested dividend and capital gain distributions until they are withdrawn.

What type of retirement plan requires employer contributions? a)Defined benefit b)Nonqualified c)Defined contribution d)Deferred compensation

a) Defined benefit On a defined benefit plan, the employer is required to make the contributions necessary in order to achieve the promised benefit at the retirement age of the employee. On a defined contribution plan, such as a 401(k), it is the employees who are required to make the contributions although some employers may agree to match. EMPLOYERS DON'T HAVE TO MATCH IN DC PLANS

Your client is interested in knowing the expected distributions of dividends and capital gains from their mutual fund investments. Which one of the following statements is correct? a)Dividends are distributed quarterly, while capital gains are distributed once a year, usually at the end of the year. b)Capital gains can be declared and paid monthly, while dividends are paid monthly or annually. c)Bond funds can pay capital gains monthly; however, stock funds must pay capital gains annually. d)Capital gains can be distributed quarterly or annually at designated times set by the mutual fund.

a) Dividends are distributed quarterly, while capital gains are distributed once a year, usually at the end of the year. Long-term capital gains must be paid no more frequently than on an annual basis. Dividends are distributed quarterly.

A registered investment adviser paid a large sum of money to settle a lawsuit. As a result, the firm's net worth fell to $22,000. The adviser has discretion over customer accounts; however, the client's funds are held at a large custodian bank. Under these circumstances, what is the adviser required to do? a)Do nothing b)File a report with the state administrator by the end of the next business day c)File a report with the state administrator on the day that the net worth falls below $35,000 d)Notify all of the clients that the adviser's net worth has fallen below $35,000

a) Do nothing Because the adviser does not have custody of the client's assets, the minimum capital requirement is $10,000 and the adviser is not required to do anything

Which of the following is subject to current taxation? a)Employee stock option plan b)Individual retirement account c)Keogh plan d)Incentive stock option plan

a) Employee stock option plan

If proper filing fees are not paid with the registration statement the Administrator will most likely a)Enter a denial order that will be released when the fees are received. b)Notify all interested parties within 15 days of a written request. c)Issue a stop order denying the effectiveness of the registration statement. d)Revoke the registration.

a) Enter a denial order that will be released when the fees are received In the event the proper filing fees are not received, the Administrator will issue a denial order that will be released upon receipt of the fees.

All of the following apply to exchange privileges within a family of funds EXCEPT a)Even though shares are redeemed, it is not a taxable event because the shareholder does not receive the proceeds b)There may be an exchange fee involved. c)The shareholder will purchase shares in the target fund at NAV. d)It is a taxable event.

a) Even though shares are redeemed, it is not a taxable event because the shareholder does not receive the proceeds When shares are redeemed in the currently owned fund, capital gains and losses are realized

ERISA qualified pension plan administrators are required to do all of the following EXCEPT a)File quarterly reports with FINRA. b)Communicate the plan's financial information to plan participants. c)Allow plan participants to name beneficiaries. d)File an annual report with the Department of Labor.

a) File quarterly reports with FINRA

Which of the following is not a security? a)Fixed annuity b)Collateral trust certificate c)Bond d)Stock

a) Fixed annuity

The foreign exchange market trades a)Foreign currencies. b)International debt instruments. c)Stocks of foreign corporations. d)American depository receipts.

a) Foreign currencies The foreign exchange market (also known as Forex or FX) is a worldwide decentralized OTC financial market for the trading of currencies in order to assist international trade and investment.

An investor who wants to find background information on their Investment Adviser Representative will find it in a)Form ADV Part 2B. b)Form S-1. c)The investment advisory contract. d)Form ADV Part 1.

a) Form ADV Part 2B Form ADV Part 2B is used to provide information to clients and prospects about the investment adviser representative.

A beginning investor has limited funds, but wants immediate exposure to a variety of investment styles. The investor should consider which of the following funds? a)Fund of funds b)Balanced fund c)Growth and income fund d)Asset allocation fund

a) Fund of funds A fund of funds invests in other mutual funds. With a small investment, an investor gains exposure to several different mutual funds with different investment objectives. Alternately, the investor would need more money to invest the required minimum in several different funds to achieve the same exposure.

Which of the following factors are primary considerations in choosing one form of business structure over another? I. The number of owners and their relationship; II. The amount of potential liability associated with the product or service; III. The investor's portfolio allocation; IV. Sector rotation a)I and II b)I and III c)II and IV d)III and IV

a) I and II Issues like potential liability, sufficient capitalization and what happens to the business should the owners/operators die are all among the important considerations in choosing an appropriate business form. This is asking about business structures, you aren't determining what asset to put into the portfolio

Which of the following is not a priority for a fiduciary managing an account in compliance with the Prudent Man Rule? a)Speculation b)Permanence c)Safety d)Income

a) Speculation The rule states that fiduciaries should manage accounts "not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested."

The maximum fine under the Uniform Securities Act (USA) for criminal violations is a)$10,000 .b)$25,000. c)$2,000. d)$5,000.

d) $5,000 The maximum fine under the act is $5,000

Which of the following is/are considered to be passive investments? I. Unit investment trusts; II. Sector funds; III. Index funds a)I & III b)III only c)I, II & III d)I & II

a) I and II SECTOR FUNDS ARE ACTIVELY MANAGED: Passive investments are not actively managed. Unit investment trusts (UITs) are investment companies that buy and hold to maturity a fixed portfolio of bonds which creates a stream of interest payments to the unit holders. There is no portfolio manager and no management fee. Index funds have an investment adviser or fund manager but they simply invest in stocks tracked by an index (such as the S&P 500), so performance should mirror the index. Sector funds (also known as specialized funds) are often nondiversified funds set up and managed to take advantage of special situations (often globally or in precious metals).

Which of the following are exempt from registration under the Act? I. Transactions between issuers and underwriters; II. Real estate mortgages; III. Sales of collateralized mortgage obligations; IV. Retail sales of equities a)I and II b)I and III c)II and III d)II and IV

a) I and II Sales of CMOs are not exempt transactions. Neither are equity sales to retail customers.

The administrator may I. Initiate a private investigation. II. May require written statements under oath. III. May impose a jail sentence. IV. May enforce a subpoena. a)I and II b)I and IV c)II and III d)II and IV

a) I and II The administrator petitions the court system to enforce subpoenas. The administrator refers criminal cases to the court system for prosecution.

a) I and III Capital market theory sets the stage for investment management and adds validation to the analysis and selection of securities in a managed investment strategy. It is based on the premise that capital markets are essential to economic growth.

Under the Securities Exchange Act of 1934, in which of the following cases is an investment adviser exercising investment discretion? I. The adviser determines what securities should be purchased for an account after the client sets specific investment objectives. II. When the market price of a stock is $100 per share, the client tells the adviser to sell it if it drops another $10 per share. When the price falls to $90 per share, the adviser sells it without further consultation with the client. III. The client tells the adviser to purchase growth mutual fund shares and leaves the choice of the fund to the adviser. a)I & III b)II & III c)I, II & III d)I & II

a) I and III Investment discretion is defined as the authority to determine what specific securities will be bought or sold for an account.

A transaction in which the sale of securities is for the benefit of the issuer, and the issuer receives the proceeds from the sale, is a(an) I. Primary transaction. II. Non-issuer transaction. III. Issuer transaction. IV. Exempt transaction. a)I and III b)II and III c)III and IV d)I and II

a) I and III Since these sales take place in the primary or new issue market, they are known as primary transactions, also known as an issuer transaction. These transactions are nonexempt and require registration

Differences between an insurance company's general account and separate account include I. The separate account is registered pursuant to the Securities Act of 1933. II. The separate account must comply with the Dodd-Frank Act. III. The separate account is usually registered under the Investment Company Act of 1940. IV. If it funds a tax-qualified annuity, the separate account is exempt from registration under the Securities Act of 1933. a)I and III b)II and III c)II and IV d)III and IV

a) I and III The separate account is always registered pursuant to the Securities Act of 1933. If it funds a tax-qualified annuity, the separate account is exempt from registration under the Investment Company Act of 1940.

An investment adviser recommends securities and receives compensation based on both a fee for the advice and commissions from the securities sold. To comply with the Investment Advisers Act of 1940, the adviser must inform the customer of which of the following? I. The fact that the securities could be purchased from another broker/dealer; II. The compensation received from the securities sale; III. The adviser's role as agent for the broker/dealer a)I, II & III b)I only c)II & III d)I & III

a) I, II and III The investment adviser is required to disclose all significant facts to the customer. Failure to disclose these or any other significant facts would be considered fraudulent.

Concerning valuation of a variable annuity, which of the following are true? I. The value is expressed in units, similar to mutual fund shares. II. Units are revalued daily similar to mutual fund shares. III. The number of annuity units increases during the annuity phase. IV. The value of a unit varies with the performance of the separate account. a)I, II and IV only b)I and IV only c)II and III only d)I, II, III and IV

a) I, II and IV only UNITS INCREASE IN THE ACCUMULATION PHASE NOT ANNUITY Units are valued daily similar to mutual funds and vary with the performance of the portfolio in the separate account. In the accumulation phase units are referred to as accumulation units. A fixed number of annuity units are determined upon the annuitization of the contract.

Under the Investment Advisers Act of 1940, investment advisers may charge performance-based fees in advisory contracts entered into with which type of qualified clients? I. Registered investment companies; II. Institutional clients with more the $1,000,000 in managed assets; III. Clients with at least $1,000,000 under the adviser's management; IV. Clients with a net worth of at least $2,000,000. a)I, II, III & IV b)I & II c)II & III d)III & IV

a) I, II, III and IV Although the USA prohibits performance-based advisory fees, the Investment Advisers Act of 1940 allows advisers to charge performance-based fees in advisory contracts entered into with qualified clients, such as mutual funds, institutional investors with more than $1,000,000 in managed assets, and individual clients with at least $1,000,000 under the adviser's management, or those who have a net worth of at least $2,000,000 million.

Under ERISA, certain transactions are prohibited in order to prevent dealing with parties who may be in a position to exercise improper influence over the plan. Prohibited parties include which of the following? I. The employer; II. Plan fiduciaries; III. Service providers; IV. Relatives of parties in interest a)I, II, III & IV b)I only c)I, II & III d)II, III & IV

a) I, II, III and IV Under ERISA, fiduciaries of pension plans are prohibited from engaging in certain transactions with parties in interest, who are also known as prohibited parties.

Under NASAA's Model Rules regarding custody, an investment adviser (IA) would be considered to have custody if they act in which of the following capacities on behalf of a client? I. General partner of a limited partnership; II. Managing member of a limited liability company; III. With general power of attorney; IV. Trustee of a trust a)I, II, III & IV b)III only c)I, III & IV d)III & IV

a) I, II, III, and IV Under NASAA's Model Rules regarding the custody requirements for investment advisers, custody includes having a general power of attorney under which the investment adviser is authorized to withdraw client funds or securities maintained with a custodian. It also includes acting in any capacity on behalf of a client, such as a general partner of a limited partnership, managing member of a limited liability company, or a trustee of a trust that gives the investment adviser or its supervised person legal ownership of or access to client funds or securities.

a) II and III In wrap accounts, a wrap fee brochure is furnished in lieu of the IA brochure. It must be furnished 48 hours prior to entering into a contract and must include all of the information contained in Part 2 of Form ADV. Alternately, it may be furnished at the signing of the contract if the customer is given a 5-day free-look period during which they may opt out of the contract without cost.

Under the Securities Act of 1933, the definition of a sale includes I. A preliminary agreement between the issuer and the underwriters. II. Exercising a right to convert one security into another. III. Giving a security as a bonus with a purchase. IV. A bona fide gift of securities a)II & III b)III & IV c)I & II d)I, II & III

a) II and III Preliminary agreements between issuers, underwriters, and bona fide gifts of securities are specifically excluded from the definition of sale. When a right to convert or purchase a security is exercised, it is considered to be a sale. A security given as a bonus with a purchase is considered to be part of the purchase and, therefore, is being sold.

The income statement would include which of the following? I. Current Assets; II. Depreciation; III. Revenue; IV. Retained Earnings. a)II & III b)II, III & IV c)III only d)I & IV

a) II and III Remember the difference between what is on the income statement and what is on the balance sheet. Assets, liabilities, and shareholder's equity can be found on the balance sheet. Shareholder's equity is made up of the following four components: retained earnings, paid-in surplus, common stock at par, and preferred stock at par. Revenues and expenses of the company can be found on the income statement. Depreciation and amortization are two noncash expenses that are expensed on the income statement but added back on the statement of cash flow.

The statement of cash flow is used to measure which of the following? I. Revenue; II. Liquidity; III. Return on assets; IV. Leverage a)II & IV b)I, II, III & IV c)III only d)I only

a) II and IV

A broker/dealer with a sales agreement with a mutual fund underwriter must I. Use only sales literature provided by the mutual fund. II. Offer no discounts from the public offering price. III. Not sell any securities to the fund from inventory but may perform as a broker for the fund's portfolio transactions. a)II only b)I and II only c)I, II and III d)I only

a) II only Sales literature is provided by the principal underwriter, distributor, or sponsor, not the fund itself. No discounts may be used as an inducement to purchase; always NAV plus applicable sales charge = ask price. A broker/dealer may sell from inventory when acting as a "market maker" in that security or as an agent.

Tracking moving averages is used for which of the following purposes? I. Estimate future price fluctuations; II. Determine when to buy; III. Discover changes in a trend; IV. Determine when to sell a)II, III & IV b)I, II, III & IV c)I only d)I & II

a) II, III and IV A moving average is superimposed on a stock's chart line by a technical analyst. Plotting moving averages makes it easier to notice a change in a trend. If the stock price penetrates the moving average on the upside after a downward trend, it is a signal to buy. If the stock price penetrates the moving average on the downside following an upward trend, it is a signal to sell.

A person can claim a registration exemption as an investment adviser under the amended Investment Advisers Act of 1940 if the person I. Charges a fee separate from that for professional services for the provision of investment advice. II. Manages less than $100 million in assets. III. Provides advice on government issues only. IV. Has insurance companies as a client base .a)II, III & IV b)I, II, III & IV c)I & II d)I & III

a) II, III and IV Under the amended 1940 Act, those persons managing less than $100 million in assets, providing advice on government issues only, and maintaining a client base of insurance companies only are exempt from federal registration. Remember that persons managing less than $100 million in assets may be required to register at a state level under the Uniform Securities Act.

Which of the following factors creates the U.S. debit balance in the balance of trade account? I. More exports than imports; II. A weak dollar; III. A strong dollar; IV. More imports than exports. a)III & IV b)I & II c)II & IV d)I & IV

a) III and IV Importing more than exporting causes a debit in the balance of trade account. If the dollar depreciates in value relative to foreign currencies, U.S. exports become more affordable to foreign countries and the debit balance is decreased. If the dollar appreciates in value relative to foreign currencies, U.S. exports becomes less affordable and more is imported, increasing the debit balance in the balance of trade account.

An IA is registered in state A and does business in state B exclusively with institutional clients. In which of the following situations must the IA register in state B? a)If the IA has a place of business in state B b)If the IA has over five institutional clients c)Never d)Always

a) If the IA has a place of business in state B Generally, an IA from another state (state A) is not required to register in this state (state B) if they only deals with institutional clients. Anytime the IA has a place of business in this state (state B), registration as an IA in this state (state B) is required.

Which of the following measures a corporation's solvency? a)Working capital b)Profit margin c)Cash flow d)Debt/equity ratio

a) Working capital Working capital = current assets - current liabilities. It measures a corporation's ability to meet current debt obligations.

A customer of a Canadian broker/dealer spends winters in Miami every year. The customer trades regularly in her tax-qualified account. She is considering a permanent move to Miami. Which of the following is true? a)If the customer moves to Miami and opens a taxable account, the broker/dealer must register with the SEC. b)The broker/dealer and agent must already be registered in Florida, and must maintain their existing state registrations. c)If the customer moves to Miami, the broker/dealer must register in the state. d)If the customer moves to Miami, the agent must register with the state and the broker/dealer must maintain its Florida registration.

a) If the customer moves to Miami and opens a taxable account, the broker/dealer must register with the SEC

A cash flow statement considers all of the following EXCEPT a)Income and expenses. b)Depreciation. c)Amortization. d)Net earnings.

a) Income and expenses Because not all transactions involve actual cash expenditures, many items have to be reevaluated when calculating cash flow from company operations. For example, depreciation and amortization are really not cash expenses, which is why they are both found on the statement of cash flow as positive amounts. They are added back into net earnings when calculating a company's cash flow. Simply stated, a cash flow statement takes the net earnings figure from the company's income statement and adjusts it by adding or subtracting noncash items in order to obtain a more accurate picture of where money is coming from and how it is being spent. For the examination, remember that the details regarding income and expenses are found on the income statement, not the statement of cash flow.

Which of the following would appear on a corporation's income statement as revenue? a)Installment sales b)Depreciation c)Dividends d)Interest

a) Installment sales Although interest and dividends paid would be considered expenses, interest and dividends received would be considered income on an income statement. Note, however, that they would not be considered revenue as that would come from sales. Depreciation shown is an expense on the income statement. An income statement is also known as a profit and loss statement.

Which of the following funds subjects the investor to added legislative risk? a)International fund b)Government bond fund c)Balanced fund d)Growth fund

a) International fund International funds are subject to foreign as well as domestic legislative risk. In addition, they carry currency exchange risk.

Which of the following is NOT a "qualified custodian"? a)Investment adviser representative b)Registered futures commission merchants c)Bank d)Registered broker/dealer

a) Investment adviser representative An investment adviser representative is not a "qualified custodian." A qualified custodian is an institution such as a bank or broker/dealer.

An individual hired by an issuer to sell their own stock and who is not compensated by the payment of commissions on transactions in those securities a)Is exempt from registration as an agent. b)Would have to register as an agent of a broker/dealer. c)Would have to register as a broker/dealer. d)Would have to register as an agent of the issuer.

a) Is exempt from registration as an agent According to the USA, an individual who represents an issuer with respect to an offer or sale of the issuer's own securities and who is not compensated by the payment of commission or other remuneration directly or indirectly on transactions in those securities is exempt from registration as an agent.

Under the Uniform Securities Act, a general circulation business or financial newspaper does not have to register as an investment adviser because a)It is a bona fide newspaper. b)Its advice is generic. c)Its advice is considered to be incidental. d)Its advice is not directed to specific readers.

a) It is a bona fide newspaper Under the Uniform Securities Act, bona fide newspapers of regular and general circulation need not register as investment advisers.

Which of the following statements is true concerning a trust?a)It is a documented, legal fiduciary relationship between a trustee and a grantor.b)A "grantor" such as a trust company has fiduciary responsibility for assets on behalf of a beneficiary or "trustee."c)A trust may be created by any party other than the intended beneficiary.d)All of the above are true.

a) It is a documented, legal fiduciary relationship between a trustee and a grantor

All of the following are exempt securities under the Uniform Securities Act (USA) EXCEPT a)Limited partnership units. b)Shares of a mutual fund. c)Municipal bonds. d)Stock of an insurance company.

a) Limited partnership units Under the USA, units (shares) of a limited partnership are considered to be nonexempt securities and must be registered with the state administrator.

An investor seeking growth would buy stocks with a a)Low price-to-book ratio. b)High price/earnings ratio. c)High market price but with high earnings potential. d)High price-to-sales ratio.

a) Low price-to-book ratio It's not asking what a growth stock is, it is asking where you could see growth and in a low price-to-book ratio it could mean the stock is undervalued

If an investor's primary investment objective is preservation of capital, which of the following products should an adviser recommend? a)Money market fund b)U.S. government bond fund c)Bond fund d)Income fund

a) Money market fund Imagine a risk spectrum and look for the safest of these investments. A money market fund would be the most conservative and therefore the best at meeting the investment objective of preservation of capital.

Which of the following is not a component of the balance sheet? a)Net revenue b)Assets c)Liabilities d)Net worth

a) Net Revenue Revenue and expense items are found on the income statement

A minority partner of an investment adviser retires. What type of client notification and/or approval is required? a)Notification within a reasonable period of time b)Client's written consent to assign their advisory contracts c)Client's approval for a change in management d)Immediate written notification

a) Notification within a reasonable period of time NASAA Model Rules require a notification within a reasonable time of changes in the membership of a partnership. Changes in minority interest require only notification.

Provisions of the Uniform Securities Act (USA) include all of the following EXCEPT a)Civil penalties. b)Civil liabilities. c)Criminal penalties. d)Criminal liabilities.

a) civil penalties The Act provides for civil and criminal liabilities and criminal penalties, even for exempt securities and exempt transactions. Civil penalties may be imposed in a civil lawsuit in a court of law but are not provided for in the Act.

An investment adviser representative has received verbal discretionary authority from a new client. Shortly thereafter, the representative saw an opportunity to buy a stock that would be perfect for his client's account and bought 100 shares. This is the first trade in the account. What is required of the investment adviser representative? a)Obtain the client's written discretionary authority within 10 days of the trade date. b)Receive the client's written authority within 14 days for trading the account. c)"Unwind" the transaction as you have executed a trade without authorization in this case. d)Get the client's verbal approval on a recorded line.

a) Obtain the client's written discretionary authority within 10 days of the trade date. Investment advisers and their representatives must obtain written discretionary authority from the client within 10 business days after the first trade based on verbal discretionary authority unless the trade was based on a preset price, time, or volume.

A newly registered agent agrees to share in the profits and losses in customer accounts. Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker/Dealers and Agents, this is a)Permitted with the authorization of the customer and the agent's broker/dealer. b)Prohibited. c)Permitted with the authorization of the customer. d)Permitted with the authorization of the agent's broker/dealer.

a) Permitted with the authorization of the customer and the agent's broker/dealer Agents may share in the profits or losses in the account of any customer with the written authorization of the customer and the broker/dealer firm the agent represents.

Mortality risk fees and operating expense risk fees are designed to a)Protect the insurance company by offsetting unexpected costs. b)Protect the annuitant against losses in the separate account. c)Pay state taxes owed by the insurance company. d)Protect the contract holder from rising premium costs.

a) Protect the insurance company by offsetting unexpected costs. THIS IS TALKING ABOUT THE FEES NOT THE GUARANTEES

Which of the following would be listed as income on a client's tax return? a)Qualified dividends b)Inheritance from a friend c)Social security benefits d)Long-term care insurance benefits

a) Qualified dividends Of those listed, only qualified dividends would be considered to be taxable income on a client's tax return. Qualified dividends are generally those that are paid by U.S.-based corporations and mutual funds.

A broker/dealer firm that receives a written complaint about an agent from a customer must a)Respond to it. b)Turn it over to the agent. c)Turn it over to FINRA immediately. d)Turn it over to the Administrator.

a) Respond to it. Broker/dealer firms may not fail or refuse to furnish a customer upon reasonable request information to which he or she is entitled or to respond to a formal written request or complaint.

The dollar is strengthening against the Euro. Which are the probable causes? a)Rising interest rates/falling prices b)Increasing exports/decreasing imports c)Increasing imports/decreasing exports d)Falling interest rates/rising prices

a) Rising interest rates/falling prices Think about it on the inflation side of things, the dollar is strengthening when it can buy more. Rising interest rates support a strengthening of the dollar compared to foreign currencies, and cause the prices of bonds and stocks to decline. Import/export levels are a consequence of the relative strength of the two currencies.

A key difference between a C Corp and an S Corp is that a)S Corps are limited to 100 shareholders. b)S Corps are not taxed like a partnership, i.e. single taxation rules c)S Corp shareholders are personally liable for business operations. d)A C Corp is limited to 30 shareholders while an S Corp may have up to 100 shareholders.

a) S Corps are limited to 100 shareholders. Like in a C Corp, S Corp's shareholders are not personally liable; however, S Corps are limited to a maximum of 100 shareholders.

Which investment would be most appropriate for an individual who is 40 years old and has a moderate risk tolerance level? a)S&P index fund b)U.S. Treasury notes c)Short-term bond fund d)High-yield municipal securities

a) S&P index fund The S&P index fund offers a diversified portfolio with moderate risk and, at age 40, the investor has a relatively long time horizon and is in a better position to weather any volatility over the long term. While high-yield municipal securities also offer a moderate risk option, there is no mention of the individual being in a higher tax bracket which would have made this an appropriate choice. Both U.S. Treasury notes and short-term bond funds are conservative investments.

Investment advisers who have custody of their customers' monies must do all EXCEPT a)Send the customer an itemized statement at least once a year. b)Have an independent accountant conduct a surprise audit of the client's assets at least once a year. c)Notify the client of the location of the bank holding the account. d)Set up a separate bank account for each client.

a) Send the customer an itemized statement at least once a year. Investment advisers do not always have custody of their clients' cash or securities, but if they do, they must set up a separate bank account, send the customer an itemized statement at least every *3 months*, have an independent audit conducted once a year, and notify the client of the location of the bank that holds his or her account.

Which of the following is actively traded on exchanges? a)Shares of a closed-end investment company b)Limited partnership units c)Shares of an open-end investment company d)Series EE savings bonds

a) Shares of a closed-end investment company Shares of a closed-end mutual fund trade in the secondary market (either over the counter or on exchanges) at prices that may or may not bear direct relationship to the fund's net asset value or NAV. However, limited partnership units, savings bonds, and shares of open-end mutual funds do not trade in the secondary market. They may be redeemable, but they are not marketable.

Under the Uniform Securities Act, a registration statement filed with the Administrator to register new securities by coordination becomes effective a)Simultaneously with the federal registration if all conditions are satisfied. b)30 days after the registration statement was filed. c)90 days after the registration statement was filed. d)When filed by the issuer or underwriter.

a) Simultaneously with the federal registration if all conditions are satisfied. This is through coordination. Coordination is with federal and state registration. Under the Uniform Securities Act, when a new security is registered in a state by coordination, the registration becomes effective simultaneously with the federal registration if all conditions are satisfied.

Stanley passes away, leaving most assets to his wife except for his IRA and his Roth IRA, which he leaves to his daughter. Which of the following is true?: a)Stanley's IRA and Roth IRA will be subject to taxation before his daughter receives them.b)Stanley's wife and daughter will each pay taxes on the assets that she receives.c)All assets are taxed before they are distributed to Stanley's wife and daughter.d)Stanley's daughter will pay taxes on the IRA but not the Roth IRA.

a) Stanleys IRA and Roth IRA will be subject to taxation before his daughter receives them

The Administrator has the authority to do any of the following EXCEPT a)Suspend registration of persons solely if it is "in the public interest." b)Issue a cease and desist order to stop the sale of advisory services if another Federal agency issued a similar order. c)Subpoena persons for investigations. d)Seek injunctions against persons violating the Act.

a) Suspend registration of persons solely if it is "in the public interest". The Administrator may suspend or revoke a registration if it is in the public's best interest AND there is just cause in accordance with the Uniform Securities Act, not solely because it is in the public good. All the other statements are true.

The difference between the measure of volatility of a fund in comparison to the overall market and the actual return obtained from an investment is called a)The Alpha. b)The Beta. c)The Sharpe ratio. d)The standard deviation.

a) The Alpha Alpha is the difference between the beta and the actual return obtained from an investment. The point of reference for the alpha is the beta; therefore, a negative alpha indicates underperformance while a positive one represents a better than expected return.

Who is responsible for filing form ADV-E? a)The auditor of an IA with custody of customer assets b)Investment adviser representatives c)An investment adviser's custodian d)Investment advisers with custody of customer assets

a) The auditor of an IA with custody of customer assets

Stanley is working with a client who recently received a lump-sum settlement from an insurance company. The only thing Stanley knows at this time is the amount that the client received. Which of the following best describes a non-financial consideration that Stanley should keep in mind in making any investment recommendation? a)The client's attitude toward money and risk b)The timeframe that the client has for retirement c)The client's current financial status and goals d)The capital needs that the client is currently faced with

a) The client's attitude toward money and risk

What is the primary reason that a corporation would rather issue stock than bonds? a)The corporation never has any obligation to repay the stockholder. b)A stockholder has no voting rights as bondholders do. c)A bondholder has a residual claim on assets. d)The dividends paid to stockholders are tax deductible.

a) The corporation never has any obligation to repay the stockholder. When a corporation issues debt (bonds), they are borrowing money. The money that is borrowed must be paid back. When the bond reaches maturity (typically in 30 years), the corporation pays the bondholder back the principal amount ($1,000). When a corporation issues shares of stock (equity), it is selling pieces of ownership. The corporation does not owe the shareholder any money. Some corporations will pay dividends to shareholders, but they are never under any obligation to do so. Dividends paid to stockholders are taxable to the stockholder. As an owner of the corporation, the stockholder has voting rights.

Which of the following statements is most correct concerning a mutual fund's contingent deferred sales charges (CDSC)? a)The longer the fund shares are held, the lower the sales charge percentage. b)The sales charge will automatically be refunded upon sale of the fund shares. c)The earlier the fund shares are sold, the lower the sales charge percentage. d)Funds with a CDSC will be offered at the net asset value plus the maximum allowable sales charge.

a) The longer the fund shares are held, the lower the sales charge percentage CDSC charges typically decline over time. Therefore, the longer the shares are held, the lower the sales charge percentage.

The burden of proof for the existence of an exemption for any proceeding under the Uniform Securities Act (USA) rests with whom? a)The person claiming the exemption b)The State Administrator c)The State Securities Commission d)The Securities and Exchange Commission

a) The person claiming the exemption The burden of proving the existence of an exemption for any proceeding under the Act rests with the person claiming the exemption.

The NAV will not change if a)The portfolio sells securities and retains the cash. b)The fund pays dividends. c)The fund receives dividends. d)The assets in the portfolio decrease.

a) The portfolio sells securities and retains the cash. When the portfolio sells securities, the value goes down. However, if the portfolio retains the cash, the value of the portfolio goes up by the same amount and the NAV does not change.

The trustee of a trust has chosen a money manager for the trust whose past performance numbers have been excellent. In the first year, the trust had a 20% return. In the second year, the performance was (-7)%. Which of the following is true regarding this situation? a)The trustee may be relieved of liability as it relates to the decisions or actions of the agent to whom the function was delegated. b)The trustee is fully responsible for the duties of the agent to whom the duty was delegated. c)The trustee has violated the Prudent Investor Act by delegating this function. d)Since the trustee has delegated this function, the trustee no longer has any responsibility.

a) The trustee may be relieved of liability as it relates to the decisions or actions of the agent to whom the function was delegated Section 9 of the Prudent Investor Act addresses the delegation of investment and management functions. It states that a trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. The trustee shall exercise reasonable care, skill, and caution in selecting an agent, establishing the scope and terms of the delegation consistent with the purpose and terms of the trust, and periodically reviewing the agent's actions in order to monitor the agent's performance and compliance with the terms of the delegation. A trustee who complies with these requirements is not liable to the beneficiaries or to the trust for decisions or actions of the agent to whom the function was delegated.

All of the following are true about limited partnership units EXCEPT a)They are marketable in the secondary market. b)The limited partners are considered to be passive. c)They are considered to be securities. d)The general partners have unlimited liability.

a) They are marketable in the secondary market Units of a limited partnership are considered to be securities. However, since there is no secondary market for limited partnership units, they have liquidity risk.

Randy is a broker who enjoys doing investment research much more than prospecting for sales. His friend Andy is just the opposite as he loves talking to new people and hates numbers. They have agreed that Randy will do all the research work if Andy will send sales Randy's way when possible. Which of the following is true regarding this relationship? a)This is considered a soft dollar alliance and must be monitored periodically to avoid the potential for conflicts of interest. b)Randy must file a Form AD-1 with his broker/dealer listing Andy as his advisory partner for the "mated" transactions c)Such a relationship must be tied to a written contract between the broker/dealer and the advisory firm involved and must be binding for all transactions. d)This form of alliance is considered a unilateral agreement since the broker must rely on the adviser's goodwill to secure any future compensation.

a) This is considered a soft dollar alliance and must be monitored periodically to avoid the potential for conflicts of interest Since this is a soft dollar alliance, the risk of a conflict of interest is inherent regardless of the parties involved and must be monitored for such.

What is the main reason an investor would purchase an American Depositary Receipt (ADR)? a)To diversify the investor's portfolio b)To expose the investor to less risk c)To invest in domestic companies d)To guarantee a profit

a) To diversify the investor's portfolio An ADR represents ownership in a corporation whose stock trades on a foreign exchange. A U.S. investor that purchases ADRs in addition to stocks of domestic companies has broad geographic diversification within his or her portfolio. The ADR exposes the investor to greater risk than just purchasing domestic stocks or owning domestic securities. An ADR would have currency exchange risk, inflationary risk, political risk, and business risk.

Tom was speaking with a client at his office one day when Phyllis from the state administrator's office came by to perform a securities audit. Which of the following is true concerning this process? a)Tom will be required to support Phyllis and her ability to conduct the audit since auditors have the right to perform audits without prior notice and can charge a fee for the service. b)Phyllis will need to wait until Tom has completed his appointment with the client and schedule a time to conduct the audit that is mutually convenient for her and Tom. c)Tom has the right to refuse the audit at this time since he is with a client and Phyllis failed to schedule the audit prior to visiting Tom's office. d)Under these circumstances, Phyllis may only perform a limited audit, which will not require any additional support from Tom or his staff.

a) Tom will be required to support Phyllis and her ability to conduct the audit since auditors have the right to perform audits without prior notice and can charge a fee for the service.

Which of the following is contracted by a mutual fund to issue new shares and cancel redeemed shares for the fund? a)Transfer agent b)Custodian c)Investment adviser d)Board of directors

a) Transfer agent The transfer agent is in charge of disbursement of dividend and capital gain distributions as well as other "customer service" functions.

Just before the economy makes a turning point at the end of an economic downturn, the economy is considered to be in an economic a)Trough. b)Expansion. c)Contraction. d)Recession.

a) Trough

Which of the following municipal entities does NOT issue overlapping debt? a)Turnpike authority b)Park district c)Library district d)School district

a) Turnpike authority

All of the following are included in GDP EXCEPT a)U.S. companies' purchases of steel from China. b)Net U.S. exports. c)Government spending on Medicare. d)Consumer spending on income tax preparation software.

a) U.S. companies' purchases of steel from China As they are included in the calculation of GNP they are not included in GDP like consumer spending, capital expenditures by business, and exports

Retained earnings are also known as a)Undistributed net income. b)Earning before dividends. c)Gross profit margin. d)Earnings before income taxes

a) Undistributed net income Retained earnings are one of the four components of shareholder's equity, which is found on the balance sheet of the corporation. Retained earnings are a cumulative number representing the sum of all of the year's prior undistributed net income. It is the money that the company has kept. The undistributed net income flows through from the very last number of the company's income statement into the cumulative retained earnings figure on the balance sheet.

A long-term investor who is comfortable with moderate risk believes that the best way to make money in the stock market is to buy low. The investor is skeptical of stocks that look overvalued and carry high P/E ratios. An appropriate mutual fund for this investor is a)Value fund. b)Aggressive growth fund. c)Asset allocation fund. d)Balanced fund.

a) Value fund Value stocks carry low P/E Ratios

The Administrator may deny an agent's application for registration if the agent a)Was ever barred from the securities industry by the state court. b)Was convicted of a misdemeanor charge involving investments 11 years ago. c)Was convicted of a felony involving securities 15 years ago. d)Was convicted of a misdemeanor charge of assault 7 years ago.

a) Was ever barred from the securities industry by the state court. The Administrator may deny an agent's registration if he or she has been convicted of a misdemeanor involving the securities, investment, banking, or insurance business or if he or she has been convicted of any felony within the past 10 years.

Which of the following is not a security as defined by the USA? a)Whole life insurance policies b)Warehouse receipts c)Commodity option contracts d)Collateralized Mortgage Obligations (CMOs)

a) Whole life insurance policies WHole life policies are not securities because the insurance company bears the investment risk

A person transferring an IRA to another trustee via a trustee to trustee transfer a)Will not be subject to any penalties or taxation. b)May only do so twice per year. c)Will pay a penalty unless the person is at least 59½. d)Will receive a check that must be rolled over to another qualified plan within 60 days to avoid taxation.

a) Will not be subject to any penalties or taxation There is no penalty or taxation for the transfer of an IRA from one trustee to another. Also, there is no limit on the number of trustee-to-trustee transfers that may be done in any time period. If the distribution was made payable to the IRA owner (a rollover), then 20% withholding and the 60-day reinvestment rule applies. Rollovers are limited to one time per year.

A specialist receives an order to buy XYZ 200 shares 20 stop 19. This means that a)The order is triggered at or above 20 and filled at 19 or lower. b)The order will be filled if the market moves successively lower from 20 to 19. c)The specialist is prevented from buying, unless the market is at or below 19. d)The order is stopped at or below 20 and filled at or above 19.

a) the order is trigger at or above 20 and filled at 19 or lower

Securities held in a UIT's fixed portfolio might be changed

a) with notice to the SEC and notification to the shareholders within 5 days of when the SEC was notified If the UIT features a fixed portfolio, no substitution of securities may be made without written notice to the SEC and all shareholders must be notified of a substitution within 5 days

An agent is registered in Tennessee and has applied for registration in Georgia and Alabama. His firm is registered in all 50 states. He can engage in all of the following transactions EXCEPT a)A trade for a Georgia resident who is vacationing in Florida for fewer than 30 days. b)A trade for a current client who is vacationing in Florida. c)A trade for a current client who is vacationing in Alabama. d)A trade for up to 30 days for a current client who has relocated to Georgia.

a)A trade for a Georgia resident who is vacationing in Florida for fewer than 30 days. An agent cannot solicit new clients in a state until his or her registration is effective in that state; the agent, however, may transact business prior to the registration becoming effective if a current client is in the state temporarily.

Which of the following statements about deferred compensation plans is TRUE? a)An employee may pay a lower tax rate in the future on withdrawals of the deferred funds. b)They are approved by the SEC. c)The funds are insured. d)The principle is guaranteed against a loss.

a)An employee may pay a lower tax rate in the future on withdrawals of the deferred funds.

When discussing CDSCs with a client, it should be pointed out that a)Costs associated with each share class are fully disclosed in the prospectus. b)It makes no difference which class one chooses. c)Choosing B or C shares allow the investor to avoid sales charges. d)A shares are actually cheaper.

a)Costs associated with each share class are fully disclosed in the prospectus. Each share class has associated costs that vary with the holding period of the shares. These costs are presented in tabular form in the prospectus so the investor can fully evaluate them.

All of the following apply to exchange privileges within a family of funds EXCEPT a)Even though shares are redeemed, it is not a taxable event because the shareholder does not receive the proceeds. b)There may be an exchange fee involved. c)The shareholder will purchase shares in the target fund at NAV. d)It is a taxable event.

a)Even though shares are redeemed, it is not a taxable event because the shareholder does not receive the proceeds. When shares are redeemed in the currently owned fund, a capital gain or loss is realized. Therefore, the IRS defines an exchange as a sale even though the proceeds are reinvested in another fund. Some funds charge a modest exchange fee.

Which of the following statement is NOT true concerning the De Minimis rule and its application to agents? a)The agent may transact business for up to 90 days in a state in which his registration is still pending. b)The agent's broker/dealer must be registered in the state of the business transaction, and the agent must be registered in at least one other state. c)An agent can conduct business with a current client who is in the state temporarily. d)It only applies to agents who are eligible to register in the state.

a)The agent may transact business for up to 90 days in a state in which his registration is still pending.

An employee quits her job where she has a balance of $10,000 in her employer-provided qualified plan. If she requests that the plan distribution is paid to her so that she can roll the proceeds into an IRA, how much will she receive from the plan administrator, and how long does she have to complete the tax-free rollover? a)$8,000, 30 days b)$8,000, 60 days c)$10,000, 30 days d)$10,000, 60 days

b) $8,000, 60 days Because the employee has requested a distribution check, there will be a 20% withholding, and the participant has 60 days to reinvest it in an IRA to qualify as a tax-free rollover. The full amount of $10,000 must be reinvested, or the withheld amount of 20% will be considered a taxable distribution.

If a stop order for a registration statement is issued by the Administrator, the registrant is entitled to have the matter set before a hearing within how many days of written request to the Administrator? a)5 days b)15 days c)30 days d)90 days

b) 15 days The registrant is allowed to have the matter set before a hearing within 15 days of written request to the Administrator

The Investment Company Act of 1940 states that a certain percentage of a mutual fund's board of directors be unaffiliated with the fund. This minimum percentage of unaffiliated members must be at least a)30%. b)40%. c)50%. d)60%.

b) 40% The board of directors is elected by fund shareholders and 40% of these board members must be unaffiliated with the fund. The remaining 60% may be employees, underwriters or advisers of the fund.

An investment adviser wants to conduct business in this state but is not yet registered. What is the maximum number of clients that the adviser can solicit during a 12-month period before registration will be required? a)0 b)5 c)10 d)15

b) 5 Investment advisers who have no place of business in the state and solicit no more than 5 retail clients in the state in a 12-month period are exempt from registration under the De Minimis rule.

The LRH Growth Fund has a net asset value (NAV) of $16.84 and a maximum offering price listed at $18.11. The maximum sales charge for this fund is a)6 1/2%. b)7%. c)7 1/2%. d)8 1/2%.

b) 7% To find the percentage of the sales charge for a fund, divide the amount of the sales charge ($18.11 - $16.84 = $1.27) by the offering price ($18.11). $1.27 divided by $18.11 equals a charge of 7%.

Sunny Sails is currently trading at 12.50-14.25. Sunny Sails is probably a)A load mutual fund. b)A regional OTC security. c)A limited partnership. d)An exchange-traded security.

b) A regional OTC security A thinly traded security, such as a small OTC security, typically has a wide spread between the bid and offer. Securities with a narrow spread are usually widely traded, most likely on an exchange or on NASDAQ. Limited partnerships are illiquid, are sold through a subscription agreement, and do not have a market quote expressed as a bid/ask. Mutual funds are purchased directly from the fund at the POP and are redeemed by the fund at the NAV.f

All of the following are examples of an offer, offer and sale, or sale of a security EXCEPT a)The sale of a convertible security. b)A security interest of a borrower pledged as collateral for a loan. c)The gift of an assessable security. d)A security given as a bonus in conjunction with the purchase of a security.

b) A security interest of a borrower pledged as collateral for a loan. The security interest of a borrower pledged as collateral for a loan is excluded from the definition of an offer or sale under the Act.

The SEC specifically requires which part of Form ADV to be written in "plain English"? a)ADV Part 1 b)ADV Part 2A c)Both Part 1 and Part 2 d)None of the above

b) ADV Part 2A Part 2A or a written brochure containing the information in Part 2A must be delivered to clients, and therefore must be written in narrative form in plain English.

When must an adviser become federally registered? a)All advisers must be registered on the federal level; state registration is optional. b)Advisers must be registered when assets exceed a certain amount. c)State registration is required, but federal registration becomes an option when assets exceed a certain amount. d)All advisers must be registered on both the state and federal levels.

b) Advisers must be registered when assets exceed a certain amount. Currently, advisers with assets in excess of $110 million are required to register at the federal level. Federal registration is the adviser's option when assets are between $100 milion and $110 million

A securities registration contains misstatements of material facts. All of the following may be held responsible for this violation of the Uniform Securities Act (USA) EXCEPT a)Directors of issuers. b)Agents. c)Underwriters. d)Issuers.

b) Agents Agents are not involved in securities registrations and therefore cannot be held responsible for this violation.

Which of the following is NOT considered a security? a)Mutual fund portfolio b)An endowment policy c)Commodity options contract d)Merchandise marketing scheme

b) An endowment policy Fixed life insurance contracts, including endowment policies, are not considered securities. Option contracts are always considered a security, and merchandise marketing schemes have been defined as a form of "investment contract," where money is invested in a common enterprise with expectation of profit primarily from the efforts of others.

Over the last several months, a registered representative (RR) has been encouraging a client to trade in several different securities in excess of the client's normal trading behaviors. In this situation, the RR's behavior would be considered a)A legitimate trade practice in the securities as long as B is recommending value stock. b)An illegitimate trade practice known as churning. c)An illegitimate trade practice known as switching. d)A legitimate trade practice based on current market conditions.

b) An illegitimate trade practice known as churning The RR is engaged in a trade violation known as churning. Having the client trade actively in the market when it doesn't meet the client's investment objective, financial ability, or the character of the account is not allowed SWITCHING IS TRANSFERRING FUNDS WHEREAS CHURNING IS SELLING AND BUYING

Anita received equal quarterly 25 cent dividends on her Kabob stock last year. In addition, her shares appreciated from $20 to $27. Which of the following is true? a)Anita will be taxed on $7.25 per share. b)Anita will be taxed on $1 per share. c)Anita will be taxed on $8 per share. d)If Anita participates in a DRIP, she will pay no taxes on the reinvested dividends.

b) Anita will be taxed on $1 per share She did not take a distribution yet so it is just her dividends that are taxed

Employer contributions made to a qualified plan a)Are taxable as salary. b)Are subject to vesting requirements. c)Are taxable for employees above certain income levels. d)Have no vesting requirement.

b) Are subject to vesting requirements Qualified plans must have a vesting requirement. Vesting is when the employee actually has ownership interest in the plan.

To reduce a client's exposure to systematic risk in his stock portfolio, an adviser should consider which of the following? a)Price/earnings ratios b)Beta c)Diversification d)Standard & Poor's and Moody's ratings

b) Beta Beta is a measure of a portfolio's volatility as compared to the volatility of the overall market. Since systematic risk is risk associated with the overall market, lowering the client's beta relative to that of the market should lower his or her exposure to market risk. Diversification, safety ratings, and price/earnings ratios should be considered when evaluating unsystematic risk, which is the risk associated with a particular issuer's securities.

When a customer sells stock to a broker/dealer and the broker/dealer is purchasing for its own account, what price will the customer get for the stock? a)Ask price plus commission b)Bid price less the mark-down c)Ask price d)Bid price

b) Bid price less the mark-down Market makers enter bid and ask prices into the system. The ask price is the lowest price that any dealer will sell the stock at. The bid price is the most that any dealer is willing to buy the stock at. The only two numbers that really matter are the lowest ask and the highest bid. If the customer is going to sell the stock, what price will the customer get? The customer will get the bid price minus the mark-down. This makes sense since the bid is the most a dealer will buy at. When the broker/dealer is acting as an agent, they charge a commission. When the broker/dealer is acting as a principal, they charge a markup or markdown.

Minimum net worth may be required for registration of a)Investment adviser reps only. b)Broker/dealers and investment advisers. c)Broker/dealers and agents only. d)Investment advisers only.

b) Broker/dealers and investment advisers Minimum net worth may be required of broker/dealers and investment advisers.

A 501(c)(3) company would be eligible for which type of retirement plan? a)Keogh b)SEP-IRA c)401(k) d)403(b)

d) 403(b) 501(c)(3) describe public schools and nonprofits 403(b) of the IRC (Internal Revenue Code) describes tax-sheltered annuities that are available for public school employees and employees of nonprofit organizations.

All of the following are characteristics of Reverse Convertible Bonds EXCEPT a)Short-term. b)Capital appreciation. c)Being tied to the performance of an unrelated security or index. d)High yield.

b) Capital appreciation Investors in Reverse Convertible Bonds do not participate in the capital appreciation of the underlying security. If the security maintains its value or appreciates, they receive the original principle at maturity.

Which of the following is correct with regard to the withdrawal of funds from a tax-qualified retirement plan? a)All early withdrawals are subject to a penalty. b)Contributions can be deducted from that year's taxable income. c)The employee will be taxed at the ordinary income rate on his cost basis. d)Funds may be withdrawn at retirement tax free.

b) Contributions can be deducted from that year's taxable income Cost basis has already been taxed and will not be taxed again upon withdrawal. I don't know why this question asks about withdrawals from the plan but then the answer is about contributions but remember this bull shit because you've missed it 30 times now

Which process allows for simultaneous registration of a security under federal and state requirements? a)Qualification b)Coordination c)Filing d)Notification

b) Coordination Simultaneous registration at federal and state level is permitted under coordination.

A married couple who both recently retired now live off Social Security and interest from a $75,000 CD. They also have a $25,000 CD that is reaching maturity and are trying to decide whether to reinvest these funds in a 6% corporate bond or a 4% municipal bond. Without knowing their tax bracket, the investment adviser representative should advise them to reinvest in which of the following products? a)Another bank's CD even though the interest will be taxable b)Corporate bond because it will have a higher after-tax yield c)Shares of a diversified, growth-oriented, equity mutual fund d)Municipal bond since the interest is tax free

b) Corporate bond because it will have a higher after-tax yield Of the choices shown, the corporate bond is the most suitable since the retired couple is most likely in a relatively low tax bracket. Growth funds are most suitable for younger clients with longer time horizons. Municipal bonds are most suitable for investors in high tax brackets.

The safekeeping of an investment company's cash and securities is the responsibility of the fund's a)Investment adviser. b)Custodian. c)Transfer agent. d)Board of directors.

b) Custodian The custodian holds the assets of the company but does not perform any management or supervisory activities

What types of securities would a mutual fund called Westgo Fixed Income Fund be likely to hold in its portfolio? a)An array of bonds and common stocks b)Debt securities and preferred stocks c)Debt securities only d)Treasury bills and commercial paper only

b) Debt securities and preferred stocks Fixed income securities are those with a specific consistent yield such as debt securities and preferred stocks. They generally hold both short- and long-term fixed income securities, but no common stocks since common stocks pose the risk of a loss of principal. A money market fund would hold treasury bills and commercial paper

Which of the following is FALSE regarding ETNs? a)Principal and interest are not guaranteed. b)ETNs pay periodic interest. c)An ETN's return is based on a market index. d)The investor may hold until maturity or trade on an exchange.

b) ETNs pay periodic interest

A customer's initial deposit into a margin account is known as the customer's a)Credit balance. b)Equity. c)Maintenance margin. d)Debit balance.

b) Equity A customer's initial deposit into a margin account is known as his or her equity. If it is a long margin account, the debit balance represents how much money the client has borrowed from the broker/dealer to buy the stock. If it is a short margin account, the credit balance is comprised of the short sale proceeds plus the regulation T deposit.

An investor fears a coming inflation trend, and wants to protect his portfolio. He would probably choose a a)High yield bond fund b)Gold fund c)Blue chip fund d)Money market fund

b) Gold fund Precious metals funds are used as protection against inflation. Bond funds suffer during inflationary periods because of rising interest rates.

All of the following are entitled to safe harbor under ERISA Section 404(c) EXCEPT a)Mutual fund shares. b)High-yield bonds. c)Preferred stocks d)Investment-grade bonds.

b) High yield bonds Section 404(c) of ERISA refers to the fiduciary responsibilities of 401(k) plan trustees. Section 404(c) states that trustees must allow plan participants a choice of at least three investment alternatives, all of which must be suitable for retirement planning. High-yield bonds (also known as junk bonds) are low rated, high-risk bonds that are unsuitable for retirement plans. The term safe harbor simply means that trustees can relieve themselves from the fiduciary liability related to investment decisions made by employees if the employees have a minimum of three suitable investment choices available to them. Safe harbor provisions also require that the plan participants be educated regarding their choices and be allowed to change their investment allocations at least quarterly.

Under the Uniform Securities Act, the Administrator may do all of the following EXCEPT a)Issue a cease and desist order without a prior hearing. b)Hold a witness in contempt of court for failure to appear. c)Revoke a previously allowed exemption. d)Issue a stop order to revoke the effectiveness of a registration statement.

b) Hold a witness in contempt of court for failure to appear. The Administrator has broad powers, including the issuance of stop orders, cease and desist orders, and the revocation of previously allowed exemptions. For example, the state's private placement rule states that new securities sold privately are exempt transactions if no more than 10 offers are made. If the issuer makes 11 offers, the Administrator could revoke the exemption. However, only a judge can hold a witness in contempt.

An engineering report would be used for which of the following? a)General obligation bond b)Hospital revenue bond c)School bond d)Project note

b) Hospital revenue bond An engineering report or feasibility study would only be used in the analysis of a municipal revenue bond issue. School bonds, general obligation bonds, and project notes do not require feasibility studies.

Maximum civil and criminal penalties for an individual for insider trading violations are a)$10,000 and/or 5 years imprisonment. b)$200,000 and/or 30 years imprisonment. c)$1,000,000 and or/15 years imprisonment. d)$5,000,000 and/or 20 years imprisonment.

d) $5,000,000 and/or 20 years imprisonment Maximum civil penalties are limited to three times the amount of the gain or loss avoided. Maximum criminal penalties are limited to $5,000,000 and/or 20 years imprisonment.

A sales breakpoint for a mutual fund sale is available to I. An individual account holder. II. A custodian and his minor child. III. Two sisters owning a joint account. IV. An investment club. a)I only b)I and II c)II and III d)III and IV

b) I and II Sales breakpoints are available to individuals, custodian accounts for minor children, joint accounts with spouse and dependents, and trustees for corporate pension plans. Other joint accounts, investment clubs and partnerships are not eligible accounts for breakpoint sales.

The Administrator may do which of the following? I. Issue subpoenas; II. Issue orders; III. Issue injunctions; IV. Levy criminal penalties a)I only b)I & II c)I, II & III d)I, II, III & IV

b) I and II The Administrator has broad powers but only a court of law can issue injunctions and levy criminal penalties. However, the Administrator may issue subpoenas and has order-making (or rulemaking) powers.

Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client: I. If the Administrator has not prohibited this practice II. If the investment adviser has notified the Administrator that they have custody III. As long as the adviser does not also have discretionary authority over the account a)III only b)I & II c)I & III d)II & III

b) I and II The Administrator may prohibit advisers from having custody of client securities or funds. If no such prohibition applies, the Administrator must be notified in writing if the adviser has custody. However, custody has nothing to do with investment discretion.

Concerning minimum net worth requirements, which of the following is true? I. They are generally required when a broker/dealer may have custody of client assets or discretion over their accounts. II. A deposit of cash or securities may be accepted in lieu of the net capital requirement. III. Net capital requirements are normally higher for investment advisers who have custody of client assets. a)I and II b)I and III c)II and III d)I, II and III

b) I and III An appropriate deposit of cash or securities may be accepted in lieu of a surety bond but does not satisfy the net worth requirement.

As part of the registration process, the Administrator may I. Require the issue to file quarterly reports on the progress of the offering. II. Inspect the facility of the issuer. III. Require that a prospectus be sent to each person to whom an offer or sale is made. IV. Require a list of all investors. a)I and II b)I and III c)II and IV d)III and IV

b) I and III The administrator does not inspect issuer facilities, nor does it require a list of all investors, which does not exist at the time of the registration process.

b) I and III The position is a debit put spread. Debit profits from the exercise and premiums widening

A person in violation of the Uniform Securities Act (USA) is subject to I. State anti-fraud provisions. II Federal anti-fraud provisions III common law deceit provisions. IV. Federal civil provisions

b) I and III USA violations are STATE REGULATED and a person is subject to state and common law deceit provisions. State law is distinct from federal law; therefore, the person is not subject to federal anti-fraud provisions unless a federal law was also broken with the violation

Which of the following would help an adviser assess an investor's experience level? I. Current holdings II. Birthdate III. Employer-sponsored plan IV. Education level a)I and III b)I and IV c)II and III d)II and IV

b) I and IV Advisers should question clients on such topics as their education levels, economic background, prior investment exposure and current holdings to assess their experience level.

Which of the following features describe(s) mutual funds as investment vehicles? I. Professional money management; II. Easy to invest; III. Diversification a)II & III b)I, II & III c)I & III d)III only

b) I, II and III Mutual funds are popular for many reasons. Mutual funds are easy to invest in, investors do not have to know what stocks to pick because funds have a professional money manager, and they offer a broad exposure to a diverse portfolio of securities.

Which of the following would be exempt from registration under the Uniform Securities Act? I. Government securities; II. Common stock of a national bank; III. Debt issue of Montreal, Canada; IV. Security listed on the New York Stock Exchange. a)III & IV b)I, II, III & IV c)I & II d)I, II & III

b) I, II, III and IV All of the securities listed are considered exempt under the Uniform Securities Act.

Which of the following securities are exempt from registration requirements under the Uniform Securities Act? I. Investment contract issued in connection with an employee pension plan; II. Securities issued by a church in Chicago, Illinois; III. Securities issued by a public utility; IV. Securities issued by the provincial government of Vancouver, Canada. a)II & IV b)I, II, III & IV c)I, II & III d)I & III

b) I, II, III and IV All of the securities listed are exempt from registration under the Uniform Securities Act. For exam purposes, it is very important to know the difference between an exempt security and a nonexempt security.

Which of the following intentional acts by an agent are deemed fraudulent? I. Unintentionally omitting a material fact; II. Representing a bond yield as 7% when the actual yield is 0.7%; III. Paying an investment adviser a percentage of the commission on a client's account; IV. Committing an oversight on a trade execution a)I and III b)II and III c)II and IV d)I and II

b) II and III Fraudulent acts are intentional, not accidental. The sharing of commissions with an investment adviser is allowable if disclosed to the customer, but the issue of disclosure was not presented in the question.

Under NASAA's Model Regulations for Investment Advisers and Federal Covered Advisers, requirements of advisory contracts include which of the following? I. They must be printed in at least 8-point type. II. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. III. They must prohibit assignment of the contract without the client's consent. a)I & III only b)II & III only c)I, II & III d)I & II only

b) II and III only There is no requirement that advisory contracts be printed in a particular type size. Advisory contracts must describe the amount of any prepaid fee that will be returned to the client if the contract is terminated and must prohibit assignment without the client's consent. Contracts must also describe the fee or the formula for computing the fee.

With regard to the Investment Advisers Act of 1940, which of the following persons does NOT have to register as an investment adviser? I. Broker/dealer who gives advice and charges a specific fee for that advice; II. Agent of a broker/dealer who gives investment advice within the course of his duties and charges a fee for that advice; III. Broker/dealer who gives investment advice that is incidental to the course of their business; IV. Attorney who writes a legal opinion for a municipal bond. a)III only b)III & IV c)I, II, III & IV d)I, II & IV

b) III and IV The key phrase is "charge a fee" for the advice. Remember, attorneys are exempt from the definition of an investment adviser.

Which Administrator has jurisdiction if a violation of the Act has occurred? I. The state where the customer resides; II. The state where the agent's office is located; III. The state where the transaction occurred, regardless of where the customer resides or where the agent is registered a)II and III b)III only c)I and II d)I and III

b) III only An administrator has jurisdiction over any transaction that has occurred in his state

An investment adviser representative needs to borrow some money for a business venture she wants to invest in. Which of the following customers could she borrow from? I. An established customer with whom the agent has been doing business for at least one year; II. Any accredited investor; III. A lending institution; IV. Borrowing from customers is always prohibited. a)I & II b)III only c)IV only d)I, II & IV

b) III only You've probably gotten to this portion of the quizlet and have been asked this question about 100 times in different ways and are about to give up because every answer is different, but these are all true and you gotta just try and remember. Heres the explanation: under NASAA's Model Regulations for Investment Advisers and Federal Covered Advisers, an adviser may not borrow money or securities from a client unless the client is a broker/dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds. An accredited investor is a person or organization that exceeds certain levels of net worth, financial knowledge, and investment experience. Advisers may not borrow from customers who are accredited investors unless they are broker/dealers, affiliates of the adviser, or financial institutions in the business of loaning funds.

Which of the following will include a company's gross margin? a)Form 10K b)Income statement c)Statement of cash flow d)Balance sheet

b) Income statement Gross margin is total revenue minus cost of goods sold. These items are found on a company's income statement.

An investor bought a newly issued 5% bond with a 20-year maturity at par. Although interest rates have risen in the economy since the bond was purchased, the investor decides to hold the bond to maturity. When he redeems it at par, what risk has the investor had? a)Business b)Inflation c)Market d)Interest rate

b) Inflation A bond held to maturity and redeemed at par has no interest rate risk. However, since bonds have a fixed, stated nominal rate of return, the investor has to worry that the rate of inflation in the economy will be greater than the fixed rate of return on the bond, which is also known as purchasing power or inflation risk.

A corporation is issuing additional shares of stock through an APO (additional public offering). Which of the following would not be affected? a)Earnings per share b)Interest owed c)Outstanding shares d)Working capital

b) Interest owed Working capital would increase because of cash receipts from the stock sale. EPs would decline because earnings are now dividend among a greater number of outstanding shares.

The rate at which net inflows equals net outflows is known as a)Expected return. b)Internal rate of return. c)Duration. d)Net present value.

b) Internal rate of return Net present value is calculated as a dollar figure and the internal rate of return (IRR) is always calculated as a discount rate. When the net present values of cash outflows (the cost of the investment) and cash inflows (the returns on the investment) equal zero, the rate of discount being used is the IRR. When the IRR is greater than the required return, the investment is acceptable.

Ameri-Can Securities is an investment adviser firm that has 20 registered investment adviser representatives. The office administrator was recently archiving some of the older client files to allow easier access to current ones. Which of the following is true? a)Accounting records, financial statements, order tickets must be kept for 3 years, but customer account files, correspondences and other such records must be kept for at least 5 years. b)Investment advisers must keep records on file for a period of at least 5 years. c)Only the inactive client files with associated documentation inside may be discarded after a three-year period. d)Accounting records, financial statements, order tickets, customer account files, correspondences and other such records must be kept on file for a period of no more than 3 years.

b) Investment advisers must keep records on file for a period of at least 5 years. The records required for broker/dealers are different than those for investment advisers. For broker/dealers, accounting records, financial statements, order tickets, customer account files, correspondences and other such records must be kept on file for a period of at least 3 years. Investment advisers must keep records on file for a period of at least 5 years.

Which of the following best defines treasury stock? a)Nondividend paying shares, issued and outstanding b)Issued shares minus outstanding shares c)Authorized shares minus outstanding shares d)Nonvoting shares, authorized and issued

b) Issued shares minus outstanding shares Treasury stock was previously outstanding. It has been bought back by the corporation and placed in the corporate treasury. Total shares issued minus shares currently outstanding equals the number of shares bought back by the corporation.

Under the Investment Advisers Act of 1940, which of the following is true about the use of the term investment counsel by investment advisers? a)Advisers may use the term without restriction as long as they are registered. b)It is allowed only if the adviser's principal business is acting as an investment adviser and a substantial part of business consists of providing continuous advice. c)The use of the term is prohibited under any circumstances. d)Advisers may use the term only if they are attorneys.

b) It is allowed only if the adviser's principal business is acting as an investment adviser and a substantial part of business consists of providing continuous advice Advisers may use the term investment counsel only if giving investment advice is their principal business and a substantial part of their business is providing investment services.

Under the Investment Company Act of 1940, which of the following is false regarding a mutual fund's contract with its investment adviser? a)It must be approved by a majority of the outstanding shares. b)It may not be terminated except with the approval of a majority of the outstanding shares. c)It must describe the adviser's compensation. d)It must be in writing.

b) It may not be terminated except with the approval of a majority of the outstanding shares. The question asks for the false answer. A fund's agreement with its investment adviser must be in writing, must be approved by a majority of the outstanding shares, and must describe the adviser's compensation. The contract must also provide for termination by the Board of Directors without a vote of the outstanding shares.

If a person wants to set up a business, but doesn't want others to be able to access his or her personal financial statements, he or she would most likely set up which of the following? a)Limited partnership b)LLC c)Sole proprietorship d)General partnership

b) LLC The sole proprietorship, general partnership, and limited partnership are all flow-through tax entities. This means that in each of these three types of business organizations, the business's income and expenses will be reported on the owner's individual tax returns. A limited liability company (LLC) must choose how it is taxed. It can be taxed as a sole proprietorship, an S corporation, or a C corporation.

Owners of all of the following types of companies have limited liability EXCEPT a)C corporations. b)Limited partnerships. c)S corporations. d)Limited liability companies (LLCs).

b) Limited partnerships Limited partners in a limited partnership have liability that is generally limited to the amount they invested. However, due to their active role in management, the general partners in a limited partnership have unlimited liability. Remember, to form a limited partnership, there must be at least one general partner and one limited partner. However, stockholders in both C and S corporations and owners of LLCs have limited liability.

In a custodian account, the responsibility for tax liabilities from dividends, interest income, and capital gains belongs to the a)Custodian. b)Minor. c)Minor's parents or guardians. d)All of the above.

b) Minor Tax liabilities belong to the minor in a custodian account.

An investor seeks a fund that will provide regular income. His best choice is a a)Income fund. b)Mortgage-backed security fund. c)Government bond fund. d)Money market fund.

b) Mortgage-backed security fund Because the mortgage-backed securities fund pays monthly principal and interest, it provides the best regular income

Which type of investment vehicle is least suitable for an IRA? a)T-bills b)Municipal bonds c)Zero-coupon bonds d)Stock

b) Municipal bonds Although contributions to IRAs are not always tax deductible, IRA account earnings always accumulate on a tax-deferred basis. Since municipal bonds have low yields because their interest is already federal tax free, they are probably the least suitable IRA funding vehicle. Investors should fund their IRAs with higher yielding taxable investments.

A husband and wife are the grantors and trustees of a revocable trust. If the husband dies, the securities held in the trust a)Will go to the surviving spouse under the marital exemption. b)Must stay in the trust for the benefit of the beneficiaries. c)Will be distributed in accordance with the trust agreement. d)Must be sold with the proceeds distributed to the beneficiaries.

b) Must stay in the trust for the benefit of the beneficiaries A revocable trust is a type of living trust since a grantor who is still living has the power to change or revoke the trust. Since only one of the grantors has died, the securities in the trust must remain in the trust for the benefit of the beneficiaries unless the remaining grantor changes or revokes the trust.

A magazine published in New York contains an offer to sell a security. The magazine is also circulated in Pennsylvania. The offer to sell would come under the Act in which state? a)Pennsylvania b)New York c)Both d)All states

b) New York Jurisdiction for an offer to sell a security falls under the state where the media is published, even if the circulation is distributed to other states

Under the Uniform Securities Act, broker/dealer firms seeking to register in this state must disclose which of the following? a)All misdemeanors b)Orders issued by other states c)The credit history of all its officers and directors d)The complete background information on all its employees, regardless of job classification

b) Orders issued by other states To register in this state, broker/dealer firms must file Form B/D with the Administrator. This form requires the broker/dealer to list the firm's officers and directors and their backgrounds, but it does not require their credit history or the backgrounds of other employees. Misdemeanors need only be disclosed if they involve the securities, investment, banking, or insurance business and occurred within the past 10 years. However, all administrative orders issued against the firm or its officers and directors by Administrators in other states must be disclosed.

Which of the following is NOT an exempt security under the USA? a)Bond issued by Reading Railroad b)Over-the-counter stock c)AT&T stock d)Security issued by Providian life insurance

b) Over-the-counter stock Stock traded over the counter needs to be registered

If parents want to invest in a mutual fund for a child prior to December 31, the least important thing to consider would be the a)Pending change of investment adviser. b)Potential that the fund may close. c)Expense ratio. d)Undistributed capital gains.

b) Potential that the fund may close Large open-end mutual funds sometime close; that is, they temporarily stop issuing new shares for a period of time in order to re-evaluate their portfolio. Since open-end funds continuously offer new shares, they sometime grow so large that they are hard to effectively manage. In this situation, however, the potential that the fund may close to additional investors in the future would be of the least concern. All of the other options would be items of consideration.

All of the following are true about U.S. government Treasury bills EXCEPT a)They are sold at a discount. b)The interest they earn is taxed at the state level. c)The interest they earn is taxed at the federal level. d)They are money market instruments.

b) The interest they earn is taxed at the state level For this question, it helps to remember the saying, "They tax themselves but not each other." The interest that is paid by U.S. government securities is taxable at the federal level but is tax free at the state level. With a municipal bond, the interest is taxable at the state level but tax free at the federal level.

XYZ Corporation chose to invest in the preferred stock rather than the bonds of LMN Corporation, even though the bonds returned a higher yield than the preferred. Which of the following is the most likely reason for this preference? a)XYZ is contemplating a takeover bid for LMN Corporation. b)Preferred stock dividends receive the 70% tax exclusion. c)Preferred stock is senior to the bonds. d)Corporations are prohibited from holding the bonds of other corporations.

b) Preferred stock dividends receive the 70% tax exclusion A corporation can own the bonds of another corporation. If XYZ is contemplating a takeover bid for LMN Corporation, it would be more interested in purchasing the votable common stock of that corporation. Preferred stock is junior to bonds. The objective of XYZ Corporation is most likely to take advantage of the 70% exclusion on all dividends it receives from holding preferred stock in another domestic corporation. Only 30% of such dividends are taxable.

Which of the following is NOT correct regarding 529 plans? a)They allow for an accelerated gift per donor. b)Qualified withdrawals are taxed as ordinary income. c)Rules and provisions may vary by state. d)Contributions grow tax deferred.

b) Qualified withdrawals are taxed as ordinary income Qualified withdrawals are not taxed as ordinary income. Rather, withdrawals are tax-free when used for qualified education expenses. 529 plans are state-specific, and some rules may vary. Most plans allow for a 5-year "accelerated gift" equal to five times the allowable annual amount per donor with no gift tax liability if no other contributions are made for 5 years. This amount increases periodically for inflation. Contributions grow tax-deferred.

An issuer may use which registration method if the same offering is registered simultaneously with the SEC under the Securities Act of 1933? a)Registration by coordination b)Registration by qualification c)Registration by filing d)Registration by notification

b) Registration by coordination

Which of the following would be a credit toward the U.S. balance of payments? a)An increase in foreign loans b)Repayment of debt by foreign borrowers c)A decrease in services provided overseas d)An increase in imports over exports

b) Repayment of debt by foreign borrowers The U.S. balance of payments system records all of the country's economic transactions with the rest of the world during a particular time period by using a system of debits and credits to help the country evaluate its competitive strengths and weaknesses and forecast the strength of its currency. Any transaction that causes money to flow into a country is a credit to its balance of payments account and any transaction that causes money to flow out is a debit.

Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker/Dealers and Agents, broker/dealer firms may do which of the following? a)Withhold securities allotted for distribution from the public b)Segregate a customers' securities held in safekeeping c)Trade ahead of customers' orders d)Execute transactions on behalf of a customer without their authorization

b) Segregate a customers' securities held in safekeeping Customers often leave their fully paid securities in the custody of their broker/dealer in order to facilitate frequent trading. Although these securities are usually registered in street name (the name of the firm), they must be segregated from the securities that are actually owned by the firm. Broker/dealer firms may charge a reasonable custodial fee for custody and safekeeping.

Which of the following is not affected by the sale of debentures? a)Working capital b)Shareholders' equity c)Total assets d)Liabilities

b) Shareholders' equity Receipt of cash from sale of bonds increases assets, working capital (current assets vs. current liabilities), and liabilities. There is no effect on a shareholder's equity.

The sale of a security to an insurance company is called a)Dealer exemption. b)Sophisticated investor exemption. c)Insurance exemption. d)Qualified exemption.

b) Sophisticated Investor exemption Among exempt transactions are those offerings directed to insurance companies; these transactions are considered institutional transactions and fall under exemptions available to sophisticated or accredited investors.

The term that can be used to describe the risk where all securities tend to act in the same manner is known as a)Financial risk. b)Systematic risk. c)Nonsystematic risk. d)Overall risk.

b) Systematic risk Systematic risk is risk that is common to all securities of the same general class and therefore cannot be avoided by diversification. It is also known as market risk. The measure of systematic risk in stocks is the beta coefficient. Nonsystematic risk (or unsystematic risk) is the risk associated with a particular security and can be reduced by diversification.

Which of the following is the most secure? a)IDR b)TAN c)Double-barreled d)Moral Obligation

b) TAN A TAN (Tax Anticipation Note) is GO, anticipates property tax proceeds, and is short-term. It is the safest of the Muni notes.

An investor sells stock in her IRA at $28 per share. She bought this security at $22 13 months ago. She will be a)Taxed at capital gains rates upon withdrawal. b)Taxed at ordinary income rates upon withdrawal. c)Exempt from tax upon withdrawal if she is at least 59½. d)Taxed at ordinary income tax rates.

b) Taxed at ordinary income rates upon withdrawal Its a traditional IRA and capital gains and such are deferred until withdrawal

Which of the following would NOT be acceptable? a)Explaining to a customer that if a certain amount is invested, the customer will have a reduced sales charge b)Telling a client that waivers are enforceable in court c)Disclosing to a client the impaired financial condition of a state registered firm if it requires pre-payment of advisory fees of more than $500 d)Disclosing when the broker/dealer is under common control of the issuer

b) Telling a client that waivers are enforceable in court Waivers are not enforceable in court. It is required to disclose to the client when the broker/dealer is under common control of the issuer. It is also acceptable to explain to a client that if a certain amount is invested, then the client will be subject to a reduced sales charge. It is also required that the investment adviser disclose to a client the impaired financial condition of the firm any time a state registered firm requires pre-payment of advisory fees of more than $500.

A grantor sets up a revocable trust but allows his spouse to withdraw funds. These funds would be taxable to a)No one. b)The grantor. c)The trustee. d)The spouse.

b) The grantor A grantor who retains certain interests in a trust he or she creates may be treated as the owner of all or part of the trust and thus taxed on the income of the trust in proportion to the ownership. If the trust income is distributed or held for the benefit of the grantor or the spouse, he or she will be treated as the owner of it and will be taxed accordingly.

Gross domestic product is defined as a)The market value of a market basket of goods produced in the USA. b)The market value of the goods and services produced by labor and property within a country's borders. c)The income from all goods and services sold in the USA. d)The difference between total imports and total exports for the USA.

b) The market value of the goods and services produced by labor and property within a country's borders Gross domestic product is a measure of total national output of goods and services.

If a securities trade is in violation of the Uniform Securities Act, who has the option to void the transaction? a)The Administrator b)The purchaser c)The seller d)Any of the above

b) The purchaser A transaction that is in violation of the Act is voidable at the discretion of the purchaser.

Which of the following is false regarding coupon bonds? a)They are traded in the secondary market. b)They are book entry. c)They are in bearer form. d)They have an attached coupon for each interest payment.

b) They are book entry Coupon (bearer) bonds are not book entry but are issued in the form of paper certificates. They are no longer issued in the U.S. but continue to trade in the secondary market.

Which of the following is false regarding an international fund? a)They help diversify a domestic portfolio. b)They are good funds to start an investment portfolio. c)International funds expose the investor to currency risk. d)They carry foreign legislative risk.

b) They are good funds to start an investment portfolio IT IS ASKING WHAT IS FALSE

Which of the following statements is FALSE with respect to value mutual funds? a)They tend to under-perform during a general market advance. b)They hold growth stocks and bonds that are deemed to be undervalued in price. c)They tend to out-perform the overall market in a general market decline. d)They utilize a "buy and hold" strategy for the underlying securities.

b) They hold growth stocks and bonds that are deemed to be undervalued in price Value funds primarily hold value stocks that are deemed to be undervalued in price for any number of reasons and thus have significant upside potential. However these funds do not hold bonds.

b) They hold growth stocks and bonds that are deemed to be undervalued in price. Value funds primarily hold value stocks that are deemed to be undervalued in price for any number of reasons and thus have significant upside potential. However these funds do not hold bonds.

Shares of a closed-end mutual fund a)Always sell for a price above NAV. b)Trade on exchanges at a price unrelated to NAV. c)Are redeemable. d)Are only sold in the primary market.

b) Trade on exchanges at a price unrelated to NAV. Shares of closed-end mutual funds are marketable, meaning that they trade in the secondary market either on exchanges or over the counter. Although NAV is calculated the same way as an open-end fund, prices in the secondary market are set by supply and demand; therefore, closed-end shares may sell at market prices that are either above or below their actual net asset value. Remember, shares of open-end funds never sell below their NAV.

Under the Investment Company Act of 1940, an investment company that buys and holds a fixed portfolio of securities, usually bonds, and charges no management fee is a a)Face amount certificate company. b)Unit investment trust (UIT). c)Management company. d)Real estate investment trust (REIT).

b) Unit investment trust (UIT) A UIT is an investment company, but it is not a mutual fund or management company; therefore, there is no management fee. UITs are often formed by brokerage firms who form a trust and appoint themselves as the trustee. The trust buys a fixed portfolio of bonds, which are broken into units (like shares) and sold to investors. Since there is no management fee, a UIT may have lower expenses than would a bond mutual fund that actively manages its portfolio.

All of the following are exempt securities EXCEPT a)Stock issued by an insurance company. b)Units of a real estate investment trust (REIT). c)Federal covered securities. d)Municipal bonds.

b) Units of a real estate investment trust (REIT) You know this, exempt securities are government backed. Units (shares) of a REIT are considered to be nonexempt securities and must be registered with the Administrator.

The Administrator may issue a cease and desist order against a person without providing the opportunity for a hearing a)Only in cases of fraud or other felony offenses. b)When the Administrator determines that a person has or is about to commit a violation of the Act. c)Only when a court-ordered injunction or restraining order has been violated. d)Never. When requested, an opportunity for a hearing must always be provided.

b) When the Administrator determines that a person has or is about to commit a violation of the Act. If the Administrator determines that a person has or is about to commit a violation of any provision of the Act, he or she can issue a cease and desist order without providing the opportunity for a hearing.

A client buys a BAT July 40 put and sells a BAT April 40 put. The client would profit if this spread position a)Expires. b)Widens. c)Narrows, then widens. d)Narrows.

b) Widens The option position is a calendar or horizontal spread. As in all spreads, one option leg is important and is netted against the other, less important leg. July has more time value than April. The April leg was sold. The spread is debit. *DEBIT SPREADS BENEFIT FROM PREMIUM WIDENING*

The death benefits of whole life policies: a) will fluctuate with changes in the cash accumulation account b) Are reduced by any outstanding loans c) Increase with the cost of living index d) all of the above

b) are reduced by any outstanding loans

A customer who purchase a variable annuity does not assume which of the following risks? a) political b) mortality c) interest rate d) investment

b) mortality The insurance company bears the mortality risk, since it guarantees payment for the life of the annuitant

An agent originates a fraudulent transaction in Florida with an offer directed to a client in Arizona. The client is traveling in California when he accepts the offer. Which Administrator(s) have authority over the transaction? a)California and Florida b)Florida and Arizona c)Florida, California, and Arizona d)California

c) Florida, California, and Arizona All of the administrators have authority over the transaciton since each state's jurisdiction was invovled with an element of the transaction

If interest rates in the economy go down, which of the following is true regarding outstanding bonds? a)The current yield will be higher than the nominal yield. b)The yield to maturity will be lower than the nominal yield. c)The current yield will be the same as the nominal yield. d)The yield to maturity will be higher than the nominal yield.

b) the yield to maturity will be lower than the nominal yield Think about this question in terms of what happens to bond prices when interest rates change. They go up if interest rate goes down. If interest rates in the economy go down, bond prices will go up in the secondary market. This causes their yields to go down. On a premium bond (one selling for more than par), the yield to maturity will be lower than both the current yield and the nominal yield.

A corporation has a $4 million profit. The corporation is in the 34% tax bracket. What is post-dilutive EPS? Common stock: 1,000,000 shares ($10 par) = $10,000,000; 5% preferred: 50,000 shares (100 par) = 5,000,000; 7% debentures: 5,000 bonds ($1,000 par convertible at $10) = $5,000,000 a)$2.41 b)$1.44 c)$1.59 d)$2.16

c) $1.59 The convertible bonds all converted ($5,000,000/$10 = 500,000 shares of common). More shares are created, but interest cannot be deducted. Therefore, taxable earnings increase and net income also increases; however, because the number of shares outstanding goes up, the earnings-per-share goes down or dilutes. $4,000,000 (profit) X .66 (converse of 34% tax) = $2,640,000 (post-tax profit) minus $250,000 (preferred dividends) = $2,390,000 earnings divided by 1,500,000 shares = $1.59 EPS.

A 60-year-old client has been making annual contributions to a traditional IRA over a period of years. The account value is now $200,000, which represents $50,000 in nondeductible contributions, $50,000 in deductible contributions, and $100,000 in earnings. If she withdraws $100,000 from the account, the tax treatment will be a)All taxable as ordinary income. b)Nontaxable. c)$25,000 nontaxable, $75,000 taxable as ordinary income. d)$50,000 nontaxable, $50,000 taxable as ordinary income.

c) $25,000 nontaxable, $75,000 taxable as ordinary income Since when can you make nondeductible contributions to a trad IRA. Heres the book's explanation: If the client had funded the IRA entirely with deductible contributions, the cost basis would be zero and 100% of any distribution would be taxable as ordinary income. If the IRA was funded entirely with nondeductible contributions, only the earnings would be taxable upon distribution. Since she funded it with both in this case, the withdrawal is taxed proportionately.

A 55-year-old invested $10,000 in a nonqualified annuity several years ago. Due to earnings in the account, the balance is now $25,000. If she withdraws $5,000 in cash, what are the tax implications? a)$5,000 will be taxable as long-term capital gain b)$5,000 will be taxable as ordinary income. c)$5,000 will be taxable as ordinary income in addition to a $500 IRS penalty. d)None, since this amount is below the $10,000 cost basis.

c) $5,000 will be taxable as ordinary income in addition to a $500 IRS penalty. Tax rules state that the partial withdrawal of annuity funds is taxed as interest first and principal last. Although the $5,000 withdrawal is less than the cost basis, the entire $5,000 is taxable as ordinary income and is subject to the IRS 10% premature distribution penalty since she is less than age 59 ½.

A company has income of $1,000. If its net profit was $100 and its recorded taxes were $50, what is its margin? a)5% b)10% c)15% d)20%

c) 15% This question is sneaky, its net profit which is measured after taxes, which in this case would be $100. However, since taxes were paid in the amount of $50, the margin of profit would be $150, or 15%

After ceasing operations, an Investment Adviser must maintain a surety bond for a)90 days. b)1 year. c)3 years. d)5 years.

c) 3 years An IA must maintain a surety bond for 3 years after it ceases operations

Voluntary withdrawal of registration normally becomes effective a)24 hours after the withdrawal request is received by the Administrator. b)5 business days after the request has been filed unless an action is pending. c)30 days after filing date or a shorter period as the Administrator may determine. d)On Dec. 31 of the year after the withdrawal request is filed.

c) 30 days after filing date or a shorter period as the Administrator may determine

Under the USA, when do registrations of persons become effective? a)Within 90 days of the application for registration b)Immediately after the filing date c)30 days from the filing date d)January 1st of the year the registration was filed

c) 30 days from the filing date Registrations under the Uniform Securities Act become effective 30 days from the filing date. If an amendment to the application is filed, the effective date is 30 days from the filing date of the amendment.

Retirement account rollovers must be completed within a)20 days. b)30 days. c)60 days. d)90 days.

c) 60 days Rollovers are subject to 20% withholding and must be completed within 60 days, or they are classified as permanent withdrawals, and income taxes apply. Only one rollover per year is permitted. There is no annual limit on custodian-to-custodian transfers.

Estate taxes are due within how many months after death? a)3 months b)6 months c)9 months d)12 months

c) 9 months Estate taxes are due 9 months after a person's death.

The following securities would be exempt from registration under the Uniform Securities Act EXCEPT a)Railroad stocks. b)Foreign government bonds. c)Foreign company stocks. d)Municipal bonds.

c) Foreign company stocks Foreign and domestic government securities (bonds and government debt instruments) are exempt, but foreign common stocks are not-exempt and require registration. Railroad stocks are exempt because they are issues of companies regulated by the Interstate Commerce Commission.

Under the Investment Advisers Act of 1940, federal covered investment advisers must amend their Form ADV each year by filing an annual updating amendment within a)60 days after the end of their calendar year. b)90 days after the end of their calendar year. c)90 days after the end of their fiscal year. d)60 days after the end of their fiscal year.

c) 90 days after the end of their fiscal year. Federal covered advisers are those who must register with the SEC (such as those who advise mutual funds). They must renew their registration by filing an annual updating amendment with the SEC within 90 days after the end of their fiscal year. The adviser is required to send it out to investors within 120 days if there are any changes and provide a summary of the changes.

Which of the following is considered to be an offer or sale under the Uniform Securities Act (USA)? a)Securities issued as a result of a shareholder approved merger b)Using stock as collateral for a loan c)A gift of stock as a bonus for purchasing another security d)Securities reissued as a result of a business reorganization

c) A gift of stock as a bonus for purchasing another security Making an offer or sale of a security in this state brings the transaction under the jurisdiction of the USA. Under the USA, a sale includes every sale or disposition of a security for value. An offer to sell includes every attempt to dispose of or offer to buy a security for value. Both terms include a security given or delivered with or as a bonus on account of a purchase of securities or any other thing constituting part of the subject of the purchase, a gift of assessable stock involving an offer and sale, and a sale or offer of a warrant or right to purchase another security of the same or another issuer.

A low-income 60-year-old retiree whose investment objective is current income until he can begin collecting Social Security is willing to accept volatility in principal in exchange for more income. Which of the following is the most suitable investment? a)Zero coupon bonds b)A fixed annuity c)A high-yield bond fund d)A balanced fund

c) A high-yield bond fund

Class C mutual fund shares may be appropriate for which of the following investors? a)An investor looking for a place to "park" her money for the short term b)A young person with $1,000 to invest in an IRA c)A large investor with a 2-year time horizon d)A young person with $100,000 to invest for 20 years

c) A large investor with a 2-year time horizon

If a broker/dealer has no place of business in a state, transactions are exempt as long as the broker/dealer limits its offers in that state to no more than a)3 in a 12-month period. b)10 in a 12-month period. c)A limited number of unsolicited clients in a 12-month period. d)No transactions can be performed unless the broker/dealer first registers in the state.

c) A limited number of unsolicited clients in a 12-month period Exempted transactions for a broker/dealer are a limited number of unsolicited clients within a 12-month period.

An investor is interested in a REIT that will provide immediate income. The investor would best be served by a)An equity REIT invested in developing land. b)Any type of REIT. c)A mortgage REIT. d)A hybrid REIT.

c) A mortgage REIT Rental properties such as shopping centers provide immediate income, as do mortgage REITS. Developing land provides long-term appreciation, not immediate income. A hybrid REIT sacrifices some income for appreciation, since it is invested for a combination of both.

Under the Uniform Securities Act, when registering a new security by qualification in this state, all of the following may have to be filed with the Administrator EXCEPT a)The kind and amount of securities to be offered. b)A registration statement and a consent to service of process. c)A notice filing. d)Copies of the prospectus, advertising, and sales literature intended to be used.

c) A notice filing. A notice filing is only used in connection with federal covered securities, such as mutual funds, which are exempt from state registration. In lieu of registration, the Administrator requires the issuer to make a notice filing. Registration by qualification is required when the new security is not federally covered and may not be required to register with the SEC, such as an intrastate offering of securities (which will be sold in this state only).

Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker/Dealers and Agents, a broker/dealer selling securities in an offering may give which of the following to a client in lieu of a final prospectus? a)A statement of additional information b)A summary of the important information contained in the prospectus c)A preliminary prospectus and an additional document, which together include all information set forth in the final prospectus d)Nothing may be given in lieu of a final prospectus.

c) A preliminary prospectus and an additional document, which together include all information set forth in the final prospectus. According to NASAA's Statement of Policy, broker/dealers selling securities in an offering may give prospective customers a preliminary prospectus and an additional document, which together include all of the information set forth in the final prospectus in lieu of the final prospectus.

A municipal securities money market fund is a suitable investment for a high-income investor seeking which of the following? a)An IRA investment that has a stable principal b)Tax-free income for the next 10 years c)A safe investment vehicle to park the money while looking for a long-term investment d)An investment that provides income and some growth potential

c) A safe investment vehicle to park the money while looking for a long-term investment A municipal securities money market fund provides federal tax-free interest income and seeks to maintain a stable principal. It is a suitable short-term investment for a high-income investor. Tax-free securities should not be purchased for a retirement account.

Which of the following is NOT an "offer to sell" or "sale" under the Uniform Securities Act? a)Subscription rights given to shareholders for different securities than those purchased b)A stock bonus given in conjunction with a securities transaction c)A stock dividend distributed to shareholders d)Stock warrants given to buyers of debt offerings

c) A stock dividend distributed to shareholders A stock dividend distributed to existing shareholders is not defined as an offer or sale under the act

Which of the following details is NOT found in a prospectus?

c) Future earnings projections A fund cannot make projections regarding future performance

In February, a customer sells 1 XYZ October 50 put for 3 and buys 1 XYZ October 60 put for 11. What will be the customer's pre-tax profit or loss if in June he closes the 50 for 1 and closes the 60 for 4? a)$300 profit b)$300 loss c)$500 profit d)$500 loss

d) $500 loss A net debit of 800 is closed out by a net sale of 300, resulting in a loss of $500.

Which of the following transactions requires for an individual to be registered as an agent? a)A CFO issuing company stock for the company pension plan and is not compensated for the transaction b)A city employee initiating a municipal bonds transaction with an underwriter on behalf of the city c)An agent of a broker/dealer selling U.S. Treasury Bills to a money manager d)A bank officer selling bank shares to an institutional investor

c) An agent of a broker-dealer selling U.S. Treasury Bills to a money manager Broker/dealer representatives are required to be registered to sell securities even when the securities are exempt. The other individuals are exempt from registration as an agent because they represent the issuer in exempt securities or exempt transactions.

If an Administrator finds a registration to be incomplete, the issuer must send a)A consent to service of process. b)A new and complete registration application. c)An amendment to the application. d)A financial statement.

c) An amendment to the application The required information can be submitted to the Administrator in an amendment to the application. The financial statement and consent of service of process were submitted with the initial filing.

Which of the following is excluded from the definition of investment adviser? a)A lawyer whose investment advice is central to their practice b)A publisher of a newsletter rendering advice about specific investment situations of individual clients c)An economics professor who occasionally advises other faculty members on their portfolios d)An accountant who charges a client for constructing a financial portfolio

c) An economics professor who occasionally advises other faculty members on their portfolios Professionals, such as lawyers, accountants, teachers, and engineers, whose investment advice is an incidental portion of their business practice, are excluded from the definition of an investment adviser.

Which of the following circumstances would result in the assignment of an investment advisory contract? a)A majority partner of the investment adviser buys out a minority partner. b)An investment adviser representative who administers over half of the adviser's client accounts resigns. c)An investment adviser is bought out by a competitor. d)A minority partner of the investment adviser retires.

c) An investment adviser is bought out by a competitor According to NASAA Model Rules contract assignment includes a change in ownership of a majority of any class of voting securities, or a change in the majority interest of a partnership.

Which of the following is NOT subject to the short-swing profit rule? a)An owner of 15% of the outstanding shares b)A director serving on the board of a public com c)An investor with a net worth in excess of $5,000,000 (exclusive of primary residence) d)The CEO of a publicly traded corporation

c) An investory with a net worth in excess of $5,000,000 (exclusive of primary residence) The short swing profit rule applies to insiders (officers and directors) and owners of 10% or more of the outstanding shares; net worth is not a consideration.

The shareholders of a mutual fund have certain rights associated with the ownership interests they hold in the company. These rights include all of the following EXCEPT a)Voting rights/proxy rights regarding company issues. b)Election of board. c)Approval authority for the company's annual report. d)Approval of investment advisory agreement.

c) Approval authority for the company's annual report This is an EXCEPT question. Mutual fund shareholders have the right to receive annual/semiannual reports; however, the company itself has approval authority for its publication. The shareholders approve the investment advisory agreement, have voting rights regarding company issues and elect board members. Additionally, they approve changes in investment objectives, policies, and fees, and ratify the selection of independent auditors.

Which of the following is not affected by the declaration of a dividend? a)Working capital b)Net worth c)Assets d)Liabilities

c) Assets

Which of the following is not affected by the declaration of a dividend? a)Working capital b)Net worth c)Assets d)Liabilities

c) Assets ITS THE DECLARATION NOT THE PAYMENT The declaration of a dividend increases current liabilities and reduces retained earnings. There is no impact on cash (assets) until the dividend is paid. When current assets are unchanged and current liabilities increase, working capital decreases.

Which of the following is taxable? a)Life insurance proceeds b)Gifts c)Automatic reinvestment of mutual fund distributions d)Qualified distributions from a Roth IRA

c) Automatic reinvestment of mutual fund distributions Although most mutual funds allow their shareholders to automatically reinvest dividend and capital gains distributions without a sales charge, reinvested distributions are taxable and the fund must send the shareholder a 1099 disclosing the source of the distribution. However, qualified distributions from a Roth IRA, life insurance proceeds, and gifts are not taxable.

When a customer sells a security in the secondary market, he or she will receive the a)Net asset value. b)Offering price. c)Bid price. d)Asked price.

c) Bid price. The highest price a dealer will pay for a security is the bid price, which is the price the seller (customer) will receive.

Jack is an agent with Revco Securities in New York. Each winter, Jack visits Florida to service Revco clients who spend the winter months there. While servicing existing clients in Florida, Jack also solicits new business there. Which of the following is true? a)If Jack opens three or fewer new accounts per year in Florida, Revco is not required to register in Florida. b)Neither Jack nor Revco must register in Florida. c)Both Jack and Revco must register in Florida. d)Revco must register, but Jack is not required to register if he solicits fewer than 5 new customers per year.

c) Both Jack and Revco must register in Florida Because Jack is soliciting new business in Florida, both Revco and Jack must register in Florida. If Jack only services existing customers who are temporarily in Florida, neither Revco nor Jack must be registered in Florida.

All of the following are lagging economic indicators EXCEPT a)Interest rates. b)Unemployment rate. c)Building permits. d)Business spending.

c) Building permits Lagging economic indicators lag behind the pace of economic activity. They include the unemployment rate, business spending, unit labor costs, bank loans outstanding, bank interest rates, and the book value of manufacturing and trade inventories. Building permits are considered to be a leading indicator.

All of the following are leading economic indicators EXCEPT a)Building permits. b)Manufacturer's new orders for consumer goods. c)Business spending. d)Average workweek of production workers.

c) Business spending Business spending is an indicator that lags behind the overall pace of economic activity.

An open order to buy at a specified price or lower is a a)Buy stop. b)Sell limit. c)Buy limit. d)Sell stop.

c) Buy limit Stop and limit orders are also known as open orders since they stay open on the books of the firm until they are either executed or canceled. While stop orders become market orders once they are triggered, limit orders never do. Limit orders must be executed at a specified price or better or not at all. For example, a stock is currently overpriced at $50; however, if it ever drops to $40, it becomes a more attractive purchase. In this case, a buy limit order would be entered at $40, which means the order cannot be executed except at $40 or better, meaning $40, $39, etc. Stop orders do not guarantee a price, but limit orders do.

Under NASAA's Statement of Policy on Dishonest or Unethical Business Practices of Broker/Dealers and Agents, all of the following are considering market manipulation EXCEPT a)Spreading false rumors. b)Effecting a series of transactions in any security for the purpose of inducing the purchase or sale of such security by others. c)Charging unreasonable fees for the safekeeping and custody of securities. d)Effecting any transaction in a security which involves no change of beneficial ownership.

c) Charging unreasonable fees for the safekeeping and custody of securities Under NASAA's Statement of Policy, broker/dealer firms may not effect any transaction in or induce the purchase or sale of any security by means of any manipulative or deceptive device which may include: effecting any transaction in a security which involves no change in the beneficial ownership thereof; spreading false rumors; or effecting transactions in any security creating actual or apparent active trading in such security or raising or depressing the price of such security for the purpose of inducing the purchase or sale of such security by others. All of the above activities are considered to be market manipulation.

Owning shares of convertible/exchangeable preferred stock allows the shareholder to convert shares into a)Cumulative, participating preferred stock of the same issuer. b)Bonds of the same issuer. c)Common stock of the same issuer or an affiliate of the issuer. d)Bonds of the same issuer or a subsidiary of the issuer.

c) Common stock of the same issuer or an affiliate of the issuer. Convertible/exchangeable preferred stock or bonds may be convertible into the common stock of the issuer or a subsidiary or affiliate of the issuer.

Which of the following securities is NOT redeemable? A) Mutual funds b) Treasury Bonds c) Common stocks d) Unit investment trusts

c) Common stocks Common stocks represent ownership interest and are not redeemed by the issuer, which is the corporation. They are bought and sold on the open market. Redeemable securities are defined as debt instruments redeemed by the issuer or investment companies such as mutual funds and Unit Investment Tursts (UITs)

An investor is long 100 shares XYZ and sells a call. The investor is a)Neutral. b)Bearish. c)Conservative. d)Mildly aggressive.

c) Conservative When writing a long stock, this is a covered call, and is considered a conservative strategy.

Ted is 39 years old and has been investing in mutual funds for his retirement since college. Ted is reviewing the performance of the equity funds in his investment portfolio. He is frustrated because the funds' investment advisers don't seem to consistently achieve the returns that Ted sees forecast in the monthly business reports he follows. Which of the following actions would you recommend to Ted? a)Dollar cost average to achieve a lower cost b)Consider diversifying into limited partnerships c)Consider index funds d)Liquidate his equity funds and purchase bond funds

c) Consider index funds The client's concern that a portfolio manager cannot consistently match or outperform market returns can be eliminated by investing in index funds. An index fund will consistently mirror the performance of a given market index. Bond funds are not the most suitable choice for this client, since he has a long-term goal (retirement). Dollar cost averaging does not eliminate the risk of portfolio manager performance. Limited partnerships are suitable for tax relief on passive income, not retirement saving.

In early May, a customer buys 100 SOP at 27 and writes one SOP Oct 30 call for 3. This is his first option transaction and takes place in his cash account. The initial option order ticket must be written as an opening a)Uncovered sale. b)Covered purchase. c)Covered sale. d)Uncovered purchase.

c) Covered sale If a customer buys 100 shares of stock and sells a call against that stock, this creates an opening covered sale.

A bond with a par value of $1,000 is selling in the market for $900. If the bond pays $45 a year in interest, the figure of 5% represents its a)Nominal rate. b)Coupon rate. c)Current yield. d)Yield to maturity.

c) Current Yield To find the current yield on a bond, divide the annual interest ($45) by the bond's current market price ($900). The answer is 5%.

The most accurate indicator of an investor's financial status and one that considers all assets and sources of present and future revenues, as well as liabilities is known as the a)Net cash flow. b)Independent appraisal value. c)Current net worth. d)Intellectual property value.

c) Current net worth

With identical maturities, which debt instrument would be expected to pay the highest yield? a) GO Bond issued by State of Kansas b) U.S. treasury bond c) Debenture issued by a well-known pharmaceutical company d) bond issued by FNMA

c) Debenture issued by a well-known pharmaceutical company Corporate bonds will typically pay the highest yield in this scenario since the maturity of the bonds is not an issue

In order to comply with FinCEN's anti-money laundering initiative, broker/dealers are required to a)Have each employee fingerprinted. b)Have the AML program approved by FINRA. c)Designate an AML compliance officer. d)Test the program internally with in-house staff.

c) Designate an AML compliance officer

Which of the following is a type of general obligation bond? a)Revenue bond b)Industrial development bond c)Double-barreled bond d)Ad valorem bond

c) Double-barreled bond A double-barreled bond is a special type of GO bond which is primarily backed by revenues collections. Howeverm should revenues be insufficient to cover the debt obligation, GO backing kicks in

NASDAQ is the a)Regional exchange for OTC and certain NYSE securities. b)Venue for afterhours trading of NYSE securities. c)Exchange where certain OTC securities that meet its listing standards are traded. d)Electronic pricing bulletin board for OTC securities.

c) Exchange where certain OTC securities that meet its listing standards are traded.

An audited financial report a)Has been independently verified by the IRS. b)Must be filed semiannually with the SEC. c)Has been independently verified by an outside accounting firm. d)Has been verified and endorsed by an outside accounting firm.

c) Has been independently verified by an outside accounting firm An independent accounting firm is paid to verify the accuracy of the issuer's annual financial statements, but does not endorse or recommend any report. The audited annual report must be filed with the SEC.

When a broker/dealer offers to buy from or sell to any person any security at a stated price, they must be prepared to a)Buy or sell an unlimited number of shares at that price. b)Negotiate that price. c)Honor that price. d)Back away from that price.

c) Honor that price. Broker/dealer firms may not offer to buy from or sell to any person any security at a stated price unless they are prepared to purchase or sell at such a price and under such conditions as are stated at the time of such an offer to buy or sell. In other words, when a broker/dealer firm is acting as a dealer in the OTC market, it must honor the quoted bid and ask prices.

Under the Uniform Securities Act, the term "sale" includes I. Offer of a right or warrant. II. Gift of nonassessable stock. III. Stock bonus given in association with a purchase of securities. IV. Stock split. a)I, II and IV b)I and II c)I and III d)III and IV

c) I and III Gift of assessable stoc isk is a sale; a gift of non-assessable is not a sale. Stock dividends and splits are not sales

The term broker/dealer includes I. Any person engaged in the business of effecting transactions in securities for the account of others. II. Agents. III. Any person engaged in the business of buying and selling securities for his or her own account. IV. Investment advisers. a)I only b)I & II c)I & III d)I, II, III & IV

c) I and III Securities firms may act as broker, dealer, or broker/dealer, but not in the same transaction. Agents work for broker/dealers. Investment advisers are a separate category of registration that may or may not be broker/dealers.

Under the Uniform Securities Act, registration of an investment advisory firm automatically registers: I. All partners, officers, and directors of the firm; II. All clerical staff of the firm; III. All investment adviser representatives a)II & III b)I, II & III c)I only d)I & II

c) I only Under the Uniform Securities Act, registration with the state of an advisory firm automatically registers all partners, officers, and directors of the firm as investment adviser representatives. Clerical staff personnel need not register, but other employees (such as those selling advisory services) must register separately as IARs.

The provisions of the Securities Act of 1933 include which of the following? I. Regulation of offerings of new securities; II. Prohibition of fraud in the sale of new securities; III. Full and fair disclosure of information; IV. Regulation of insider trading a)I, II, III & IV b)I only c)I, II & III d)II & III

c) I, II, and III The Securities Act of 1933 regulates new issues of corporate securities sold to the public, fraud in the sale of securities, and the full and fair disclosure of information. It does not address inside trading. Full and fair disclosure can be found in the prospectus. Insider trading is regulated by the 1934 Securities Exchange Act, not the 1933 Act.

ERISA section 404(c) requires that employer-sponsored retirement plans must provide I. The opportunity to give investment instructions no less frequently than once per month. II. The ability to move readily from more volatile investments to less volatile ones. III. The opportunity to obtain written confirmation of instructions. IV. The ability to be in at least six different investment options at a time. a)I and II b)I and IV c)II and III d)II and IV

c) II and III At a minimum, participants must be given the opportunity to give investment instructions no less frequently than once per quarter, must be able to move readily from more volatile investments to less volatile ones, and must be given the opportunity to obtain written confirmation of their instructions. Also, the plan must offer at least three different investment alternatives.

Harold is interested in stable companies with a consistent dividend payment history. Which of the following best suit Harold's interest? I. High-yield bond fund II. Blue chip fund III. Utility equities fund IV. GNMA fund a)I and III b)I and IV c)II and III d)II and IV

c) II and III Blue chip companies are well-capitalized and have demonstrated dividend payment histories. Utility stocks regularly reward their shareholders with consistent dividends.

c) II and III In wrap accounts, a wrap fee brochure is furnished in lieu of the IA brochure. It must be furnished 48 hours prior to entering into a contract and must include all of the information contained in Part 2 of Form ADV. Alternately, it may be furnished at the signing of the contract if the customer is given a 5-day free-look period during which they may opt out of the contract without cost.

Under the Uniform Securities act, who can file a registration statement? I. The administrator; II. A registered broker/dealer; III. A person on whose behalf the offering is being made; IV. The SEC a)I and II b)I and III c)II and III d)II and IV

c) II and III The regulatory authorities do not file registrations statements; they receive them.

Which of the following are characteristics of value stocks? I. High P/E ratio II. Low price-to-book ratio III. Highly valued by investors IV. Out of favor with investors a)I and II b)I and IV c)II and III d)II and IV

c) II and IV Value stocks, for a variety of potential reasons are currntly out of investor favor, and are low priced. They have low P/E and price-to-book ratios

c) III only

On which of the following forms do publicly held corporations file required quarterly financial reports with the SEC? a)8K b)8Q c)10K d)10Q

d) 10Q Annual reports are filed on the 10K; quarterly reports are filed on the 10Q, and details concerning significant changes are filed on the 8K.

If an institutional investment manager has investment discretion over accounts, it must disclose the holdings in the discretionary accounts: a) Within 30 days of the opening of the account b) Within 30 days of the end of each calendar quarter. c) If the accounts have a fair market value of at least $100 million. d) if the accounts have a fair market value of at least $50 million

c) If the accounts have a fair market value of at least $100 million. An institutional investment manager that has investment discretion over accounts holding a nationally traded security with a value of at least $100 million must provide disclosure to the SEC by filing Form 13F within 45 days after the end of each calendar quarter.

One factor that can dramatically affect the level of risk that an investor is willing to take is a)Lower federal funds lending rates. b)The level of broker service the client receives. c)Income changes for the clients or their spouses. d)Market performance history.

c) Income changes for the clients or their spouses Income changes may ultimately affect an investor's willingness to accept a higher or lower degree of risk for his or her portfolio.

If the U.S. dollar is strong, the trade deficit will do which of the following? a)Remain unchanged b)Double c)Increase d)Decrease

c) Increase This is some bullshit because it doesn't say it is appreciating or strengthening it just says it is strong. That does not imply a change in the deficit, but here is FX's explanation: As the dollar strengthens, the demand for U.S. exports will decrease due to the price increasing. If U.S. exports decrease, then the trade deficit will increase.

When the net present value of cash outflows and cash inflows equals zero, the rate of discount being used is known as the a)Discount rate. b)Time value of money. c)Internal rate of return. d)Net present value.

c) Internal rate of return The internal rate of return is the discount rate at which the present value of future cash flows of an investment equals the cost of the investment. The internal rate of return on a bond is the bond's yield to maturity.

With respect to advisory fees, an investment adviser may not charge the client a fee that a)Results in a declining balance on an asset management account. b)Includes finance charges on an account balance maintained by the client. c)Is considered unreasonable by a prudent individual. d)Exceeds the planned rate of return on the portfolio to be managed.

c) Is considered unreasonable by a prudent individual An investment adviser may not charge a client a fee that would be considered unreasonable by a prudent individual or not competitive.

When the dollar appreciates, what happens to the trade deficit? a)It will double. b)It will decrease. c)It will increase. d)It will remain level.

c) It will increase. When the U.S. dollar appreciates, U.S. exports to foreign countries is more expensive; therefore, the amount of goods exported decreases. Since the U.S. is exporting less, the U.S. trade deficit increases. The U.S. trade deficit is comprised of U.S. exports and imports. This figure is found in the balance of payments formula under the current account. The U.S. most typically has a deficit in its current account due to the fact that goods produced in a foreign country have far less expensive labor costs (thus lower prices) than goods produced in the U.S. The general rule is that the stronger the U.S. dollar, the greater the trade deficit.

Regarding CDSCs, which of the following is NOT true? a)For a given holding period, costs associated with each class will differ. b)The different share class options should always be pointed out by the rep. c)Like any sales charge, they reduce the amount of the initial investment. d)They represent alternate methods of recovering fund marketing costs.

c) Like any sales charge, the reduce the amount of the initial investment Sales charges are not a fund expense. The costs to the investor of the different types of sales charges are fully represented in tabular form in the prospectus.

Macroeconomic policies of the Federal Reserve Board designed to stimulate the economy include all of the following EXCEPT a)Lowering the discount rate b)Reducing bank reserve requirements. c)Lowering the Regulation T initial margin requirements. d)Repurchasing U.S. government securities in the secondary market from banks and dealers.

c) Lowering the Regulation T initial margin requirements Macroeconomic policies consider the nation's economy as a whole. Microeconomic policies study the behavior of basic economic units. The Federal Reserve Board's strategy of reducing bank reserve requirements, repurchasing U.S. government securities in the secondary market, and lowering the bank discount rate in an effort to stimulate the economy are macroeconomic. Lowering the Reg. T margin requirement is a more basic microeconomic strategy since it affects only those who borrow money to buy securities on margin.

Using multiple asset classes in an investment portfolio reduces which of the following types of risk? a)Credit b)Interest rate c)Market d)Liquidity

c) Market Market risk is difficult to avoid if a client has all of his or her assets invested in one asset class (such as common stocks). However, if the client diversifies by investing in multiple asset classes, market risk can be reduced. For example, the stock market may be down but real estate and precious metals may be up. Market risk is also known as systematic risk.

If a mutual fund publishes investment performance charts, the information presented must include a)Minimum sales charges. b)Average sales charges. c)Maximum sales charges. d)All of the above.

c) Maximum sales charges. Published performance charts reflect maximum sales charges.

A broker/dealer firm sells securities to a customer who was referred to them by an attorney. In order to compensate the attorney for the referral, the broker/dealer firm may a)Refer their customers who need legal advice to the attorney. b)Give the attorney an all-expenses-paid trip to Hawaii. c)May not compensate the attorney directly or indirectly. d)Pay the attorney a referral fee.

c) May not compensate the attorney directly or indirectly Under the USA, individuals who transact securities business in this state either directly or indirectly must be registered as agents.

A client has $200,000 to invest for 2 years. During this time, the client would like to maximize returns while taking minimal risk. What should the agent recommend? a)Indexed mutual funds b)Municipal bonds c)T-bills d)Large-cap stocks

c) T-bills While common stocks and mutual funds may do well over a period of time, this investor only has money to invest for 2 years and wants minimal risk. While municipal bonds are safe, they also have low yields and without knowing the client's tax bracket, it cannot be assumed that the client would maximize returns. In this case, it appears that T-bills would be most suitable since they are safe and short-term.

A person who renders investment advice solely with respect to securities issued by the U.S. government a)Is exempt from both federal and state registration requirements. b)Must be registered with both the SEC and the state. c)Need not be federally registered under the Investment Advisers Act of 1940, but generally must be state registered under the Uniform Securities Act. d)Is exempt from state registration under the Uniform Securities Act, but must be federally registered under the Investment Advisers Act of 1940.

c) Need not be federally registered under the Investment Advisers Act of 1940, but generally must be state registered under the Uniform Securities Act. A person who renders advice solely with respect to securities issued or guaranteed by the U.S. government is exempt from federal registration under the Advisers Act, but not from state registration under the Uniform Securities Act.

What effect will automatically reinvested dividends and capital gains have on a mutual fund shareholder's return? a)Decrease b)Double c)No effect d)Increase

c) No effect Let's say an investor put $20,000 into mutual fund shares. Over the last year, the investor received distributions of $1,000 in dividends and $500 in capital gains. The current net asset value of the shares is $21,000. What is the return? $1,500 plus $1,000 (appreciation) divided by $20,000 = 12.5%. The net asset value would be greater by the amount of reinvested distributions; therefore, the total NAV would be $22,500 instead of $21,000. The distribution is still $1,500 and the appreciation is still $1,000. This makes the total return still equal to 12.5%.

A mutual fund is listed in the paper at $18.50 - NL - +.02. How much is the sales charge on this fund? a)$18.50 b)$18.52 c)None; this is a no-load fund. d)$.02 per share

c) None; this is a no-load fund. The "NL" designates this as a no-load fund. The $18.50 is the net asset value and public offering price of the fund.

Which of the following orders is NOT kept in the specialist's book?a)GTC b)Limit c)Not held d)Stop

c) Not held

If an investment adviser has custody of client funds or securities, the adviser must do all of the following EXCEPT a)Segregate funds and mark the identity of the owner. b)Submit to an annual audit by an independent auditor. c)Notify the Administrator of the location of the separate bank account that holds the client's funds. d)Send quarterly statements to the client.

c) Notify the Administrator of the location of the separate bank account that holds the client's funds. An adviser with custody must notify their customers where the funds are being kept, but not the Administrator.

The method by which a mutual fund offering price will be determined is a)The public offering price plus any sales costs. b)Determined by market conditions. c)Outlined in the prospectus. d)Set by SEC rules.

c) Outlined in the prospectus The actual offering price is the net asset value (NAV), plus any sales charges, but the method used to determine the fund's pricing can be found in the prospectus

Which of the following is NOT an exempt security under the USA? a)Security issued by Providian life insurance b)Bond issued by Reading Railroad c)Over-the-counter stock d)AT&T stock

c) Over-the-counter stock stock traded over the counter needs to be registered

When considering an investment for an ERISA account, the primary consideration is a)Inclusion on the state legal list. b)Compatibility with the present portfolio. c)Potential risk. d)Production of income.

c) Potential risk ERISA regulations apply to retirement accounts, and conservation of principal is a primary account objective.

ERISA section 404(c) does NOT a)Set minimum standards for participant choice, control and communication regarding the investment options within a plan. b)Provide for sufficient information and communication to allow participants to make "informed investment decisions". c)Prevent fiduciary-related lawsuits against sponsors of retirement plans. d)Provide guidelines to plan sponsors to minimize fiduciary legal liabilities.

c) Prevent fiduciary-related lawsuits against sponsors of retirement plans. In order to be relieved from liability concerning fiduciary responsibility, sponsoring employers must demonstrate full compliance with the provisions of section 404(c).

What registration method is most likely used when securities are issued on an intrastate basis? a)Coordination b)Filing c)Qualification d)Notification

c) Qualification Securities issued in only one state can only be registered under qualification.

A broker/dealer may use discretion without obtaining written discretionary authority from their client if the broker/dealer knows the type of the security to be purchased and the a)Price. b)Quality. c)Quantity. d)Timing.

c) Quantitiy Broker/dealers may use discretion regarding the time or price in executing an order for a customer if they know the type of security to be purchased and the quantity or amount to be purchased. If they do not have this information, written discretionary authority from the customer is required. For example, if a customer tells his agent to purchase IBM stock for his account, the agent could not execute this trade without discretionary authority since the agent does not know how many shares the customer wants to buy.

Which of the following statements is INCORRECT with respect to penalties under the Uniform Securities Act? a)Statute of limitations for criminal liabilities is 5 years. b)Rescission may offset a civil liability. c)Rescission may offset a criminal liability. d)Statute of limitations for most civil liabilities is 3 years

c) Rescission may offest a criminal liability Rescission may only be used to offset a civil liability. The commission of a criminal liability subjects one to criminal penalties.

Which federal law primarily regulates the activities of exchanges, transfer agents, broker/dealers, and registered representatives? a)Investment Company Act of 1940 b)Securities Act of 1933 c)Securities Exchange Act of 1934 d)Investment Advisers Act of 1940

c) Securities Exchange Act of 1934 The Securities Exchange Act of 1934 regulates the activities of persons engaged in exchanging securities in the secondary markets, including B/D firms and their agents, over-the-counter (OTC) market makers, specialists on exchanges, transfer agents, and securities information processors who are defined as persons who publish information regarding transactions and quotations of securities on an ongoing basis.

If a customer is short a stock, which of the following would lower risk and increase income? a)Buy puts b)Buy calls c)Sell puts d)Sell calls

c) Sell puts It is asking for income and selling a put will provide the premium

A prospectus can no longer be used if financial information is older than a)90 days. b)12 months. c)13 months. d)16 months.

d) 16 months

An investor buys a TIPS at par value with a 4% coupon rate. During the first year, inflation is 5%. Which of the following is FALSE? a)The adjusted principal will be $1,050.63 b)The coupon is based upon the adjusted principal amount annually c)The adjusted principal will be $1,040.40 d)The next year's interest payment will be $42

c) The adjusted principal will be $1,040.40 The adjusted principal will be $1,050.63 and the coupon of 4% is based upon this adjusted principal amount. The adjustment occurs every 6 months (1,000 * 2.5% = 1,025 * 2.5% = 1,050.63 IT IS ASKING WHAT IS FALSE

When an agent terminates an association with a broker/dealer a)The firm must notify the State Administrator within 30 days. b)The agent must promptly submit a revised U-4 form to the Administrator unless he or she is associating with another registered broker/dealer firm. c)The broker/dealer and agent must promptly file a notice of termination with the Administrator. d)Both the agent and the firm must promptly notify FINRA unless the agent is moving from one broker/dealer to another, in which case the agent, the prior employer and the new employer must notify FINRA.

c) The broker/dealer and agent must promptly file a notice of termination with the Administrator. When an AGENT terminates employment, both the agent and the firm must promptly notify the Administrator.

An investment adviser's disclosure statement (Part 2A of Form ADV) must always contain all of the following EXCEPT a)Types of clients serviced. b)Disciplinary information. c)The firm's balance sheet. d)A description of fees and compensation.

c) The firm's balance sheet The firm's brochure (Part 2A of Form ADV) must be in a narrative format and written in plain English. It also must include the following: cover page, material changes, table of contents, advisory business, fees and compensation, performance-based fees and side-by-side management, types of clients, methods of analysis, investment strategies and risk of loss, disciplinary information, other financial industry activities and affiliations, code of ethics, participation or interest in client transactions and personal trading, brokerage practices, review of accounts, client referrals and other compensation, custody, investment discretion, voting client securities, and financial information. Not all IAs are required to disclose their balance sheet.

Which of the following is the main difference between two mutual funds: DOMESTIC BLUE CHIP A and DOMESTIC BLUE CHIP B? a)Capitalization of the fund b)Fund's investment adviser or manager c)The method of computing sales charges d)The portfolio make-up of each fund

c) The moethod of computing sales charge The "A" and "B" designate the class of shares for the collection of sales charges. Class A shares are offered at net asset value (NAV) plus an up-front load, while Class B shares are offered at NAV with a contingent deferred sales charge (CDSC). Class B shares will almost always have a higher 12b-1 fee. Customers have the choice of which type of fees will better suit their time horizons and objectives.

The burden of proof for the existence of an exemption for any proceeding under the Uniform Securities Act (USA) rests with whom? a)The State Securities Commission b)The Securities and Exchange Commission c)The person claiming the exemption d)The State Administrator

c) The person claiming the exemption The burden of proving the existence of an exemption for any proceeding under the Act rests with the person claiming the exemption.

The NAV will not change if a)The fund receives dividends. b)The assets in the portfolio decrease. c)The portfolio sells securities and retains the cash. d)The fund pays dividends.

c) The portfolio sells securities and retains the cash When the portfolio sells securities, the value goes down. However, if the portfolio retains the cash, the value of the portfolio goes up by the same amount and the NAV does not change.

An investor would need all of the following to calculate total return on a mutual fund EXCEPT a)The bid price at the time of redemption. b)The amount of any capital gains and dividend distributions. c)The prime interest rate at the time of purchase. d)The ask price at the time of purchase.

c) The prime interest rate at the time of purchase. Its asking for what you don't need. You need the ask so you know how much paid for them and the bid for how much you received. Total return calculations upon redemption of mutual fund shares take into account any realized gains or losses plus any dividends or capital gain distributions made by the fund during the holding period. To calculate any gain or loss upon redemption, the investor would have to know both the ask price at purchase and the bid (or NAV) price at redemption. The prime rate in the economy, which is set by banks for their largest commercial customers, is not a factor.

Under the Investment Advisers Act of 1940, which of the following is true regarding the use of testimonials and endorsements by celebrities and public opinion influencers related to specific securities recommendations? a)They are permitted if the amount of the fee is disclosed .b)They are permitted if the spokesman indicates that it is a paid testimonial. c)They are prohibited. d)They are permitted if a fee is paid.

c) They are prohibited It is considered unethical for advisers to use advertisements containing untrue statements of material fact or which refer directly or indirectly to testimonials of any kind or which contain a statement that any analysis, report, or service will be furnished free when it is not the case.

All of the following are reasons an adviser would recommend investments in foreign securities EXCEPT a)To hedge against changes in currency exchange rates. b)Unusual profit potential. c)To avoid systematic risk. d)Portfolio diversification.

c) To avoid systematic risk SYSTEMATIC RISK CAN HAPPEN WORLDWIDE. A bear market can exist worldwide AKA COVID-19

Which of the following is NOT considered to be a derivative security? a)Warrants b)Stock option c)Units of a REIT d)Options on futures contracts

c) Units of REIT A derivative is defined as a contract whose value is based upon the performance of an underlying financial asset, index, or other investment, including stock options, options on futures contracts, index options, rights, and warrants. Most derivatives are considered intangible assets since they may expire worthless. However, a real estate investment trust (REIT) is not a derivative. In a REIT, the value of the units of the trust is based upon the tangible value of the property held in the trust.

If a municipal financial professional (MFP) gives $300 to the campaign of the mayor in the city where the MFP lives, for what period of time is the MFP's employing municipal firm prohibited from doing a negotiated underwriting? a)6 months b)1 year c)18 months d)2 years

d) 2 years Any MFP who violates the contribution rules would trigger a 2-year prohibition for the firm during which the firm would not be able to be involved with a negotiated underwriting

On Sept. 1, 2019, an investor discovered that on March 1, 2019 his agent sold him a nonexempt unregistered security that resulted in a substantial loss. Under the Securities Act of 1933, how long does the investor have to file a civil lawsuit? a)Until Sept. 1, 2022 b)Until March 1, 2022 c)Until Sept. 1, 2020 d)Until March 1, 2020

c) Until Sept. 1, 2020 The Securities Act of 1933 states that an investor may bring civil suits within 1 year of discovery of a violation or within 3 years of the date the violation occurred, whichever is earlier. This investor has 1 year from the date of discovery (Sept. 1, 2020) since that is the earlier date.

A certified public accountant (CPA) gives investment advice in connection with his tax practice without charging any additional fees. Lately, he finds that 25% of his work is related to investment advice so he decides to start advertising that service. At what point does the CPA have to register as an adviser? a)Never, since he is already a CPA b)When his advice accounts for more than 25% of his work c)Whenever he starts to advertise his advisory services d)When he starts charging an additional fee for his advisory services

c) Whenever he starts to advertise his advisory services. SEC Release No. IA-1092 comments on the applicability of advisory laws to persons who provide investment advisory services as a component of other financial services, such as CPAs, financial planners, and pension consultants. The release states that these other persons must register as advisers if they provide advice, reports, or analysis regarding securities (specific securities or otherwise), hold themselves out as being in the business of providing such services, and provide such services for compensation. Thus, the moment the CPA starts to advertise his advisory services, he is in the business and must register.

Volunteers of America has a 403(b) plan for its employees. Which of the following is NOT a provision that can be changed by the employer or employee? a)Whether the salary reduction plan is authorized for the year. b)The amount of salary contributed (deferred) into the plan during the year. c)Whether the deferred salary is considered pre-tax or post-tax contributions. d)The types of compensation that may be deferred.

c) Whether the deferred salary is considered pre-tax or post-tax contributions Many of the same rules applicable to cash or deferred elections under a 401(k) apply to salary reduction contributions under a 403(b) plan, including the following: frequency that an employee is permitted to enter into or modify a salary reduction agreement; compensation to which an agreement may apply; the ability to revoke the agreement. However, all 403b contributions are pre-tax dollars and are tax-deferred for growth.

If interest rates are stable, the best indicator of a bond's value is its a)Nominal yield. b)Yield to call. c)Yield to maturity. d)Current yield.

c) Yield to maturity If interest rates have stabilized, then a bond is no longer subject to interest rate risk; therefore, the best indicator of the bond's value would be its yield to maturity, which may be found by dividing the bond's adjusted annual return by the bond's average price. Remember, a bond held to maturity has no interest rate risk.

If a customer inherits $100,000 worth of stock and sells it within the same year for $120,000, what are the tax implications? a)$120,000 short-term capital gain. b)Zero inheritance tax, $20,000 short-term capital gain. c)Zero inheritance tax, $20,000 long-term capital gain. d)Zero since inheritances are not taxable.

c) Zero inheritance tax, $20,000 long-term capital gain This question is saying that someone has died and given it to the customer. You know these rules. If a security is inherited, the cost basis to the beneficiary is "stepped-up" or "stepped-down" to the fair market value of the securities on the day of the decedent's death. If the beneficiary sells the securities for more than the cost basis, the capital gain will be taxed at long-term capital gains rates, regardless of the holding period.

Administrators require that investment advisers provide full disclosure to clients at least 48 hours prior to entering into an advisory contract. This disclosure document is usually referred to as a)The Client Handbook. b)A prospectus. c)An Investment Advisory Brochure. d)The Registration Statement

c) an investment advisory brochure

Sterling Brokerage is a full service brokerage firm which periodically allows splitting of commissions between its representatives and Platinum Discount Brokerage representatives, a Sterling subsidiary. Which of the following is true?: a)Commission sharing between firms is a prohibited practice.b)Broker/dealers that offer discount services may not share commissions.c)Commission sharing between the representatives of a broker/dealer and an affiliate is permissible.d)A broker/dealer may share commissions only with another affiliated broker/dealer only with approval from the state administrator.

c) commission sharing between the representatives of a broker/dealer and an affiliate is permissible

Which of the following requires a feasibility study? a) GO sewer b) School c) Toll road construction d) A city water district

c) toll road construction Toll road construction, LIKE OTHER REVENUE DEBT, requires a feasibility study

With regard to sales breakpoints, any schedule changes must be communicated to existing shareholders within what period of time? a)Within 7 days b)Within 30 days c)Within 1 year d)Immediately

c) within 1 year

Which of the following is not an investment company? a)Closed-end management company shares b)UIT c)Certificates of interest in mining, oil or gas drilling programs d)Face Amount Certificates

c)Certificates of interest in mining, oil or gas drilling programs Certificates of interest in mining, oil or gas drilling programs are considered securities but are not investment company issues.

A Canadian broker/dealer has an existing Canadian client who relocates to Chicago. The broker/dealer continues to transact business with this customer in her tax-qualified account. Which of the following is true? a)Both the agent and the broker/dealer must register with the state of Illinois. b)Only the broker/dealer must register with the SEC c)If the customer opens a taxable account, the broker/dealer and the representative must register with the SEC and with Illinois. d)The agent associated with the Canadian broker/dealer must register with the state of Illinois.

c)If the customer opens a taxable account, the broker/dealer and the representative must register with the SEC and with Illinois. FOR TAXABLE ACCOUNTS YOU MUST REGISTER WITH THE SEC AND WITH THE STATE IF YOU ARE A CANADIAN BROKER/DEALER

Registered investment companies are required to have directors on their board that are independent of the management company. What is the required minimum percentage of unaffiliated directors? a)50% b)60% c)25% d)40%

d) 40% On a registered investment company's board, 40% of the directors are required to be unaffiliated with the company.

c)Need not be federally registered under the Investment Advisers Act of 1940, but generally must be state registered under the Uniform Securities Act. A person who renders advice solely with respect to securities issued or guaranteed by the U.S. government is exempt from federal registration under the Advisers Act, but not from state registration under the Uniform Securities Act.

Stanley passes away, leaving most assets to his wife except for his IRA and his Roth IRA, which he leaves to his daughter. Which of the following is true? a)All assets are taxed before they are distributed to Stanley's wife and daughter. b)Stanley's daughter will pay taxes on the IRA but not the Roth IRA. c)Stanley's IRA and Roth IRA will be subject to taxation before his daughter receives them. d)Stanley's wife and daughter will each pay taxes on the assets that she receives.

c)Stanley's IRA and Roth IRA will be subject to taxation before his daughter receives them All assets not passed on to a spouse are subject to estate taxes. This includes IRAs, annuities, Roth IRAs, and municipal bonds.

If the trustee of a simple trust does not distribute the income from the trust to the beneficiary by year end, a)Taxes are deferred until the year a distribution is made. b)No taxes liability will accrue against the trust or the beneficiary. c)The beneficiary must pay the taxes as though a distribution were made. d)The trust must pay the taxes on the undistributed income.

c)The beneficiary must pay the taxes as though a distribution were made. On a simple trust, all income is required to be distributed to the beneficiaries every year and must be reported by the beneficiaries, regardless of whether income was actually distributed to them by the trustee of the trust.

A 50-year-old individual needs $20,000 for his child's education, and wishes to withdraw the necessary funds from his traditional IRA. Which of the following statements is true concerning taxation on the withdrawal? a)Regular income tax on withdrawals in excess of his basis will apply, but no penalty tax. b)A 10% penalty tax will be assessed for early distribution. c)The entire amount will be taxed as ordinary income. d)The withdrawal will be subject to regular income tax and a 10% penalty tax.

c)The entire amount will be taxed as ordinary income You know this, just make sure you aren't answering A because cost basis only applies when you are dealing with after tax dollars

Securities that are sold to the public must be registered under the Securities Act of 1933 under which of the following circumstances? a)Upon request, the U.S. Justice Department directs that the security be so registered. b)The securities are sold on an intrastate basis. c)The securities are sold in interstate commerce through the mails or other channels. d)The total value of the issue exceeds $1 million.

c)The securities are sold in interstate commerce through the mails or other channels. The 1933 Act regulates new security issues (both debt and equity) that are sold through the mail or any other instrument of interstate commerce.

Which of the following is true about growth stocks? a)They have high yields. b)They are stocks of well-established companies. c)They pay no dividends. d)They are most suitable for older investors.

c)They pay no dividends. Growth stocks are stocks of newly emerging companies who reinvest virtually all of their earnings back into the company to grow the company. Since they pay little in dividends, they have low yields and are not suitable for older investors.

A mutual fund's custodian a)Safeguards cash, securities, and portfolio records. b)Safeguards customer cash and securities. c)Issues new shares and redeems old shares. d)Safeguards fund cash and securities.

d( Safeguards fund cash and securities The custodian safeguards the mutual fund's portfolio assets, not customer assets. The transfer agent processes shares and the investment adviser maintains portfolio records.

d) $1.59 FOR POST-DILUTIVE EPS YOU CONVERT THE DEBENTURES IMMEDIATELY AND DO NOT PAY THEM. GO STRAIGHT TO TAXATION The convertible bonds all converted ($5,000,000/$10 = 500,000 shares of common). More shares are created, but interest cannot be deducted. Therefore, taxable earnings increase and net income also increases; however, because the number of shares outstanding goes up, the earnings-per-share goes down or dilutes. $4,000,000 (profit) X .66 (converse of 34% tax) = $2,640,000 (post-tax profit) minus $250,000 (preferred dividends) = $2,390,000 earnings divided by 1,500,000 shares = $1.59 EPS.

Qualified higher education expenses in a 529 plan include which of the following expenses for elementary and secondary public school? a)Books and supplies b)None; only postsecondary education expenses are allowed. c)Unlimited expenses d)$10,000 in tuition

d) $10,000 in tuition

If a customer enters a buy stop order at 50 and the market trades that follow are 48, 49, 50, 51, and 52, the order will most likely be executed at a)48 b)49 c)50 d)51

d) 51 When entering a buy stop order, the objective is to buy stock not already owned before it goes up too far in value. For example, a stock has been trading in a price range between $40 and $49. If the stock ever breaks through its top-side resistance level of $49, it is thought that it will go way up, so a buy stop order is entered at $50. If the stock hits $50, the buy stop order is triggered and will become a market order. The stock will be purchased on the next tick, which in this case is $51.

Some broker/dealers that have no place of business in the state can be exempt from registration. Which of the following does NOT qualify for this exemption? a)A broker/dealer that only had 2 customers during the previous 12-month period b)A broker/dealer that transacts business only with other broker/dealers, issuers, institutional buyers, or financial institutions c)A broker/dealer licensed in the state where it maintains a place of business and makes offers only to existing customers who are not residents of that state d)A broker/dealer that has a customer who moves to a state where the broker/dealer is not registered, but the client chooses to continue the brokerage arrangement

d) A broker/dealer that has a customer who moves to a state where the broker/dealer is not registered, but the client chooses to continue the brokerage arrangement Broker/dealers who have a customer who moves to a state where the broker/dealer is not registered and has no place of business are exempt from registration only if the customer does not conduct any further transactions with the same broker/dealer.

The Prudent Investor Act is directed primarily toward which of the following? a)An IA of a mutual fund b)The trust's CPA c)The money manager of a pension plan d)A trustee of a trust

d) A trustee of a trust The Uniform Prudent Investor Act is centrally concerned with the investment responsibilities arising under the private gratuitous trust, which is the common vehicle for conditioned wealth transfer within the family. Nevertheless, the prudent investor rule also bears on charitable and pension trusts, among others.

XYZ Investments believes that Acwak is a great buy for its customers. Acwak is launching a new product soon that should be very successful, and XYZ Investments would like its customers to benefit from this upward price move of Acwak's stock. Because XYZ Investments is still presenting the purchase idea to a few of its best customers, XYZ Investments is publicly downplaying the new product launch to delay the upward price move. This is a)A violation of the short-swing profit rule. b)A violation of the Insider Trading Act of 1988. c)Standard industry discretion. d)A violation of the Uniform Securities Act.

d) A violation of the Uniform Securities Act

Which will receive dividends? a)Warrant b)Treasury stock c)Preemptive rights d)ADR

d) ADR ADRs receive dividends. You know about everything else, treasury stock is stock bought back by the company

Under the Uniform Securities Act, which of the following is EXCLUDED from the definition of an investment adviser? a)A bank b)An investment adviser representative c)A lawyer giving securities-related advice that is incidental to the practice of law d)All answers options are excluded.

d) All answers options are excluded The law makes a distinction between investment advisers and their representatives and certain professions that are excluded from the definition if the investment advice provided is solely incidental to the practice of that profession. Banks are given a blanket exclusion.

Which of the following statements regarding agent and broker/dealer registration is true? a)Surety bonds may be required for both agents and broker/dealers that have custody of funds or discretionary authority over customer securities. b)Cash or securities may be deposited in lieu of a bond. c)It is broker/dealers, not agents who may be required to meet minimum net capital requirements. d)All of the above are true.

d) All of the above are true

All of the following are prohibited or fraudulent practices for an agent EXCEPT a)An agent takes trade instructions from a corporate president, for the corporation's account without having on file a corporate resolution that grants the president trading authority over the account. b)An agent enters an order in a customer's account without the customers consent. c)An agent enters a sell order for a customer's account pursuant to instructions from the customer's accountant. d)An agent with discretionary authority over a customer's account enters a buy order without first notifying the customer.

d) An agent with discretionary authority over a customer's account enters a buy order without first notifying the customer An agent with discretionary authority may enter a trade order without first consulting the customer.

Mutual fund shareholder rights include all of the following EXCEPT a)Voting by proxy. b)Approving changes in investment objectives and policies. c)Election of the directors. d)Appointment of the investment adviser.

d) Appointment of the investment adviser The investment adviser is chosen by the directors. Shareholders vote to approve the investment advisory agreement.

Alice wants a convenient way to choose an investment strategy that offers a mix of investments that is appropriate to her stage in life. Which fund should Alice choose? a)Balanced fund b)Growth and income fund c)Life index fund d)Asset allocation fund

d) Asset allocation fund An asset allocation fund follows a specified allocation model. Alice can choose from various mutual funds following different investment allocation models and select a fund that is appropriate for her circumstances.

An investment adviser compensated for a client's participation in a wrap fee program must provide the client with a written disclosure statement containing a)Only the services and fees of the program. b)At least the information required by Part 2A of Form ADV Appendix 1, even if another adviser has already furnished such a statement on the program to the client. c)At least the information in Form ADV Part 2. d)At least the information required by Schedule 2A of Form ADV Appendix 1, unless another adviser has already furnished such a statement on the program to the client.

d) At least the information required by Schedule 2A of Form ADV Appendix 1, unless another adviser has already furnished such a statement on the program to the client. The required disclosure statement for wrap fee programs must contain at least the information in Part 2A of Form ADV Appendix 1, but duplicates need not be provided to clients who have already received the required disclosure on that program from another adviser.

Which of the following is subject to securities registration? a)Bank stock b)Futures contract c)IRA d)Bank holding company stock

d) Bank holding company stock Bank stock is not subject to registration but bank holding company stock is. Futures contracts and IRAs are not securities.

Coupon bonds are also known as a)Nominal bonds. b)Zero coupon bonds. c)Debentures. d)Bearer bonds.

d) Bearer bonds Coupon bonds are issued in the form of paper certificates with attached coupons for the interest payments. Because they are not registered, they are in bearer form.

When selling securities in an offering, a broker/dealer must furnish a final prospectus to a customer no later than the a)End of the fifth business day. b)Trade date. c)Settlement date. d)Date of the confirmation.

d) Date of the confirmation Broker/dealer firms must not fail to furnish a customer purchasing securities in an offering either a final prospectus or a preliminary prospectus and an additional document no later than the due date of the confirmation of the transaction. A preliminary prospectus and an additional document together include all information set forth in the final prospectus.

An agent works for a broker/dealer operating in Virginia. The agent is registered in Virginia. In order to keep his Form U-2, Uniform Consent to Process effective in Virginia, the agent must a)Update his Form U-2 every year. b)Submit a new Consent to Process each year when he renews his registration. c)Send a copy of his U-2 with his registration renewal. d)Do nothing: the Consent to Process is an irrevocable document that only needs to be filed once.

d) Do nothing: the Consent to Process is an irrevocable document that only needs to be filed once The Consent to Process is an irrevocable document that must only be filed once and remains in effect as long as the agent or the representative is registered.

A portfolio that has a maximum expected return for any level of risk or a minimum level of risk for any expected return is known as a)Correlated. b)Diversified. c)Defensive. d)Efficient.

d) Efficient This statement defines an efficient portfolio, which takes into account the expected return and standard deviation of return for each security as well as the covariance of returns between different securities in the portfolio.

Which of the following is subject to current taxation? a)Individual retirement account b)Keogh plan c)Incentive stock option plan d)Employee stock option plan

d) Employee stock option plan Unlike an incentive stock option plan, an ESOP is a nonqualified stock option plan. Therefore, the difference between the stock option price and the stock's current market price at exercise is considered taxable income.

Persons who are found guilty of insider trading violations are subject to all of the following penalties EXCEPT: a)Civil lawsuits.b)Treble charges.c)Imprisonment. d)FINRA fines.

d) FINRA Fines

An investment adviser representative has done extensive personal research on a pharmaceutical company. He wants to take advantage of what he considers an excellent growth opportunity by purchasing the company's stock at the current market price; however, he has limited funds to do so. Under what circumstances may the IAR borrow funds from his clients to make the trade? a)He may not borrow the funds to execute this transaction under any circumstances as it is a direct violation of the SEC bylaws. b)If he has a client that has sufficient money market funds who is willing to make a brokerage loan against the account, he may set-up the loan. c)He may borrow the funds from his pooled funds in his custodial account listed under his name for his clients' funds. d)He may borrow the funds from any client that is an affiliate of the Investment Advisor and is willing to make the loan.

d) He may borrow the funds from any client that is an affiliate of the Investment Advisor and is willing to make the loan. It is inappropriate for an investment adviser or an investment adviser representative to borrow from or loan to clients any form of security or funds unless the client is a broker/dealer, an affiliate of the investment adviser, or a financial institution engaged in the lending business.

Which of the following is a suitability concern regarding a fund of funds? a)Lack of diversification b)Impaired liquidity c)Specialized investment objective d)High expense ratio

d) High expense ratio Because a fund of funds invests in other mutual funds, it has a "double layer" of expenses, which typically means a higher expense ratio than other funds. By investing in a fund of funds, the investor gains exposure to several different investment objectives and a diverse range of securities. A fund of funds is a liquid as a conventional mutual fund.

d) I and III Contract assignment includes a change in majority ownership of any class of voting securities, or a change in the majority interest of a partnership. A minority shareholder becoming a majority shareholder is a change in majority ownership.

d) I and III The administrator may cancel a registered person's registration of a person who is no longer in existence, found to be mentally incompetent or cannot be located

A DMM on the NYSE I. Is charged with maintaining a fair and orderly auction market in a security. II. Deals in only one specific security. III. Is an employee of the NYSE. IV. Is employed by a member firm of the NYSE. a)II and III b)II and IV c)I and II d)I and IV

d) I and IV A DMM is an employee of a member firm. There is only one DMM designated for a given stock, but a dealer may be a DMM for several stocks.

What is the prime rate?

the interest rate that commercial banks charge their most creditworthy customers, generally large corporations. The prime interest rate, or prime lending rate, is largely determined by the federal funds rate, which is the overnight rate that banks use to lend to one another.

What causes the U.S. to have a balance of payments deficit? I. Too many foreign investors; II. U.S. investors putting their U.S. dollars in foreign investments; III. Exporting more than importing; IV. Importing more than exporting a)I & III b)III only c)IV only d)I & IV

d) I and IV The balance of payments (BOP) is an accounting record of a country's international transactions for a particular time period. Any transaction that causes money to flow into a country is a credit to its balance of payment account and any transaction that causes money to flow out is a debit. The sum of the balance of payments statement should be zero. The United States, however, buys more goods and services than are sold (a current account deficit) and must finance the difference by borrowing or by selling more capital assets (a capital account surplus). The U.S. is effectively exchanging capital assets for goods and services. A large trade deficit means that the U.S. is borrowing from abroad, typically in the form of U.S. government debt that is held by foreign investors.

A variable annuity offers the deferral of which of the following? I. Income taxes; II. Social Security taxes; III. Unemployment taxes; IV. Medicare taxes a)III only b)II & IV c)I, II, III & IV d)I only

d) I only Annuities offer tax deferred earnings during the pay-in period. Tax deferred means that the income taxes owed on the earnings are not owed currently but will instead be owed at some point in the future.

d) I, II and III A fund's redemption fee is a percentage of the next computed bid price, or NAV, at the time of the request. All statements are correct.

An investment adviser who has no place of business in the state may provide investment advice to which of the following without needing to be registered as an investment adviser? I. Investment companies; II. Pension plans; III. No more than 5 customers other than institutional investors in 12 consecutive months. a)II & III b)I & III c)I & II d)I, II & III

d) I, II and III The term investment adviser does not include a person having no place of business in the state or whose activities are limited to professional customers or to a very few solicitations to customers other than those mentioned above. For example, most states limit this activity to no more than 5 customers in any consecutive 12-month period.

Which of the following would require the delivery of a prospectus at the time of sale? I. Variable universal life; II. UIT; III. Mutual fund; IV. Closed-end bond fund a)I, II and III only b)I and III only c)II and IV only d)I, II, III and IV

d) I, II, III and IV All examples are registered securities and require a prospectus

If a retirement plan automatically enrolls employees, which of the following must be done in order to limit a fiduciary's liability for any plan losses that are a result of automatically investing participant contributions in certain default investments? I. There are only four types of allowable default investments. II. An initial notice and an annual notice must be sent to plan participants. III. Participants must also have the opportunity to direct their investments to a broad range of other options. IV. Education materials must be provided. a)II & IV b)IV only c)I & III d)I, II, III & IV

d) I, II, III and IV Plans that automatically enroll employees can be set up to limit a fiduciary's liability for any plan losses that are a result of automatically investing participant contributions in certain default investments. There are four types of investment alternatives for default investments as described by the Department of Labor regulations and an initial notice and annual notice must be provided to participants. Also, participants must have the opportunity to direct their investments to a broad range of other options and be provided materials on these options to help them do so.

Regarding a broker/dealer retail sale to a customer, how can an order be filled? I. From inventory; II. Sell short to customer; III. Simultaneous or riskless transaction; IV. As an agent a)I and II b)I and IV c)II and III d)I, II, III and IV

d) I, II, III and IV The first three of these are principal transactions (as a dealer). The last is an agent or broker transaction.

d) I, II, III, and IV The first three of these are principal transactions (as a dealer). The last is an agent or broker transaction.

Which of the following would be classified as a fiduciary? I. Custodian of an UGMA account; II. Trustee; III. Administrator of an estate a)I only b)I and II only c)II and III only d)I, II and III

d) I, II, and III

If a high-yield bond was purchased for $10,000 and is now worth $9,000, the bondholder should be concerned about which of the following? I. Credit risk; II. Opportunity cost; III. Interest rate risk; IV. Currency risk. a)II & III b)III & IV c)I, II, III & IV d)I, II & III

d) I, II, and III Credit risk is always a concern with junk bonds (high-yield bonds) The bondholder has credit risk, opportunity cost, and interest rate risk. Remember, if interest rates go up above the nominal rate of return on a bond, the value of the bond will drop in the secondary market. In securities, opportunity cost is defined as the cost of forgoing a safe return in hopes of making a higher profit. Credit risk is also known as default risk and is a concern on high-yield (or junk) bonds. Currency risk exists in international markets.

Under NASAA's Model Rules concerning the unethical business practices of investment advisers, investment adviser representatives, and federal covered advisers, when can an adviser borrow money from a client? I. When the client is affiliated with the investment adviser; I. When the client is a financial institution in the business of loaning money; III. When the client is a broker/dealer firm; IV. Under no circumstances a)IV only b)I only c)II & III d)I, II & III

d) I, II, and III Man I suck at these Advisers may borrow money from a client as long as the client is affiliated with the adviser, the client is in the business of loaning money (like a bank), or the client is a broker/dealer firm.

Under the USA, a security may not be sold in this state unless: I. It is registered. II. It is exempt. III. It is sold in an exempt transaction. a)I only b)II only c)I & II d)I, II & III

d) I, II, and III New securities may not be sold in this state unless they are registered, exempt from registration, or are being sold in an exempt transaction.

Which of the following statements concerning conflicts of interest are true under NASAA's Model Regulations for Investment Advisers and Federal Covered Advisers? I. Where a conflict of interest exists, an adviser is required to decline taking on the client. II. A conflict of interest is defined as anything that may impair the impartiality of the advice being rendered. III. A conflict of interest exists when an adviser has an agent of a broker/dealer as an employee. a)I, II & III b)I & II c)I & III d)II & III

d) II and III Conflicts of interest are circumstances relating to the adviser or any employee that could impair the rendering of unbiased and objective advice. This includes but is not limited to the possibility of receiving compensation from sources other than clients' fees (such as a salary or commission from a broker/dealer) as a result of providing investment advice. Such conflicts of interest must be disclosed to a client in writing before the investment advisory contract is signed.

d) II and III Fraudulent acts are intentional, not accidental. The sharing of commissions with an investment adviser is allowable if disclosed to the customer, but the issue of disclosure was not presented in the question.

A customer of a broker/dealer whose sole objective is income has granted discretionary authority to her agent. The agent purchases zero-coupon bonds for the account. This action is: I. Suitable; II. Unsuitable; III. Authorized; IV. Unauthorized a)II & IV b)I & III c)I & IV d)II & III

d) II and III While the trade is unsuitable based on the customer's investment objectives, the customer has granted the proper written discretionary authority to the agent to make trades in her account.

An Investment Advisory Brochure I. May not be used in lieu of a written contract even if it is complete and current. II. Must be furnished prior to execution of a written contract. III. Is the only form of IA advertising permitted under the Uniform Securities Act. IV. May be used in lieu of Form ADV part II if it is current and contains all required disclosures. a)I and II b)I and IV c)II and III d)II and IV

d) II and IV Either the IA brochure or form ADV part II must be furnished to a prospective client 48 hours prior to executing a contract. It may be presented at the time of contract execution if the client is given a 5-day free-look period in which to opt out without penalty.

Which of the following is/are prohibited as funding vehicles for IRAs? I. Stocks; II. Collectibles; III. Mutual funds a)III only b)I & III c)II & III d)II only

d) II only IRAs may be funded with a variety of investment vehicles, including stocks, bonds, mutual funds, and certificates of deposit. However, investments in collectibles and life insurance (except for annuities) are not permitted. ITS ASKING PROHIBITED

Carla is withdrawing funds from her life insurance. Her financial planner tells Carla that I. Her withdrawals are treated the same as withdrawals from a variable annuity. II. Her dollars are withdrawn using the IRS's exclusion ratio, so that each withdrawal is partially taxed. III. Her dollars are withdrawn assuming FIFO. IV. If her life insurance is reclassified as a modified endowment contract, Carla's withdrawals will receive LIFO treatment. a)I and II b)I and IV c)II and III d)III and IV

d) III and IV Life insurance policy withdrawals prior to death are normally withdrawn assuming FIFO. However, if the contract violates certain IRS rules, it is reclassified as a modified endowment contract, or a MEC. Withdrawals made from MECs follow LIFO treatment

Market makers differ from specialists in that I. Market makers facilitate an auction market. II. A market maker may deal from inventory. III. There is only one specialist per security on the exchange. IV. A market maker does not facilitate agency trades. a)I and II b)I and III c)II and IV d)III and IV

d) III and IV Market makers operate in the OTC market, which is negotiated. Market makers always deal from their inventory account. Where there is only one specialist per security on the exchange, there may be many market makers per OTC security.

An Investment Policy Statement (IPS) associated with an employer sponsored plan I. Must be provided for each investment company security (mutual fund) offered as a plan option. II. Is a requirement under section 404(c) of ERISA. III. Helps to document the sponsor's compliance with section 404(c). IV. Defines how investment options are selected, monitored and evaluated. a)I and II b)I and IV c)II and IV d)III and IV

d) III and IV While not a requirement, an IPS helps to document good faith compliance with section 404(c). It described policies and procedures for evaluating, selecting and monitoring the various investment options offered in a plan.

All of the following are true regarding a letter of rescission EXCEPT a)It is used when an agent realizes he has effected an illegal sale. b)It includes an offer to buy back the security plus interest less income received. c)The client has 30 days to act on the letter of rescission. d)If a client does not act on the letter he can still bring action in court at any time.

d) If a client does not act on the letter he can still bring action in court at any time. The client only has 30 days to act after the receipt of the letter. After that, he cannot bring action in court

At the time a broker/dealer becomes registered, which of the following is true regarding current officers, directors and partners in the firm? a)They must also obtain a principal's license at that time. b)They are automatically registered as agents regardless of the capacity in which they serve. c)If they are to act in an agent capacity, they must each complete the normal agent registration process. d)If they act in the capacity of an agent, they automatically become registered as agents at that time.

d) If they act in the capacity of an agent, they automatically become registered as agents at that time.

USA gives state administrators all of the following powers EXCEPT a)Bring an action in court to request the issuance of a temporary or permanent injunction. b)Subpoena records and witnesses. c)Issue a cease and desist order. d)Issue a permanent injunction.

d) Issue a permanent injunction The order for the injunction must go through the court system.

The cost basis in a tax-qualified retirement plan includes a)Contributions, but not growth b)Growth but not contributions. c)Both contributions and growth. d)Neither contributions nor growth.

d) neither contributions nor growth Cost basis only exists when after-tax dollars are contributed to a plan. Since the employee has not been taxed on employer contributions or on his own pre-tax contributions, the cost basis is zero.

Which of the following would be the least appropriate funding vehicle for a 403(b) plan? a)Stocks b)Mutual funds c)Annuities d)Money market funds

d) Money market funds Under Internal Revenue Code Section 403(b), tax exempt, nonprofit organizations such as churches, public school systems, and charitable organizations may offer tax-deferred retirement plans to their employees. Contributions, which usually come from salary reduction, are excluded from the participant's gross income and earnings are tax free until withdrawn. Plans may be funded by investing in mutual funds, annuities, stocks, bonds, and bank CDs. Due to the long-term nature of a 403(b) plan, investing funds into a money market fund would be the least suitable of these choices.

In a private placement, all are true EXCEPT a)The offering is an exempt transaction. b)The offer is for nonexempt securities. c)No commission is paid for selling a private placement to someone other than a financial institution or sophisticated investor. d)More than 10 persons can receive offers within 18 months.

d) More than 10 persons can receive offers within 18 months In a private placement, no more than 10 persons can receive offers within 12 consecutive months.

Which of the following is not subject to federal and state security registration requirements? a)Preferred stock b)Open-end investment companies c)Debentures d)Municipal securities

d) Municipal securities U.S. Government and municipal securities are exempt from the Securities Act of 1933 registration requirements.

An Investment Advisory Brochure a)May be used in lieu of an advisory contract only if accompanied by a current prospectus. b)May be used in lieu of a prospectus only with sophisticated investors. c)Must be preceded or accompanied by a current prospectus. d)Must disclose all material information to a prospective client.

d) Must disclose all material information to a prospective client

Which of these choices has recently been defined as a security to protect investors due to past abuses of these instruments? a)Whiskey warehouse receipts b)Commodities futures contracts c)Unit investment trusts d)Network marketing arrangements

d) Network marketing arrangements Network marketing arrangements, also known as multilevel distributorship programs, have been defined as a security to protect investors under the anti-fraud provisions on the Uniform Securities Act.

A husband and wife purchased their home for $100,000. Eighteen years later, they sold their house for $375,000. How much of the gain is taxable? a)$100,000 b)$275,000 c)$375,000 d)None of it

d) None of it IRC rules allow a single person to exclude up to $250,000 of gain on the sale of a primary residence from income. A married couple is allowed to exclude up to $500,000 of gain. To qualify for the capital gains exclusion, the person must have owned the home for at least 2 years during a 5-year period that ends on the date of the sale, and must have lived in the home as primary residence for at least 2 years during that same 5-year period. A person can only sell a primary residence and qualify for this exclusion once every 2 years.

Which of the following individuals is required to be registered as an agent under the Uniform Securities Act? a)An employee of an issuer who oversees the processing of contributions into the investment accounts of the issuer's employees defined contribution plan b)An employee of an issuer who solicits institutional investors for funds to finance new manufacturing facilities c)A municipal employee processing underwriting bids from investment bankers for a municipal bond offering that will be sold to both retail and institutional investors d)None of the above

d) None of the above

A newspaper with paid circulation is published in Georgia, with 90% of its circulation in neighboring Tennessee and Alabama. The newspaper contains an offer to sell a security. According to the Act, this is considered an offer to sell in the state(s) of a)Tennessee and Alabama. b)Georgia only. c)Tennessee, Alabama and Georgia. d)None of the above

d) None of the above An offer is not considered made in the state if the newspaper is not published in the state. Also, an offer is not made in a state if the newspaper is published in the state but has more than two-thirds of its circulation outside of the state over the past 12 months.

Any cause of action under the Uniform Securities Act (USA) is terminated upon a)The death of the plaintiff. b)The death of the defendant. c)The death of either the plaintiff or the defendant. d)None of the above

d) None of the above Any cause of action under the Uniform Securities Act survives the death of any plaintiff or defendant.

An applicant passes the written examination required to become registered. Which of the following describes the person's status? a)If the person has submitted an application and paid registration fees, then registration is complete. b)It varies from state to state. c)Registered d)Not yet registered

d) Not yet registered All applicants may be required to pass a written or oral examination to meet qualification standards of the administrator. Passing the examination is not sufficient in and of itself for registration. Applicants cannot transact business until all required items are filed and the registration is granted by the administrator.

Under the NASAA Model Regulations for Investment Advisers and Federal Covered Advisers, when can an adviser accept referral fees from a stockbroker for sending clients? a)Only with permission of the Administrator b)Never, it is unethical c)Only when the adviser is also a registered representative d)Only when such arrangement is fully disclosed to the client

d) Only when such arrangement is fully disclosed to the client It is a common practice for advisers to receive finders' fees from stockbrokers to whom they refer clients and vice versa. However, these conflicts of interest must be disclosed to the client in advance and there must be a written agreement between the adviser and the stockbroker.

Why is a REIT generally not used as a tax shelter? a)Capital gains do not pass through. b)Limited liability c)Too many corporate aspects d)Operating losses do not pass through.

d) Operating losses do not pass through A REIT is organized under subchapter M for tax purposes, as are investment companies. Subchapter M permits pass through of gains only to shareholders, but not pass through of operating losses.

To slow down inflation, the Federal Reserve Board (FRB) will a)Lower bank reserve requirements. b)Lower the discount rate. c)Reduce long-term interest rates. d)Raise short-term interest rates.

d) Raise short-term interest rates To slow down the rate of inflation, the FRB will pursue a tight money policy. This means that they will raise interest rates starting with the Federal Funds rate, which is the interest rate that banks charge each other for overnight loans. However, in order to stimulate the economy and avert a recession, the FRB will lower short-term rates.

To find future value, all of the following information is needed EXCEPT the a)Present value. b)Holding period. c)Interest rate. d)Rate of inflation.

d) Rate of inflation To find future value, the present value would have to be adjusted by a compound interest rate calculated over the holding period. The rate of inflation is needed to calculate the real return. This question may also be asked backwards, that is, to find present value, it is necessary to know the future value and discount it back using a compound interest rate (or rate of return).

Which of the following is an asset class? a)Futures b)High-yield bonds c)Options d)Real estate

d) Real estate Asset classes include stocks, bonds, real estate, insurance products, cash, and cash equivalents. If the answers had said just bonds, then that would have also been as asset class. High-yield bonds are not an asset class.

All of the following are used in volatility measurements EXCEPT a)Beta. b)Standard deviation. c)Correlation. d)Real return.

d) Real return Correlation is a statistical measurement used to describe how two securities move in relationship to one another. While it is true that both standard deviation and beta are also used to measure volatility, neither of these show statistical correlation. Standard deviation is used to show how far an investment tends to move from its mean return. Beta shows covariance, not correlation, between an investment and the market. Real return is a measure of performance and may be determined by subtracting inflation from total return.

According to NASAA's Model Regulations for Investment Advisers and Federal Covered Advisers, which of the following is unethical? a)Borrowing funds for personal use from a client that is a bank b)Omitting nonmaterial facts in a presentation to an advisory client about a recommended investment c)Exercising discretion with regard to the timing or price of an order without written authorization from the client d)Recommending a certain limited partnership investment to all clients

d) Recommending a certain limited partnership investment to all clients Recommending an investment without determining its suitability to each client is considered unethical. Exercising discretion as to the timing or price of an order without written authorization from the client or borrowing funds for personal use from a client that is a bank are not unethical. The adviser, however, cannot otherwise borrow from clients. Omitting nonmaterial facts is permissible when recommending securities to a client, but omitting materials facts is unethical.

An agent inadvertently sold a nonexempt unregistered security. Which of the following actions would NOT rectify this situation? a)Pay the client interest less dividends received from the date of purchase b)Offer the right of rescission c)Purchase the security from the client d)Register the security

d) Register the security The agent may purchase the stock from the client through an offer of rescission and pay the client interest from the date of purchase. However, the agent cannot get the security registered.

A global fund would be comprised of which types of securities? a)Securities issued by emerging markets b)ADRs c)Securities issued by foreign companies only d)Securities issued by domestic and foreign companies

d) Securities issued by domestic and foreign companies A global fund invests in securities issued by both domestic and international companies. An international fund would invest only in securities issued by foreign companies.

An investor opens a mutual fund account with $3,000. After 45 days, she signs a letter of intent for a $10,000 breakpoint. Nine months later, she deposits $12,000 into the fund. Which of the following statements is true? a)She will receive reduced sales charges on $12,000 worth of shares. b)She will receive reduced sales charges on $10,000 worth of shares. c)She will not receive any reduced sales charges. d)She will receive reduced sales charges on $15,000 worth of shares.

d) She will receive reduced sales charges on $15,000 worth of shares Letters of intent are valid for 13 months and can be backdated up to 90 days prior to their signing. She will receive the reduced sales charges on the entire $15,000 worth of shares.

A security sale to an insurance company is exempt under the Act. This is referred to as a(n) a)Glass-Steagall exemption. b)Non-issuer exemption. c)Exempt security. d)Sophisticated investor exemption or accredited investor exemption.

d) Sophisticated investor exemption or accredited investor exemption Since a transaction of this type does not involve the general public, the sophisticated investor exemption applies because these entities are in a position to take care of themselves and do not require protection under the Act.

The sale of a security to an insurance company is called a)Insurance exemption. b)Qualified exemption. c)Dealer exemption. d)Sophisticated investor exemption.

d) Sophisticated investor exemption. Among exempt transactions are those offerings directed to insurance companies; these transactions are considered institutional transactions and fall under exemptions available to sophisticated or accredited investors.

The term "Blue Sky Laws" refers to a)Securities laws in certain Midwestern states. b)State laws regulating the registration of Investment Advisers and Broker/Dealers in Kansas. c)State laws relating to disclosure issues for insurance companies. d)State laws regulating the registration and distribution of securities.

d) State laws regulating the registration and distribution of securities "Blue Sky Laws" are state laws for registration and distribution of securities to be offered in that state.

Which legislative act requires that mutual funds pay redemption proceeds within 7 calendar days? a)The Securities Act of 1933 b)The Securities Exchange Act of 1934 c)The Trust Indenture Act of 1939 d)The Investment Company Act of 1940

d) The Investment Company Act of 1940 Most of the legislation pertaining to mutual funds can be found in the Investment Company Act of 1940.

All of the following apply when the U.S. imports more goods than it exports EXCEPT a)The U.S. will experience a balance of payments deficit. b)The U.S. will experience a balance of trade surplus. c)The U.S. will experience an unfavorable balance of trade. d)The U.S. will experience a balance of trade deficit.

d) The U.S. will experience a balance of trade deficit The balance of trade is the net difference over a period of time between the value of a country's imports and exports of merchandise, such as autos, foods, and apparel. When a country exports more than it imports, it is said to have a favorable balance of trade, but when a country imports more than it exports, it creates an unfavorable balance of trade or trade deficit. Although the U.S. typically has an unfavorable balance of trade, it is generally considered to have a good economic position since payments for services and tourism abroad are not included in balance of trade calculations.

Which best describes the conditions under which an agent may be associated with more than one broker/dealer at the same time? a)Under no circumstances b)The agent has a valid registration through one of the firms, both firms agree in writing and the State Administrator approves the arrangement c)The Administrator allows multiple registrations and both firms are properly registered in that state d)The Administrator allows multiple registrations and the agent files a separate application through each firm

d) The administrator allows multiple registrations and the agent files a separate application through each firm Most states and most broker/dealers prohibit such arrangements; however, if the Administrator allows and an application for registration is submitted through both firms, multiple registrations are lawful.

How much may a limited partner in a limited partnership lose? a)Maximum 10% of investment b)The amount invested only c)The percentage of sharing d)The amount invested plus any recourse loans outstanding

d) The amount invested plus any recourse loans outstanding A limited partner's cost basis would include the amount invested in the partnership plus any recourse financing. Thus the most a limited partner could lose would be the amount invested plus any outstanding recourse loans.

Jimmy had money invested in SkyHi Aggressive Growth Fund for the past calendar year and realized a substantial capital gain on the shares; however, Jimmy did not sell the shares during the year. Which of the following statements is TRUE? a)Jimmy is not required to pay taxes on realized capital gains. b)Jimmy is not subject to taxes on the gains if they were reinvested. c)This information is not subject to IRS reporting in the current year. d)The capital gain is reported to Jimmy on a 1099 form.

d) The capital gain is reported to Jimmy on a 1099 form. When the fund realizes gains on investments in the portfolio, they are reported to shareholders on Form 1099.

Which of the following best defines a markup? a)The difference between the bid and the ask b)The highest price a buyer is willing to pay c)A broker/dealer's commission d)The company's compensation in the trade

d) The company's compensation in the trade A dealer earns money by marking up the cost of the security. The markup is the firm's compensation in the trade

The basis for determining the inflation-adjusted rate of return is a)3-month CD rates. b)3-month T-bill rates. c)Internal rate of return. d)The consumer price index.

d) The consumer price index. Inflation-adjusted return (real return) may be found by reducing the nominal rate of return on an investment by the rate of inflation as indicated by the consumer price index (CPI).

When a broker/dealer firm acts as a dealer, its bid and ask prices for a security should be based upon a)What was paid for the security. b)More than what was paid for the security. c)Less than what was paid for the security. d)The current market.

d) The current market It is risky to act as a securities dealer in the secondary market since the dealer's bid and ask prices must be based upon current market prices.

Under the Investment Advisers Act of 1940, which of the following statements is true with respect to an investment advisory firm that changes the fee it charges clients? a)The change can be made only if all existing clients consent to the new arrangement. b)The firm must promptly file an amended Form ADV with the SEC. c)The firm can never change its fees. d)The firm is not required to obtain prior SEC approval of the change.

d) The firm is not required to obtain prior SEC approval of the change. Consent of the adviser's existing clients to a change in fee is not required. Prior SEC approval also is not required. The SEC does not require that an interim amendment be filed unless there is a disciplinary action or a change in a previously disclosed disciplinary action. When the firm files its amendment to Part 2A within 90 days of the end of the firm's fiscal year, then the firm must note the change in fees. The client will be made aware of the change in the fees with the annual brochure and/or summary of material changes that the firm must provide to the client within 120 days of the end of the firm's fiscal year.

The legal document that specifies the terms associated with the administration and ownership in a general partnership business model is called a)The articles of incorporation. b)The business ownership agreement. c)The business charter. d)The partnership agreement.

d) The partnership agreement

A company has 50 employees whose average age is 27. The retirement plans offer 12 different equity choices. Under Section 404(c) of ERISA, which of the following statements is true? a)The plan does not have to educate the employees. b)The employees must be allowed to change their investment allocations annually. c)This plan is adequately diversified. d)The plan must also include a fixed income choice and money market choice.

d) The plan must also include a fixed income choice and money market choice. Under Section 404(c) of ERISA, the retirement plan must offer at minimum three different investment choices. These choices must be different in risk and reward possibilities. Although 12 equity choices is a broad number of choices, they are all equity choices. The plan must also offer a fixed income choice as well as a money market choice. In this way, three different risk categories are covered — equity is the highest risk, bond fund below that, and money market fund as the least risky.

A federal registered investment adviser is in the process of filing the financial reports required by the Administrator. Which of the following is true concerning the reports? a)There is no requirement to file financial reports with FINRA, so the adviser will only file a report with his state administrator. b)The adviser will need to file the reports only with FINRA since he is a federal registered adviser. c)The adviser must file both the state specific and federal reports forms with the appropriate agencies every 2 years. d)The reports that are filed under the federal acts can be filed with the state as well.

d) The reports that are filed under the federal acts can be filed with the state as well. Registered broker/dealers and investment advisers must file financial reports with the administrator. If the investment adviser is federally registered (managing $100 million or more in assets), the reports that are filed under the federal acts may also be filed with the state to satisfy this requirement.

Which of the following is true concerning broker/dealer successor firm applications? a)A filing fee must be included with the successor firm registration application. b)The term of the successor firm registration begins 30 days after the original firm ceases to do business. c)The initial successor firm registration remains effective for 18 months unless otherwise directed by the Administrator. d)The successor firm need not be in existence at the time of application.

d) The successor firm need not be in existence at the time of application.

To calculate taxes due on mutual fund shares being sold using the average cost basis for the shares, what must the investor account for? a)Any cash dividends paid out to the investor during the holding period. b)All dividend and capital gains paid out to the investor in cash after the shares were purchased. c)Only the capital gains received in cash during the holding period. d)The taxes paid on dividend and capital gain reinvestments made for additional shares.

d) The taxes paid on dividend and capital gain reinvestments made for additional shares. To be calculated correctly, investors must also take into account all taxes previously paid on shares that have been purchased through dividend or capital gains reinvestment programs.

An HSA holder who is 65 years old decides to use the money in the account for a nonhealth expense. Which of the following is true? a)There will be no taxes and no penalties. b)There will be a tax and a 20% penalty. c)There will be a 20% penalty. d)There will be a tax.

d) There will be a tax Pay attention to the fact that the holder is 65 years old. She will not have to pay the 20% penalty but will have to pay tax

The following statements are true concerning 12b-1 fees EXCEPT a)They may be used to pay sales commissions. b)They have the effect of reducing the investor's total return. c)They cover costs such as printing of prospectus and sales materials. d)They are limited to a maximum of 0.25% of assets.

d) They are limited to a maximum of .25% of assets Fees may not exceed .75% of assets. If a fund markets itself as "no-load", its 12b-1 fee may not exceed .25%

An investment adviser representative has a wealthy married couple as a client. They want to make sure that they leave the most money possible to their children. How would the representative set up their accounts to best take advantage of the unified credit? a)One account with the children named as beneficiaries b)Two accounts c)One account in the name of the children d)Trust

d) Trust There are certain ways to avoid paying estate taxes. One way is to use the unlimited marital deduction. The government exempts transfers between a husband and wife from estate and gift taxes. In addition, the federal government gives everyone a unified credit. One of the most widely used strategies is a trust. This strategy could enable the investor to pass assets free of federal estate taxes. The investment adviser representative should have the client consult with a qualified attorney to discuss their options.

Which of the following is a guaranteed security? a)Money market fund b)Prefunded corporate bond c)Collateralized bond d)U.S. savings bond

d) U.S.savings bond Guaranteed securities are guaranteed as to payments of dividends and interest. U.S. government securities, such as savings bonds, are guaranteed securities.

An inexperienced conservative investor is selecting his first equity fund. He wants to limit his risk while acquiring equity exposure. Which fund is most suitable for this investor? a)Balanced fund b)Allocation fund c)Growth fund d)Value fund

d) Value Fund Value investing is a conservative long-term strategy of investing in undervalued equities. Growth investing is an aggressive strategy of choosing young, unproven companies. Asset allocation funds and balanced funds hold bonds along with stocks, and the investor has not expressed interest in bonds.

d) Value fund Value investing is a conservative long-term strategy of investing in undervalued equities. Growth investing is an aggressive strategy of choosing young, unproven companies. Asset allocation funds and balanced funds hold bonds along with stocks, and the investor has not expressed interest in bonds.

A woman owns a trading account. When can the agent talk to her husband about the account? a)When the owner is over age 65 b)At anytime c)When the owner gives verbal permission d)When it is a joint account

d) When it is a joint account If this were a joint account, the agent could speak with the husband about the account. If it were an individual account, the owner would need to provide her husband with written third-party trading authority in order for the agent to discuss the account with him.

If the trustee of a complex trust seeks to make a distribution to the beneficiary within 65 days after the end of the trust's tax year end, the distribution a)Must be retained by the trust as undistributed income. b)Is taxable to the trust as retained income. c)Is not a deductible distribution for the trust. d)Will be taxable to the beneficiary as if it were made on the last day of the tax year.

d) Will be taxable to the beneficiary as if it were made on the last day of the tax year A complex trust is any trust that does not qualify as a simple trust. A complex trust does not currently require that all income be distributed, may provide for and make distributions out of principal (corpus), and may provide for charitable contributions. Distributions made within 65 days of the end of the trust's tax year are deemed to be made as of the last day of the tax year and the trust will still be afforded a distribution deduction, thereby shifting the tax liability to the beneficiaries.

An agent enters into an arrangement with a customer to share trading profits in a brokerage account. Under what circumstances is this arrangement permissible? a)Never b)Only if a supervisor pre-approves every transaction c)With written consent from the customer and the broker/dealer d)With written consent from the customer and the broker/dealer, and if profits and losses are shared in direct proportion to the funds invested by each party

d) With written consent from the customer and the broker/dealer, and if profits and losses are shared in direct proportion to the funds invested by each party Sharing in the profits or losses in a customer's account is prohibited without written consent from the customer and the broker/dealer, and the sharing is proportionate to the funds invested by each party involved.

An appeal of a State Administrator's decision must be filed a)Immediately. b)Within 15 days. c)Within 30 days. d)Within 60 days.

d) Within 60 days An appeal of an Administrator's decision needs to be filed in the appropriate court within 60 days of the order.

An appeal of a State Administrator's decision must be filed a)Immediately. b)Within 15 days. c)Within 30 days. d)Within 60 days.

d) Within 60 days An appeal of an administrator's decision needs to be filed in the appropriate court within 60 days of the order.

What trades in the foreign exchange market? a)ADRs b)REITs c)Foreign stocks d)Currencies

d) currencies The FOREX marketplace is where one currency can be exchanged into another currency. As such, the currencies always trade in pairs.

According to the Investment Advisers Act of 1940, which of the following is NOT an investment adviser? a)A lawyer who charges a separate fee for giving specific investment advice b)A person paid to give advice on bank stocks c)A publisher of a newsletter that makes securities recommendations d)A person who receives a fee for advising others on Treasury securities

d)A person who receives a fee for advising others on Treasury securities The Investment Advisers Act of 1940 excludes from the definition of investment adviser anyone who advises only on government or agency securities. A lawyer who gives investment advice falls within the definition of investment adviser if he or she offers the advice as part of his or her practice and receives compensation for it. A person who is paid to give advice on bank stocks and a publisher of a newsletter that gives specific securities recommendations both fall within the definition of an investment adviser under the Act.

Which of the following compensation arrangements is typically NOT allowed under the Investment Advisers Act of 1940? a)An adviser charges all clients a set fee regardless of how long it takes to generate a recommendation or how well the recommendation turns out. b)An adviser varies fees according to the time spent managing the account. c)An adviser charges clients a percentage of assets under management. d)An adviser waives a client's fee if the client experiences a loss for the year.

d)An adviser waives a client's fee if the client experiences a loss for the year. A fee whereby payment is contingent on investment results is prohibited unless the client is a qualified purchaser in a private investment. Charging all clients the same set fee, charging an hourly fee, and charging a fee based on the percentage of assets under management are all allowed under the Investment Advisers Act of 1940.

Which of the following persons must register with a state as an investment adviser representative?: a)An attorney who writes investment advisory contracts for an investment adviserb)An agent with discretionary authority over a customer accountc)An agent who gives investment advice that is incidental to his businessd)An individual employed by an investment adviser to solicit advisory customers who does not give investment advice

d)An individual employed by an investment adviser to solicit advisory customers who does not give investment advice

All of the following are true concerning mutual fund shareholder rights EXCEPT they a)May ratify selection of independent auditing firms. b)Elect directors and approve investment advisory agreements. c)Must be advised of all proposals requiring shareholder approval. d)Approve portfolio changes when recommended by the investment adviser.

d)Approve portfolio changes when recommended by the investment adviser. Remember that this is an EXCEPT question. Portfolio changes are at the sole discretion of the investment adviser, consistent with established policy and objective. However, changes in investment objective or policy must be approved by shareholders.

d)The taxes paid on dividend and capital gain reinvestments made for additional shares.

Which of the following statements is true? a)Waivers are enforceable in court. b)A variable annuity has a guaranteed rate of return. c)Performance-based fees are always allowed. d)Variable annuities have higher expenses than mutual funds.

d)Variable annuities have higher expenses than mutual funds. It is true that variable annuities have higher expenses than mutual funds. Variable annuities do not have a guaranteed rate of return. Performance-based fees are generally prohibited. Waivers are unenforceable in court.

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