Series 65 practice test oct 16 67 score
Which of the following is NOT registered with the SEC under the Investment Company Act of 1940? A) Exchange-traded funds B) Open-end investment companies C) Unit investment trusts D) Exchange-traded notes
D) Exchange-traded notes Exchange-traded notes (ETNs) register as debt securities under the Securities Act of 1933.
Which of the following statements is true? (I) An Administrator can suspend a pending registration on a summary basis. (II) An Administrator may not issue a stop order without prior notice and opportunity for a hearing. (III) An Administrator may cancel a registration for the same reasons he revoked or suspended a registration. A) I only B) III only C) II and III D) I and II
D) I and II An Administrator can, on a summary basis, suspend a pending registration but may not issue a stop order without a prior notice and an opportunity for a hearing. Cancellation is different from revocation and is not a result of disciplinary action; it occurs when a registrant no longer exists, ceases to do business, is declared mentally incompetent, or cannot be located.
The Conference Board releases information about the economy on a monthly basis. Included are a number of different indicators. Economic indicators can be leading, lagging, or coincidental, which indicates the timing of their changes relative to how the economy as a whole changes. Which of the following is a coincident economic indicator? A) Stock market prices as measured by the S&P 500 B) Agricultural employment C) Machine tool orders D) Industrial production
D) Industrial production Industrial production is a coincident indicator. The stock indices and manufacturing orders are leading indicators; economists do not use agricultural employment as an indicator.
Delta Advisers is registered in Alabama, Mississippi, and Louisiana. Billy Joe works for Delta Advisers rendering investment advice to individual clients. He works out of Delta's Jackson, MS office and has 3 clients in Mississippi, 6 clients in Alabama and 4 in Louisiana. Billy's friend, Bobby Ray, works for Biloxi Investments, a federal covered adviser with offices in several cities in Mississippi. Bobby Ray works out of the Tupelo, MS office and has 45 retail clients in Tennessee, 4 in Georgia, and 6 in Alabama. With regards to registration as an IAR, which of the following statements is TRUE? A) Billy Joe must register in MS and AL and Bobby Ray must register in MS. B) Billy Joe must register in AL and Bobby Ray must register in MS, TN, and AL. C) Billy Joe and Bobby Ray must register in MS only. D) Billy Joe must register in MS and AL and Bobby Ray must register in MS, TN, and AL.
A) Billy Joe must register in MS and AL and Bobby Ray must register in MS. Working for a state registered investment adviser, Billy Joe must register in the state in which he maintains a place of business (MS) and any other state in which his clients exceed the de minimis limit of 5 (AL in this case). Working for a federal covered investment adviser, Bobby Ray needs to only register in those states in which he maintains a place of business, regardless of the number of clients. That means he is only required to register in MS.
Which items change when a company pays a cash dividend? (I) Working capital (II Total assets (III) Total liabilities (IV) Shareholders' equity A) II and III B) I, II, and III C) I and IV D) II, III, and IV
A) II and III From an accounting standpoint, once a corporation declares a cash dividend, it becomes a current liability on the company's balance sheet. When that dividend is paid, cash—a current asset—is decreased by the amount of the dividend. Payment of the dividend removes it from the balance sheet as a current liability. Therefore, there is no change to the company's working capital (current assets minus current liabilities) because they are both reduced by the same amount. The total assets (of which cash is one) and the total liabilities (of which the dividend payable is one) both decrease. Because assets and liabilities are changed by an identical amount, there is no change to shareholders' equity (net worth).
An investor originally purchased a debt security at par value. Unfortunately, the value has fallen to $920, even though the company has reported record earnings. This decline in value would be representative of what type of risk? A) Interest rate risk B) Credit risk C) Timing risk D) Purchasing power risk
A) Interest rate risk This decline in value is most likely due to interest rate risk, which indicates that as prevailing interest rates rise, the price of existing debt instruments declines. Purchasing power risk is essentially synonymous with inflation risk, and credit risk is the danger that the issuer may default on its debt service, something that seems unlikely considering the recent earnings reports.
One of your clients has a margin account. There is a drop in the value of the stock owned in the account, and additional funds are required based on the terms of the firm's margin agreement. This would be known as A) a house call B) a sellout C) a margin call D) a Regulation T call
A) a house call When additional funds are required, it is known as a house or maintenance call. If based on the firm's stricter requirement, it is a house call; if based on the requirement of the SRO, it is a maintenance call. The initial or Regulation T call (the margin call) occurs at the time of the purchase. If any call for funds is not met, then there will be a sellout. Remember the three important margin terms: Margin call: Set by the Federal Reserve Board under Regulation T. This is the initial 50% deposit required when purchasing securities on margin. Minimum maintenance: Set by the SROs. This is the minimum equity that must be maintained in a margin account. Should the equity fall below the minimum required, a maintenance call (sometimes called maintenance margin) will go out demanding an immediate deposit of enough equity to bring the account above the required level. House maintenance: Set by the individual broker-dealer firm. As a cushion, and to reduce the possible sellout caused by failure to meet a maintenance call, most firms set a minimum equity level above the SRO minimum. Falling below this amount triggers a house call.
Under the Uniform Securities Act, a person who exclusively provides advice on commodities is A) not a registered investment adviser. B) a registered insurance agent. C) an options representative. D) a registered investment adviser representative.
A) not a registered investment adviser. A person who only provides advice on commodities is not a registered investment adviser. To be an investment adviser under the Uniform Securities Act, advice must be given on securities. The act specifically excludes commodities from the definition of security.
A mortgage-backed security (MBS), such as a Ginnie Mae, makes a combination principal and interest payment to an investor. This payment will be A) partly taxed as ordinary income and partly a tax-free return of principal. B) tax free. C) taxed as a capital gain if underlying mortgage is prepaid. D) taxed as ordinary income.
A) partly taxed as ordinary income and partly a tax-free return of principal. All interest payments made on a mortgage-backed security (MBS) are taxed as ordinary income. MBSs may make principal and interest payments to investors, which are partly taxed as ordinary income and partly tax-free returns of principal. LO 2.f
A customer of an investment adviser (IA) inadvertently mails some stock certificates to the IA. The IA does not maintain custody of customer assets. If the certificates were received on a Monday, NASAA rules would require that the certificates be A) returned no later than Thursday. B) returned no later than Tuesday. C) forwarded to the broker-dealer promptly. D) returned the same day.
A) returned no later than Thursday. NASAA's custody rules require that an investment adviser who does not maintain custody return certificates that are mistakenly sent within three business days. When it comes to checks, it depends on how the check is drawn. If made out to the investment adviser, it must be returned; if made out to a third party (usually the executing broker-dealer), it must be forwarded to that third party. In either case, the time limit is three business days (might be shown as 72 hours on the exam).
The portfolio of a client of an investment adviser began the year with a market value of $1.2 million. Sixty percent of the portfolio was in equities, thirty percent in bonds, and the remainder in cash. It was a good year for equities and, at the end of the year, the total value of the account was $1.5 million. This resulted in the portfolio manager liquidating approximately $100,000 of stock and placing the money into bonds. Given this information, it is most likely that this manager's investment style is A) strategic asset management. B) contrarian. C) tactical asset management. D) rebalancing.
A) strategic asset management. Strategic asset management, which is basically a passive strategy, views the market on a long-term basis. The manager does recognize that, over the period of one year, market and economic changes can result in managed portfolios becoming out of balance. Although we do not know the actual numbers, the fact that the manager is selling stock and buying bonds indicates that the portfolio mix no longer matches what was originally designed. Bringing the portfolio back into balance is the process of rebalancing. So, why isn't rebalancing a correct choice? It is not correct because rebalancing is not a management style; it is a feature of the strategic or passive style of portfolio management. Tactical asset management, a good example of which is market timing, looks at the short run changes and moves in and out of positions as necessary. That results in buying and selling far more frequently than once per year. The contrarian style is doing the opposite of what the majority does. That is, contrarians are selling when others are buying and vice versa.
A registered investment company whose capitalization may include preferred stock and/or bonds is A) the closed-end management investment company. B) the unit investment trust. C) the open-end management investment company. D) the face-amount certificate company.
A) the closed-end management investment company. Only the closed-end company is legally permitted to issue senior securities (preferred stock and bonds).
Many investors consider purchasing an equity exchange-traded fund (ETF) to increase portfolio diversification. All of the following are reasons for investors to purchase this investment except A) ETFs offer tax benefits similar to a limited partnership. B) they have lower annual expenses than those of mutual funds. C) they have lower taxable distributions than most mutual funds. D) shares may be purchased and sold throughout the day.
A) ETFs offer tax benefits similar to a limited partnership. Equity ETFs are often organized as regulated open-end investment companies and rarely as limited partnerships (never on the exam). Therefore, they must distribute at least 90% of their net investment income and capital gains. However, the method by which those capital gains are realized by the ETF is different from that of a mutual fund and, in almost all cases, results in lower taxable capital gains distributions. Unlike limited partnerships, there is no flow-through of losses. Expenses are generally lower as well, and ETFs trade during the day just like any stock.
According to the ethical guidelines set forth in the NASAA Statements of Policy and Model Rules, which of the following statements regarding discretion are correct? (I) An agent of a broker-dealer must have written discretionary authorization prior to effecting discretion in a client's account. (II) An agent of a broker-dealer must receive written discretionary authorization within 10 business days of the first discretionary transaction in the account. (III) An investment adviser representative must have written discretionary authorization before effecting discretion in a client's account. (IV) An investment adviser representative must receive written discretionary authorization within 10 business days of the first discretionary transaction in the account. A) I and IV B) II and IV C) II and III D) I and III
A) I and IV One way in which the use of discretionary authority differs between agents and IARs is that agents may never exercise discretion without prior written authority. IARs must receive the written consent no later than 10 business days after the first discretionary transaction in the account.
Securities regulators have taken a strong position on the need for registered broker-dealers to disclose the fees they charge. Which of these are among the most common ways for making this disclosure? (I) Presenting a chart with all of the fees (II) Preparing a list of all of the fees (III) Displaying the fees in tabular form A) I, II, and III B) I and II C) I and III D) II and III
A) I, II, and III Whether using a table, a chart, or a list, broker-dealers must make sure that it is easy for customers to determine what the fees and charges are and how they are computed.
Which of the following is true of a zero-coupon bond? (I) The rate of return is locked in. (II) There is no reinvestment risk. (III) The imputed interest is taxed as ordinary income on an annual basis. (IV) A check for the interest is paid at maturity. A) I, II, and III B) I, III, and IV C) I only D) I and IV
A) I, II, and III Zero-coupon bonds pay no periodic interest and are always issued at a discount from par. The appreciation of the zero from its discounted purchase price to its face value is thought of as interest to the bondholder, but this annual "phantom income," so named because you don't receive it, is taxed as ordinary income on an annual basis. When the bond is purchased, the investor locks in that yield, and with nothing to reinvest, there is no reinvestment risk. At maturity, the investor receives the face value ($1,000) rather than a check for the interest.
After receiving some money from an inheritance, an individual purchases a rare gold coin for $10,000. Five years later, he gives the coin to his daughter-in-law after receiving an appraisal showing the coin is worth $15,000. The daughter-in-law's cost basis of the coin is A) $0.00. B) $10,000. C) $15,000. D) $5,000.
B) $10,000. When a gift is made of an asset, whether it be a security or a collectible, the donor's cost basis passes to the donee. In this case, the original cost is $10,000 and that becomes the cost basis for the daughter-in-law and is used to determine a gain or loss when that coin is sold. Do not confuse this with the annual gift tax exclusion. Because the value of the gift did not exceed $16,000, the donor has no gift tax obligation, but that is completely different from the daughter's cost basis.
An investment adviser representative is evaluating DEF stock to see if it is a good fit for a client's portfolio. Using the security market line (SML), what is the expected return for DEF when the return on the market is 8%, the 91-day Treasury bill is yielding 6%, DEF's beta is 1.50, and the inflation rate, as measured by the CPI, is 4%? A) 12% B) 9% C) 8% D) 5%
B) 9% The formula for this computation is as follows: 8% (the return on the market is a beta of 1.0) minus the risk-free rate of 6%, or 2%. Then, multiply that by the beta of this stock (1.5) to arrive at 3%. That is, the stock should return 3% over the risk-free rate of 6%, or 9%. Inflation rate is only important if we are looking for the real (inflation-adjusted) return, not the expected return. LO 21.h
When dealing with suitable recommendations to clients, it is important to distinguish between investment objectives and investment constraints. Which of the following would be an investment objective rather than a constraint? A) Need for liquidity B) Current income C) ESG investing D) Tax considerations
B) Current income The objective is the route you wish to take. The constraints are what might keep you from getting there. The client who has current income as an objective needs to consider the potential obstacles (constraints) in the way. ESG (environmental, social, and corporate governance) represent attitudes. The investor's personal attitude towards certain industries may limit the universe of potential investments. The same is true when the need for liquidity is high. Taxes are another potential roadblock to overcome.
All of the following statements regarding Government National Mortgage Association (GNMA) pass-through securities are true except A) investors own an undivided interest in a pool of mortgages. B) GNMAs are considered to be the riskiest of the agency issues. C) investors receive a monthly check representing both interest and a return of principal. D) the minimum initial investment is $1,000.
B) GNMAs are considered to be the riskiest of the agency issues. GNMA securities, which are backed by the full faith and credit of the U.S. government, are considered to be the safest, not riskiest, of the agency issues. The minimum denomination is $1,000 and payments to investors are made monthly. Because the asset is a pool of mortgages, just like a personal home mortgage, each payment consists of interest and principal.
Which of the following is a coincident economic indicator? A) Stock market prices as measured by the S&P 500 B) Industrial production C) Machine tool orders D) Agricultural employment
B) Industrial production Industrial production is a coincident indicator. The stock indexes and manufacturing orders are leading indicators. Economists do not use agricultural employment as an indicator.
If a federal covered adviser's fiscal year ends on October 31, 2021, it must file its annual updating amendment to its Form ADV no later than A) March 30, 2022. B) January 29, 2022. C) February 28, 2022. D) December 31, 2021.
B) January 29, 2022. The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal year-end.
hich of the following statements regarding a traditional IRA for someone filing a 2023 tax return is true? A) Distributions before age 59½ are subject to a 10% penalty in lieu of income taxes. B) The income and capital gains earned in the account are tax deferred until the funds are withdrawn. C) With sufficient earned income, a taxpayer who contributes $6,500 to a Roth IRA can also contribute $6,500 to a traditional IRA. D) Distributions without penalty may begin after age 59½ and must begin by April 1 of the year preceding the year an individual turns 73.
B) The income and capital gains earned in the account are tax deferred until the funds are withdrawn. The income and capital gains earned in the account are tax deferred until the funds are withdrawn. A traditional IRA allows a maximum annual contribution of $6,500 per individual ($7,500 for those age 50 and older). One may contribute to both a Roth IRA and a traditional IRA, but the total contribution cannot exceed the limit for a single IRA ($6,500 or $7,500 for age 50 and over). Distributions without penalty may begin after age 59½ and must begin by April 1 of the year following the year an individual turns 73. Distributions before age 59½ are subject to a 10% penalty in addition to ordinary income tax.
Quick and Fast Executions, Inc., a broker-dealer registered with the administrator, maintains a website describing the services offered by the firm. Which of the following statements would be in compliance with the requirement to maintain certain books and records? A) Retention of any revised design must be kept for a period of at least three years after the initial design's retention period ends. B) The original website design must be retained for a period of at least three years from initial use. C) Because websites tend to be fluid, administrators require only that they be available for spot-checking. D) The original website design must be retained for a period of at least five years from initial use.
B) The original website design must be retained for a period of at least three years from initial use. Websites, like any other advertisement, must be retained for a period of at least three years from initial use. Because they are fluid (frequently changing), each design change must be filed after first use, beginning a new three-year holding period.
One of the most significant features of the UPIA is the ability of a trustee to delegate investment decisions to a qualified third party. Delegation is permitted as long as the fiduciary to whom the powers are delegated A) avoids diversification. B) acts with skill and caution. C) avoids high-risk investments. D) considers the risk-reward tradeoff of each individual security in the portfolio.
B) acts with skill and caution. The UPIA specifically uses the terms skill and caution when describing the actions of the fiduciary. Other components of the UPIA state that, rather than viewing individual securities, the overall effect on the entire portfolio is considered. This means that high-risk securities can have a place, as long as the overall portfolio meets the objectives. That is the benefit of diversification, something that is considered essential to prudent investment of money belonging to others.
A long term client contacts you to inform you that his lawyer has drafted a trust agreement and wants to name you trustee. You accept, and several months later, the beneficiary of the trust approaches you with a request for a disbursement that is contrary to the provisions of the trust document. In accordance with the provisions of the Uniform Prudent Investor Act, you should A) follow the wishes of the beneficiary. B) follow the terms of the trust. C) have a court of competent jurisdiction amend the trust. D) contact the client.
B) follow the terms of the trust. Under trust law, although there are many obligations placed on trustees, the first one is that trustees must always follow the provisions of the trust.
An investor is considering the purchase of some bonds to diversify his portfolio. If he should decide to purchase Treasury STRIPS instead of Treasury Bonds, his major risk would be A) reinvestment risk B) interest rate risk C) purchasing power risk D) credit risk
B) interest rate risk Treasury STRIPS are zero-coupon bonds and, as such, have a longer duration than those paying semiannual interest. The longer the duration, the greater the interest rate risk. Because both are guaranteed by the U.S. government, there is no credit risk. Both have the same purchasing power risk, and there is no reinvestment risk with a zero-coupon bond.
A local customer of Broker-Dealer A is on vacation in Nevada. Broker-Dealer A, who is registered in and maintains offices only in Florida, wishes to make the customer aware of an investment opportunity that has just become available. Which of the following is true? A) Broker-Dealer A must notify the Nevada Administrator before calling this customer in Nevada. B) Broker-Dealer A may solicit this customer in Nevada. C) Broker-Dealer A may not solicit this customer in Nevada unless the broker-dealer has a branch office registered in Nevada. D) Broker-Dealer A may not solicit this customer in Nevada unless Broker-Dealer A and the agent making the call are registered in Nevada.
B) Broker-Dealer A may solicit this customer in Nevada. This is an example of the Uniform Securities Act's position that, in certain situations, a broker-dealer is not a broker-dealer. If a broker-dealer registered in one state contacts an existing customer in another state and that customer is not a resident of the other state, the broker-dealer is not defined as a broker-dealer in the state in which the contact is made and is therefore not subject to the laws of that state. Of course, this is only true when the broker-dealer does not have an office in that state.
Which of the following statements about the gift tax annual exclusion are true? (I) The annual exclusion is the amount that an individual may give to other individuals each year without incurring a gift tax. (II) The annual exclusion is indexed to account for inflation. (III) A separate annual exclusion is available for each donee. A) I and III B) I, II, and III C) II and III D) I and II
B) I, II, and III All these statements are true. The annual exclusion that an individual donor may give to another individual (donee) each year without incurring a gift tax is indexed for inflation and is currently (2024) $18,000. A separate annual exclusion is available for each donee. So, if an individual gives $18,000 to four donees in one year, the annual exclusion will shelter all $72,000. Please note that the exact number will never be tested; we are including it here for your personal information.
The Federal Reserve Board has just taken action leading to an increase in interest rates. Which of the following industries is most likely to be affected adversely by this action? A) Defensive industries B) Utilities C) Heavy industries such as steel D) Cyclical industries
B) Utilities Utility stocks tend to be interest rate sensitive for two reasons. First, they are typically bought for income portfolios, and, as such, changes to interest rates impact their price. Second, because utilities are typically the most highly leveraged of all industries, an increase in interest rates could substantially increase their debt service costs and thus reduce earnings.
The formula for calculating working capital is A) total assets − total liabilities B) current assets − current liabilities C) only the cash and equivalents − current liabilities D) current assets − inventory
B) current assets − current liabilities Current means cash or assets that would be exchanged for cash in the ordinary course of business in the current year. In the case of liabilities, current means maturing or falling due within the current year. The net of current assets less the current liabilities implies the company has cash availability of the remainder with which to work. Working capital uses all of the current assets; cash and equivalents leaves out the inventory. LO 20.h
When an agent submits an order ticket to purchase securities for a client, all of the following would appear except A) the agent's name B) the current market price of the security C) the broker-dealer's name D) the details of the order
B) the current market price of the security Any order ticket submitted by an agent for execution at a broker-dealer will always include the agent's name and that of the BD. All order details must be listed (e.g. the number of shares, limit or market, etc.), but the current market price is never included.
Under the NASAA brochure rule requirements for investment advisers, an investment adviser (unless qualifying for an exemption) must deliver, A) a free, updated brochure and related brochure supplements every year, even when there are no material changes. B) within 120 days of the end of its fiscal year, a free, updated brochure and related brochure supplements that include or are accompanied by a summary of material changes. C) within 90 days of the end of its fiscal year, a free, updated brochure and related brochure supplements that include or are accompanied by a summary of material changes. D) at least 48 hours in advance of entering into the advisory contract, a copy of the adviser's brochure.
B) within 120 days of the end of its fiscal year, a free, updated brochure and related brochure supplements that include or are accompanied by a summary of material changes. The rule calls for delivery within 120 days of the end of the fiscal year. The 48-hour rule is not mandatory; if the adviser waits until the signing of the advisory contract, there is a five-day penalty-free withdrawal privilege granted to the customer. If there are no material changes, delivery of an annual brochure is not required. LO 13.g
A support level is the price range at which a technical analyst would expect A) the demand for a stock to decrease substantially. B) the demand for a stock to increase substantially. C) the supply of a stock to increase substantially. D) the supply of a stock to decrease substantially.
B)= the demand for a stock to increase substantially. Most stock prices remain relatively stable and fluctuate up and down from their true value. The lower limit to these fluctuations is called a support level, the price range where a stock appears cheap and attracts buyers. The upper limit is called a resistance level. Generally, a support level will develop after a stock has experienced a steady decline from a higher price level. Technicians believe that at some price during the decline, those investors who have been waiting for a reversal to get into the stock will now buy. When the price reaches this support price, demand surges, and price and volume begin to increase again. Other terms that may be used in this context are overbought and oversold. Overbought generally refers to the resistance level. Interest in buying the stock has begun to dry up and the price of the stock plateaus. Oversold is when the opposite occurs: there are few sellers to be found and the price of the stock bottoms. In either case, the next move is a reversal: down when the stock is overbought and up when oversold.
A couple, ages 63 and 66, are long-time clients of your firm and are in good health. They plan to retire from gainful employment in 4 years and wish to discuss decumulation strategies. One of the important factors to consider is the time horizon for this couple. Which of the following would be the best estimate to use? A) 8 years B) 10 years C) 25 years D) 4 years
C) 25 years Decumulation is the opposite of accumulation. Instead of focusing on how to increase the assets, the focus is on how to make sure they last as long as required. Just how long is that time horizon? Until the death of the second party. Today's statistics would indicate that a couple of these ages would likely have at least one of the two live another 25 years.
When a corporation is forced to liquidate its assets, holders of which of the following securities are treated as general creditors? A) Subordinated debentures B) Senior lien preferred stock C) Debentures D) Mortgage bonds
C) Debentures The liquidation priority begins with secured debt, such as mortgage bonds. If there is anything left after meeting those claims, the next level is the general creditors. Debentures, because they are issued based on the "general credit standing of the issuer," are in that pool. Below them is the subordinated debt; that is the lowest of the debt claims. No matter how many adjectives you add to preferred stock, as an equity security, it has priority only ahead of common stock.
Hexagon Portfolio Advisors (HPA) believes that the market is semi-strong efficient. The firm's portfolio managers most likely will use A) active portfolio management strategies. B) technical analysis to create portfolio management strategies. C) passive portfolio management strategies. D) an enhanced indexing strategy that relies on trading patterns.
C) passive portfolio management strategies. If the market is semi-strong efficient, portfolio managers should use passive management because they believe neither technical analysis nor fundamental analysis will generate positive abnormal returns on average over time. A semi-strong proponent opines that private (inside) information can work (beat the market), but because that information is generally prohibited from use, portfolio managers can't claim that as their investment strategy.
An individual is currently registered as an agent with a broker-dealer. If the agent would like to offer wrap fee programs through the firm, all of the following statements are correct except A) the broker-dealer would have to be registered as an investment adviser. B) the agent would be defined as an investment adviser representative. C) the agent would be defined as an investment adviser. D) the agent would now be considered to have a fiduciary responsibility.
C) the agent would be defined as an investment adviser. Once the broker-dealer decides to offer wrap fee programs, it is no longer excluded from the definition of an investment adviser and would be required to register on either the state or federal level. The agent would now have to register as an IAR of the firm and, as such, would carry the additional fiduciary responsibility incurred in the advisory business. LO 10.a
A 45-year-old employment counselor has a Keogh plan for himself and 3 full-time employees who have been working for him for the past 4 years. If he earns $150,000 this year and contributes the maximum amount allowed to his Keogh plan, how much may he invest in an IRA? A) He may not have an IRA. B) He may have an IRA but may not make a contribution for this year. C) He may contribute 100% of earned income or the maximum allowable IRA limit, whichever is less. D) He may invest any amount up to 100% of his earned income.
C) He may contribute 100% of earned income or the maximum allowable IRA limit, whichever is less. Regardless of how much is invested in a Keogh plan, an investor may still invest in an IRA if he has earned income. The maximum contribution to an IRA is 100% of earned income or the maximum allowable limit, whichever is less. In this individual's case, however, the contribution would probably be nondeductible.
Which of the following business entities has an income tax filing due date (disregarding possible extensions) of March 15? (I) Sole proprietorship (II) Single-member LLC (III) Multiple-member LLC electing to be treated as a corporation (IV) S corporation A) I and IV B) I and II C) III and IV D) II, III, and IV
C) III and IV For partnership returns (including LLCs with more than 1 member) and S corporation returns, the due date is March 15. One effect of this is that LLCs, partnerships, and S corporations all have the same filing deadline. For C corporations, the due date is the 15th day of the 4th month following the close of the corporation's year; this date is April 15 for a calendar-year filer.
David is registered as an agent in States H and M with Stanley Securities, a broker-dealer registered in every state. He would now like to register in State W. In order to do so, all of the following would be required except A) paying the appropriate fee to State W. B) filing a consent to service of process with State W. C) passing State W's qualification exam. D) filing an application for registration with State W.
C) passing State W's qualification exam. Many years ago, applicants for registration as an agent in a state had to pass that state's exam. Now, because the NASAA exams are uniform exams, they are accepted in every state that requires passage of an exam. A consent to service must be filed with every state in which the person intends to register and, of course, the application must be accompanied by the proper fee.
All of the following statements regarding the registration of an investment adviser in a state are true except A) the initial application must include a consent to service of process along with Form ADV and the appropriate fees. B) the adviser's registration expires on December 31 each year. C) the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process. D) if the investment adviser is not an individual, any officer or partner active in the advisory business is automatically registered as an investment adviser representative.
C) the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process. The consent to service is a permanent document that remains on file with the Administrator; it need not be resubmitted for yearly renewal. The initial application for registration must include a consent to service of process along with Form ADV and the appropriate fees. If the investment adviser is not an individual, all officers or partners of the business entity that play an active role in the giving or supervision of giving advice are automatically registered as IARs.
Under SEC Release IA-1092, who of the following would be considered to be in the business of rendering investment advice? A) Agents of a broker-dealer who recommend trades to their clients and receive commissions based on transactions B) An individual who provides investment advice to family members but receives no compensation C) An accountant who provides investment advice to clients as an incidental part of the business D) A financial planner who charges no fee for developing a financial plan but takes commissions on recommended trades
D) A financial planner who charges no fee for developing a financial plan but takes commissions on recommended trades A financial planner who takes commissions from a broker-dealer on recommended trades is considered to be compensated for giving advice and is therefore in the business of rendering investment advice. Agents and broker-dealers who do not charge separately for advice are excluded from the definition of investment adviser. Lawyers, accountants, teachers, and engineers are not considered to be in the business of rendering investment advice, as long as any advice given is incidental to the practice of the profession.
The Jones family has scheduled an initial visit with a financial planner. Mr. Jones has an annual salary of $70,000, and this is their first attempt at financial planning. Which of the following should be the first step taken by the financial planner? A) Set goals and dates for reaching them B) Determine a reasonable fee for designing the plan C) Pay off credit card debt D) Establish an emergency fund
D) Establish an emergency fund There are many questions on the exam where you will be forced to choose between two possible answers, only one of which is correct. In many cases, it is strictly a matter of opinion, but only NASAA's opinion counts. This is one of them. Goal setting is important, but the regulators feel that the first step in any plan is making sure that there is a "rainy day" fund. We can argue about that because some will say that a good plan can be used to establish that fund where none has existed before. But, please go with the right choice.
Julie owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will she own? (I) 125 shares (II) 100 shares (III) Cost basis of $25 (IV) Cost basis of $20 A) II and III B) I and II C) II and IV D) I and IV
D) I and IV Remember that the ex-date is the first day on and after which a purchaser of a stock is not entitled to a previously declared dividend (cash or stock). That means the owner of the stock on and after the ex-date is the one who receives the cash or, in this case, the additional stock. The payment of a stock dividend causes the number of shares owned to increase while the cost per share decreases. The total value of the position will always remain unchanged. Julie had 100 shares at $25 per share, or $2,500, and now has 125 shares × $20 = $2,500.
A frequently used metric by analysts is the yield, or credit, spread. Common methods of computing this would be comparing which of these? (I) Bonds of similar quality and similar maturities (II)_ Bonds of similar quality and different maturities (III) Bonds of different quality and different maturities (III) Bonds of different quality and similar maturities A) II and III B) I and III C) I and IV D) II and IV
D) II and IV The term spread always signifies a difference. Therefore, the correct choices have to reflect some kind of difference. One way is when the quality (rating) of the bonds is the same but the length to maturity is different. A very common example of this is the U.S. 2-year Treasury note plotted against the 10-year Treasury note. The other method is to take bonds of different quality (ratings) having the same maturities. An example might be comparing two bonds with a 20-year maturity: one has a AAA rating and the other a BBB rating.
Which of the following best describes the economic phase in which unemployment increases and businesses operate at their lowest capacity levels? A) Peak B) Expansion C) Contraction D) Trough
D) Trough A trough in a business cycle occurs at the end of a contraction phase when businesses are operating at their lowest capacity levels.
Prohibited business practices under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents would not include A) making specific investment recommendations to the group attending a free lunch seminar. B) borrowing money for graduate school tuition from a client who happens to be the agent's father. C) sharing commissions with an agent of a nonaffiliated broker-dealer. D) sharing in the profits and losses in a client's account without making a financial contribution to the account.
D) sharing in the profits and losses in a client's account without making a financial contribution to the account. Unlike the FINRA rule, agents may share in the profits and losses in a client's account without making a financial contribution; all that is required is consent of the client and the employing broker-dealer. The so-called free lunch seminars are typically promoted as educational, and in any case, how can the agent make specific recommendations to a group without having suitable information on each attendee? Borrowing money from a client, regardless of the purpose, is not permitted unless the lender is in the business of lending money. Sharing commissions with an agent licensed with the same or affiliated broker-dealer is permitted, but one with which there is no affiliation is not permitted.
When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office, A) the investment adviser representative and the employing adviser must notify the Administrator promptly. B) the investment adviser representative and the federal covered advisers must notify the Administrator promptly. C) only the terminating investment adviser must notify the Administrator. D) only the investment adviser representative must notify the Administrator promptly.
D) only the investment adviser representative must notify the Administrator promptly. If you are working for a registered investment adviser within a specific state, that state securities Administrator wants to know who you are. The problem becomes a question of who is responsible for notifying the state securities Administrator of your employment. A federal registered investment adviser is exempt from registration at the state level and therefore has very little contact with the state. If you go to work for a federal registered investment adviser, it becomes your duty to notify the state securities Administrator that you are working there, as well as when you terminate.
B) being under common control with the financial institution. It is a NASAA Model Rule that broker-dealers operating on the premises of a financial institution make certain disclosures. Every attempt should be made to locate separately from the banking operation and to obtain something in writing from the clients indicating that they have received the disclosures. It is not necessary that there be any relationship between the BD and the institution other than a business one.
NASAA has a Model Rule dealing with sales of securities at financial institutions. The rule applies exclusively to broker-dealer services conducted by broker-dealers on the premises of a financial institution where retail deposits are taken. Under the rule, financial institution means federal and state-chartered banks, savings and loan associations, savings banks, and credit unions. No broker-dealer shall conduct broker-dealer services on the premises of a financial institution where retail deposits are taken unless the broker-dealer complies initially and continuously with all of the following requirements except A) attempting to obtain written acknowledgement from customers that they have received and read the disclaimers. B) being under common control with the financial institution. C) disclosing both in writing and orally to customers that the investments being sold are not FDIC insured, may lose value, and are not obligations of the financial institution. D) making a reasonable attempt to be in a location physically distinct from that where retail deposits are taken.
b. III and IV are correct
Which of the following statements are true? (I) A person with a place of business in the state who transacts business exclusively with banks and savings institutions is not an investment adviser under the Uniform Securities Act. (II) A person excluded from the definition of investment adviser under the Investment Advisers Act of 1940, who offers investment advice to individual investors residing in this state and has less than $25 million in assets under management, is subject to the jurisdiction of the state Administrator. (III) A person included in the definition of an investment adviser under the Investment Advisers Act of 1940, who manages funds on a regular basis as a business headquartered in a state, is subject to payment of filing fees required by the state Administrator. (IV) Broker-dealers who supply incidental investment advice and make securities recommendations to customers who pay commissions for the execution of their trades are not investment advisers subject to state or federal registration.
