Series 65 Q bank

Quick ratio

(Current Assets - Inventory) / Current Liabilities

3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template...

1. commissions; 2. markups and markdowns; and 3. advisory fees for those firms that are also registered as investment advisers.

Many parents prefer to use a Section 529 plan over a Coverdell ESA to finance their child's education plans because 1. contribution limits are higher 2. funds may be withdrawn tax-free if used for qualified education expenses 3. there are no earnings limits 4. 529 contributions are tax deductible on the federal level

1 and 3 Contributions to a Coverdell ESA are limited to $2,000 per beneficiary per year while those to a Section 529 plan can be as high as $300,000 in some states. A married couple cannot make a Coverdell contribution if their income exceeds $220,000, while there is no earnings limit to contribute to a 529. In neither case is the contribution tax deductible on the federal level (although the Section 529 plans may have tax advantages in some states). We are often asked about choice II. The question is asking about differences between the two plans and choice II is true for both of them

Assume that a corporation issues a 5% Aaa/AAA-rated debenture at par. Two years later, similarly rated debt issues are being offered in the primary market at 5.5%. Which of the following statements regarding the outstanding 5% debenture are TRUE? 1. The current yield on the debenture will be higher than 5%. 11. The current yield on the debenture will be lower than 5%. 111. The dollar price per bond will be higher than par. 1V. The dollar price per bond will be lower than par.

1 and 4 Because interest rates have risen after the issue of the 5% debenture, the bond's price will be discounted to result in a higher current yield (computed as annual income divided by current market price). Accordingly, the discounting of the issue will make the 5% debenture competitive with new issues offered with a 5.5% coupon.

large cap, mid cap, small cap thresholds

A large cap company has a market capitalization of over $10 billion. A mid cap company has a market capitalization between $2 billion and $10 billion, and a small cap company has less than $2 billion in market capitalization.

What is the purpose of the Securities Exchange Act of 1934? A) It regulates the persons involved in the secondary market. B) It provides standards among the states. C) It provides policies relating to unethical business practices. D) It provides requirements relating to new issues.

A) It regulates the persons involved in the secondary market. The Securities Exchange Act of 1934 was designed to regulate securities transactions, securities markets, and securities firms that trade in the secondary market. The Securities Act of 1933 was designed to provide regulation in the new issue market. Unethical business practices are covered in NASAA's Statements of Policy on Unethical Business Practices. The Uniform Securities Act provides a model for the states.

A client in the 30% tax bracket owns a 5% XYZ, Inc., debenture due to mature shortly. What yield in a municipal will give him the same after-tax return that he now has with his debenture? A) 2% B) 3.50% C) 5.30% D) 1.50%

B - 3.5% The client's tax rate is 30%; 70% of 5% is 3.5%. A nontaxable municipal bond with a 3.5% yield would give the client the same return.

There are many different legal ways to structure a new business entity. One of these is the general partnership. Among the benefits of using this structure would be A) limited liability B) ease of formation C) substantial capital can be raised with little effort and low cost D) the 50% dividends received exclusion

B - ease of formation Compared with a corporation, it is generally easier to form (and dissolve) a partnership. General partners have full liability and there is no 50% dividends received exclusion for partnerships; that only applies to corporations. C corporations are the entity for raising a lot of capital.

Under the Uniform Securities Act, which of the following is an agent? A) An individual who is in the business of providing investment advice on behalf of his employer B) An individual who effects securities transactions for commissions C) A broker-dealer that charges a commission as a regular part of its business D) A clerical person who files trade confirmations for the firm

B) An individual who effects securities transactions for commissions The Uniform Securities Act defines an agent as any individual (other than a broker-dealer) who represents a broker-dealer in effecting securities transactions.

Which of the following statements regarding a unit investment trust is not true? A) It invests according to stated objectives. B) It charges no management fee. C) Overall responsibility for the fund rests with the board of directors. D) It is considered an investment company.

C - overall resp. for the fund rests with the board of directors A unit investment trust (UIT) is an investment company that offers a fixed portfolio, generally of stocks and bonds, as redeemable units to investors for a specific period of time. It is designed to provide capital appreciation and/or dividend income.

One of your clients has reached his company's mandatory retirement age of 67. He has been a participant in his employer's 401(k) plan, and his account is valued at $400,000. The account is funded with mutual funds and company stock. The cost basis of the company stock is $25,000 and it is currently worth $125,000. If he were to use the net unrealized appreciation (NUA) approach when taking the distribution of the company stock, the tax treatment would be A) ordinary income on the entire $125,000 B) long-term capital gain on the entire $125,000 C) ordinary income on the $25,000 cost basis, long-term capital gain on the appreciation when sold D) ordinary income on the $25,000 cost basis, short-term capital gain on the appreciation when sold

C) ordinary income on the $25,000 cost basis, long-term capital gain on the appreciation when sold Under IRS rules, if part of your retirement plan assets includes company stock, taking that as a distribution (not rolling it over into an IRA) subjects the cost basis to ordinary income tax and any unrealized appreciation is taxed as long-term capital gain when sold.

If a federal covered adviser's fiscal year ends on October 31, 2017, it must file its annual updating amendment to its Form ADV no later than A) February 28, 2018 B) March 30, 2018 C) December 31, 2017 D) January 29, 2018

D - Jan 29 2018 The annual updating amendment to Form ADV must be filed within 90 days of the adviser's fiscal-year end.

A federal covered investment adviser is one who: I.has $110 million or more in securities assets under management. II.manages an investment company registered under the Investment Company Act of 1940. III.limits advice to securities listed on the NYSE. IV.is affiliated with a federally chartered bank.

I and II Federal registration is generally required of any investment adviser managing at least $110 million in assets. The NSMIA provides that any investment adviser under contract to a registered investment company under the Investment Company Act of 1940 is required to register with the SEC as a federal covered adviser. Providing advice on federal covered securities listed on the NYSE does not make the adviser a federal covered adviser. Determining if one is a federal covered investment adviser is not based on affiliations; it is generally a function of AUM or managing an investment company.

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

II and III.Letters of intent permit investors to qualify for a reduced sales charge on the purchase of mutual fund shares over time. They are valid for 13-months and may be backdated by up to 90 days to include prior purchases. The investor is not legally obligated to comply with the terms of the letter, so some shares purchased at the reduced sales charge are held in escrow. These shares are liquidated to repay the reduction in sales charge if the letter is not completed.

yield to maturity

IRR of holding the bond thru maturity (includes principal payment)

systematic risks

Sources of systematic risk include: inflation, interest rates, war, recessions, currency changes, market crashes and downturns plus recessions.

ADR

The purpose of the ADR is to facilitate trading in U.S. markets. The ADR can only be traded here. If the owner exercises the right to obtain the actual foreign security, it may be sold overseas. -holders get paid dividends

Which of the following U.S. government securities do NOT bear a stated interest rate but are sold at a discount through weekly auctions? A) Treasury bonds B) TIPS C) Treasury notes D) Treasury bills

Treasury bills bear no stated interest rate. They are sold at a discount through weekly auctions and are actively traded in the money market.

jon, an agent with Johnson-Bayer Securities, was reacting to peer pressure to use email as a prospecting tool. He decided to highlight the exciting new process for drug delivery that was covered in the new offering prospectus when explaining why he felt the issuer found the next "aspirin." He summed up the email by stating potential investors needed to act quickly to get in on the ground floor. His decision to do so fell into the category of which of the following? A) Phishing B) Unethical business practice C) Advertising D) Fraud

Unethical business practice NASAA considers it to be an unethical business practice to use any advertising or sales presentation in such a fashion as to be deceptive or misleading. Such practices would be: •a distribution of any nonfactual data;•any material or presentation based on conjecture;•unfounded or unrealistic claims in any brochure, flyer, or display by words, pictures, or graphs; or•anything otherwise designed to supplement, detract from, supersede, or defeat the purpose or effect of any prospectus or disclosure.

A corporation is capitalized with common stock, senior preferred stock, mortgage bonds, and subordinated debentures. Your client, who holds $10,000 of the debentures, is concerned about the future viability of the enterprise. You can inform the client that the debentures have a claim

ahead of the common stock and the preferred, but after the bonds

monetarist economic position

changes in money supply are the most significant determinants of the rate of economic growth and the behavior of the business cycle. The competing theory to the monetarist theory is Keynesian Economics.

more price competitive

cheaper

Rule of 72

t years to double money=72/r annualized return

Sharpe ratio equation

(mean portfolio return - risk-free rate) / standard deviation of portfolio return (mean Rp - Rf) / std dev Rp

S corporation

-S corporations must not have more than 100 stockholders, -and each stockholder must be a citizen or resident of the United States. -The corporation can only have 1 class of stock, and no more than 25% of the corporation's income can come from passive activities.

The interest from which of the following bonds is exempt from federal income tax? 1. State of California bonds 11. City of Anchorage bonds 111. Treasury bonds 1V. GNMA bonds A) III and IV B) II and IV C) I and III D) I and II

1 and 11 Municipal bonds are exempt from federal income tax. Treasury bonds are exempt from state tax but not federal tax. GNMAs are subject to federal, state, and local income tax.

Both the Investment Advisers Act of 1940 and SEC Release IA-1092 specifically exclude from the definition of "investment adviser" certain persons who provide investment advice solely incidental to the practice of their profession. Which of the following would NOT by definition qualify for this exclusion? 1. An accountant who provides high-tax-bracket clients with a useful chart showing them how to compute the tax-equivalent yield for municipal bonds 11. A divorce attorney who, after obtaining settlements for clients, provides them with a list of suggested investment alternatives encouraging them to be prudent with their newfound wealth 111. A university professor who provides investment advice for a substantial fee to fewer than 15 clients during any consecutive 12-month period, none of whom is an investment company 1V. An economist who consults with very large corporate employee benefit plans on how to best invest their funds

1 and 1V The university professor loses the exclusion as soon as the advice is no longer incidental to the practice of the profession (which it clearly is here, regardless of the number of clients). The list of professions qualifying for the exclusion does not include an economist, who in this case would be included in the definition as a pension consultant. The key to remember is the acronym "LATE"—lawyer, accountant, teacher, and engineer.

Which of the following are features of Class C mutual fund shares? 1. Typically charge no front-end load 2. Typically charge a front-end load 3. Typically impose lower CDSCs than Class B shares for a shorter period 4. Typically convert to Class A shares after they are held for a defined period

1 and 3. Class C shares generally have the following features: no front-end sales charge, lower CDSCs than Class B shares for a shorter period, and no conversion to Class A shares regardless of how long they are held. Because of these features, Class C shares may be less expensive for investors with shorter investment horizons. They may be more expensive for investors who plan to hold their shares for a long time, because the level load never discontinues.

An investor's portfolio that consists of all long-term Treasury bonds is most vulnerable to which of the following types of risk? A) Interest rate risk B) Business risk C) Default (credit) risk D) Marketability risk

A

Under current law, who of the following would be required to register as an investment adviser in a state? 1. A person who limits advisory services exclusively to issuers of securities in that state while maintaining no office therein 2. A person who has directed advice relating to securities to 6 individuals in that state within the past 12 months, even though he has no place of business within the state 3. A person whose home office is in the state and who manages less than $90 million in assets 4. A person who deals exclusively with broker-dealers in that state, but maintains no place of business within the boundaries of the stateA) I, II and IIIB) I, II and IVC) II and IIID) III and IV

A

In order to compute an investor's real rate of return on a common stock holding, all of the following are necessary EXCEPT A) marginal tax bracket B) dividends C) inflation rate D) appreciation

A - marginal tax bracket The real rate of return is another term for inflation-adjusted return. It is the total return, which is appreciation plus income adjusted for the inflation rate as expressed by the CPI. Tax bracket is necessary to compute after-tax return.

In which of the following retirement plans would there be mandatory withdrawal requirements once you are past age 70½? A) A traditional IRA B) A Roth IRA C) An annuity, but you are still working D) A qualified plan while you are still working for that employer

A - traditional IRA A traditional IRA requires minimum distributions (RMDs) once the owner has passed age 70½. The same is true for qualified plans (401(k), pension, etc.), except when the employee is still employed with the sponsor. A nonqualified annuity (unless it says "qualified," assume it is not) never has distribution requirements and one of the great benefits of the Roth IRA is that, not only are there no RMDs, but contributions may be accepted after age 70½.

One of your clients approaches you about setting up a trust. If your client assumes the role of grantor, what additional roles may be taken? A) Trustee and beneficiary B) Trustee C) Beneficiary D) As the grantor, no other roles may be taken

A - trustee and beneficiary Under trust law, the grantor of a trust, sometimes referred to as the settlor, may also be the beneficiary and the trustee.

Which of the following must register as an agent under the Uniform Securities Act? A) A broker-dealer with offices in the state B) A sales assistant who takes orders on behalf of agents in a branch office C) An administrative assistant who provides securities quotes to clients D) An individual who sells securities of an issuer to the issuer's employees without earning a commission

A sales assistant who takes orders on behalf of agents in a branch office A sales assistant who takes orders on behalf of agents in a branch office is required to register under the Uniform Securities Act. An administrative assistant who provides securities quotes to clients is not functioning as an agent and need not register. An individual who sells securities of an issuer to the issuer's employees without earning a commission need not register under the terms of the USA. Remember, a broker-dealer is excluded from the definition of an agent under the USA.

As the use of social media has mushroomed, most firms in the securities business have created and maintain websites. In addition to password-protected areas for existing clients, these websites generally have pages accessible to anyone. Which of the following statements could be on an investment adviser's website that would not be on that of a broker-dealer? A) The content found on this website has been approved by the SEC B) A statement that the firm is registered with the SEC under the Securities Exchange Act of 1934 C) The firm is a member of FINRA D) A statement that the firm is registered with the SEC under the Investment Advisers Act of 1940

A statement that the firm is registered with the SEC under the Investment Advisers Act of 1940

Which of the following statements is TRUE? A) Dividends have a significant influence on the value of the corporation's stock. B) A stock split increases the owner's proportionate share of the company. C) A growth company would be more likely to pay a cash dividend than a stock dividend. D) A corporation is required to pay a cash dividend to stockholders if the earnings are sufficient, especially if it is of preferred stock.

A) Dividends have a significant influence on the value of the corporation's stock.

Which of the following statements are NOT true? The kiddie tax applies to any income received by a child under the age of 19. IRAs have advantages over other estate assets when left to charity. Simple trusts have to distribute income annually. For U.S. citizens, there is an unlimited marital estate tax deduction. A) I and II B) I, II, III, and IV C) I, II, and III D) II, III, and IV

A) I and II The kiddie tax applies to unearned income only such as that received in an UTMA account. Leaving IRA assets to a charity offers the same estate tax benefits as any other asset. Simple trusts must distribute income annually, and there is an unlimited marital estate tax deduction between spouses who are U.S. citizens.

When the USA refers to unsolicited orders, which of the following is TRUE? A) Unsolicited orders are defined as exempt transactions under the USA. B) Under certain conditions, an Administrator may prohibit a broker-dealer registered in the state from accepting any unsolicited orders. C) A client may not purchase, at his own initiative, securities trading in the secondary market if the agent is otherwise prohibited from soliciting the order. D) If the order ticket is appropriately marked, the Administrator may not challenge a broker-dealer's assertion that the order was unsolicited.

A) Unsolicited orders are defined as exempt transactions under the USA. A client has the right to buy or sell whatever she may desire. The issue becomes who initiates the trade. An unsolicited transaction may be executed by an agent if it is the client who asks for the trade. The trade ticket should be marked as unsolicited. The state securities Administrator has the right to seek verification from the client that the trade was, in fact, unsolicited. The security involved in the trade can be one that is nonexempt and unregistered in the state.

Under the USA, the Administrator may do all of the following EXCEPT A) mandate the method used to maintain and file records B) prescribe form and content of financial statements required under the act C) take jurisdiction over any person who sells or offers to sell either when the offer is made in the state or when an offer to buy is made and accepted in the state D) conduct hearings in public, unless at the Administrator's discretion and with agreement of all parties, the Administrator decides otherwise

A) mandate the method used to maintain and file records The Uniform Securities Act does not grant the Administrator the power to make any specific bookkeeping method mandatory. The only requirement is that the books and records must accurately reflect the nature of the firm's business.

A popular vehicle for saving for retirement is the variable annuity. An agent explaining the benefits of this product would probably be in violation of the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents by claiming that variable annuities offer A) the ability to exchange funds between subaccounts without incurring a tax liability under IRS Code Section 1035 B) lower overall expenses than a mutual fund with similar investment objectives C) tax deferral on earnings until withdrawn from the account D) the choice of a large number of different subaccounts with varying objectives

A) the ability to exchange funds between subaccounts without incurring a tax liability under IRS Code Section 1035 In general, variable annuity expenses are higher than those of a mutual fund with similar objectives. That doesn't mean the fund is good and the VA bad, it is that there are guarantees and other features offered by the VA that a fund does not have and they have to be paid for.

An employee covered by a defined benefit pension plan would be least concerned with A) the investment performance. B) the lump sum available at retirement. C) the age at which benefits can be taken. D) the expected amount payable.

A) the investment performance. In a defined benefit plan, the payout is fixed. The employer must pay that benefit regardless of the investment performance. Investment performance is more of a concern for defined contribution plans.

Minnie's Uncle Bob would like to contribute to his one-year-old niece's education expenses. He is able to contribute a maximum of $1,200 per year. There is no other family member in a position to make a contribution. If minimizing the taxes at withdrawal and low cost investing, such as index mutual funds, is the objective, which of the following would you recommend? A) Coverdell ESA B) UTMA C) Section 529 plan D) Dollar cost averaging

A) Coverdell ESA When you see contribution levels at $2,000 per year or less, that is a signal that Coverdell is the proper recommendation. Higher levels would be the 529 plan. There are no specific tax benefits to the UTMA. In fact, tax rates on unearned income can be rather high. Although Uncle Bob might dollar cost average by investing $100 per month, that does not specifically answer the question.

Which one of the following option positions would generally command the greatest time value? A) LEAPS B) Straddles C) Puts D) Calls

A- leaps LEAPS, the acronym for long-term equity anticipation securities, have expiration dates that can run more than 3 years compared with the 9 months for standard option contracts. Because time value is a direct function of the length of the option, the longer the time until expiry, the greater the potential time value.

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

A. state Y. Those who supervise the activities of investment adviser representatives are themselves defined as IARs. An IAR representing a federal covered investment adviser need only register in the state or states in which she (the IAR) has a place of business. There is nothing in this question to suggest that Brenda has a place of business anywhere other than in State Y, where her branch office is located. Remember, when it comes to federal covered advisers, registration of their IARs is dependent on the IAR's place of business, not the location of their clients.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, requirements of advisory contracts include which of the following? They must be renewed on an annual basis. They must describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated. They must prohibit assignment of the contract without the client's consent. A) I and III B) II and III C) I, II and III D) I and II

All 3. There is no requirement that advisory contracts be renewed on an annual basis. Contracts can be written for any length agreed upon. 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.

Several entrepreneurs form an S corporation. Under which of the following circumstances will the entrepreneurs risk losing their tax benefits? A. 150 new investors buy into the corporation during the year. B. 1 new member is a nonresident alien. C. 50% of the corporation's income is derived from passive investments in limited partnerships. D. The corporation issues several classes of stock.

All of the above S corporations must not have more than 100 stockholders and each stockholder must be a citizen or resident of the United States. The corporation can only have one class of stock, and no more than 25% of the corporation's income can come from passive activities. If you were not sure of this last fact, a useful test-taking technique is recognizing that all of the other choices are correct and there is no way to select them without this one.

IAs borrowing money

An investment adviser may only borrow from a client that is in the business of loaning money, such as a bank or a broker-dealer, or a client that is affiliated with the investment adviser. Investment advisers are not in the business of loaning money and the only way this could be done is if the 2 firms were affiliated.

From the standpoint of diversification, which of the following would be considered the most conservative? An income fund B) A growth fund C) A sector fund D) A balanced fund

Answer: D Balanced funds invest in a variety of investment vehicles; therefore, they have more diversification. Because of the diversification, they are better protected against downturns in the financial markets and are more conservative than the other choices listed.

Which of the following is generally believed to present a more accurate picture of a portfolio manager's performance? A. Dollar-weighted return B) Time-weighted return C) Net present value D) Real rate of return

B Because contributions and withdrawals by the investor are not under the control of the fund manager, time-weighted return is a more reliable measure of a portfolio manager's performance. Dollar-weighted is a more reliable measure of how the investor fared. Real rate of return and net present value are not relevant to this question.

Under current regulations, registration with the SEC is optional for all of the following investment advisers EXCEPT A) Employee Benefit Specialists, Inc., a pension consultant with $225 million in AUM B) CEF Investment Managers, LTD., a partnership managing a small registered closed-end investment company traded on the OTC Bulletin Board C) Midwestern Asset Managers, LLC, with $53 million in AUM, required to register in 17 states D) Grand Visions Advisers, a sole proprietorship with $104 million in AUM

B Currently, registration with the SEC is mandatory (not optional) for any investment adviser managing a registered investment company (open or closed-end). It is optional for: 1. pension consultants once their AUM reach $200 million; 2. small and mid-size advisers who would be required to register in 15 or more states; and 3. those advisers with at least $100 million in AUM, but not $110 million in AUM. Any of these choosing to register with the SEC are federal covered advisers and do not register with any state, although a notice filing may be required.

An investor purchases a single premium deferred index annuity with an initial premium of $200,000. Soon after the purchase, the investor receives a statement from the insurance company showing an initial balance of $210,000. The most likely reason for the $10,000 increase is A) the underlying index has had outstanding performance. B) this is a bonus annuity. C) the insurance company paid a dividend. D) the insurance agent's commission was added to the account.

B It is not uncommon to find index annuities offering a bonus added to the premium. In this case, the bonus appears to be 5%. There are no dividends on index annuities and rebating commissions is prohibited.

Jay Cooke is an investment adviser representative with a state-registered investment adviser. Jay operates out of an office in State Y. He would be required to register in State Z if, during the previous 12 months, he had A) fewer than 6 retail clients who were residents of State Z. B) 6 or fewer retail clients who were residents of State Z. C) no more than 5 retail clients who were residents of State Z. D) 5 or fewer retail clients who were residents of State Z.

B The de minimis exemption applies when, during the preceding twelve-month period, the IAR has had no more than 5 retail clients. There are 3 ways of stating that: No more than 5 Five or fewer Fewer than 6

It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients? 1. Age 2, Life stage 3. Retirement savings 4. Tax status A) I and IV B) II and III C) I and II D) III and IV

B - II and III All of these are important suitability considerations for all customers. But when it comes to seniors, it is felt that life stage (including whether the customer is employed, retired, or nearing retirement) and current retirement savings relate particularly to seniors.

Which of the following is an order to purchase at higher than the current market? A) A buy limit B) A buy stop C) A buy, fill, or kill D) A buy, immediate or cancel

B - a buy stop (stop orders are entered for above the current market price)

If Brokers, Inc., a broker-dealer registered in this state, refuses to comply with the Administrator's order to retain records for 2 years longer than required by the Securities Exchange Act of 1934, which of the following statements are TRUE? The securities Administrator cannot require registrants to retain books and records longer than required by the SEC. Brokers, Inc., is not in violation of the Securities Exchange Act of 1934. Both the securities Administrator and Brokers, Inc., are in violation of both the Securities Exchange Act of 1934 and the Uniform Securities Act. Brokers, Inc., must comply with orders issued by state securities regulators whether or not the orders are in compliance with the NSMIA. A) II and III B) I and II C) I and III D) II and IV

B - i and ii The securities Administrator is in violation of the National Securities Markets Improvement Act of 1996 (NSMIA), which prohibits state securities regulators from establishing requirements in addition to those required by the Securities Exchange Act of 1934.

Which of the following statements represents an advantage of a municipal general obligation bond over a revenue bond? A) A GO bond issuer is required to conduct a feasibility study. B) A GO bond generally involves less risk to the investor. C) A GO bond is not charged against the municipality's borrowing limits. D) Only a facility's users pay for a GO bond.

B) A GO bond generally involves less risk to the investor. GO bonds are generally less risky than revenue bonds because they are backed by taxes rather than revenues.

If a customer's chief concern is to shelter as much of his portfolio earnings from tax as possible, which of the following securities would be most suitable? A) Treasury receipts B) Municipal GOs C) Money market instruments D) High-yield bonds

B) Municipal GOs The interest on municipal GOs is exempt from federal income tax and perhaps state income tax, depending on the investor's residency.

NASAA has a Model Rule that requires investment advisers have a plan in place that would assist them in preserving the continuity of advisory services in the event of temporary or permanent business disruptions such as natural disasters, cyberattacks, technology failures, or the departure of key personnel. This is known as A) a cybersecurity protection plan B) a business continuity and succession plan C) a distant early warning (DEW) plan D) a SIPC coverage plan

B) a business continuity and succession plan In April 2015, NASAA implemented the Business Continuity and Success Plan Model Rule, which requires that every investment adviser shall establish, implement, and maintain written procedures relating to a business continuity and succession plan. The plan shall be based on the facts and circumstances of the investment adviser's business model, including the size of the firm, the types of services provided, and the number of locations of the investment adviser. SIPC coverage is only available to broker-dealers and comes into play when the BD becomes financially insolvent.

One major difference between the customer identification program (CIP) and the new account opening rules of the regulatory bodies is that A) the CIP requires a residence address for individuals while the regulatory bodies will accept a PO Box B) the CIP requires date of birth while the regulators only require proof of legal age C) the CIP only applies to individuals while the rules of the regulators apply to retail and institutional accounts D) the CIP requires a statement of the customer's goals while the regulators only require current financial information

B) the CIP requires date of birth while the regulators only require proof of legal age The CIP requires the actual date of birth, not just proof of legal age. The CIP has no interest in the goals of the investor, just the identity. In both cases, a PO Box may only be used after supplying a physical residence address and both the CIP and the rules of the regulators apply to retail and institutional accounts.

If a customer would like to open a custodial UGMA or UTMA account for his nephew, a minor, the uncle can A) open the account and name himself custodian B) open the account provided the proper trust arrangements are filed first C) be custodian for the account only if he is also the minor's legal guardian D) open the account, but he needs a legal document evidencing the nephew's parents' prior approval of the account

B) Can open the account and name himself custodianThe donor may name himself the custodian of an UGMA or UTMA account. No documentation of custodial status is required to open a custodial account, and the custodian is not required to be the minor's legal guardian.

Under the Securities Exchange Act of 1934, which body regulates the extension of credit for nonexempt securities? A) The Comptroller of Currency B) The SEC C) The Federal Reserve Board D) The New York Stock Exchange

C - FRB The FRB determines what issues may be purchased on margin and what percentage of the purchase price must be deposited by the purchaser.

Which of the following factors has an inverse relationship to a bond's duration? A) Par value B) Time to maturity C) Yield to maturity D) Rating

C - YTM

An elderly widow with no independent income wishes to invest the proceeds from her recently deceased husband's life insurance. Which of the following would be the most suitable recommendation? A) Municipal bonds B) Oil and gas exploration program that you know is going to strike C) High-grade corporate bond mutual fund D) Call options

C - high grade corp bond mutual fund This customer needs income. Of the answers provided, the bond fund would be the most suitable because it would provide income while maintaining relative safety. While the municipal bonds are probably safer, the benefits of their tax-free income would probably be lost on a client with no independent income.

Which of the following compensation arrangements is typically NOT allowed under the Investment Advisers Act of 1940? A) An adviser varies fees according to the time spent managing the account. B) An adviser charges clients a percentage of assets under management. C) An adviser waives a client's fee if the client experiences a loss for the year. D) An adviser charges all clients a set fee, regardless of how long it takes to generate a recommendation or a recommendation's results.

C - waiving a client fee based on a loss for the year is not allowed A fee in which payment is contingent on investment results is prohibited unless the client meets certain financial standards; advisers are permitted to charge by the hour.

What is the term used to describe a common stock issued below its par value? A) Subpar B) Nonassessable C) Assessable D) Below book

C) Assessable all stock issued today is nonassessable though

Wynifred is an investment adviser representative for an SEC-registered investment adviser. She lives in State X and receives a letter from a former boyfriend requesting a contribution to the friend's political campaign for governor of State X. As it happens, Wynifred's firm provides advisory services to State X's employee retirement fund and Wynifred actively solicits business from other state agencies. Which of the following actions would be permitted to Wynifred under the SEC's pay-to-play rule without causing any concerns to her firm? A) Donating a maximum of $150 to the campaign B) Sending a letter to the friend indicating that the rules would not permit her to contribute to the campaign C) Donating a maximum of $350 to the campaign D) Donating a maximum of $250 to the campaign

C) Donating a maximum of $350 to the campaign Wynifred's solicitation activities define her as a covered employee. The rule allows covered employees to make contributions of up to $350 per official or candidate per election in which they can vote, or $150 for other elections. Because the friend is running for governor in a state in which Wynifred can vote, the upper limit applies.

If an investment adviser representative of a federal covered adviser that transacts business in a state terminates employment with that investment adviser, which of the following statements is TRUE? A) The investment adviser must notify the Administrator. B) No notice to the Administrator is required. C) The representative must notify the Administrator. D) Both the representative and the investment adviser must notify the Administrator.

C) The representative must notify the Administrator. It is the investment adviser representative's responsibility to notify the Administrator. The advisory firm is not registered with the state; only the representative is registered.

When a nonspouse inherits an IRA, the beneficiary can choose from all of the following options EXCEPT A) opening a separate inherited IRA in the name of the deceased FBO the beneficiary B) withdrawing all of the funds immediately C) keeping the money in the deceased's IRA D) withdrawing the funds over a 5-year period following the death of the owner

C) keeping the money in the deceased's IRA It is only a beneficiary who is the spouse of the deceased who may continue that IRA. One caution, particularly when the surviving spouse is the younger partner, is that RMDs must begin when they would have started for the deceased.

An individual who is a proponent of the efficient market hypothesis (EMH) will likely invest in which of the following? A) Balanced mutual funds B) Sector mutual funds C) Growth mutual funds D) Index funds

D - index funds An individual who believes in the EMH will likely invest in index funds. Inherent in this strategy is a belief that an investor cannot outperform the market with active portfolio management techniques. The remaining choices all incorporate an active portfolio management philosophy.

Which of the following actions taken by an agent is not prohibited? A) Backdating confirmations for the benefit of the client's tax reporting B) Failing to follow a customer's order to buy a stock in an attempt to prevent a loss in the value of the client's account C) Selling speculative issues to a retired couple of modest means on a fixed income D) Borrowing money from a bank who is the agent's client

D) Borrowing money from a bank who is the agent's client One of the few times an agent can borrow money from a client is when the client is in the money-lending business, such as a bank, (not a banker). Selling speculative issues to a retired couple of modest means is an unsuitable transaction because it is not consistent with the objectives of the client. An agent must follow a customer's trading order, even if the agent believes the order is an unwise one. An agent may not backdate confirmations for the benefit of the client.

Which of the following is responsible for administration of the Bank Secrecy Act? A) Department of Health and Human Services B) Securities and Exchange Commission C) Security Services D) The Financial Crimes Enforcement Network

D) The Financial Crimes Enforcement Network

Under the Investment Company Act of 1940, which of the following statements regarding the renewal provisions of an investment adviser's contract is NOT true? A) The contract must be terminable upon no more than 60 days' notice. B) The renewal must state the adviser's compensation. C) The renewal must be approved by either majority vote of the board or majority vote of the outstanding shares, as well as majority vote of the noninterested members of the board. D) The renewal may be executed orally, provided it is done within 2 years of the initial contract.

D) The renewal may be executed orally, provided it is done within 2 years of the initial contract. When an investment company employs an outside investment advisory firm to manage its portfolio, the act requires a written contract setting forth the adviser's compensation. The contract is for 2 years initially and must be renewed annually thereafter. The contract must be initially approved by a majority vote of the outstanding shares and the noninterested members of the board of directors and annually renewed by either a majority vote of the board of directors or of the outstanding shares, as well as a majority vote of the noninterested members of the board. The contract must be terminable at any time, with a maximum of 60 days' notice and with no penalty, upon a majority vote of the board of directors or of the outstanding shares, and it must terminate automatically if assigned.

When advising an investor on the purchase of mutual funds, the agent should instruct the client to compare open-end mutual funds with the same objective for all of the following except A) portfolio turnover B) services offered C) costs D) liquidity

D) liquidity Shares in an open-end investment company (mutual fund) are liquid. By federal law, all mutual funds are required to redeem shares at their net asset value within 7 days and, therefore, that should not be a consideration in comparing mutual funds with the same objective. Sales loads, management fees, and operating expenses reduce an investor's return. Most of these fees continue throughout the holding period and have a significant impact on performance. Portfolio turnover is significant as gains in the portfolio will likely all be short-term gains, which are usually taxable to the investor at a higher rate than long-term capital gains. Services that mutual funds offer include retirement accounts, investment plans, check-writing privileges, telephone transfers, conversion privileges, withdrawal plans, and others.

Which items would change if a company declared a cash dividend? Working capital Total assets Total liabilities Shareholders' equity

DECLARED - haven't paid yet so liability

Which of the following statements is TRUE? A) Dividends have a significant influence on the value of the corporation's stock. B) A stock split increases the owner's proportionate share of the company. C) A growth company would be more likely to pay a cash dividend than a stock dividend. D) A corporation is required to pay a cash dividend to stockholders if the earnings are sufficient, especially if it is of preferred stock.

Dividends have a significant influence on the value of the corporation's stock. Dividends play a large role in what someone is willing to pay for the stock. For example, the dividend discount model (DDM) values a stock as the discounted present value of future dividends. A company is not required to pay dividends. A growth company will tend to pay no cash dividends but rather use the money for expansion.

Under the Uniform Securities Act, which of the following are NOT considered investment advisers or investment adviser representatives in this state? An individual who sells advisory services in several states, including this one, for AAA Advisers, Inc. United Trust Company of America An agent for a broker-dealer advising customers for a fixed separate fee stated as a percentage of the customer's assets under management An investment adviser with no office in the state that does business exclusively with other investment advisers located in the state A) IV only B) II and IV C) I and II D) I, II, III, and IV

II and IV An agent for a broker-dealer advising customers for a fixed fee, stated as a percentage of the customer's assets under management, is acting as an investment adviser representative. An individual who sells advisory services for AAA Advisers, Inc., is an investment adviser representative. A trust company is not an investment adviser under the USA. An investment adviser with no office in the state and does business exclusively with other investment advisers located in that state is also excluded as an investment adviser under the USA.

457 Plan

The 457 plan is unique in that it is the only tax-qualified retirement plan permitting withdrawals, for any reason, before reaching 59½ without penalty. All qualified plans have exceptions to the 10% penalty tax, but only the 457 allows the withdrawals for any reason.

Which of the following statements about equity securities is NOT true? A) Preferred stock pays a fixed dividend. B) Common stock is less sensitive to interest rate risk than preferred stock. C) Preferred stock is an equity security while common stock is a hybrid. D) Preferred stock is usually nonvoting.

Not true: Preferred stock is an equity security while common stock is a hybrid

CAPM

Ra=Rrf+[Ba∗(Rm−Rrf)] where:Ra=Cost of EquityRrf=Risk-Free RateBa=BetaRm=Market Rate of Return​

Form D in accordance with Rule 503 of Regulation D of the Securities Act of 1933

Securities sold under Regulation D of the Securities Act of 1933 are private placements and, under the NSMIA, are considered federal covered securities.

selling away

When selling securities, agents are prohibited from enacting transactions that are not recorded on the broker-dealer's books unless the transactions are authorized in writing by the broker-dealer prior to execution. Failure to do this is known as selling away. Receipt of notification is not the same as authorization.

current yield

annual coupon payment/ price of bond if bond is at par -> current yeild = coupon yield

Alpha = R portfolio - Rf - beta (Rm-Rf)

alpha formula

coupon yield

annual coupon payment/ par value

An investor has a majority of his portfolio in an ETF that mirrors the S&P 500. If the investor decided to liquidate that position and reinvest the proceeds into a single NYSE-listed common stock, it would most likely lead to an increase to the investor's A) purchasing power risk B) interest rate risk C) business risk D) liquidity risk

biz risk Business risk is a nonsystematic (unsystematic) risk—one that diversification can mitigate. That is a benefit of owning an index like the S&P 500. However, when an investor is invested largely in a single security, if that company fails, so does the entire portfolio.

What generally happens to outstanding fixed-income securities when the rate of inflation slows? A) Yields go up. B) Short-term securities are affected the most. C) Prices go up. D) Coupon rates go up.

c inflation is bad for bonds if a bond is outstanding and you assume a certain rate of inflation, and that inflation will eat away at return, if you then realize that inflation is less than expected, the bond is more valuable so prices will go up. your real return is higher

Excessive activity in a customer's account primarily for the purpose of generating excess commissions for the agent is called

churning

Working Capital

current assets - current liabilities

Which of the following securities has an easily determinable internal rate of return? A) 6% Ginnie Mae B) 7% corporate bond C) 5% municipal bond D) Zero-coupon bond

d

Under the USA, agent registrations expire A) 3 years after the effective date B) each year on December 31 C) 365 days after the effective date D) 2 years after the effective date

each year on December 31

US monetary policy

interest rates, FED, money supply

A strategy used by bond investors to mitigate interest rate risk that involves buying bonds with short-term, intermediate-term, and long-term maturities is called A) barbelling B) laddering C) bulleting D) diversifying

laddering

Real and nominal formula

real + inflation = nominal

exempt transaction

sale of the security to a federal covered investment company

US fiscal policy

taxes and govt budget

A benefit of active investment in real estate that is not available to purchasers of REITs is A) dividends from active investments are generally qualified. B) greater liquidity. C) the Section 1035 exchange privilege. D) the Section 1031 exchange privilege.

the Section 1031 exchange privilege.(Under Internal Revenue Code Section 1031, no gain or loss is recognized on the exchange of real estate held for investment if such property is exchanged solely for real estate of like-kind which is to be held for investment. This does not apply to REITs where an exchange is considered a sale with a realized gain or loss for tax purposes)