Series 66 Final

Which statements are TRUE? I The weak form of efficient market theory states that past price movements of stocks cannot be used to predict future price movements II The weak form of efficient market theory states that past price movements of stocks can be used to predict future price movements III The strong form of efficient market theory states that current securities prices fully and instantaneously reflect all information, whether it is publicly available or not IV The strong form of efficient market theory states that current securities prices fully and instantaneously reflect all publicly available information, but not inside information A. I and III B. I and IV C. II and III D. II and IV

The best answer is A. Efficient market theory is an academic approach to securities pricing in the market that states that securities prices instantaneously and fully reflect all available information. There are 3 versions of this theory: Weak Form: States that historical patterns in stock prices are of no use in predicting future price movements. The use of technical analysis to create "trendlines" is therefore, useless. This version is not widely accepted. Semi-Strong Form: States that current securities prices reflect all publicly available information. Thus, the value of securities in the market reflects publicly distributed information, but does not reflect information known by "insiders." This is the most widely accepted version. Strong Form: States that current securities prices reflect all information, whether publicly available or not. Thus, information known by "insiders" that has not been publicly disseminated, is already reflected in a security's price. This version is also not widely accepted.

An investment adviser to a hedge fund with $250 million of AUM has invested 100% of fund assets in gold, anticipating a steep stock market decline and flight to safety by investors. The investment adviser: A. must register with the SEC B. must register with the CFTC C. must register with both the CFTC and the SEC D. is neither required to register with the SEC nor the CFTC

The best answer is A. A private fund adviser with at least $150 million of assets under management (AUM) must register with the SEC, and therefore will not register with any State. When counting AUM, all assets are counted, regardless of how they are invested. The CFTC is the Commodities Futures Trading Commission - never an answer on these exams!

Which of the following statements is TRUE regarding an investment adviser who renders advice solely to investment companies? The investment adviser: A. must register with the SEC only B. must register with the State only C. must register with the SEC and State D. is exempt from registering as it renders advice to "professional investors"

The best answer is A. Advisers that: •manage $100,000,000 or more of assets; or •render advice to investment companies; are not regulated at the State level and must register with the SEC only. One of main intents of the Investment Advisers Act of 1940 was to register advisers to investment companies and place limits on their compensation.

A value fund manager has decided that her position in ABCD stock should be liquidated. This decision to liquidate was determined by the manager using: A. fundamental analysis B. technical analysis C. a combination of both fundamental and technical analysis D. a Monte Carlo simulation

The best answer is A. Fundamental analysis is used to decide which stocks to buy or sell, based on "fundamental" factors such as earnings, dividends, products, etc. Once that decision is made, it is always best to buy when the price is low or sell when the price is high. Technical analysis uses stock price chart patterns to identify a market "top" or a market "bottom." Once the sell decision is made, it would be best to wait for a market "top" to sell at the highest price possible.

A client of an investment adviser representative has enjoyed excellent returns on his portfolio over the past 5 years. The client needs $25,000 of cash, but does not want to sell securities from his portfolio since it is performing so well. He asks the investment adviser representative for a loan, which the investment adviser representative gives. The investment adviser representative is guilty of a: A. fiduciary violation B. churning violation C. selling away violation D. failure to supervise violation

The best answer is A. Investment adviser representatives cannot borrow from, or lend money to, a customer. They have a fiduciary duty to the customer and cannot take an opposite position to that customer - both the customer's and the investment adviser representative's interests must be aligned.

An investment adviser, age 33 and married, needs cash for the down payment to buy her first house. She asks her father if he can "help out" with the down payment. Her father is one of her advisory clients. Which statement is TRUE about this situation? A. The investment adviser can accept the money from her father if he gives it as a gift B. The investment adviser can accept the money from her father if he gives it as a loan C. The investment adviser cannot accept the money from the father, whether given as a loan or a gift D. The investment adviser can only accept the money from her father if there is a written agreement that details the terms and conditions

The best answer is A. Investment advisers cannot lend money to customers or borrow money from customers. The only exception is if the customer is a bank, broker-dealer, or affiliated company of the adviser. Note that an investment adviser can accept a gift!

The effect on the prices of securities due to the "changing tastes, likes and dislikes" of investors is: A. market risk B. business risk C. regulatory risk D. opportunity cost

The best answer is A. Is this one special or not?! When investors like stocks, they buy them and stock prices rise. When investors don't like stocks, they either sell them or don't buy them and prices fall. This is market risk. Business risk is the risk that a negative event, bad management or bad products cause a company to become unprofitable. Regulatory risk is the risk of law change negatively affecting a company's operations. Opportunity cost is the return "lost" by making a suboptimal investment

Market risk is the same as: A. systematic risk B. non-systematic risk C. credit risk D. selection risk

The best answer is A. Market risk is the same as systematic risk. This risk cannot be diversified away.

The Net Present Value of an investment is greater than "0." This means that the: A. rate of return from the investment is greater than the discount rate used in the computation B. rate of return from the investment is lower than the discount rate used in the computation C. investment will produce a return that is greater than the rate of inflation D. investment will produce a return that is lower than the rate of inflation

The best answer is A. Net Present Value takes all the cash flows that will be generated by an investment and discounts them back to their "present value." The rate of interest used to discount the cash flows to be received is the current market rate of interest. •If the computation results in an NPV of "0," then the rate of return of the investment equals the discount rate used. •If the computation results in an NPV of more than "0," then the rate of return of the investment exceeds the discount rate used. •If the computation results in an NPV of less than "0," then the rate of return of the investment is lower than the discount rate used. The computation has nothing to do with the inflation rate.

Prior to the filing of a registration statement, which activity is permitted? A member firm: A. signing a syndicate agreement to become part of the underwriting group for the issue B. distributing preliminary prospectuses for the issue to customers C. taking indications of interest for the issue from customers D. selling the issue to customers

The best answer is A. Prior to the filing of a registration statement, the issue cannot be promoted in any manner - so the use of a preliminary prospectus to take indications of interest is prohibited; as is selling the issue. Once the registration statement is filed, the issue enters the 20 day cooling off period. At this point, a preliminary prospectus can be used to take indications of interest, but the issue cannot be sold. Once the registration is effective, the issue can be sold with the prospectus. There is no prohibition on the underwriter joining the syndicate or selling group prior to the filing of the registration statement, since this does not involve offering the issue to the public.

An officer of a company that wishes to register shares in a State in a "non-issuer" distribution, would rely on which registration procedure? A. Registration By Filing B. Registration By Qualification C. Registration By Coordination D. Registration By Administration

The best answer is A. Registration by Filing is the method commonly used by "non-issuers" to offer shares in the State. As an example, an officer of a company holds unregistered shares of that company. If the company has registered shares outstanding, and is current in its SEC filings, the officer can sell the shares under SEC Rule 144, which registers the shares federally. To register the shares in the State, the officer would use the Registration by Filing procedure, since it is the simplest registration method.

Criminal violations of the Uniform Securities Act are punishable by: I $5,000 fine II $10,000 fine III 3 years in jail IV 5 years in jail A. I and III B. I and IV C. II and III D. II and IV

The best answer is A. Under the Uniform Securities Act, criminal violations are punishable by a $5,000 fine per offense and up to 3 years in prison. In contrast, criminal violations of Federal law are punishable by a $10,000 fine per offense and up to 5 years in prison.

Which of the following statements is TRUE when discussing the conversion of IRAs? A. Once the type of IRA is chosen, one cannot convert the IRA into any other form B. A Traditional IRA can be converted into a Roth IRA C. A Roth IRA can be converted into a Traditional IRA D. A Traditional IRA can be converted into a 401k

The best answer is B. A Traditional IRA can be converted into a Roth IRA. This is done as a "rollover" and, if the contributions previously made into the IRA were deductible; then tax must now be paid on these amounts (but no penalty tax is imposed). The benefit of converting to a Roth IRA is that all distributions are not taxable; and distributions do not have to commence at age 70 1/2 (as compared to a Traditional IRA where distributions are taxable; and distributions must commence at age 70 1/2). The "conversion" rule was put into the tax code as a potential "money grab" by the Federal Government. If the government can get people to convert their Traditional IRAs to Roth IRAs, it gets tax dollars NOW, instead of later. And that would help reduce the federal deficit! Also note that there is no earnings limit on those who can convert their Traditional IRAs to Roth IRAs.

Investment advisers are prohibited from doing all of the following EXCEPT: A. assigning a customer's contract without permission B. charging a retainer fee C. charging commissions on trades effected for the client D. changing partnership management without notifying clients

The best answer is B. Investment advisers cannot assign (transfer) an advisory contract without the customer's permission. Charging commissions on trades effected for the client is prohibited since the adviser is compensated based on a percentage of assets under management. However, if the adviser has a separate broker-dealer, the broker-dealer entity can handle the trades and earn the commissions, as long as this conflict of interest is disclosed to the client when the contract is signed. Investment advisers are obligated to notify clients if the management of the investment adviser changes (when the investment adviser is structured as a partnership). There is no prohibition on an investment adviser charging a retainer fee.

When are losses on securities positions held in a Roth IRA deductible to the owner of the account? A. Only when distributions are taken from the Roth IRA after the age of 59 1/2 B. Only if the Roth IRA is liquidated and the investments are sold for less than their cost basis C. Only if the customer dies or is disabled prior to the age of 59 1/2 D. Under no circumstances

The best answer is B. Losses on securities positions that were purchased and then sold within a Traditional IRA or a Roth IRA are not deductible. The only way that losses can be deducted on a Traditional or Roth IRA is for the owner to close out all IRA accounts of that type (either Traditional or Roth) and sell the securities positions in all the accounts for less than their cost basis. Then the customer will have a deductible loss. This is only likely to be of interest to a customer where the securities positions in the account have lost a great amount of value, and if the customer has other offsetting capital gains - so this is a very rare event. However, it is a tested item on the exam!

A portfolio of securities with a beta of 1.5 has produced an average annual return of 18%. Which investment should the portfolio manager consider adding? A. A stock with an 6% growth rate and a beta of .6 B. A stock with a 10% growth rate and a beta of .8 C. A stock with a 12% growth rate and a beta of 1.5 D. A stock with a 20% growth rate and a beta of 2

The best answer is B. The portfolio has generated a 18% return by taking on extra risk (beta of 1.5 is .5 above the market risk level of 1). If we divide the return by the beta, the market return for the portfolio would be 18% / 1.5 = 12%. Any investment that exceeds this amount (risk adjusted) is a good one for the portfolio. Choice A: 6% / .6 Beta = 10% risk adjusted return Choice B: 10% / .8 Beta = 12.50% risk adjusted return Choice C: 12% / 1.5 Beta = 8% risk adjusted return Choice D: 20% / 2 Beta = 10% risk adjusted return

A $1,000 par TIPS is issued with 5 years to maturity. The coupon rate on the bond is 3.50%. If the inflation rate for the next 5 years is 2.50%, the bond will be worth how much in 5 years? A. $1,000 B. $1,131 C. $1,188 D. $1,338

The best answer is B. A TIPS is a Treasury Inflation Protection Security. Aside from receiving the 3.50% coupon ($35 annual interest) paid to the bondholder, the principal is adjusted upwards by the inflation rate each year, and at maturity, the holder receives the inflated principal amount. $1,000 inflated by 2.50% annually equals: $1,000 x 1.025 x 1.025 x 1.025 x 1.025 x 1.025 = $1,131.

A person who renders investment advice relating solely to municipal securities is: A. exempted from the definition of an investment adviser, and is not required to register under the Act B. defined as an investment adviser and must register under the Act C. defined as a broker-dealer and must register under the Act D. defined as an agent and is required to register under the Act

The best answer is B. A person who gives investment advice relating solely to municipal securities is not exempted from registering as an investment adviser under State law. (Please note, however, that a person who gives advice solely about U.S. Government guaranteed securities is excluded from the definition of an investment adviser under the Investment Advisers Act of 1940. This is another type of federal covered adviser, for which there is no state registration.)

An exempt reporting adviser: A. must file Form PF with the SEC B. must file Form ADV with the SEC C. must file both Form PF and Form ADV with the SEC D. is neither required to file Form PF nor Form ADV with the SEC

The best answer is B. An "exempt reporting adviser" is a private fund adviser (such as a hedge fund adviser) with less than $150 million of AUM (assets under management). Exempt reporting advisers are not required to register with the SEC (which is accomplished with Form PF - as in Private Fund adviser). However, they must still report to the SEC on Form ADV Parts 1 and 2 annually - and this information is made public.

For an adviser to charge a performance fee, the Investment Advisers Act of 1940 requires which minimum financial standards from customers? I A customer that deposits $1,000,000 or more with the adviser II A customer that deposits $2,100,000 or more with the adviser III A customer with a $1,000,000 or higher net worth IV A customer with a $2,100,000 or higher net worth A. I and III B. I and IV C. II and III D. II and IV

The best answer is B. Because the Investment Advisers Act of 1940 permits the charging of performance fees to qualified customers (those with either $1,000,000 invested or a net worth of $2,100,000), NASAA cannot prohibit the charging of a performance fee for these customers. Remember that Federal law supersedes State law; in the absence of a Federal law, then only that State law applies.

When comparing an Exchange Traded Fund to a Unit Investment Trust, the customer should be made aware that: A. expense ratios tend to be higher for ETFs than for UITs B. the secondary market for UITs is limited while ETFs are actively traded C. UIT portfolios are actively managed while ETF portfolios are passively managed D. cash dividends received from UITs do not qualify for the lower 15% tax rate, while cash dividends received from ETFs do qualify for the lower rate

The best answer is B. ETFs (Exchange Traded Funds) are actively traded on stock markets like any other stock. UITs (Unit Investment Trusts) are created by a sponsor and sold with a prospectus. The secondary market for these is usually thin, though the sponsor does make a market in trust units. Both ETFs and UITs have low expense ratios; both are typically passively managed (that is, the portfolio is basically fixed); and cash dividends received from both qualify for the lower 15% tax rate if the portfolio holds equity securities.

Which statements are TRUE when comparing Equity Indexed Annuities to Variable Annuities? I In a year of sharply rising stock prices, variable annuities will outperform equity indexed annuities II In a year of sharply rising stock prices, equity indexed annuities will outperform variable annuities III In a year of sharply falling stock prices, variable annuities will outperform equity indexed annuities IV In a year of sharply falling stock prices, equity indexed annuities will outperform variable annuities A. I and III B. I and IV C. II and III D. II and IV

The best answer is B. Equity indexed annuities have a cap on their maximum annual return, while variable annuities do not. Thus, in a year of sharply rising stock prices, variable annuities will outperform equity indexed annuities. In a year of sharply falling stock prices, equity indexed annuities will do better, because they protect their positions with put options. This is one of the reasons they have higher annual expenses than variable annuities. In contrast, variable annuity separate accounts can lose sharply in a bear market, unless they offer a principal protection feature, which would increase expenses.

A value fund manager has decided that her position in ABCD stock should be liquidated. To decide the best time to do this, the manager would use: A. fundamental analysis B. technical analysis C. a combination of both fundamental and technical analysis D. a Monte Carlo simulation

The best answer is B. Fundamental analysis is used to decide which stocks to buy or sell, based on "fundamental" factors such as earnings, dividends, products, etc. Once that decision is made, it is always best to buy when the price is low or sell when the price is high. Technical analysis uses stock price chart patterns to identify a market "top" or a market "bottom." Once the sell decision is made, it would be best to wait for a market "top" to sell at the highest price possible.

Upon entry of a "stop order" denying or revoking a security's exemption, the Administrator must notify those affected by the order that: A. the registration has been revoked B. an opportunity for a hearing is available C. sale of the issue can continue until any charges are proven D. the Administrator has filed criminal charges

The best answer is B. If an Administrator enters a "stop" order, halting the sale of an issue that has an exemption, the Administrator must give those affected by the order an opportunity for a hearing. As long as the stop order is in effect, the issue cannot be offered or sold in the State.

If an agent fails to renew his or her license at the end of the year, the: A. registrant must retake the Series 63 or 66 examination B. registration expires with no action by the Administrator C. registration is automatically renewed and a late fee is assessed D. registration is revoked

The best answer is B. If an agent fails to renew his license after the 1 year registration period, the license expires with no action on the part of the Administrator. The renewal is handled by the registration department of the broker-dealer with whom the agent is affiliated.

A client wishes to buy a $200,000 yacht and wishes to know how this will affect his financial situation. You would illustrate the impact of buying the yacht by showing the changes that would occur on the client's: A. Personal income statement B. Personal balance sheet C. Personal net worth statement D. All of the above

The best answer is B. If the yacht is purchased, then Cash and Cash Equivalents on the customer's balance sheet will decline by $200,000; and Fixed Assets will increase by $200,000. Total Assets remain the same, as does Total Liabilities and Net Worth. The transaction does not affect the client's personal income statement, though paying the operating expenses of running the yacht in the future certainly will!

The Net Present Value of an investment is lower than "0." This means that the: A. rate of return from the investment is greater than the discount rate used in the computation B. rate of return from the investment is lower than the discount rate used in the computation C. investment will produce a return that is greater than the rate of inflation D. investment will produce a return that is lower than the rate of inflation

The best answer is B. Net Present Value takes all the cash flows that will be generated by an investment and discounts them back to their "present value." The rate of interest used to discount the cash flows to be received is the current market rate of interest. •If the computation results in an NPV of "0," then the rate of return of the investment equals the discount rate used. •If the computation results in an NPV of more than "0," then the rate of return of the investment exceeds the discount rate used. •If the computation results in an NPV of less than "0," then the rate of return of the investment is lower than the discount rate used. The computation has nothing to do with the inflation rate.

Which of the following is an asset class? A. Diamonds and precious jewels B. Real estate C. Annuity D. S&P 500 Index

The best answer is B. The "generally recognized" asset classes for investment are: Stocks; Bonds; Cash; Real Estate; and Commodities. Each one is an investment type with similar risk/return characteristics. Diamonds could be viewed as a subset of the "commodities" asset class (and a very expensive commodity at that). The S&P 500 Index stocks would be a subset of the stocks asset class. As far as annuities go, many insurance companies promote them as an "asset class" or as an alternative asset class, however they are not part of the generally accepted definition.

When looking at the Price/Book Value ratio of a corporation, "Book Value" is best described as: A. Net Intrinsic Value B. Net Accounting Value C. Net Market Value D. Net Liquidation Value

The best answer is B. The Price/Book Value Ratio of a corporation is the company's Market Price (per share) / Common Stockholders' Equity (per share). While the "price" is the market value per share, book value is simply the accounting value of common stockholders' equity. Liquidation value is not the same thing as accounting value. Liquidation value bases value as of today's market value. Common stockholders' equity is based on accounting as of the date each transaction happened, which could be years in the past. Thus, if the market values of those assets or liabilities booked years in the past have moved dramatically, then "book value" really has little meaning.

A portfolio characterized by high growth and low dividend paying stocks would be invested in the stocks in the: A. S&P 500 Index B. NASDAQ Composite Index C. NYSE Composite Index D. Wilshire Index

The best answer is B. The S&P 500 and NYSE Composite Index are generally composed of large capitalization mature companies. Mature companies are characterized by low growth rates and high dividend payout ratios. The NASDAQ Index is heavily weighted in younger high tech growth companies, with smaller market capitalizations (aside from some notable large cap issues like Microsoft, Intel and Apple). Growth companies are characterized by high growth rates and low dividend payout ratios. Finally, the Wilshire Index consists of all NYSE, AMEX (NYSE American) and NASDAQ issues, so it is a blend of small, mid and large cap issues.

A passively managed index fund, to compensate for a negative tracking error, would: A. rebalance its portfolio B. actively manage a portion of its portfolio C. terminate its portfolio manager and hire a more experienced individual D. implement a new strategic asset allocation plan

The best answer is B. The deviation between a portfolio's return and the benchmark return is known as the "tracking error" (this can be either positive or negative). Here is an example of how tracking error occurs and can be managed. Index fund managers, who seek to match the performance of a benchmark index, must, in reality, do better than the benchmark index results to cover the costs of operating the fund (e.g., brokerage costs, administrative costs, etc.). They cannot be completely passive in their approach because then they will always underperform the index (the "tracking error"). Therefore, in order to boost their yield up to cover these expenses, they must employ a bit of active asset management - in essence, making disproportionately large bets on stocks in the index that they think will outperform the index - in order to juice up their returns enough to cover fund expenses. The idea is that the positive tracking error from the actively managed positions will more than offset the negative tracking error built into the passively managed positions.

An investment adviser will NOT be required to be registered with the SEC if the: I adviser's only clients are investment companies II adviser's only clients are insurance companies III adviser is located in only 1 State and all of the adviser's clients reside in that State A. I and II only B. II and III only C. I and III only D. I, II, III

The best answer is B. The main intent of the Investment Advisers Act of 1940 was to register advisers to investment companies and place limits on their compensation. SEC registration is not required for advisers to insurance companies because there is no worry that an insurance company (which is a sophisticated purchaser) will be overcharged. Because the Investment Advisers Act of 1940 is federal legislation, which only applies to transactions that "cross State lines," if a transaction occurs wholly within 1 State, then Federal law does not apply and only that State's law applies. This is an "intrastate" exemption.

Prior to effecting a transaction for a customer, an agent is obligated to disclose: A. the amount of commission to be charged B. if the commission to be charged will be higher than normal C. the bid-ask spread on that security D. the last reported trade in that security

The best answer is B. There is no requirement to disclose the amount of commission charged on a trade prior to executing the trade for the customer. The amount of commission must be disclosed on the trade confirmation and it must be "fair and reasonable." The only requirement for disclosure of commission costs is that if a transaction will result in unusually high commission costs, this must be disclosed to the customer prior to executing that trade.

Ms. Muffy Vanderbilt is an entrepreneurial socialite who has successfully worked as a fund raiser for a not-for-profit organization for the past 10 years. Because of her success at raising money and her extensive list of social contacts, she is recruited by an investment advisory firm to become a representative. Ms. Vanderbilt would be permitted to: I state to customers that she has 10 years of experience in the industry II use the title "investment adviser representative" on her business card III state to customers that she is registered as a representative with the SEC A. I only B. II only C. II and III D. I, II, III

The best answer is B. This representative did not work for an advisory firm for the past 10 years. She worked for a not-for-profit organization as a fund raiser - so choice I is a misrepresentation and is prohibited. Choice II is fine - she is an investment adviser representative and can put this on her business card. Choice III is another misrepresentation. Only the investment advisory firm registers with the SEC - there is no registration of adviser representatives with the SEC. The representatives are only registered in each State where they are located, or where they solicit business.

An investor holds shares of a stock that declares a 10% stock dividend. Which of the following statements are TRUE regarding the stock position after the dividend is paid? I The cost basis per share is adjusted II The cost basis per share remains the same III The distribution is taxable IV The distribution is not taxable A. I and III B. I and IV C. II and III D. II and IV

The best answer is B. Under IRS rules, stock dividends are not taxable at the time of receipt. The stock dividend results in the cost basis per share being reduced, with the number of shares held increased proportionately. In aggregate, the customer's cost basis remains the same.

What happens to the rate of return calculation on a non-callable bond if the rate of interest stays the same and the time intervals are changed? I Shortening the time intervals will increase the rate of return II Shortening the time intervals will decrease the rate of return III Lengthening the time intervals will increase the rate of return IV Lengthening the time intervals will decrease the rate of return A. I and III B. I and IV C. II and III D. II and IV

The best answer is B. When the question is stating that the "time intervals shorten," this means that the time period between each interest payment received shortens. When the question is stating that the "time intervals lengthen," this means that the time period between each interest payment received lengthens. For example, assume that a 10% bond will pay interest semi-annually, instead of annually. At the end of each 6 months, $50 of interest will be received, instead of receiving $100 every 12 months. Because the first $50 interest payment received can immediately be reinvested over the next 6 months until the second $50 payment is received, this will produce a higher rate of return than receiving the $100 payment at the end of the year. Thus, the actual rate of return will increase if time intervals shorten, because the interest is actually being received more quickly, and can be reinvested faster, increasing the rate of return. Conversely, if the time intervals lengthen, because the actual interest payments are being received more slowly and are reinvested more slowly, the rate of return declines.

Which statement is TRUE about a 457 Plan? A. It is a qualified retirement plan available to "rank and file" government employees B. It is a non-qualified retirement plan available to "rank and file" corporate employees C. There is no 10% penalty for withdrawing funds prior to age 59 ½ D. Employers must make mandatory matching contributions of 20% of employee salary

The best answer is C. 457 plans are "add on" plans to government sponsored defined benefit plans and 403(b) plans. 403(b) plans are similar to 401(k)s - they are salary reduction plans that allow employees to contribute up to $18,500 in 2018. 401(k)s are for the corporate sector, while 403(b)s are for the not-for-profit government sector. As an added benefit for higher level employees, not-for profit employers can establish a 457 plan. This is not a qualified plan because it is discriminatory. An additional $18,500 can be contributed in 2018 as a salary reduction by these higher level employees. A key difference between 457 plans and either a 403(b) or 401(k) is that funds can be taken out of a 457 at any time without incurring a 10% penalty tax (though regular income tax will be due). This is permitted because very often the participants in 457 plans are police officers and firemen who might have to retire earlier than age 59 ½ due to disability - so they can get the funds in the 457 account to help pay for needs caused by forced early retirement without paying the 10% penalty tax.

A sole proprietor has applied for and acts under a DBA. Under federal law, the tax return that must be filed is a(n): A. corporate return Form 1120 B. partnership return Form 1065 C. individual return Form 1040 with Schedule C attached D. individual return Form 1040 with Schedule E attached

The best answer is C. DBA stands for "Doing Business As." If an individual sets up a business as a sole proprietor, the legal name of the person's business defaults to that individual's name. If the sole proprietor wishes to use a different business name, then the individual must file a form in the State notifying the State of the legal name being used - the "DBA" name (remember, the State wants to know who is doing business there!). Sole proprietorships are simply formed by individuals going into business - there is no State formation procedure that limits liability, such as setting up a corporation or a limited partnership in the State. To report the income and loss from the business, a Schedule C (Profit or Loss from a Business) form is attached to that individual's tax return. Schedule E is used to report passive income and loss from real estate and partnership investments.

Which of the following can be purchased on margin? A. Mutual fund shares B. Options C. Futures D. OTCBB issues

The best answer is C. NYSE, AMEX (NYSE American) and NASDAQ listed issues are marginable. These are actively traded stocks. The purchase of listed options cannot be done on margin - full payment is required because these have a maximum life of 9 months. In contrast, the futures markets are not subject to Regulation T and have their own margin requirements, which are quite low. Futures contracts can be purchased on margin. Purchases of OTCBB and Pink Sheet issues are not marginable because they are thinly traded issues.

When comparing dollar-weighted average return to time-weighted average return for a mutual fund investor, which statements are TRUE? I Time Weighted Average Return is affected by new cash inflows or outflows II Time Weighted Average Return is not affected by new cash inflows or outflows III Dollar Weighted Average Return is affected by new cash inflows or outflows IV Dollar Weighted Average Return is not affected by new cash inflows or outflows A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. Time Weighted Average Return is used by mutual funds on their performance charts to show average annual investment returns. It measures how well the fund manager performed in increasing the dollars that have been invested. Additional cash moving into the fund or out of the fund does not affect the computation. This is the average annual return that would be provided from a "buy and hold" strategy. Dollar Weighted Average Return is the same as the Internal Rate of Return. It is the discount rate that takes all of the cash flows from the investment. Dollar Weighted Return takes into account the impact of cash inflows and outflows from purchases and sales as well as growth in assets.

A trader uses a predetermined strategy where investment funds are moved from one sector to another based on a calendar schedule, using the following sectors as the asset classes: utilities, retailers, consumer staples, technology, and transportation stocks. This is an example of: A. portfolio rebalancing B. tactical asset allocation C. rotational investing strategy D. strategic asset allocation

The best answer is C. "Sector rotating" is an active investment strategy that seeks to use the economic cycle as the basis for making investment decisions. For example, when the economy is entering a recession, funds are allocated to defensive utility and consumer staples stocks that are less affected by a contracting economy. When the economy starts to grow again, these positions are liquidated and investments are made in technology and transportation stocks that perform well in a rapidly growing economy, etc.

A customer calls an agent to complain about the agent's handling of her account. The customer is not satisfied with the agent's response and calls the branch manager to complain. Under NASAA rules, this is: A. defined as a complaint that must be recorded and a resolution attempted because it was directed to a manager B. defined as a complaint that must be recorded and a resolution attempted because it was made verbally C. not defined as a complaint that must be recorded and a resolution attempted because it was made verbally D. not defined as a complaint that must be recorded and a resolution attempted because it was not filed with the State Administrator

The best answer is C. A complaint that must be recorded and resolved is defined as one received by the broker-dealer in writing (e-mail counts here as well), A verbal complaint does not count.

Which of the following is an unethical business practice? A. Publication of a tombstone announcement by a broker-dealer in the local newspaper on the effective date of a registered new issue offering managed by that broker-dealer B. Publication of a research report by a broker-dealer that shows the performance of prior recommendations made by that broker-dealer during the prior 12 months C. Publication of a report by an agent detailing the performance of transactions recommended by that agent over the prior 12 months D. Publication of a report by a broker-dealer written by an agent detailing the performance of transactions recommended by that agent over the prior 12 months

The best answer is C. An agent cannot publish and distribute reports detailing the performance of recommended transactions. Broker-dealers, on the other hand, may do so, but the State Administrator can require the filing of these reports.

In March, an investment adviser wishes to increase its annual management fee from 1% of assets annually to 1.25% of assets annually, starting the following July 1st. In order to do this: I the investment adviser must amend the Form ADV filed with the State immediately II the investment adviser must amend the Form ADV filed with the State within 30 days III the adviser's customers must approve of the change by July 1st IV the adviser's customers are not required to approve the change A. I and III B. I and IV C. II and III D. II and IV

The best answer is C. Any changes to an advisory contract are a material change that must be filed as a Form ADV update with the State within 30 days. In addition, since this is a contract between the customer and the investment adviser, both parties must agree to any changes.

Under IA-1092, which of the following are defined as "giving advice about securities"? A person who: I advises on the selection of an investment adviser II prepares a list of securities that may be purchased without making specific recommendations III prepares an asset allocation plan that specifies percentage investments in stocks, bonds, real estate and insurance IV charts the price movements of stocks and distributes them to subscribers A. I only B. III and IV C. I, II, III D. I, II, III, IV

The best answer is C. Charting of the price movements of stock is not "investment advice." An investment adviser, under the Investment Advisers Act of 1940, is "a person who receives compensation for advising others about securities, or about the advisability of investing in securities." Under the SEC's interpretations, a person who prepares a "list" of securities is making an implicit recommendation of these securities and is giving advice; a person who prepares asset allocation plans is also giving advice (if one of the assets included is securities). Furthermore, a person who recommends investment advisers is also one who gives advice! A person who prepares and distributes charts of stock price movements is not giving advice. Note, however, that if this information is used by the preparer to determine which securities to buy or sell, it would be considered to be "investment advice."

A 4 1/2% $1,000 par bond is selling in the market for $900. What is the bond's current yield? A. 4 1/2% B. Between 4 1/2% and 5% C. 5% D. Over 5%

The best answer is C. Current yield is: Annual Income / Market Price. Since this bond has a coupon rate of 4 1/2%, the annual income is 4.50% x $1,000 par = $45. Since the customer is paying $900 for the bond, the current yield is: $45 / $900 = 5%.

An agent owns an ice cream and sweets shop that has been extremely successful. She wants to expand and open new locations, and wants to sell shares of the shop to her friends and other family members. Which statement is TRUE about this activity? A. This is a permitted activity because the shares are not being sold to the general public B. This is the illegal activity known as selling away that is prohibited under NASAA rules C. This is an unethical activity unless the agent obtains permission in writing from her employing broker-dealer to sell the shares D. This activity is permitted because it does not interfere with the agent's employment obligation to her broker-dealer

The best answer is C. If an agent wishes to sell a security that is not being offered by his or her firm, the agent is "selling away" from the firm. This is prohibited under both FINRA and NASAA rules unless the agent gets written approval of the firm to engage in the transaction. All securities transactions effected by agents must be known to the employing firm and must be supervised by the employing firm. Note that selling away is not illegal - there is no law stating that selling away is prohibited. Rather, it is an unethical practice if an agent "sells away" without the permission of his or her firm.

Which of the following are types of joint accounts? I Tenancy by Entireties account II Tenancy in Common account III Joint Tenants with Rights of Survivorship account IV Partnership account A. I and IV B. II and III C. I, II, III D. I, II, III, IV

The best answer is C. In a joint account, each owner can trade the account and can draw checks in the account's name. The joint account ownership options are Tenants in Common - each person has a divided interest with a specified ownership percentage for each party; and Joint Tenancy With Rights of Survivorship - each person has an undivided interest with each owning 100% of the account (another name for such an account is "Tenants by Entireties"). Partnership accounts are not joint accounts - only the designated partner(s) authorized in the partnership agreement can trade the account and draw checks - each individual partner is not permitted to do so.

Income in a revocable trust is taxed at the: A. corporate tax rate B. trust tax rate C. grantor's tax rate D. gift tax rate

The best answer is C. Income in a revocable trust is taxed at the grantor's tax bracket (since the grantor still has control of the assets that generate the income). In contrast, income in a non-revocable trust is taxed at the rates scheduled for trusts - these are the same rates as for individuals but the brackets "ratchet up" faster to a maximum rate of 37%. (in 2018)

The formula for Return on Investment (ROI) is: A. (Total Beginning Return - Total Ending Return) / Average Cash Flow B. (Total Ending Return - Total Beginning Return) / Average Cash Flow C. Average Annual Cash Flow / Initial Investment Outlay D. Average Annual Cash Flow / Average Investment Value

The best answer is C. Return on Investment is a simple measure that takes an initial investment and shows how well it performs. The annual cash flows generated by the investment are averaged, and divided by the original investment amount. For example, assume that $1,000 is invested, and that investment is expected to generate cash flow of $100 in the first year, $200 in the second year, and $300 in the third year, at which point the $1,000 original investment will be returned. The average annual cash flow is $100 + $200 + $300 = $600/3 years = $200 per year. Since $1,000 was invested, the ROI is $200 / $1,000 = 20%.

Which of the following are included in a gross estate? I Stocks and bonds held in a joint account II Roth IRAs III Life Insurance Proceeds held in an irrevocable trust IV 403b Proceeds A. I and II B. III and IV C. I, II, IV D. I, II, III, IV

The best answer is C. Stocks and bonds held in individual or joint accounts are included in the deceased's gross estate (the portion belonging to the deceased person is included from the joint account). So are all retirement plan assets - including IRAs, Roth IRAs, 401(k) accounts and 403(b) accounts. Finally, regarding life insurance proceeds, if the policy is owned by the deceased individual, then it is included in the decedent's estate. If it is owned by someone else (such as the spouse of the decedent or held in a non-revocable trust), then it is excluded from the estate of the decedent - since it is deemed to be an asset that is owned by that other person (the spouse or the trust).

The settlor of a trust is the: A. trustee B. beneficiary C. grantor D. fiduciary

The best answer is C. The "settlor" of a trust is the person who grants property to the trust for the benefit or one or more beneficiaries. The settlor is also called the grantor, donor or trustor. The trustee is appointed by the settlor to manage the assets of the trust in the best interest(s) of the beneficiaries. The trustee is a fiduciary.

Which recommendation is appropriate for a client who is subject to the AMT (Alternative Minimum Tax)? A. "You should invest in an existing housing real estate limited partnership for stable income sheltered by depreciation deductions" B. "A private activity municipal bond investment is suitable for you because of its tax-free income" C. "Don't exercise any incentive stock options granted by your employer" D. "You should be making investments in foreign corporations"

The best answer is C. The AMT (Alternative Minimum Tax) applies a minimum flat tax rate under an alternative calculated income if an individual relies on too many "tax preferences" in the tax code to reduce regular taxable income. These tax preferences are added back to regular taxable income to arrive at AMT income, which is taxed at a flat 26-28% rate.

The IRR (Internal Rate of Return) of an investment assumes that: A. cash flows generated by the investment are not reinvested B. cash flows generated by the investment are reinvested at the risk-free rate of return C. cash flows generated by the investment are reinvested at the internal rate of return D. cash flows generated by the investment are reinvested at the total rate of return

The best answer is C. The Internal Rate of Return is the true yield maturity of an investment. It finds the yield that will discount the investment's cash flows to "0." Inherent in the IRR calculation is that any cash flows generated by the investment are reinvested at this same IRR.

If a company has 100 shareholders and $100,000 of initial capital with the purpose of investing in securities, this company: A. is exempt from registration under the Investment Company Act of 1940 B. is exempt from registration under the Securities Act of 1933 C. must be registered as an investment company under the Investment Company Act of 1940 D. must be registered with the Securities and Exchange Commission under the Securities Act of 1933

The best answer is C. The Investment Company Act of 1940 requires the registration of investment companies that have 100 or more shareholders; and which have $100,000 or more initial capital.

Under the Investment Company Act of 1940, an investment adviser's contract is initially set for: A. 1 year; and is subject to renewal every year thereafter B. 1 year; and is subject to renewal every 2 years thereafter C. 2 years; and is subject to renewal every year thereafter D. 2 years; and is subject to renewal every 2 years thereafter

The best answer is C. The investment adviser's contract is initially set for 2 years and is then renewed annually. The contract renewal is approved either by the Board of Directors of the Fund; or a majority vote of the outstanding shares.

A customer submits a written complaint to your broker-dealer. Later, he changes his mind and asks that the complaint be returned. You should: A. do nothing unless the customer makes a written request B. return the original written complaint to the client C. return a copy of the complaint to the client and retain the original complaint in the firm's files D. return the original complaint to the client and retain a copy of the complaint in the firm's files

The best answer is C. This is very judgmental. SEC Rule 17a-3 (which NASAA follows) allows firms to keep complaint records in either of 2 ways: •The firm may keep a written record of each customer complaint and its resolution, including customer name, address, account number, date of receipt of complaint, name of associated person identified in the complaint and disposition of the complaint; or •Instead of the record, the member may maintain a copy of each original complaint in a separate file of the associated person along with a record of the disposition of the complaint. So the SEC states that if complaint copies are retained, the firm must retain the "original." Thus, Choice C is the best answer.

An IAR discusses a trading strategy with one of her clients, who tells the IAR to sell her ABC stock position whenever you see an opportunity. After this conversation, the client leaves the IAR's office for a vacation. Two days later, the IAR sees that ABC stock has risen in price and believes that this is an opportune time to sell the position. The IAR should: A. not place the order and try and contact the client B. place the trade and notify the client in writing within 2 business days C. place the trade and get written discretionary authority from the customer within 10 business days D. get approval from his or her direct manager before placing the trade

The best answer is C. Unlike the rule for broker-dealers written by FINRA, where a written power of attorney is required prior to exercising discretion, the NASAA rule for investment advisers is that verbal discretion can be exercised, as long as the written power of attorney is obtained from the customer within 10 business days.

Under the Investment Advisers Act of 1940, if the SEC suspends or revokes the registration of an investment adviser, an appeal may be filed: I in State Court II in Federal Court III within 30 days IV within 60 days A. I and III B. I and IV C. II and III D. II and IV

The best answer is D. If the SEC suspends or revokes an adviser's registration under the Investment Advisers Act of 1940, an appeal may be filed in Federal Court within 60 days.

All of the following would be included in the evaluation of the amount an investor would pay for a viatical or life settlement EXCEPT: A. Life expectancy of the viator B. Amount of discount from policy face amount C. Availability of investors D. Tax consequence to the viator of selling the policy

The best answer is D. A "viatical settlement" is a contract between a life insurance policyholder (the "viator") and a viatical settlement provider, where, the policyholder gets an immediate cash payment in exchange for transferring ownership of the policy to the viatical settlement provider - the purchaser of the policy. These typically appeal to insured individuals who are terminally ill, who can get immediate cash to pay for medical and support needs by selling the policy. The policy is sold at a discount to face value, and the purchaser assumes the responsibility for making the premium payments until the insured individual/viator dies. When the insured person dies, the purchaser of the policy (the viatical settlement provider) who now owns the policy gets the policy face amount. The discount to policy face value is based on the estimate of the remaining life of the insured/viator. The shorter the expected life of the insured, the less the discount to face that will be paid for the policy. The viatical settlement provider can then sell interests in the policy to investors - and a readily available pool of investors will increase the amount that would be paid for the policy. The fact that the sale of the policy might result in taxable income to the viator/policyholder is a consideration for the insured person; not for the investor who is paying for the policy.

During the annuity period of a fixed annuity, the insurance company assumes which of the following risks? I Mortality Risk II Purchasing Power Risk III Expense Risk IV Investment Risk A. I and II B. II and III C. III and IV D. I, III, IV

The best answer is D. In a fixed annuity, the insurance company assumes mortality risk, expense risk and investment risk. •Mortality risk is the risk that the purchaser lives longer than the insurance company expects, and the insurance company is obligated to pay for as long as that person lives. •Expense risk is the risk that the insurance company's expenses increase faster than expected - the insurance company caps the expenses that it can charge against the annuity. If these increase beyond the capped amount, this is the insurance company's problem. •Investment risk is the risk that the insurance company's return on its investments does not keep pace with its payment obligations to fixed annuity holders. If its investments fare poorly, the insurance company does not reduce the amount of the fixed annuity payments With a fixed annuity, the purchaser assumes purchasing power risk - the risk of inflation. If there is inflation, the monthly annuity payments do not increase, so the annuitant's purchasing power declines over time.

How does a closed-end fund differ from an open-end fund? I Open-end funds trade while closed-end funds do not II Closed-end funds trade while open-end funds do not III Open-end funds can be purchased at a discount to NAV while closed-end funds cannot IV Closed-end funds can be purchased at a discount to NAV while open-end funds cannot A. I and III B. I and IV C. II and III D. II and IV

The best answer is D. Management companies are either "open-end" or "closed-end." An open-end management company is a mutual fund. Mutual fund shares are bought from the fund company and are redeemable at NAV with the fund company. In contrast, "closed-end" fund shares have a 1-time stock issuance like any other corporate stock offering. Then the books are "closed" to new investment and the shares are listed and trade like any other stock. Just like a company trading for less than its book value, closed-end funds can trade for less than NAV if investors are bearish on the fund. In contrast, mutual funds do not trade and can only be redeemed at NAV - they cannot go to a discount to NAV. Unit investment trusts are redeemable securities as well and do not trade. Face amount certificate companies are obsolete, but also were redeemable.

What is an advantage of investing in real estate? A. High dollar investment B. Liquidity C. Stability D. Current cash flow

The best answer is D. A high dollar investment is a disadvantage of investing in real estate. Real estate is illiquid, so liquidity is not an advantage. Stability is an advantage, as is current cash flow, so there are 2 correct answers! The better answer is "current cash flow," because real estate returns tend to be stable over time, and this income stream supports the pricing of real estate. Therefore, it is current cash flow that is the primary benefit, and because of this, real estate values tend to be more stable (the secondary benefit).

Under the Uniform Securities Act, an agent that sells securities to a customer in a transaction that is not recorded on the books and records of his or her broker-dealer: A. can only do so if the securities involved, or the transactions, are exempt B. can only do so if the transactions are unsolicited C. will cause the agent's registration to be revoked D. will cause the agent to become a statutory broker-dealer

The best answer is D. Agents are prohibited from effecting securities transactions for customers unless the trades are known to the broker-dealer; are supervised by the broker-dealer; and are recorded on the books and records of the broker-dealer. This agent is "selling away" from his firm and is executing trades for customers that are not being recorded by the broker-dealer. He or she becomes a "statutory broker-dealer" under the Uniform Securities Act and is required to register in the State as such.

The Russell 2000 Index includes stocks traded in which of the following markets? I NYSE II AMEX (NYSE American) III NASDAQ A. I only B. II only C. III only D. I, II, III

The best answer is D. All U.S. companies listed on the NYSE, AMEX (NYSE American) or NASDAQ are considered for inclusion in the Russell 2000 Small Cap Index with a few exceptions, including the minimum price of $1.00; trading volumes; and other various factors.

A customer that is willing to assume market risk should: A. only invest in stocks that have a beta of at least 1.00 B. invest a portion of his funding in Treasury Bonds to diversify the portfolio C. allocate a portion of his portfolio to negative beta stocks D. diversify the portfolio sufficiently to eliminate non-systematic risk

The best answer is D. Another name for market risk is systematic risk. A fully diversified portfolio only has market risk. A portfolio that is not fully diversified is said to have both systematic and non-systematic risk. Once enough stocks are added to the portfolio, non-systematic risk is diversified away, leaving the portfolio with only market (aka systematic) risk.

An older customer, age 63, that is in the lowest tax bracket, seeks an investment that will give him an income stream. The BEST recommendation would be: A. Variable annuity B. Municipal bond C. Certificate of deposit D. AAA Corporate bond

The best answer is D. Because the customer is in a low tax bracket, you would not recommend the municipal bond. Most variable annuity separate accounts are invested in equities for growth to supplement other forms of retirement income. Because they are equity funds, they do give much of an income stream. The CD and the AAA Corporate bond both provide income, which is the stated objective. However, the AAA corporate bond is top-rated and will give a higher income stream than a CD. This is the best choice. Note that the question tells us nothing about risk tolerance, which would certainly be helpful, but this is typical of "test-like" questions!

All of the following investment company terms are synonymous EXCEPT: A. Bid B. Redemption Price C. Net Asset Value D. Offering Price

The best answer is D. Bid, Redemption Price, and Net Asset Value are all the same terms for investment company shares. This is the price at which a customer can sell (redeem) his or her shares.

To hedge an adverse currency move, a currency trader that is long the currency could: I Buy currency calls II Buy currency puts III Buy forward contracts IV Sell forward contracts A. I and III B. I and IV C. II and III D. II and IV

The best answer is D. If a currency trader is long the currency, the risk is that price of the currency will drop. The purchase of put options (right to sell at a fixed price) will protect from a downward market move. The sale of a forward contract will also protect the trader, since the currency is then "presold" at a fixed price.

A trade confirmation for an Over-The-Counter Bulletin Board stock shows the following: "We sold to you 100 shares of XXXX @ $7 Net" In this transaction, the member firm acted as a(n): A. agent, and charges a commission in addition to the Net price B. agent, and charges a commission included in the Net price C. dealer, and charges a mark-up in addition to the Net price D. dealer, and charges a mark-up included in the Net price

The best answer is D. In an over-the-counter principal transaction, the member firm sells a security out of its inventory to a customer who wishes to buy; or buys a security into its inventory from a customer who wishes to sell. In this transaction, the firm acts as a dealer, and marks-up the stock to the customer who wishes to buy; or marks-down the stock from the customer that wishes to sell.

What type of flexible insurance policy has a savings component? A. Term Life B. Straight Life C. Whole Life D. Universal Life

The best answer is D. Term life is pure insurance and has no savings component. Whole life, also known as straight life, requires that the same annual premium be paid, part of which pays for insurance and part of which is "invested" and builds cash value that can be borrowed. Because the annual premium does not change, it is not "flexible." Universal life is similar to whole life, in that it has an insurance component and an investment component, however, the premium paid can be lowered or increased. If it is lowered to the minimum, the policy operates like term insurance and no cash value is built. If it is increased, any amount above the cost of insurance is credited to cash value, which earns interest.

Under the Uniform Securities Act, a consent to service of process is filed for each initial: I Agent registration II Broker-dealer registration III Investment adviser registration IV Securities registration A. I only B. II only C. II and III D. I, II, III, IV

The best answer is D. The "consent to service of process" appoints the Administrator as attorney for the registrant so that any legal papers can be properly served. It is required for all initial registrations with the Administrator.

An adviser that takes custody must file a copy of its surprise audit results with the State Administrator within: A. 60 days of year-end B. 60 days of completion of the examination C. 120 days of year-end D. 120 days of completion of the examination

The best answer is D. The NASAA custody rule requires that each adviser that takes custody be audited on a "surprise" basis annually, so the actual date of the audit is only known to the CPA. After the CPA shows up for the audit and completes the examination, a copy of the auditor's report and financial statements must be filed with the Administrator within 120 days of completion.

The Sharpe ratio measures the: A. level of investment return relative to the dollar amount invested B. level of portfolio volatility relative to a benchmark portfolio C. risk adjusted rate of return relative to the risk free rate of return D. risk adjusted rate of return relative to portfolio volatility

The best answer is D. The Sharpe ratio measures the incremental rate of return over the risk free rate achieved in a portfolio relative to the standard deviation (volatility) of the portfolio. If the ratio is positive, then there is a real benefit - extra investment return - for assuming the incremental risk. If the ratio is zero (or in exceptionally difficult economic times, such as a major recession or depression, it can even become negative), there is no benefit to assuming additional risk in the portfolio beyond what a risk free investment such as Treasury Bills will give.

If appreciated securities are inherited, the tax basis to the beneficiary is: A. cost of the securities B. fair market value at the date of death C. fair market value 6 months after death if values have fallen D. either Choice B or C above

The best answer is D. The basic rule for inherited securities is that they are transferred to the beneficiary at fair market value at the date of death. However, the tax code allows an exception for estates that require a federal filing (those with over $11,200,000 of assets in 2018). In this case, the estate can choose to use an "alternate valuation date" that is set 6 months after death. It would choose to do this if the securities have depreciated, resulting in a lower estate tax liability.

Which of the following information MUST be recorded on an executed order ticket? I Time of execution II Time of receipt III Account number IV Solicited or unsolicited A. I and II B. III and IV C. I, III, IV D. I, II, III, IV

The best answer is D. Time of order receipt is recorded on the order ticket, as is time of order execution, assuming that the order was filled (which is the case here). Both of these are required to permit regulators to be able to detect "front running" violations. They are also needed to resolve customer complaints about possible execution errors. The account name and/or number must be on the order ticket. Finally, it must be recorded whether the trade was solicited or unsolicited.

An agent living in one State wishes to solicit business in another State. Which statements are TRUE? I The agent must be registered in the other State II The broker-dealer must be registered in the other State III If the agent is a partner of the broker-dealer, the agent does not have to register separately from the broker-dealer in that State A. I only B. II only C. I and II D. I, II, III

The best answer is D. To do business in a given State, both the broker-dealer and agent must be registered in that State, unless an exemption is available. If the agent is a partner of the broker-dealer, he does not have to register separately in the State, since the broker-dealer registration names all the principals of the firm and gives all of their background history required by the Administrator.

Under the Securities Act of 1933, a registered representative is permitted to sell shares of a registered offering: A. when the registration statement is filed with the Securities and Exchange Commission B. once 20 days have elapsed from the date of the filing of the registration statement C. once the tombstone advertisement is published D. once the registration statement is effective

The best answer is D. Under the Securities Act of 1933, an issue that is "in registration" cannot be offered, sold or advertised. These actions are permitted only when the registration becomes effective. Choice B is incorrect because once the registration statement is filed, while the issue does enter the "20 day cooling off period," this period can be longer than 20 days if the SEC issue a deficiency letter to the issuer. In this instance, the issuer must amend the registration filing and the issue enters another "20 day cooling off period." Thus, registration is not automatically effective after 20 days elapse.