Series 66
rebalanced monthly and actively managed is called:
"Active/Active"
rebalanced monthly and actively managed is called:
"Active/Active;"
rebalanced monthly and invested in index funds is called
"Active/Passive;"
Under NASAA rules for State-registered advisers, transactions must be recorded in customer account records no later than:
10 business days following the end of the quarter in which the transaction was effected
How many investors can an S corp have?
100 or less
What form is needed for a personal income tax return?
1040
To form a trust, a tax identification number for the trust must be obtained and an annual tax filing on Form ______ is required.
1041
What form is needed for a partnership tax return?
1065 Schedule K-1
material changes
120 days
What mutual fund fee is based on an annual percentage of Net Asset Value?
12b-1 fee
Net long term capital gains on assets held over 12 month are taxed at a max rate of _________ and __________ for individuals in the highest tax bracket
15% and 20%
An investment adviser receives a check from a customer made out to the adviser that the customer sent to the adviser inadvertently. This adviser will NOT have taken custody as long as it returns the check to the customer within:
3 business days of the receipt
In a secondary offering, a member who acted as manager or co-manager CANNOT issue a research report on that company within how many days following the effective date?
3 calendar days
Under the NASAA Model Rule covering Investment Adviser records, the adviser's articles of incorporation must be retained for how long after the adviser ceases business operations?
3 years
the statute of limitation for filing a claim alleging a criminal violation of the SEC is:
3 years
Under the USA, when must a civil claim be made?
3 years after the occurrence and 2 years after discovery
Distributions from a Coverdell Education Savings Account MUST cease when the beneficiary reaches the age of:
30
Access persons must report all personal transactions to the IA in a quarterly report within _________ of quarter end;
30 calendar days
Whole life
Fixed premiums, Level premiums, Guaranteed minimum death benefit, Guaranteed minimum rate of return, Uses general account, Loans can be taken against cash value, Total surrender available
A money purchase retirement plan is: I a defined contribution plan II a defined benefit plan III employer mandatory IV employer voluntary
a defined contribution AND employer mandatory
Universal life insurance
a flexible premium policy that provides lifetime protection
When an open-end management investment company computes its net asset value per share, each of the following occurrences would have an impact EXCEPT A) interest payments made on debt securities held in the fund's portfolio B) a capital gains distribution C) a greater value of shares being redeemed than purchased D) a drop in the value of equity securities held in the fund's portfolio
a greater value of shares being redeemed than purchased
A Canadian BD with no office in the state may conduct business with:
an existing client who is temporarily in the state Canadian resident in the states whose trades are self-directed in a tax-advantaged retirement plan in Canada
A market maker's compensation can be best described as the:
difference between the bid and ask quote
A company is formed with 120 shareholders and $20,000,000 of capital with the purpose of investing in securities. Which statement is TRUE?
must be registered under the act of 1940
charts
must disclose the limitations and difficulties
What are the requirements for a state registered IA solicitor?
must register as an IAR
Are Coverdells tax deductible?
no
what does intestate mean?
no will
To ensure the integrity of electronically stored data, the record must be:
non-rewritable and non-erasable
is a DC qualified or nonqualified?
nonqualified
Does a customer have to sign a loan consent form?
noooo
Investments in 529 college savings plans are: I FDIC insured II not FDIC insured III guaranteed by the State IV not guaranteed by the State
not FDIC insured and not guaranteed by the state
The Designated Market Maker (Specialist) on the NYSE floor can handle all of the following orders EXCEPT a:
not-held order
If a representative that transacts business in a State terminates employment with an investment adviser:
notice must be given to the Admin by the IA only
If a a fed covered advisor terminates employment with an investment adviser:
notice must be given to the Administrator by the investment adviser only
OBAs require?
notice to the firm
When all information about a company, both publicly available and not publicly available, is reflected in the market price of the company's stock, this is known as:
strong form
Define Future Value.
Future values indicates what an amount invested today at a given rate will be worth at a future point in time
What type of contract takes delivery of an asset at a future date at a fixed price / standardized and exchange traded?
Futures
________ are standardized, are exchange traded, and are regulated. Delivery contract is a meaningless term in the context of this question.
Futures contracts
What is one wrinkle to futures?
Futures contracts must be settled at the specific future date- the holder must pay the agreed price to the seller of the contract for the underlying physical asset
What rights do shareholders have under act of 40?
vote for the BOD vote for changes in the investment objective vote annually on the IA receive annual and semi-annual reports
Which form of efficient market theory would be used by those who believe that future prices cannot be predicted by past performance?
weak form
Under SEC rules, an "access person" must report personal securities: transactions quarterly within _________ of quarter end and all positions annually within _________ of the date of the statement used to prepare the report
30 calendar days; 45 calendar days
If an agent withdraws his or her registration, the withdrawal does not become effective for __________ unless the Administrator allows an earlier date for withdrawal.
30 days
If an offerer offers to buy back a securities issue that was inadvertently sold in the State, buyers of the issue have how many days to accept the offer?
30 days
When an agent with existing securities accounts at other financial institutions joins a new BD, the agent must obtain the new BD's written consent to maintain those accounts within ______ of association
30 days
Customers must exercise their right of rescission within how many days of written notice by the offerer?
30 days If an offerer offers in writing to buy back a securities issue that was inadvertently sold in the State at original cost plus interest paid at the legal rate in the State (6%), plus any attorney's or court costs (net of any dividends or interest received by the holder), buyers of the issue have 30 days to accept the offer. Otherwise, the offer is null and void, and the offerer is relieved of any further obligation to buy back the issue. Thus, buyers must exercise their right of rescission within 30 days' written notice by the offerer.
If a customer exercises the right of remission allowed under the USA, the offer must be accepted within:
30 days of written notice from the seller
If a firm and agent are registered in New York and have a New York client, but that client moves from NY to Texas, the firm and the agent can continue to do business with the client in Texas for ______ without a Texas registration. If after _______, the firm and the agent are not registered in then they must cease doing business with the client.
30 days; 30 days
Treble damages
3x
How many quarters must an individual work to be eligible for retirement benefits?
40
How much must non-affiliates of an open-end fund make up?
40%
employees of non-profit organizations, such as schools, hospitals, foundations are allowed to contribute to tax qualified annuities
403-B
Access persons must file an annual report of all securities holdings (positions) within _______ of the account statement used to prepare the report.
45 days
Deferred compensation plans for government employees of states, countries, cities. their agencies, and political subdivisions as well as tax-exempt organizations other than churches
457 plans
An individual purchased a variable life insurance policy 10 years ago. The policy has a $500,000 face amount which has grown to $525,000 due to the performance of the selected separate account subaccounts. Three years ago, the insured borrowed $50,000 against the policy which has never been repaid. The effect of this is that the total death benefit today is
475,000
Under NASAA rules, the brochure is required to be delivered to clients __________ to entering into a written or verbal contract to provide advisory services. As an alternative to the "2 day free look," the customer can be given the brochure at the time of contract signing, as long as the contract provides for a ______ ______ day period following signing where the customer can terminate without penalty.
5 business day
Registration of securities in a State by filing becomes effective _________________ after the filing is completed (unless the Administrator allows a shorter time period).
5 business days
Under Registration by Filing, registration becomes effective _______. Under Registration by Coordination, registration becomes effective when the Federal registration becomes effective. Under Registration by Qualification, registration becomes effective on a date set by the Administrator.
5 business days after filing
When does registration by filing become effective?
5 business days after the filing is complete To qualify, the issuer must be in business continuously for the past 3 years, and be profitable in 2 of the last 3 years.
The statue of limitations for filing a claim alleging a criminal violation of the USA is:
5 years
The statute of limitations for criminal violations of the Uniform Securities Act is:
5 years
Under the Investment Advisers Act of 1940, records MUST be retained for
5 years
Under NASAA recordkeeping rules, advisers must retain records for no less than:
5 years, with the first 2 years kept in the principal office of the adviser
A portfolio manager generates a 20% rate of return on a "small cap" portfolio, compared to a 15% rate of return on the benchmark portfolio and a 10% rate of return on the Standard and Poor's 500 index over the same period. The active rate of returnon the portfolio is:
5%
For an individual, if that person's combined income is between $25,000 and $34,000, ___________ of the benefit is taxable. If that individual's combined income is more than $34,000, then_______ of the benefit is taxable.
50% 85%
In contrast, if a married couple has a combined income between $32,000 and $44,000, then ________of the benefit is taxable. If their combined income is more than $44,000, then _____ of the benefit is taxable.
50% 85%
Within how many months can an estate choose an alternative valuation?
6 months
If a person disagrees with a final order of the Administrator, he or she must petition the appropriate court within how many days?
60 days
What is the time frame for appeals?
60 days
When an IA ceases operations, a Form ADV-W must be filed with the SEC. When does this become effective?
60 days
For a dividend to be qualified, the investor must have held the stock for at least _______ out of the ______ period surrounding the ex-dividend date
61 days; 121 days
What is the earliest age that an individual can take social security benefits?
62
Dan is the owner of a mutual fund that returned him a before-tax return of 15% last year. Inflation is running at an annual rate of 3%, and Dan is in a 27% marginal income tax bracket. What has been Dan's approximate inflation-adjusted after-tax return on the fund over the course of the last year (rounded to the nearest 2 decimal points)? A) 12.00% B) 7.95% C) 10.95% D) 8.76%
7.95
When are social security payments the largest (at what age)?
70
After a client dies, how long after does the adviser have to file estate valuations?
9 months after date of death
What is the maximum allowable sales load on a variable life insurance?
9% of the premim per year
An amended Form ADV must be filed by an IA within _______ following their fiscal year-end
90 days
The Admin may suspend or revoke a registration based on information that was originally submitted in an application for the first ______ days of registration
90 days
rebalanced annually and invested in index funds is called:
"Passive/passive"
What is the length of time it takes for the price of the bond to be repaid by its internal cash flows?
Duration
Long the stock and short the call is an appropriate strategy in a:
stable market
rebalanced annually and actively managed is called:
"Passive/Active"
404-c plans
"self-directed" investments such as 401-K
A final order suspending or disciplining a securities professional requires
1) prior notice to the securities professional 2) opp for a hearing 3) written findings of fact
An investor's securities portfolio has depreciated by $5,000 this year. How much of the loss can the investor deduct on this year's tax return?
$0 An investor cannot deduct depreciation of an asset that is currently held as a capital loss. To recognize the loss for tax purposes, he must first sell those securities. Investors can only deduct $3,000 of net realized capital losses per year.
An investment adviser with no place of business in the State is exempt from registration if it renders advice solely to employee benefit plans with assets of at least:
$1,000,000
The amount of surety bond coverage that is typically posted by a broker-dealer for initial registration in a state is:
$10,000
To be registered as a BD, the Admin typically requires the posting of a surety bond in the amount of:
$10,000
What $ amount must an open-end fund start with?
$100,000
Lifetime exclusion:
$11,500,000 If you make a gift to someone in a year of $20,000, they would report the gift (they owe gift taxes on 5K)- if they don't want to pay taxes, they can tell the IRS take it off my lifetime exclusions- then they would only have $11,450,000 left Any unused exclusions gets added onto the surviving spouses lifetime exclusion
What qualifies for Tier 1?
$20MM
The first _______ of capital gain from sale of personal residence is excluded from tax.
$250,000
The maximum fine that can be imposed for criminal violations of the USA is and how many years in jail:
$5,000 and 3 years
In January, 20XX a customer buys 100 shares of ABC stock at $50 per share and pays a $2 commission per share. The customer receives $2 in cash dividends during the year. The customer's cost basis in the stock is:
$52 per share
What is the maximum amount that an individual can contribute to a 529 Plan without gift tax consequences in 2021?
$75,000
What qualifies for Tier 2?
$75MM
What is the formula for total return?
( Cap gains + dividends + interes ) / original investment
What is the formula for the Sharpe ratio?
(Actual return- Rf)/ STD
What is the holding period return formula?
(Income + Gains (or minus loses)) / Initial value of portfolio
What is the ROI formula?
(Sum of all CF from investment / # of years) / investment amount OR Average annual CF / initial investment
How to calculate the maintenance margin call?
(share price x 50%) / 0.75
Who is excluded from the definition of an IA:
- IAR - Depository institutions -BD -Professionals who only give incidental advice -publishers of general periodicals that do not give investment advice about specific client situations -federal covered advisers
Solicitor rules:
- Written agreement - Fixed payment - If they want to pay them an ongoing % of AUM, they must register as an IAR - Solicitor has to give the prospective client the 2A and 2B -Solicitor also has to give the client letter- I am a solicitor I will get paid ______ should you open an advisory account with Ash, sign and date the letter
Church bonds are exempt if:
- can require the issuer to file a Notice specifying the material terms of the offer in the State and file copies of proposed advertising and sales literature used in connection with the offering - can provide that the exemption becomes effective only if the Administrator does not disallow it within a stated time period (typically 10 business days) can disallow the exemption, providing the grounds for denial or suspension - can require the issuer to register in the State (used if the Administrator believes that the bond issue is really a "commercial offering" and not a true "charitable" offering)
Fed Solicitor requirements:
- registered under Advisers Act -prohibits payment of cash referral fees to a solicitor who is subject to statutory disqualification -written agreement can be affiliated with the advisor or a third-party
SEC Commissioners:
-Appointed to 5 year term by US President -No more than 3 from any 1 political party -May not engage in outside employment
Aside from the broad definition of IAR, who are 3 other people that give advice?
-General financial planning -Pension consultants -Advisers to athletes and entertainers
According to the USA, which IARs are exempt from registration?
1. Any firm that has no place of business in the State that does not have advisory clients in the State; 2. a firm with no place of business in the state that deals solely with other investment advisers 3. Broker-dealers 3. Investment companies 4. Insurance companies 5. Financial institutions.
How much of a fee does a no-load fund offer for 12b-1?
0.25%
Family members in a Subchapter S Corporation count as________ owner.
1
The Administrator retains jurisdiction over anyone who withdraws from registration in the State for _________ following the effective date of the withdrawal.
1 year
NASAA rules require that State-registered advisers keep, in their principal office, records of:
1. customer purchases and sales; and 2. customer securities positions (account statements).
What are the 3 conditions of a solicitor?
1. Registered under the Advisers Act 2. Prohibits referrals to those subject to statutory disqualification 3. Referral fees to be paid pursuant to a written agreement to which the IA is a party
Name the exempt transactions
1. Transactions between an underwriter and an issuer 2. Secondary market transactions of listed securities are exempt 3.Municipal securities are exempt. A corporation issuing securities that are not exchange listed is a non-exempt transaction where the securities must be registered, so the Administrator can require the filing of sales literature used in connection with the offer of these securities.
All of the following information must be included on a customer confirmation EXCEPT: A: whether the transaction was solicited or unsolicited B: whether a payment for order flow was made C: the customer name and account number D: the price of the execution
A
What is the formula for alpha?
A = (Pr - Rf) - (Mr - Rf) x Beta
If an adviser accepts $1,200 or more of prepaid fees, 6 months or more in advance of services rendered, what must it include?
A balance sheet
What is the formula for the Dividend Discount Model?
Expected Next Year Dividend Rate / (Required rate of return for equity investors - dividend growth rate)
Which of the following information is included in a (standardized) commodities futures contract? I Acceptable grades of the commodity II Quantity of the commodity III Delivery location of the commodity IV Price of the commodity
Acceptable grades of the commodity Quantity of the commodity Delivery location of the commodity
Can agents or IARs share accounts with clients?
Agents may share accounts with clients with written permission from the client and firm (both must OK the arrangement) IARs cannot share accounts
A Coverdell Education Savings Account can be used for education expenses at which of the following schools? I Elementary schoolII Secondary SchoolIII State UniversityIV Private University A I and II only B III and IV only C I, II and III only D
All of the above
Which of the following securities can be registered by qualification in a State? I Direct Participation Program II Fractional Interest in an Oil and Gas Program III Voting Trust Certificates IV Pre-organization Certificates
All of the above
Which of the following statements are TRUE regarding private placements under the Uniform Securities Act? I No commissions can be paid for sales to individual investors II No more than 10 prospective investors may be contacted III General advertising is prohibited
All of the above
The common stock of ABC Corporation is listed on the American Stock Exchange (NYSE American). Which of the following securities issued by ABC is EXEMPT under Uniform State Law? I Common Stock II Preferred Stock III Mortgage Bonds IV Warrants
All of the above Under the "Blue Chip" exemption, if a common stock of an issuer has an exchange listing, it is exempt under the Act. In addition, all senior securities of that issuer are exempt (preferred stock and bonds), as well as rights and warrants of that issuer. Also note that under the National Securities Markets Improvement Act of 1996, these are now defined as federal covered securities, which are only registered with the SEC; the States cannot require registration for these issues.
A portfolio of securities with a beta of 1.2 has produced an average annual return of 12%. Which investment should the portfolio manager NOT consider adding?
An investment with a 20% growth rate and a beta of 2.2 The portfolio has generated a 12% return by taking on extra risk (beta of 1.2 is .2 above the market risk level of 1). If we divide the return by the beta, the market return for the portfolio would be 12% / 1.2 = 10%. Any investment that yields less than this amount (risk adjusted) is a bad one for the portfolio. To risk-adjust the return of each investment offered, divide the investment return by that investment's beta. Any investment that yields less than the 10% risk adjusted portfolio return is a bad one for the portfolio. Choice A: 7.8% /.6 Beta = 13% risk adjusted return Choice B: 15.4% /1.2 Beta = 12.833% risk adjusted return Choice C: 20% /2.2 Beta = 9.09% risk adjusted return Choice D: 26% /2.1 Beta = 12.38% risk adjusted return
In a variable annuity, who assumes investment risk?
Annuitant with no guaranteed rate of return
Pro rata basis
Annuitization phase portion of ordinary and a portion of client's income portion might be excluded if non qualified monies
AIR (assumed interest rate)
Annuity check based on AIR which is calculated annually
Who would be exempt from registration as an IA? meaning these are defined as IAs but they do NOT have to register in the state
Any person with no place of business in the State whose only clients are: - other advisers - federal covered advisers -BD -deposit taking institutions -insurance companies -investment companies -employee benefit plans with assets of at least $1MM -governmental agencies
At the point where a variable annuity separate account interest is "annuitized," the holder of the contract receives a: A fixed number of annuity unitsbased on the number of accumulation units B fixed number of annuity units based on the value of the accumulation units C fixed value for the annuity units as set forth in the original contract D lump sum payment equal to the value of the units
B
Under the Investment Advisers Act of 1940, which statement is TRUE about the requirements for a family office exclusion from registration? A. the family office can provide advice to multiple families B. The family office must be wholly owned by family clients C. The family office can advertise itself as an IA D. The family office must have less than $100 MM of AUM
B
XYZ, Inc. is a C corporation in the 21% federal income tax bracket. Which of the following investments offers the company the highest after-tax return? A) Corporate bond with a 6.75% coupon B) ABCD, Inc. preferred stock paying a 6% dividend C) Municipal bond with a 5% coupon rate D) REIT paying a 6.5% dividend
B
lowest investment grade rating:
BBB
Minimum financial requirement and surety bond requirements: BD Agent IA IAR
BD: yes, fin requirement and yes, surety bond if they have custody Agent: no fin requirement and yes, surety bond if they have discretion IA: yes, min requirement ($10K for discretion and $35K for custody) and yes, if custody IAR: no to both
Who can advertise with testimonials?
BDs but not IAs
Under the Investment Company Act of 1940, the investment adviser's contract must be renewed by a majority vote of the fund's:
BOD or outstanding shares
What does Part 2A include?
Balance sheet of the firm if it will take custody of customer funds or securities; or will accept $1,200 or more of prepaid fees, 6 months or more in advance of services rendered.
Which of the following are exempt securities under the Uniform Securities Act? I Bank issues II Corporate stocks III Investment grade commercial paper maturing within 9 months IV U.S. Government bonds
Bank issues, investment grade commercial paper within 9 months, US government bonds
The individuals named in the trust document for whom the assets are being managed.
Beneficiary
What is the logical formula for alpha?
Beta of C is 1.0 and the expected return is 13% Beta of L is 0.8 and the expected return is 10.1% (0.8 x 13%)= 10.4% 10.4%- 10.1%= -0.3
Are advisers who recommend US securities exempt from state or fed registration?
Both
Who does FINRA regulate?
Broker-dealers
Who has minimum net capital standards?
Broker-dealers and IAs
A ______ is used to stop a loss on a short stock position
Buy Stop Order
Your clients, a married couple, are trying to decide whether to open an account as joint tenants with right of survivorship or tenants by the entirety. You might point out to them that one of the differences to consider is that: A) only the JBE account avoids probate upon the death of the first tenant. B) any 2 people can open a JBE account, while JTWROS accounts are limited to married couples. C) a JBE account requires the consent of both parties to make a trade. D) a JTWROS account requires the consent of both parties to make a trade.
C
All of the following information is required for an investment adviser representative to register in a State EXCEPT: A. work history B. residential history C. legal actions taken against the employee D. misdemeanor convictions involving securities occurring within the past 10 years
C
An Investment Adviser Representative writes a blog published on the Internet about how to achieve the best returns for clients, while minimizing risk. Which statement is TRUE about this? A This can only be done if the Investment Advisory firm that employs the IAR approves of the content B This can only be done if the Investment Advisory firm that employs the IAR authorizes the distribution of the communication C This can only be done if the Investment Advisory firm that employs the IAR both approves the content and authorizes the distribution of the communication D This action is prohibited
C
Which of the following is a capital need for a medical student? A. Paying off student loans B. Setting aside money to pay for medical school tuition C. Buying medical imaging equipment 5 years from now D. Borrowing money to pay for living expense while in school
C
Oscar and Hilda, a married couple, are collecting Social Security. They speak to their financial planner for advice on taxation of those benefits. At what level do their benefits become subject to income tax? A) When 50% of their benefits added to all their other income, excluding tax-exempt interest, exceeds $32,000 B) When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $25,000 C) When 50% of their benefits added to all their other income, including tax-exempt interest, exceeds $32,000 D) When 50% of their benefits added to all their other income, excluding tax-exempt interest, exceeds $25,000
C
Which statement is TRUE about the repayment terms of a loan taken from a 401(k) account? A. Repayment of the loan does not have to start until the account owner reaches age 59 1/2 B. Repayment of the loan does not have to start until the account owner reaches age 72 C. Repayment of the loan must be made within 5 years of the date of the borrowing D. Repayment does not have to start until the loan has been outstanding for 5 years
C. Repayment of the loan must be made within 5 years of the date of the borrowing
Which statement is TRUE about taxation of capital gains?
Capital gains are taxed at a higher rate than long term cap gains
Determining the amount of life insurance that a person should purchase based on the needs of the surviving family members
Capital needs analysis
All of the following are considered when evaluating a customer's tax status EXCEPT: Age Citizenship Total earnings as of the last day of the tax period Residency
Citizenship
The unintentional omission of material facts when offering or selling a security can result in?
Civil Liabiility
Are civil or criminal liabilities offset by recission and when is the statue of limitations?
Civil; 3 years
What mutual fund share class has the highest annual 12b-1 fee?
Class C
The willful omission of material facts can result in ?
Criminal liability and criminal penalties
The intentional omission of material facts when offering or selling a security can result in: I Civil liability II Civil penalties II Criminal liability III Criminal penalties
Criminal liability and criminal penalties The willful omission of material facts can result in Criminal Liability and Criminal Penalties. The unintentional omission of material facts when offering or selling a security results in Civil Liability under the Act. There are no Civil Penalties.
Transactions made by all of the following persons are exempt under the Uniform Securities Act EXCEPT: Guardian Conservator Trustee in a bankruptcy Custodian for a minor
Custodian for a minor
An agent accepts an unsolicited telephone order from a new customer to buy shares of a NYSE stock at the current market price. The salesman executes the order and then forwards the new account form to the manager for the manager's signature. Which statement is TRUE? A. The agent's actions are allowed because the stock is listed on a recognized exchange B. The agent's actions are allowed as long as the stock purchased is consistent with the customer's investment objective C. The agent's actions are prohibited because the customer is required to sign the new account form before any trades are allowed D. The agent's actions are prohibited because the manager has to approve the opening of the account prior to the first trade
D
A husband and wife with 2 adult children have established a revocable trust to remove assets from their taxable estate. After doing so, they find that they are $100,000 over the estate tax exclusion that qualifies for the maximum unified tax credit. In order to reduce the size of their taxable estate by $100,000, they can donate: A. $50,000 to each of their children B. $50,000 to each other C. $50,000 to a charity and $50,000 to a child D. $50,000 to a charity and $50,000 to another charity
D The first $11,700,000 (in 2021) is excluded from tax. This is dealt with by giving a "unified tax credit" to the estate against tax due. This tax credit is roughly 40% of the estate value and matches the maximum estate tax rate of 40%. If the estate exceeds $11,700,000, the unified credit does not cover the tax bill and estate tax will be due. Any charitable contributions reduce the size of the taxable estate. In this case, if the estate were valued at $11,800,000 and $100,000 of charitable contributions were made, the taxable estate becomes $11,700,000 and the unified credit covers the entire estate tax liability.
Define discounted cash flow.
DCF uses the PV of FCF, based on a specified discount to evaluate the price that a security should be selling for
When considering investing in a DRIP, the benchmark rate of return that should be used for comparison is the:
DRP: Dividend Reinvestment Plan S&P 500 Index
_______________ can be established by corporate employers, allowing top-level employees who are high earners to defer taking all of their income, reducing current tax liability.
Deferred Compensation plans
Which item is NOT included in a client's income statement? A. Interest received from corporate bond investments B. Depreciation of the customer's primary residence C. Dividends from mutual funds that are reinvested in additional share purchases D. Year-end bonus received from employee
Depreciation of the customer's primary residence
Define NPV
Difference between present value and cost
If a company doesn't pay a dividend, or it's dividend payout is irregular, then what is used?
Discounted Cash Flow
If you overheard an analyst referring to an investment's indicative value, the discussion would most likely be about
ETNs
What is included in Part 2 B?
Educational and work background of the key personnel who set investment strategy or manage accounts
What are three components of Modern Portfolio Theory?
Efficient set, feasible set, CAPM, and efficient frontier Not IRR--> discounted cash flow
Delivery of the investor brochure under the brochure rule can be satisfied by giving the customer a copy of the investment adviser's Form:
Form ADV Part 2A
this promises investors a piece of stock market gains based on the return of a broad-based index such as the S&P500, but also include a minimum guaranteed rate of return similar to, but lower than, that offered by a fixed annuity
Equity-index annuity
Are mutual funds state or fed exempt?
state exempt mutual funds are federal covered securities
The Administrator has the power to deny or revoke the exemption from State registration given to:
Exchange listed issues (these are corporate issues and maybe the corporation is doing something illegal in the State); Not-for-profit issues (State Administrators have found that the worst cases of securities fraud have been "affinity fraud" where worthless securities have been sold to fellow church and synagogue members); AND Investment contracts issued in connection with employee benefit or stock purchase plans (again, these are corporate issues, and the corporation might be doing something illegal).
Differences between USA and 33 in exempt securities
Exchange listed securities are exempt under USA but not federal law Commercial paper is exempt under state law if it is investment grade and sold in minimum units of $50,000, in addition to having a a 9 month max life
If a private fund adviser has less than $150MM AUM, what is it called?
Exempt reporting adviser
Who does NASAA rules apply to?
state registered
What is a U-6 filed for?
Filed by regulators when they take disciplinary action against a broker-dealer, agent, IA, or IAR
What forms are scheduled for Sole Proprietorships?
Form 1040 and Schedule C
What must a person file if they have a 5% of greater equity position?
Form 13D
The States in which an investment adviser is registered would:
Form ADV Part 1
An exempt reporting adviser must file:
Form ADV with the SEC If the private fund adviser has less than $150 million of AUM, it is an "exempt reporting adviser." It must still report to the SEC by filing parts of Form ADV annually, but does not have to register with the SEC by filing Form PF.
A private fund adviser must file:
Form PF and Form ADV
What must a private fund adviser file?
Form PF with the SEC and Form ADV Part 1 and 2
________ are custom, unregulated, OTC contracts entered into between a buyer and a seller that specify that the underlying asset be delivered at the contract price at a stated date in the contract. These are non-standardized contracts that are not exchange traded.
Forward contracts
Which derivative is a custom contract between 2 specified parties and is not traded on an exchange?
Forwards
Fundamental or technical: uses financial statements
Fundamental
The rate of return that considers compounding of returns of the time horizon of an investment is:
Geometric rate of return
Precious metals would be considered:
Gold Silver Platinum Palladium
What are the securities that are exempt from the Securities Act of 33?
Government and municipal issues Issues already regulated under other laws Non-profit issues Other exempt issues - BAs and commercial paper -Issues of SBICs
Do EIAs have high or low extensions and surrender fees?
High
Growth companies tend to have:
High Price/Earnings ratios; high Price/Book Value ratios; low dividend payout ratios; and high retained earnings ratios. Mature companies are just the opposite.
If tax rates rise, the value of "tax-free" municipal bonds will _________
Higher tax rates make tax-free interest income more valuable.
Under the Investment Advisers Act of 1940, which of the following persons managing assets of at least $100,000,000 MUST be registered with the SEC? I A person who gives advice solely about listed securities II A person who gives advice solely about municipal securities III A person who gives advice solely about U.S. Government securities
I and II
Which of the following are included in the taxable income of a corporation? I Dividends received from foreign investments II Gain on the sale of a capital asset III Proceeds received from an initial public offering IV Refunds of tax overpayments
I and II
A corporate investor may exclude from taxation, part of: I Cash dividends received from common stock investments II Cash dividends received from preferred stock investments III Interest received from convertible bond investments IV Interest received from non-convertible bond investments
I and II Corporate investors may exclude 50% of dividends received (both common and preferred) from taxation. Interest income received is 100% taxable (unless it is tax free municipal interest income).
Health Saving Accounts (HSAs) are: I employer-established II employee-established III funded with tax-deductible contributions IV funded with non tax-deductible contributions
I and III
If a customer has a gain on a long stock position that he wishes to protect, which of the following statements are TRUE? I The order will be placed below the current market price II The order will be placed above the current market price III A sell stop order will be entered IV A sell limit order will be entered
I and III
Which of the following can be purchased on margin? I NASDAQ issues II Options III Futures IV OTCBB issues
I and III
The sale of a new issue of securities by a State chartered bank is: I exempt from registration with the SEC II subject to registration with the SEC III exempt from registration in the State IV subject to registration with the State
I and III Securities issued by banks (but NOT bank holding companies) are exempt from both Federal and State registration. Remember, banks are already extensively regulated at both the Federal and State level, so to require registration of their securities is considered to be overkill.
A viatical settlement will typically give the policyholder an immediate cash payment that is: I more than 100% of cash surrender value II less than 100% of cash surrender value III more than 100% of policy face value IV less than 100% of policy face value
I and IV
The amount of commission charged to a customer to effect a securities transaction: I is not required to be disclosed prior to executing the transaction II must be disclosed prior to executing the transaction III is not required to be disclosed on the trade confirmation IV must be disclosed on the trade confirmation
I and IV
Under NASAA rules, an: I agent is permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed II agent is not permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed III investment adviser representative is permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed IV investment adviser representative is not permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed
I and IV
Which statements are TRUE about an investment adviser with an office in State A? I If the investment adviser's only clients are investment companies, the investment adviser must register with the SEC II If the investment adviser's only clients are investment companies, the investment adviser must register in the State III If the investment adviser's only clients are insurance companies, the investment adviser must register with the SEC IV If the investment adviser's only clients are insurance companies, the investment adviser must register in the State
I and IV
Which statements are TRUE about the "burden of proof" needed to vacate a stop order entered by the Administrator in a securities registration? I If the issue is being registered by coordination, the burden of proof is on the Administrator to show that registration should not be allowed to proceed II If the issue is being registered by coordination, the burden of proof is on the applicant to show that registration should be allowed to proceed III If the issue is being registered by qualification, the burden of proof is on the Administrator to show that registration should not be allowed to proceed IV If the issue is being registered by qualification, the burden of proof is on the applicant to show that registration should be allowed to proceed
I and IV
Which statements are TRUE about the retention of customer account records for broker-dealers under Uniform State Law? I Customer trade confirmations must be retained for 3 years II Customer trade confirmations must be retained for 6 years III Customer account statements must be retained for 3 years IV Customer account statements must be retained for 6 years
I and IV
Martha is an agent with Rapid Execution Services (RES), a broker-dealer registered in all 50 states. Martha offers an IPO of a nonexempt securityto a client without realizing that the security has not been registered inthe client's state. The client purchases 500 shares of the new issue and, 6 months later, sells the stock at price 70% below the original purchase price. Because the stock was not registered in the client's state, the client could claim I. payment of the difference between the proceeds and the purchase II price interest at the state's legal rate, minus any income received from the security III court costs and lawyer's fees if the client has to go to court IV punitive damages equal to the amount of the loss IandII I,II,andIII IVonly I,II,III,andIV
I, II, III
The State Admin is empowered to: I. issue subpoenas to persons inside or outside that State II. Issue a cease and desist order III. Issue an order suspending or revoking a registration IV. enjoin persons from operating in the securities business
I, II, III
Under the USA, the Administrator has jurisdiction over offers of advisory services made to: I. Residents of that State by a non-resident IA II. Residents of that State by a resident IA III. Non-residents of that state by a resident IA IV. Non-residents of that state by a non-resident IA
I, II, III
If an IA is found liable for damages in a civil suit brought by a customer, the adviser is responsible for forfeiting: I. any remuneration received from giving the investment advice II. any loss due to the investment advice III. interest on monies invested IV. court costs and attorney's fees
I, II, III, IV Civil liability means that the customer is refunded all of his or her monies.
Which of the following are NOT required to register as investment advisers under the Investment Advisers Act of 1940? Persons who give advice: I on U.S. Government securities II solely to insurance companies III solely to investment companies IV to customers within one State, where the investment adviser is a resident of that State
I, II, IV
The settlor of a trust does which of the following? I Donates the assets to the trust II Appoints the trustee III Establishes the purpose of the trust IV Manages the assets of the trust
I, II, and III
Which statements are TRUE about the solicitor's brochure under the Investment Advisers Act of 1940? I It must disclose the specific dollar fee, or percentage of advisory fee paid by the customer, that the solicitor will earn for referring the customer II It can be incorporated into the investment adviser's brochure, so that only one document is provided to the customer III It must disclose that the solicitor will be compensated for referring the client to the investment adviser IV The customer must sign that he or she received the solicitor's brochure
I, III. and IV
Who does the de minims execution apply to?
IARs who do not have an office in the state and have less than 5 clients
Are IAs or agents subject to post-registration requirements?
IAs are subject to post-reg requirements but agents are not
A successful dollar cost averaging strategy requires stable market conditions volatile market conditions a fixed dollar amount invested monthly a fixed number of shares purchased monthly
II and III
An investment adviser is opening that day's mail and receives a check from a customer for $5,000; however there is no payment due from the customer. The customer mailed the check in error. The same day, the investment adviser mails the check back to the customer. Under NASAA rules, the investment adviser: I is deemed to have taken custody of the customer's funds II has not taken custody of the customer's funds III must keep a record of the check received IV is not required to keep a record of the check received
II and III
Which of the following risks does the insurer assume in a variable annuity contract? I Investment risk II Mortality risk III Expense risk IV Cash value risk
II and III
Which of the following terms describe Equity-Indexed Annuities? I Investment product II Insurance product III Principal protected IV Not principal protected
II and III
Which statements are TRUE when comparing an exchange trading floor to the OTC market? I It is possible for a stock to trade at 2 different prices at the same moment on an exchange floor II It is not possible for a stock to trade at 2 different prices at the same moment on an exchange floor III It is possible for a stock to trade at 2 different prices at the same moment in the OTC market IV It is not possible for a stock to trade at 2 different prices at the same moment in the OTC market
II and III
An issuer has filed a registration statement in a State for a new issue of securities that is effective and sale of the issue has started. The issuer finds that there is great demand for the offering and wishes to increase the number of shares being issued. In order to do this: I a new registration statement must be filed with the State, if it is within 6 months of the date of sale II an amendment must be filed, as long as it is within 6 months of the date of sale III an additional filing fee must be paid, but no late registration fee is required IV both an additional filing fee and a late registration fee must be paid
II and IV
Under the provisions of the Investment Advisers Act of 1940, which statements are TRUE about sending account statements to customers? I Account statements must be sent monthly by advisers that take custody of customer funds or securities II Account statements must be sent quarterly by advisers that take custody of customer funds or securities III Account statements must be sent quarterly by advisers that do not take custody of customer funds or securities IV There is no account statement mailing rule for advisers that do not take custody of customer funds or securities
II and IV
Which records MUST be retained in a state-registered investment adviser's principal office? I Financial reports II Customer securities positions III Investment adviser's bank statements IV Records of customer purchases and sales orders
II and IV
Which statements are TRUE about mutual fund distributions that are automatically reinvested? I Dividend distributions that are automatically reinvested are not taxable until the shares are redeemed II Dividend distributions that are automatically reinvested are taxable in the year the distribution is made III Capital gains distributions that are automatically reinvested are not taxable until the shares are redeemed IV Capital gains distributions that are automatically reinvested are taxable in the year the distribution is made
II and IV
Which statements are TRUE? I Traditional 401(k) plans require mandatory annual employer matching contributions II Safe harbor 401(k) plans require mandatory annual employer matching contributions III Traditional 401(k) plans require 100% vesting of employer-paid benefits IV Safe harbor 401(k) plans require 100% vesting of employer-paid benefits
II and IV
Which of the following transactions can be effected on margin? I The purchase of a mutual fund II The purchase of a closed-end fund III The long sale of stock IV The short sale of stock
II, III, and IV
Which of the following are included in the taxable income of a corporation? I Proceeds received from the issuance of common stock II Dividends received from domestic investments III Interest received from foreign investments IV Gain on the sale of a capital asset
II, III, and IV Dividends received from any investments (domestic or foreign), and gains on any asset held for investment are taxable. Please note, however, that part of dividends received by corporate investors are subject to an exclusion from tax. Any interest income received (unless it is municipal interest income) is subject to Federal tax. The proceeds received by a corporation from issuing debt or stock are not taxable.
The quantitative method of evaluating investments that finds the interest rate that discounts periodic cash inflows and outflows to a present value of "0" is:
IRR
How do pre-organization certificates become exempt?
If no commissions are paid for soliciting potential subscribers; the number of subscribers is limited to 10 persons; and no payment is made by any subscriber.
Prior to effecting a transaction for a customer, an agent is obligated to disclose:
If the commission to be charged is higher than normal
The Investment Advisers Act of 1940 exempts from registration advisers who solely render advice to ____________________
Insurance companies
Under the USA, what can be guaranteed?
Interest, dividends, principal
Who invests in Class B shares?
Intermediate term investors
If a representative that transacts business in a State terminates employment with an investment adviser, notice must be given to the Administrator by the:
Investment Adviser
Excluded from the definition of an investment adviser are:
Investment Adviser representatives (agents) Depository Institutions (banks, savings and loans, trusts) Professionals (accountants, lawyers, teachers, engineers, whose performance of these services is wholly incidental to their professional practice) Broker-dealers Newsletters that give general investment advice Federal covered advisers
If a federal representative that transacts business is terminated, notice must be given to the Administrator by the:
Investment advisor rep
Administrators can require minimum net capital and net worth for:
Investment advisors and Broker dealers
In a variable annuity, what does the insured assume?
Investment risk and market risk
In a fixed annuity what does the insurance company assume?
Investment risk, mortality risk, expense risk
What are the two questions that determine whether an IA should register?
Is this person giving advice about securities in the State? and Is this person being paid for rendering such advice?
If the annuitant dies, the annuity continues for the life of another person
Joint and last survivor annuity
Do insurance companies need to register with the SEC and USA?
Just the SEC- exempt at USA
Annuities- LIFO or FIFO?
LIFO
If a businessowner's goal is to establish an entity that features ease in raising capital, which of these entities is the most appropriate? A) A limited liability company (LLC) B) A sole proprietorship C) An S form of corporation D) A general partnership
LLC
When are 10-Ks filed?
Larger companies 60 days after year end smaller companies 90 days after year end
Are inherited securities considered long or short term?
Long
the annuity covers the life of the annuitant, but if that person dies early, the annuity continues for a specified minimum period
Life annuity with period certain
What would be included in the evaluation of a viatical or life settlement?
Life expectancy Amount of discount Availability of investors
What investments are permitted in a 403-b plan?
Life insurance, fixed annuities, variable annuities, and mutual funds NOT common stock or CDs
An investor believes that interest rates will be flat or falling into the future; and that prices may deflate. The MOST appropriate investment is:
Long term U.S. Government bonds
Who invests in Class A shares?
Long-term investors
Value companies tend to have:
Low Price/Earnings ratios; low Price/Book Value ratios; high dividend payout ratios; and low retained earnings ratios
Would an investor rather a higher or lower STD?
Lower the higher the STD the more it compresses your return
Explain the relationship between a bid and ask spread for an open end management company.
Lower bid and higher ask because the ask price incorporates the sales charg
What is not included in an insurance capital needs analysis?
Market volatility
What is a term that is often used to describe the situation where 2 people earning about the same income get married?
Marriage penalty
The Prudent Investor Act requires that fiduciaries manage the assets of their beneficiaries based upon:
Modern Portfolio Theory
In a variable annuity, what does the insurance company assume?
Mortality risk and expense risk
Are OTBB or pink sheet issues marginable?
NO
Are silent partners or those not involved in the securities business be registered automatically when a BD or IA registers?
NO
Does a cease and desist require prior notice?
NO
Are transactions by custodians exempt?
NO MAM
Can an agent accept an unsolicited order in the state without being registered?
NO WAY, they must register
Are stock dividends taxable?
NOOOO
Are distributions taken prior to age 59 1/2 in a 457 plan subject or not subject to penalty tax?
NOT subject you can have a 401-K and 457 and contribute the max amount to each
_____________ discounts the projected cash flows from an investment using the current market interest rate.
Net Present Value
What are the requirements to have a performance based fee?
Net worth of $2.2 MM and have at least $1MM in AUM
Does the USA provide for treble damages?
No
If a firm acquires a lager firm, would client approval be required?
No
Is insurance considered a security?
No
Is the Administrator of the state defined as a person?
No
Is the pledge of securities, creating a security interest as collateral for a loan considered a security?
No
Describe Class C shares:
No up front sales charge, no CDSC, but the fund charges the highest permitted annual 12b-1 fee of .75% annually
Describe Class B shares
No up-front sales charge, instead a CDSC is imposed that declines towards 0 over 6-7 years, however, there are annual 12b-1 fees
Can agents borrow money from fam members?
No way Jose
Is the current court proceeding a reason for statutory disqualification?
No, only if the person is considered guilty afterwards
When an agent leaves a firm, who must notify the Admin?
Old BD, new BD, agent not clients
Are futures securities?
Only if the underlying asset is a security
Mutual funds dividends taxation? Mutual funds capital gains?
Ordinary income Capital gains
What must be delivered to customers that the investment adviser's policies, fees, education, types of investments, types of clients, method of analysis used, conflicts of interest?
Part 2A
What must be delivered to customers that details the educational and work background of the key personnel who make investment decisions or manage accounts?
Part 2B
____________ 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.
Partnership accounts
Latin for "by the branch" each named branch of the family shares equally in the estate
Per Stirpes
The most common methods of measuring index performance are the:
Point-to-point method Annual reset method High water mark method
When is delivery of a Brochure required?
Prepaid advisory fees requiring payment in excess of $500; OR advisory contracts with anyone other than investment companies, requires the delivery of a brochure.
Define Present Value
Present Value indicates the value today of a future cash flow discounted at a specific interest rate
Future value components:
Present value Principal amount Interest rate Number of years of compounding
When is delivery of a prospectus required?
Primary offerings NOT first issues of government securities
A judicial order in a divorce or legal retirement plan into ownership by the 2 divorced individuals.
QDRO
QTIP
Qualified Terminable Interest Property irrevocable trust- it allows for the grantor to provide for the surviving spouse, and t0o also determine the how the assets are distributed after the surviving spouse dies
What test is used by courts in determining if an offer of a security was made fraudulently?
Reasonable man test Since a fraud is deemed to occur if there was an omission or misstatement of material fact when the offer of the securities was made, the court looks to see if a "reasonable man" would attach decision making importance to the omitted or misstated information. If the answer is yes, then a securities fraud has occurred.
What does Sharpe return measure?
Return per unit of risk using STD
What is the expected return formula?
Rf + (Mr - Rf) x Beta Rf= risk-free rate Mr= market return
Expected Return of An Investment
Risk-Free Rate of Return + Risk Premium* *Risk Premium is: Beta x (Expected Market Return- Risk-Free Rate of Return)
Are rules or orders specific?
Rules are general and orders are specific
What is a group email considered?
Sales literature
Under the provisions of the Uniform Securities Act, required records for broker-dealers must be kept in accordance with the provisions of the:
Securities Act of 1934
What collects and disseminates price quotes and transaction prices in non-exempt securities?
Securities information processors (SIPs) The NYSE TRF reports trades of NYSE listed stocks, wherever the trade occurred. The NASDAQ TRF reports trades of NASDAQ-listed stocks, where the trade occurred. The Pink Sheets is an SIP that distributes bid and ask quotes for over-the-counter stock issues, as does the OTCBB - the Over-The-Counter Bulletin Board. The MSRB is the Municipal Securities Rulemaking Board - which regulates municipal market participants.
Which one of the following items would be included in the computation of an individual investment adviser's net capital? A. Copyright owned by the advisor B. Franchise right owned by the adviser C. Home furnishings owned by the adviser D. Securities owned by the adviser
Securities owned by the adviser
A ______ is used to stop a loss on a long stock position
Sell Stop Order
Two individuals own a joint account as tenants in common. One dies without a will. What happens?
The rules of intestate succession are followed
What is the efficient set?
Set of portfolios that are most efficient The best returns given a certain level of risk
The individual who establishes the trust, donates the assets to the trust, sets the objectives of the trust, names the beneficiaries of the trust and names the trustee
Settlor
what is the risk adjusted return?
Sharpe ratio
Who invests in Class C shares?
Short term investors
When filing a tax return, a "filing status" must be chosen. There are 5 possible filing statuses:
Single; Married Filing Jointly; Married Filing Separately; Head of Household; Qualifying Widow(er) With Dependent Child.
What is the threshold for state and federal covered advisers?
State: >$100MM Fed: <$100MM
How do private placements differ from state and federal law?
State: no more than 10 persons, where no commissions can be paid for sales to individual investors and advertising is prohibited Federal: no more than 35 "non-accredited"
A surety bond requirement for registration of a broker-dealer:
can be used by any person who has an enforceable legal claim against the broker-dealer
are summer internet required to register?
Summer interns are only required to be registered if they are taking orders from customers; soliciting customers; or making recommendations to customers.
Does beta measure systematic or unsystematic risk?
Systematic
____________ is the permitted variation around each of the chosen percentages - for example, even though Equities are targeted at 50%, this might be allowed to be dropped to as low as 40% or as high as 60%, depending on market conditions.
Tactical asset allocation
How is an irrevocable trust taxed?
Taxed at "trust" rates to the trust itself
What is TIAA-CREF? relating to 403-B plans
Teacher's Insurance Annuity Association - College Retirement Equity Fund ife insurance, fixed annuities, variable annuities and mutual funds
What does CAPM assume?
That investors all have the same risk profile
To use Registration by Coordination, an issuer must file a registration statement with:
The SEC and the Administrator of the state
A fiduciary the manages the assets of the trust in the best interests of the beneficiaries
Trustee
A principal benefit gained by investing in physical real estate is A) low liquidity. B) cash flow. C) low volatility. D) low leverage.
cash flow
Acco Fund (a closed-end management company) has a current net asset value of $10.82 per share and has an ask price of $10.54. Which statement is TRUE regarding the relationship between Acco Fund's net asset value and ask price per share?
The ask price is lower than the net asset value because sellers exceed buyers on the exchange floor
A customer who is not a high earner has 2 children, ages 1 and 3, and wishes to save money for private grade school on a tax-advantaged basis. Which statement is TRUE? A. The customer can contribute $2,000 per year to a Coverdell ESA for both children B. The customer can contribute $2,000 per year to a Coverdell ESA for each child ($4,000 total) C. The customer can contribute $6,000 per year to a Coverdell ESA for each child ($12,000 total) D. The customer cannot contribute to a Coverdell ESA
The customer can contribute $2,000 per year to a Coverdell ESA for each child ($4,000 total)
A joint account is held as tenants in common. Which statement is TRUE upon death of one of the owners?
The deceased owner's share does not bypass the estate and does not bypass probate
Define IRR.
The discount rate that makes the NPV of an investment equal to zero Can be used to determine whether an investment meets the required rate of return Accounts for the time value of money YTM reflects the IRR Expressed as a %
Describe the bottom-up approach
The investor looks at specific companies first, choosing the best ones, based on new products coming to market
Describe the top-down approach.
The investor starts from the big picture and then goes into greater and greater levels of detail to determine the appropriate investments
Call options go "out the money" when
The market price is less than the contract SP
What is standard deviation?
The measure of both systematic and unsystematic risk Measures variance- how far dispersed are the actual returns from the mean return
What consists of a good hedge clause?
The only acceptable hedge clause is one that limits liability only in situations outside the adviser's control - such as war, terrorism, new government restrictions, natural disasters, etc.
Estate and gift taxes are paid by who?
The person who has the money, not by the person who receives the money
An adviser is creating a financial plan for retirement using a capital needs approach. Which type of insurance policy would be recommended as part of the plan?
Variable life
Which statements are TRUE regarding the statute of limitations imposed under the Uniform Securities Act for actions that will cause denial of registration by the Administrator?
The statute of limitations for conviction of securities-related offenses that occurred in the U.S. is 10 years. The statute of limitations for conviction of securities-related offenses that occurred in a foreign jurisdiction is 5 years
CAPM assumptions include:
There are no tax or transaction costs to consider. All market participants borrow and lend at the same risk-free rate. All market participants are well-diversified investors, and specific risk has been diversified away. All investors want to achieve a maximum return for minimum risk.
Do solicitors have to be registered?
They have to be registered in the state, but not as a IAR (unless they are an employee of the IA)
When are 10-Qs filed?
Those are filed with the SEC either 40 days (larger companies) or 45 days (smaller companies) after quarter end
A couple owns a home together and they file for bankruptcy. If there is an excess of funds from the sale of the home, where does the extra money go?
To the additional creditors
what is the formula for the Sharpe ratio?
Total return - risk-free rate / STD
The risk that a portfolio's return will underperform the benchmark return is called the:
Tracking error
T or F: BDs and their registered reps are excluded from the definition of an IA as long as they do not charge separately for advisory services.
True
True or False. The Admin may coordinate inspections with those conducted by the SEC
True
Which securities are exempt under the USA?
U.S. government and agency issues; Canadian government issues; Municipal government issues; Bank, trust company, and savings and loan issues; Insurance company issues (with the exception of variable contracts); Federal credit union issues; Railroad, common carrier, and public utility issues; Investment grade money market instruments with less than 9 months to expiration issued in minimum $50,000 amounts; Exchange-listed securities; Not-for-profit issues; and Investment contracts issued in connection with employee benefit or stock purchase plans.
Which of the following is a permitted investment in an IRA account? A U.S. minted gold coins B Term insurance C Fine art D Fixed annuity
US minted gold coins U.S. minted gold coins can be held as an investment in an IRA account, as can precious metals bullion. Insurance is not permitted in an IRA. Collectibles and artwork are also not permitted as investments. While annuity contracts are technically not prohibited, they are a "bad" idea in an IRA because they already offer tax-deferred growth, so why put them in an IRA?
If the annuitant dies before receiving the full investment value from the separate account, his estate gets a "refund" of the remaining value
Unit refund life annuity
Describe Class A shares:
Up-front sales charge reduced by breakpoints for larger purchasers and no or very low annual 12b-1 fees
When will the rules of intestate succession be followed?
Upon the death of a tenant in a joint account held as tenants in common where the tenant dies without leaving a will
LIFO
Variable life policy- withdrawal (principal first) Income statement- COGS (FIFO or LIFO)
The investment strategy that involves paying a lower price for a security based on the expectation that the market is mispricing the issue is:
Value investing Value investors believe that the market is not fully efficient in pricing securities; and that underpriced securities can be found. The theory is that once the market realizes the security's true value, it will rise sharply in price. In contrast, growth investors believe that demonstrated growth in earnings or sales should determine whether the stock is purchased - regardless of the current price. The theory is that these companies can continue to grow rapidly and their prices will, therefore, grow as well.
What is alpha?
We're evaluating how well the security ACTUALLY did, as compared to how well the security SHOULD have done
When must an open-end investment company be registered?
When there are more than 100 shareholders
When are insiders required to report their trades?
Within 2 business days to the SEC own more than 10% of stock
Can ETFs be purchased on margin?
YES
Does the client have to sign a document saying that the IA Brochure and Solicitor brochure was received?
YES
If a IA has an office in the state, does the IAR have to register?
YES
Are not for profit organizations exempt under the USA?
Yes
If IARs or agents are selling exempt securities in a state, do they have to register in the state?
Yes, "exempt" only means that the securities being offered are exempt from State registration - the broker-dealers and agents that sell exempt securities must still be registered in the State.
In order for a person to be "in the business" of giving investment advice, rendering advice about securities:
must be a regular activity of the person
Modern portfolio theorists would make investments in securities that lie:
above the efficient frontier
When looking at the Net Worth of a corporation, this is best described as:
accounting value
who is considered federal covered advisers?
advisers that managed $10MM or more in assets or render advice to investment companies or that are not regulated at the state level
Example of a high beta company:
airline and toy companies
All of the following statements are true about Individual Retirement Accounts EXCEPT: A all contributions reduce the individual's taxable income B contributions are allowed based solely upon personal service income C contributions may be made if the individual is covered by another type of retirement plan D to remain tax deferred, distributions from other retirement plans must be rolled over within 60 days
all contributions reduce the individual's taxable income
Viatical settlements
allows people with terminal illnesses, such as AIDS, to obtain money from their life insurance policies by selling them the buyer of the vatical settlement pays the future premiums and collects the death benefit when the insured dies
An issuer has filed a registration statement in a State for a new issue of securities that is effective and sale of the issue has started. The issuer finds that there is great demand for the offering and wishes to increase the number of shares being issued. In order to do this, a(n):
amendment must be filed, as long as it is within 6 months of the date of sale along with the payment of an additional filing fee and a late registration fee
All of the following information must be on an order ticket before it can be entered EXCEPT: A. execution price if the order is not a market order B. amount of accrued interest to be paid C. size of the transaction D. customer account name and/or number
amount of accrued interest to be paid
what is the formula for the dividend payout ratio?
annual dividends per common stock / EPS mature companies have a high dividend payout ratio
what is the formula for dividend yield?
annual income / market price
Investment "A" is purchased in May and sold at a gain in the July following. Investment "B" is purchased in June and sold at a gain in the October following. In order to compare the return of investment "A" to investment "B," which measure should be used?
annualized return
Under the NASAA rules, the Form ADV filed with the state must be updated:
annually within 90 days of fiscal year end
E-mail required to be retained by an investment adviser under the Uniform Securities Act: A. must be kept in printed form in a readily accessible location B. only applies to e-mail sent to customers, but does not apply to e-mail received from customers C. applies to e-mails sent or received from customers, relating to the offer, sale, trading, and custody of securities and funds D. applies to any electronic communication sent from, or received by, the investment adviser, regardless of whether the e-mail is personal in nature or business related
applies to any electronic communication sent from, or received by, the investment adviser, regardless of whether the e-mail is personal in nature or business related
A REIT and a direct participation program are similar because they both A) are operated by a centralized management B) are traded actively in the secondary market C) pass through losses to investors D) can be described as a limited partnership
are operated by a centralized management
When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed? A) As ordinary income based on an exclusion ratio B) As ordinary income based on LIFO accounting C) As capital gains based on LIFO accounting D) As capital gains based on an exclusion ratio
as ordinary income based on an exclusion ratio
ERISA Rule 404(c) applies to retirement plans that offer "self-directed" investment, such as 401(k) plan. It requires that the plan sponsor offer:
at least 3 investment alternatives that are diversified; that have materially different risk and return characteristics; and that when combined with each other, tend to minimize risk through diversification (e.g., an equity fund, a fixed income fund, and a capital preservation fund); participants the opportunity to diversify their accounts sufficiently to avoid large losses; and participants the opportunity to change investments with a frequency appropriate to the volatility of the investments.
Is a stabilization bid placed above, below, or at the market?
at or below the market
When must form 2A be given to a client?
at, or prior to, entering into an advisory contract.
Index fund managers:
attempt to exceed the investment performance of the securities that comprise the index
To protect against identity theft and theft of funds, client instructions received electronically must be:
authenticated
If a client wanted an investment that would eliminate interest risk as to principal, you would recommend A) preferred stock B) a 91-day Treasury bill C) TIPS D) a bank-insured certificate of deposit
bank-insured certificate of deposit
If a client withdraws money from an annuity during the accumulation phase, how will this distribution be taxed?
based on ordinary income using LIFO
An investment in an inverse ETF would be profitable in a:
bear market
An analyst evaluates individual companies within an industry focusing on the company's business model, management, product line, growth prospects and historical performance, to accumulate information that will be used to make recommendations of investments to be included in customer portfolios. This is an example of:
bottom-up strategy
Under the provisions of the Uniform Securities Act of 1956, as amended, the maximum penalty that the State Administrator can impose against a broker-dealer that sells an unregistered non-exempt security in the State is compelling the broker-dealer to:
buy back at the original cost If a broker-dealer sells a non-exempt security in a State without registration, the firm incurs civil liability. It must buy back the security from any purchaser at original cost, plus interest at a stated rate (reduced by any income received from that security), plus attorney's fees, if any. Treble (triple damages) only apply to federal insider trading cases - not to state securities law.
When comparing dollar-weighted average return to time-weighted average return for a mutual fund investor, the returns will be the same: A if the same dollar amount is invested periodically B if dividends are not reinvested in additional fund shares C if no withdrawals are made and dividends are reinvested D under all circumstances
c
The IRR assumes that:
cash flows generated by the investment are reinvested at the IRR
What must be filed for a C Corp?
certificate of incorporation
Consent to service of process is limited to what?
civil actions, not criminal
An Investment Adviser Representative (IAR) is permitted to borrow money from:
close relative IARs cannot borrow money personally from customers - no ifs, ands or buts. However, there is nothing stopping an IAR from borrowing money from a relative that is not a customer (e.g., the IAR gets a loan from his or her parents). Also note that the FINRA (Federal) rule for broker-dealer agents is a bit different here than the NASAA rule for IARs. An agent (registered representative) cannot borrow from a customer unless the customer is an immediate family member.
What type of of shares do mutual funds issue?
common stock
Inertial inflation is:
contractually based
The difference between a security's bid and ask prices represents the:
cost of trading or the spread
An agent making a sales presentation to a client about a mutual fund's historical returns is required to explain to the client the difference between the fund's A) current yield and total return. B) current yield and holding period return. C) current yield and real return. D) total return and risk-adjusted return.
current yield and total return
The state Admin is empowered to do all of the following except: a. administer oaths and affirmations b. hold disciplinary hearings c. conduct investigations d. issue a summons for failure to appear
d. issue a summons for failure to appear
If an insurance policy is owned by the ________, then it would be included in the gross estate
decedant
Which of the following most accurately identifies a private equity investment in income-producing real estate? A) Investment in a real estate mutual fund B) Direct ownership of real estate properties C) Private market mortgage lending by an insurance company D) Investment in a real estate investment trust (REIT)
direct ownership of real estate properties
ROI < RRR
do not make the investment
what is another name for IRR?
dollar-weighted return
What is another name for tactical asset allocation?
dynamic asset allocation
A broker-dealer is a syndicate member in a best efforts underwriting of ABC Common stock. The issue is oversubscribed. The broker-dealer may allocate sales of the issue to all of the following EXCEPT:
employees of the broker-dealer
Define market maker
engages in the business of effecting transactions in securities for his or her own account
What comes with a participation rate?
equity indexed annuities assume that the S&P 500 index increases by 20% with a 70% participation rate, capped at 9%- the investor earns 70% of the S&P rise of 20%= 14%, but since the cap is 9%, this is the growth in the investment value for the year
what orders must be retained by a BD?
executed orders, unexecuted orders, canceled orders
what does narrowing mean?
expansion
An analyst would use the discounted cash flow method in an attempt to find:
fair value of the security
Investment companies are state or federally covered?
fed the SEC lovessssss investment companies
If a customer wishes to purchase an initial public offering of a non-exempt security, then the customer must receive a:
final prospectus at, or prior to, confirmation of sale
What are the requirements for a federal covered IA solicitor?
flat fee --> not required to register based on AUM ---> required to register
If a customer of a broker-dealer fails to pay for a securities purchase by the 4th business day from trade date, the customer's account must be:
frozen for 90 days
Under the provisions of the Uniform Securities Act, the determinant of whether an investment adviser can take custody of client funds is whether the RIA:
has taken out a surety bond of $35,000
Which account can be set up by an individual who is covered by a high-deductible health insurance plan
health savings account
Contributions are based on a predetermined formula such as a percent of company profits or employee earnings. The amount earned under the formula must be deposited to the plan annually, regardless of whether the company is profitable or not
money purchase plan
Under the Investment Advisers Act of 1940, copies of all ads, notices, and circulars must be retained:
if distributed to at least 10 people and for a minimum of 5 years
When can a purchaser void a securities transaction under the USA?
if the trade is contrary to the provisions of the act
The true rate of return on a bond is the nominal rate minus A) the discount rate B) the inflation rate C) the prime rate D) the margin rate
inflation rate
Bond portfolio immunization protects the portfolio against:
interest rate risk
The term guaranteed can be used to describe an issuers obligation to pay _______, ______, ______ but not _________
interest, principal, and dividends but not capital gains or taxes
Exempt transactions under 33L
intrastate offerings Reg D- private placements Reg A
A wealthy married couple with 3 adult children have a large estate. They intend to leave their estate to their children, but they both have a life expectancy of at least 15+ years. They are interested in establishing a trust that will minimize estate taxes upon death. The best recommendation would be a(n):
irrevocable trust
An application to register securities may be filed by the:
issuers BDs the person on whose behalf the offering is being made (for example, an officer of a company effecting a secondary distribution of a large block of shares that he or she holds can file a registration application)
The YTC computation involves:
knowing the amount of interest payments to be received, the length of time to the call, the current price, and the call price.
the annuitant continues for the span of the persons life- when the person dies, payments cease
life annuity
The general rules dealing with a broker-dealer extending credit for a customer to purchase securities are found in Regulation T of the Federal Reserve Board. However, Regulation T does NOT address A) initial margin requirements B) mixed margin accounts C) maintenance margin D) loan value of securities
maintenance margin maintenance margin is determined by SROs not Reg T
ROI > RRR
make the investment
A customer signature is needed to open a:
margin account, not a cash account
Puts are in the money when
market price is LOWER than strike price
The dividend discount model can be used to value:
mature companies
All of the following statements concerning 403(b) plans are correct EXCEPT employees: A make voluntary contributions through their employers B exclude contributions from current income C of corporations, partnerships, and sole proprietorships may contribute to these plans. D may receive matching contributions made by their employers
of corporations, partnerships, and sole proprietorships may contribute to these plans.
Registration by qualification becomes effective:
on a date set by the Administrator
State solicitor:
only solicitors can be used are IARs
Are open or closed-end funds redeemable?
open-end
The Administrator may deny or revoke a securities registration by:
order
An annuitized account in a variable annuity is most similar to:
pension payments
Latin for "by the head" each named heir shares equally in the estate
per capita
Under NASAA rules, if a customer wishes to trade a margin account prior to returning the signed margin agreement, such an action is:
permitted only if the customer returns the signed margin agreement promptly NASAA wording states that the signed margin agreement must be obtained promptly after the first transaction in account. In contrast, FINRA requires that the margin agreement be signed and returned prior to settlement of the first transaction in the account.
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:
place the trade and get written discretionary authority from the customer within 10 business days
A bond investment strategy that minimizes interest rate risk by adjusting the portfolio duration to match the client's investment time horizon is called:
portfolio immunization
All of the following would flow through as a loss to limited partners except A) principal repayment on partnership debt. B) accelerated depreciation. C) interest payments on partnership debt. D) depletion.
principal repayment on partnership debt
An investment adviser has placed a block trade for 500,000 shares of ABCD stock. The trade is filled in 5 separate lots of 100,000 shares each, at prices ranging from $13.56 to $14.04 per share. The adviser must allocate the shares to customers on a:
pro-rata basis across all customers participating in the block
An investment adviser makes presentations to existing and prospective clients using a chart that determines when to buy or sell securities. In order to do this, the adviser must:
prominently discloses the limitations of using the chart and difficulties regarding its use
What type of risk is most prominent with a fixed annuity?
purchasing power risk or inflation risk
QDRO
qualified domestic relations order
What rate would be used to find the present value of a TIPS?
real rate of return at the time the bond was issued
what does widening mean?
recession
What type of real estate can be held in an Individual Retirement Account? A Personal residence B Vacation home C Rental property D Any of the above
rental property
The Dividend Discount model values common stock by discounting future dividends by the:
required rate of return
overbought
resistance levels
A customer submits a written complaint to your broker-dealer. Later, he changes his mind and asks that the complaint be returned. You should:
return a copy of the complaint to the client and retain the original complaint in the firm's files
Construction of an investment policy statement (IPS) requires identifying the client's objectives and constraints. Which of the following would not be in the list of constraints? A) Taxes B) Liquidity C) Time horizon D) Risk tolerance
risk tolerance
If the Required Rate of Return (RRR) on a security is less than the Internal Rate of Return (IRR) on that security, then the:
security should be purchased for investment
Which of the following is NOT an exempt security under the Securities Act of 1933? A. shares in a federal credit union B. munis C. T-bonds D. shares in a bank holding company
shares in a bank holding company
If an insurance policy is owned by the ________, then it would not be included in the gross estate
someone other than the decedent
Wrap fee accounts would tend to be most suitable for investors who follow A) a buy-and-hold philosophy B) a strategic approach to the market C) a passive approach to investing D) a tactical approach to investing
tactical approach
If an investor believes that inflation rates will be rising in the foreseeable future, he might rebalance his portfolio to include:
tangible assets
what is the formula for the after-tax yield?
taxable yield x (100% - tax bracket)
moving average is a technique used by who?
technical analysts
what is considered temporary insurance?
term insurance
An order placed to buy or redeem mutual fund shares is filled at:
that day's opening NAV
When an IAR leaves a state-registered advisor,
the IA must tell the Admin
When an IAR leaves a federal-covered adviser,
the IAR must tell the Admin
Dollar-weighted returns reflect what?
the IRR
The state administrator is supervised by:
the State secretary
Which state can exam a federal covered IA's books?
the admin of the state in which the adviser's principal office is located
In order to promote its services, an investment adviser that normally charges a $100 initial consultation fee wishes to publish an advertisement offering "an initial consultation and a free evaluation of the tax status of the customer's portfolio for $150." Which statement is TRUE?
the advertisement can be published if the word "free" is removed from the statement
If an agent of a Canadian BD has a personal relationship with an individuals who the agent has been soliciting to buy securities. The individual has just moved to Minnesota and the agent wishes to continue soliciting this person. Which statement is true about the situation?
the agent cannot solicit the individual in Minnesota unless both the BD and the agent are registered in the state
To register as an agent of more than one BD
the agent needs approval from the Admin, a separate registration form for each BD, and separate filing fees for each registration
The inside market or the best time to buy and sell is when:
the bid is high and the ask is low
When assets are inherited, the tax basis is the value at ________
the date of death
Income in a revocable trust is taxed at what?
the grantor's tax rate
How is a revocable trust taxed?
the income in the trust is the same as income to that individual, taxed at personal income tax rates to that individual
In a fixed annuity, who assumes the investment risk?
the insurance company
If a customer purchases in a 200% inverse leveraged ETF, the customer can lose:
the investment amount
Which statement is TRUE about taking a loan from a 401(k) account? A The investments in the account must be held for at least 5 years before a loan can be taken B The loan can only be taken for an emergency need or for school tuition C The loan must be repaid in equal quarterly installments within 5 years D The loan must be guaranteed by PBGC
the loan must be repaid in equal quarterly installments within 5 years
Calls are "in the money" when...?
the market price is HIGHER than the strike price
Put options go "out the money"
the market price is above the contract price - which is the same as the contract strike price being below the current market value of the stock.
After being solicited by an agent of ABC Brokerage, a customer bought 1,000 shares of XYZZ stock (an OTCBB issue) at $15 per share. The stock rapidly declined to $8 per share, and the customer sold the shares. Six months later, the customer received a written offer of rescission from the broker-dealer, stating that the stock had not been registered in the State where the customer lives. Which statement is TRUE about the customer accepting the offer? A The buyer cannot accept the offer of rescission because he no longer owns the stock B The offer must be accepted verbally within 30 days of receipt C The offer must be accepted in writing within 30 days of receipt D The offer cannot be accepted unless the Administrator holds a hearing within 15 days of receipt
the offer must be accepted in writing within 30 days of the receipt
If a security has a beta of 1.5, what does this mean?
the security is more volatile than the S&P a beta of 1 means that the volatility is equal to the S&P
A clerk, admin, assistant, secretary, or intern must register as an agent if.....
they accept customer orders - pitching or selling securities - prequalifying candidates
Under ERISA, a _________ retirement plan is one that disproportionately favors upper level employees by giving them excessive retirement benefits that are not available to lower level employees.
top-heavy If a plan is deemed to be "top heavy," then the contributions will not be tax deductible.
True or False: Rules made by the Administrator are interpretations of the law.
true
YTM and IRR are equivalents. true or false
true
if the max contribution is made to a traditional IRA, then a contribution cannot be made to a Roth IRA.
true
A company has a lower P/E ratio than similar companies with similar growth prospect in the same industry. This is a possible indication that the stock is:
undervalued
Are value stocks under or overvalued?
undervalued
Example of a low beta company:
utility companies
The P/E ratio of a stock measures:
valuation
When do private funds have to register with the SEC?
when AUM exceeds 150MM
Under the Uniform Securities Act of 1956, as amended, an issuer is defined as any person:
who issues or proposes to issue a security
Which 2 policies are permanent insurance policies?
whole and universal life
Life insurance companies developed variable life policies from the:
whole life policy
When must an IA send an updated Form ADV to its clients?
within 120 days of year end if there is a material change
When should hearing requests be made?
within 15 days
An opportunity for a hearing must be given within_________
within 15 days of the written request
When does the SEC grant registration?
within 45 days of the filing date
Each year within ______ the adviser must file an ADV with the SEC
within 90 days of the end of the fiscal year
An updating amendment to Form ADV must be filed by an investment adviser with the SEC:
within 90 days of the firm's fiscal year
When must the filing of an updated Form ADV with the SEC by a Federal Covered Adviser occur?
within 90 days of the fiscal year end filing of this is required by federal covered advisers!
Are family offices excluded from the definition of an IA?
yes
