Series 66 missed questions

Commercial paper is an exempt security under the Securities Act of 1933 if its maturity does not exceed

270 days

A Qualified Domestic Relations Order (QDRO) must contain all of the following EXCEPT A) a plan to increase benefits based on inflation B) the name and last known address of the plan participant C) the dollar amount of the plan D) the number of payments to which the order applies

A

An investment advisory firm increases its fee from $3000 to $3500 and starts to require payment 6 months in advance. According to the Investment Advisers Act of 1940, what must the firm file with the SEC and furnish to new clients as a result of this new arrangement ? A) an audited balance sheet of its most recent fiscal year B) copies of affidavits from existing clients attesting to the firm's integrity in its business dealings C) surety bond in a prescribed amount D) comparative information on the fees charged by other advisers in that geographic area for similar services

A

Any individual who violates the 1940 Act or any SEC rule or regulation is subject to which of the following A) The individual can be fined up to $10,000 and/or sentenced to up to 5 years in prison. B) The individual can only be sentenced to fines of up to $10,000. C) The individual can be fined up to $100,000 and / or sentenced to up to 25 years in prison . D) The individual can only be sentenced to 5 years in prison .

A

In order to comply with NASAA Statements of Policy, when must the prospectus of a mutual fund be delivered to a client? A] Such a prospectus must be delivered on or prior to the due date of the confirmation of the transaction in the mutual fund. B] Such a prospectus must be delivered to the client within three days of the client signing the client agreement. C] Such a prospectus must be delivered at the time that a client agreement is signed by the client. D]Such a prospectus must be delivered when solicitations are being made of a client.

A

Joe and Mike have been friends since college and both work in the financial industry. The two work for two unaffiliated broker-dealers and Mike calls Joe to let him know that he may not meet his quota for sales unless he gets some new customers. If he fails to meet his quota, he will lose his job. Joe has done very well and sends some of his clients over to Mike in an attempt to help Mike out. Mike agrees to split all commissions on sales from these clients, since Joe has done him a favor. Which of the following most accurately describes how the NASAA might classify this type of arrangement? (A) Because Joe and Mike work for unaffiliated broker -dealers, they are not permitted to share or split commissions , making this arrangement unacceptable . B) As long as Mike makes the appropriate disclosures to these new clients with regard to the splitting of commissions with Joe, the arrangement is acceptable . C) Because splitting of commissions is never permitted under any circumstances , this arrangement is unacceptable. D) As long as Mike discloses the arrangement to his firm, the arrangement is acceptable .

A

Renewal registration fees are NOT required of which of the following registered applicants? A) A broker-dealer who is filing for a successor B) Investment adviser representatives C) Agents of a broker-dealer D) Agents of an issuer

A

Which of the following is a benefit of an UGMA account? A) Lower tax potential on earnings B) Tax deferral on contributions C) Tax deductions for the donor D) Elimination of tax liability

A

Premium income from selling options is taxed as

A capital gain

An investor buys a corporate bond today for $10,000 . The bond pays a 6 % coupon . One year later, the bond is valued at $11,000 , but the investor does not sell it. If the inflation rate during this period were 4 %, what would be the investor's real return? A] 2% B] 4%; C] 6% D] 16%

A, Real returns consider the effect inflation has on an investor's realized investment return. The bond's value has increased, but the investor keeps the bond. Therefore, no realized gain is earned on the bond's increased value. The question also states the bond pays a 6% coupon, and the inflation rate is 4%. So, the real return is 2%

Chester is a customer at Investment Advisory Firm ABC. Chester informs his IAR, Kimberly, that he wants to set up an account for his young daughter, Erin. Chester wants to transfer some of his real estate holdings into the account, so Erin has control of the assets when she reaches legal age. Kimberly should recommend Chester open A] an UTMA account . B] a 529 Education Savings Plan C] an UGMA account . D] a Coverdell account .

A, An UTMA account allows virtually any asset, including real estate , to be transferred to a minor . A 529 Education Savings Plan and a Coverdell account are not appropriate as they are set up to pay for a student's qualified education expenses . An UGMA does not permit the deposit of real estate

A retiree, who is in his 80's, relies primarily on a modest pension, social security and his investment portfolio for his retirement income. His investment portfolio is modest in size and allocated as follows: 50% in bonds, 40% in money market funds and 10% in equities. The bond portion of his portfolio consists of US Treasury long bonds and corporate short bonds. His annual interest income from the bonds is about 2% per year. The money market funds return is only about 10 basis points per year. The money market funds are available for alternative investment. Interest rates are at historic lows but are expected to rise soon. The cost of living starts to rise and the retiree needs more income. Assuming that he has a low risk tolerance, you should recommend: A] That he should do nothing now and wait for interest rates to increase B] Invest the money market funds in bonds now C] Invest the money market funds in equities now D] Invest the money market funds in commodities now

A, Because of his age and low risk tolerance, he should avoid equities and commodities all together . Since interest rates are at historic lows and are expected to rise, such an increase would increase his return from the money market funds. If he invested the money market funds in long bonds now , he would get a bigger return but as interest rates increase long bond market prices would decline significantlyIf he invested in short bonds now, he would limit his loss when interest rates rise, but would get a smaller return now

At age 50, an investor decided to put their money into a variable annuity that was not tax-qualified. After-tax money was contributed and the investor has seen a good amount of gains in their annuity . The investor set up the annuity to begin distributions at 65, but at 64, the investor is in need of funds . The investor takes a withdrawal from the variable annuity. Which of the following are TRUE of this scenario? I. This investor can expect to pay surrender charges with regards to the amount that was withdrawn. II. This investor can expect to pay capital gains taxes on gains that are withdrawn . III. This investor can expect to pay ordinary income taxes on gains that are withdrawn . IV. This investor can expect to pay the 10 % penalty tax for early withdrawal A] I and III only B] III and IV only C] I, II, and IV only D] I, III, and IV only

A, Even with non- tax qualified variable annuities , investors will receive tax deferral until withdrawals or annuity payments take place. If a withdrawal takes place prior to annuitization , the investor can expect to pay surrender charges to the issuer of the annuityOn top of any surrender charges , the investor will also be responsible for ordinary income taxes on gains that are withdrawn. Remember, the investor has already paid taxes prior to pay-in, so the investor will have to calculate their cost basis and will not be responsible for taxes on after-tax contributions. They will be responsible for taxes on all gains on a last-in, first-out basis however, meaning gains are taxed first and are taxed as ordinary income. All withdrawals and annuity payments from a variable annuity are subject to ordinary income tax, NOT capital gains taxes. Since our investor is 64, he would not be subject to the 10 % penalty that would apply to tax- deferral and tax- qualified plans when funds are withdrawn before age 59

In the process of developing a financial plan for a client, an adviser goes over several types of risk. In referring to a specific type of risk, the adviser talks about the affects of the sentiments of the general population as well as the overall political climate. Which of the following is the type of risk discussed? A] market risk B] reinvestment risk C] inflation risk D] non-systematic risk

A, Market risk refers to the general risk of investing in a market or general sector. Of the types of risk factors listed, market risk applies best, since trends in society, the sentiments of the general population, as well as the overall political climate all have an affect on the U.S. marketplace.

Which of the following describes a testimonial? A] A current investment adviser client receives compensation for telling her book club that her investment adviser representative did a good job for her. B] The brother of a private fund investor is paid for making a favorable statement about the investor's investment adviser. C] The host of a radio station recommends an investment adviser and is subsequently compensated by the adviser. D] A private fund investor casually recommends his investment adviser to a group of friends at a party but is not compensated for the recommendation.

A, The correct answer is the current client of the investment adviser. A testimonial includes any statement by a current client or private fund investor describing their experience with the investment adviser or supervised persons, for which they receive compensation. If a private fund investor recommends his investment adviser without being compensated, this is not considered a testimonial. If a person other than a current client or private fund investor, such as a brother of an investor or the host of a radio show, is paid for making a favorable statement, that would be an endorsementnot a testimonial

Which statement is correct regarding recordkeeping requirements of investment advisers ? A] The IA must retain a copy of any written or recorded materials used by the adviser in connection with the oral advertisement B] Compensated oral testimonials are exempt from recordkeeping requirements . C] Compensated oral endorsements are exempt from recordkeeping requirements. D] Records of discretionary authorizations and powers of attorney regarding retail clients only must be retained .

A, The correct statement is the IA must retain a copy of any written or recorded materials used by the adviser in connection with the oral advertisement . For compensated oral testimonials and endorsements , the adviser must keep a record of the disclosures provided to clients or investors . Records of discretionary authorizations and powers of attorney must be retained for all clients not just retail clients.

When determining the internal rate of return on a project or investment, which of the following are used? I. The inflows of cash II. The outflows of cash III. The rate of inflation IV. The risk-free rate of return A. I and II only B. II and IV only C. I, II, and III only D. I, II, and IV only

A, The internal rate of return is a mathematical formula that is used to review a project and check to see if the project will meet or exceed a required rate of return. It is often used to compare prospective investments and is expressed as a percentage. It incorporates the cash inflows and outflows over a period of years and equates them to zero to find an unknown variable. The rate of inflation and risk-free rate of return are not directly incorporated into the formula for IRR

John and Mary are a young married couple with three children . They are on a tight budget. John is the primary breadwinner . They have no life insurance . Which of the following life insurance policies should John consider buying based on his situation ? A] Term insurance B] Whole life insurance C] Universal life insurance D] Variable life insurance

A, The primary purpose of life insurance is to replace the income lost when the breadwinner(s) die(s) prematurely. Term insurance provides the highest amount of policy proceeds (death benefit) per dollar of premium paid. Term insurance does not accrue cash values (living benefits) and therefore is cheaper to buy than permanent policies that include cash values. (Choices B, C and D are all permanent ent / l * ifetim policies). Term insurance is temporary insurance and will have to be renewed at maturity at a higher premium

Dwight bought into a mutual fund and after sales load acquired 2,000 shares with an after-sales-load value of $100,000. Over a period of 10 years, he has made no further contributions. He opted for a reinvestment plan that included all dividend distributions and capital gains distributions. Presuming each of the following facts are true, which would be least relevant to Dwight when calculating the total return on his mutual fund shares? A] Dwight has paid both ordinary income and long-term capital gains taxes on a total of $62,500 over the 10-year investment period. B] Dwight's lump sum purchase netted him 2,000 shares at a cost of $50 per share. C] The current price per share of the fund is $75. D] Following 10 years of reinvestment, Dwight owns a total of 3,250 shares.

A, The taxed amount would be the least relevant factor in this case because it is not part of the calculation of total return. In calculating Total Return on a mutual fund offering a reinvestment plan, the calculation considers the beginning price ($50/share in this case), the beginning number of shares (2,000 in this case), the ending price ( \$75/share in this case), and the ending number of shares (3,2 in this case)

All of the following are TRUE about the Correspondence category of communications with the public EXCEPT A] requires internal approval by a principal or supervisor of the firm before its use. B] It is defined to be any written communication that is sent to 25 or fewer investors within any 30 calendar day period. C] A retail investor includes retail customers and prospective customers, other than institutional investors . D] Written procedures must provide for the supervision and review of correspondence by the broker-dealer firm.

A, correspondence does not require prior internal review

A client is seeking mortgage-backed securities such as Collateralized Mortgage Obligations (CMOS) in her portfolio. As an agent, each of the following would be suitable recommendations, EXCEPT securities created by (A) Fannie Mae (FNMA) B) Sallie Mae (SLMA) . C) Ginnie Mae (GNMA ) . D) Freddie Mac (FHLMC

B

A public utility provides electricity to a specific area. A railroad provides transportation and freight services along a specific line. Government authorities of the State regulate the rates charged by both of these entitiesWhich of the following is TRUE of securities issued by these entities under the regulations of the Uniform Securities Act? A) Registration and filing of advertising will be required for the securities of the public utility but registration and filing of advertising is not required for the securities of the railroad. B) Registration and filing of advertising will not be required for both the securities of the public utility and the securities of the railroad . C) Registration and filing of advertising will not be required for the securities of the public utility, but registration and filing of advertising is required for the securities of the railroad. D) Registration and filing of advertising will be required for both the securities of the public utility and the securities of the railroad .

B

Correct statements concerning Employees Retirement Income Security Act (ERISA) plans include all of the following EXCEPT A] Defined benefit plans include a formula to use in determining the benefits employees will receive on their retirement . B] Payroll deduction plans must be "qualified" plans under the IRS code C] Under defined contribution plans, employee retirement benefits depend on factors such as contributions made and portfolio performance. D] Trading for ERISA plan accounts make up a significant part of the volume on all national exchanges .

B

One Stop Shop, Inc is a full-service broker-dealer and investment advisory firm. Patty, a client enrolled for broker-dealer services at the firm, enters an order to sell an existing position of common shares for a significant profit out of her margin account at the firm. The firm executes the trade on an agency basis for Patty. In this case, One Stop Shop, Inc will (A) charge Patty a portion of the profits related to the trade executed on a mark-down basis. B) only be compensated via commissions for the execution of the trade. C) receive no direct compensation for effecting the trade because Patty has likely enrolled in a wrap fee program. D) take a portion of the original sales load, referred to as a concession, for its part in the redemption of the shares.

B

Which of the following classifications includes all broker -dealer partners , officers , directors , branch managers , control persons , and employees other than those serving solely in a clerical or ministerial capacity ? A] Accredited investor B] Associated persons C] Qualified Client D] Agent

B

A client is interested in investing in the securities of several foreign companies and is looking for diversification. As this client's investment adviser representative, you should recommend which of the following ? A. Buy shares directly and split investment equally between the securities of the foreign companies in which the investor is interested. B. Buy shares of a mutual fund which includes the foreign securities in which the customer expressed an interest. C. Do not to invest in the securities of foreign companies in general, due to the risk of trading unregistered securities. D. Buy a Leveraged ETF focused in foreign securities to magnify the potential for gains related to the client's invested amount .

B,

According to the Uniform Securities Act, all the following must be included in a written advisory contract except : A] that the investment adviser will not receive compensation based on the profit or loss in the account B] that the investment adviser has been qualified by examination, experience or training to be an investment adviser C] that the investment adviser will not assign the contract without the client's consent D] that the investment adviser of a partnership will notify the client within a reasonable period of time of any change in the membership of the partnership

B,

Which of the following would be MOST appropriate for an individual who wishes to establish a trust upon death for beneficiaries via a will? A] A simple will B] A testamentary will C] A pour-over will D] A living will

B, A testamentary will is a will that establishes a trust used to transfer an estate beneficiaries after the death of the testator, or person who created the will.

Under the Investment Advisers Act of 1940, which of the following persons would be considered to be in the business of providing "investment advice": A] An individual is paid for giving advice about purchasing futures contracts . B] A firm which is paid to render advice only to banks regarding stocks . C] A firm which is paid to advise individuals about purchasing precious metals . D] An individual who regularly gives advice about purchasing stocks but receives no compensation for it.

B, According to SEC Release 1A - 1092 the definition of an Investment Adviser is a person who is "in the business " of giving advice about securities and is required to registerSpecifically in this question the bank is considered a client.

When representing an issuer, an individual would fall under the USA's definition of "agent" when performing which of the following ? A] The sale of securities that have been issued by a state bank B] The sale of a limited partnership to an individual investor. C] The sale of a promissory note to an insurer . D] The sale of the issuer's securities to the issuer's president in which no sales commissions are paid.

B, An agent who represents an issuer must be registered only if he or she sells non-exempt securities . Exempt securities include bank securities . An agent is also exempt from registration of he or she represents the issuer in an exempt transaction such as sales to officers if the issuer or to institutional investors . Therefore , in the sale of the limited partnership , the person would be acting as an agent .

On February 15th Joyce got her tax refund and decided to invest it all in ABC common stock. Joyce is in a 23% Federal tax bracket and would pay 15% on capital gains. She was able to buy 200 shares of ABC @ $20 per share. During the year Joyce was paid qualified dividends on ABC of $2 per share. If Joyce was able to sell all of her ABC common stock at $25 per share at the end of February of the next year, what would be her after-tax return? A] 35% B] 29.75% C] 26.95% D] 23.1%

B, In order to determine Joyce's after-tax return, we would take $1,000 Capital gain ($5,000 sale price less $4,000 purchase price on the stock) X.85 (100% less the tax rate of 15%)=$850 $400 Dividend income ($2 per share X 200 shares) X.85 (100% less the 15% qualified dividend tax rate)=\$340; $850+$340=$1190 After-tax profit divided by $4,000 (amount invested)=29.75%

The Dividend Discount Model is used to determine which of the following items? A] Preferred stock values B] Common stock values C] A common stock's growth rate and cash flows D] A preferred stock's growth rate and cash flows

B, The Dividend Discount Model provides a tool for establishing the value of a common stock using the dividends paid as well as a given rate less the anticipated growth rate of dividends .

The Dividend Discount Model is used to determine which of the following items? A] Preferred stock values B] Common stock values C] A common stock's growth rate and cash flows D] A preferred stock's growth rate and cash flows

B, The Dividend Discount Model provides a tool for establishing the value of a common stock using the dividends paid as well as a given rate less the anticipated growth rate of dividends.

An investor in the 25% tax bracket has a stock portfolio that earned 1.5% in qualified dividends and 8% in long-term capital gains for the year. The rate of inflation was 3.0% for this period. The real return to the investor was: A] 5% B] 6.5% C] 7.125% D] 9.5%

B, The real rate of return involves subtracting the rate of inflation from the return of the portfolio Here, the return on the portfolio ends up at 9.5% (1.5% dividends and 8% gains). We subtract the 3% rate of inflation and our real return is 6.5% For purposes of this question, the investor's tax bracket and the additional information related to qualified dividends and long-term capital gains are unnecessary in our calculation

All factors considered, which of the following categories of bonds would carry the least amount of risk to an investor? A] Corporate Bonds with a AAA rating, maturing in 15 years B] Municipal Bonds with a AA rating, maturing in 2 years C] US Government Bonds with a AAA rating, maturing in 30 years D] Yankee Bonds with a BBB rating, maturing in 10 years

B, This question evaluates four bond categories that are all investment grade. The BEST answer in terms of all factors being considered would be the Municipal Bonds with a AA rating that mature in 2 years. The reason for this being the best answer is the proximity to maturity, as having money tied up for only 2 years carries significantly less risk than maturities of 10+ years. In general, US Government Securities are thought to be the 'safest', but in this question, we are looking at a 30-year maturity versus a 2-year maturity, which is what puts the Municipal Bonds ahead of the US Government Bonds. Had all maturities been 30 years , the US Government Bonds would be the best answer .

The Administrator of California sends a request for financial statements to a small broker-dealer firm. Which of the following are requirements ? I. For firms registered at the Federal and State levels, the State cannot force additional recordkeeping requirements that exceed the Federal requirements II. For firms registered at the Federal and State levels, the firm must provide all of the financial statements that are required by the SEC to the Administrator , as well as any additional financial statements which may be required by the State. III. For firms registered at the Federal and State levels, duplicate financial statements must be sent to all States, regardless of whether the firm is registered in that State or falls under the definition of a broker -dealer in that State . IV. IV. For firms registered at the Federal and State levels, SEC -required financial statements must be sent to all States where the broker-dealer is registered and there is a requirement to provide such financial statements. A] I and III only B] I and IV only C] II and III only D] II and IV only

B, When a broker-dealer is registered at the Federal level, the broker-dealer is required to abide by Federal laws. These laws supersede the State laws. So if a broker-dealer is registered at the Federal level, the firm would be required to submit all financial statements filed with the SEC to the State Administrator upon request, but would NOT have to go beyond those statements. For firms registered with the SEC and several States, the firm is required to file the SEC-required financial statements where the firm is registered, but the firm is not required to send these financial statements to states where they are not registered (e.g."all" states).

Paula is an agent of a broker-dealer and has decided that she wants to take a few years off in order to stay home and raise her two small children. Under the Uniform Securities Act which of the following is true with regard to Paula's State registration ? A] Her registration may be continued indefinitely in an inactive status with her broker-dealer until she decides to come back to work. B] Her registration will be terminated with the broker-dealer and prompt notification must be made to the Administrator by both Paula and her broker-dealer. C] Her registration will be terminated with the broker -dealer and only the broker -dealer is obligated to promptly notify the Administrator . D] Her registration may be carried by the broker -dealer in an inactive state for two years after which it will be terminated if she has not returned to work .

B, Whenever an agent begins or terminates a relationship with an issuer or broker dealer , the Uniform Securities Act requires that the agent , as well as the issuer or broker-dealer firm, PROMPTLY notify the Administrator . Notification should be filed by each entity broker - dealer , issuer , and agent . Registrations at the State level must be renewed annually and a broker - dealer firm may not carry a license in an inactive " state .

A Hedge Fund is best described by which of the following? A] A venture capital firm that raises capital for new start- up businesses B] A group of 25 high net worth individuals where one of the individuals manages the fund and participates in the profits of the fund. C] An investment adviser with several high net worth clients he manages for a fee D] An investment club with 20 investors who each participate in the management of the club.

B, With hedge funds generally one of the investors in the fund acts as the manager of the fund and it is made up of a limited number of high net worth individuals. Hedge funds are not considered to be investment clubs or venture capital.

A federally covered investment adviser (IA) instructs its investment adviser representatives (IARS) add the initials "RIA" (registered investment adviser) after their names on their business cards ( A) This is permitted because the IAR is registered. B) This is permitted because the SEC lacks authority to object to the content of business cards. C) This is prohibited by the SEC because the use of "RIA" implies that the IAR is competent D) This is prohibited by the SEC because "RIA" may be confused with "IAR"

C

An Investment Adviser Representative advertises their services as "fee only". This IAR discusses a mutual fund as a prospective investment for a client. After this fund is purchased by the clientthe IAR receives a portion of 12b-1 fees and if the IAR sells enough fund shares from this investment company, the IAR will be rewarded with a free tropical vacation. Which of the following is TRUE under the Uniform Securities Act? (A) Since the IAR only directly charges the client for the investment advice, the advertisement as "fee only" is acceptable B) Since the IAR only receives a portion of the 12b-1 fees and is only eligible for the vacation if a specific target volume of shares is achieved, the IAR has not violated industry regulations C) Since the IAR receives some form of compensation that exceeds the fee charged for the investment advice, it is deceptive for the IAR to advertise as "fee only". D) Under no circumstances is an IAR permitted to receive a portion of the 12b-1 fees or free vacations from an investment company

C

Does the fact that an Investment Adviser is registered in a state mean that the Investment Adviser is qualified? (A) Yes, registration means that the Investment Adviser is qualified as an IA. B) Yes, registration means that the Investment Adviser has all of the qualifications necessary to provide clients with investment advice. C) No, registration does not mean that the Investment Adviser is qualified to provide investment advice to clients. D) No, registration requirements are for the sole purpose of providing fee income to the state in which the IA will register .

C

Of the following account types, which represents co-ownership with no rights of survivorship? A) Joint tenancy B) Tenants at will C) Tenants in common D) Transfer on death

C

Shawna is a young investor with no need for income from investments due to a high salary for her age. She historically has chosen very conservative investments such as blue-chip stocks and index funds, and she re-invests all dividends . Bob is Shawna's IAR and agent. He has discussed higher-risk investments with Shawna several times , believing that she would benefit from increasing her risk tolerance but she has been resistant . After some research , Bob calls Shawna and strongly recommends investment in a small-cap fund for some extra capital that Shawna is investing , fully discussing the pros and cons of the small-cap fund. In this case, Bob has (A) Shawna's best interest in mind, despite her resistance to taking on investments with greater levels of risk. B) made a suitable investment recommendation to Shawna , given her age and income level . C) made an unsuitable investment recommendation to Shawna . D) failed to make proper disclosure of material facts related to the small-cap fund.

C

Under the Uniform Securities Act when a registered Agent of a Broker-Dealer moves their personal residence when does that person's registration application have to be updated? A) The Agent's registration application would not have to be updated if the address of the firm that they are registered with has not changed. The Agent simply has to notify their broker dealer . B) The Agent's registration application would have to be updated within 10 business days of the change in address. C) The Agent's registration application would have to be updated promptly . D) The Agent's registration application would have to be updated with the next annual renewal date of the Agent's registration .

C

Which of the following must be addressed in an investment adviser's Business Continuity and Succession Plan according to the NASAA Model Rule? I. The protection, backup, and recovery of books and records II. Alternate means of communications with customers, key personnel, employees, vendors, service providers, and regulators . III. A signed lease agreement for a secondary location providing the business the option of relocation in the event of temporary or permanent loss of a principal place of business IV. Assignment of duties to qualified responsible persons in the event of the death or unavailability of key personnel A) I and IV only B) II and IV only C) I, II and IV only D) I, II, III and IV

C

You are a research analyst in charge of publishing research reports for your company, C-Minus Investment Banking and Research. Your analysts have been working on a research report for Dot Com Incorporated, a company which also has a pending investment banking transaction with your firm. You are concerned because the analysts in your department have concluded that the security is overvalued and place a sell rating on the stock, and you agree. This may negatively affect the relationship between the two firms. What should your actions be in this situation? (A) Notify Dot Com Incorporated's officers the day before the report is published. B) Publish the research report once the banking transaction been publicly announced. C) Publish the report as planned without revisions. D) Change the rating to Neutral from Sell and publish the report.

C

According to the Investment Advisers Act of 1940, investment advisers must: I. have at least $25,000 in capital . II. comply with certain rules to safeguard clients' assets if they have custody of clients ' funds or securities . III. disclose their business background and experience to clients . A] III B] I, II C] II, III D] I, II, III

C,

All of the following are characteristics of 401(k) plans EXCEPT A] Voluntary employee contributions B] Voluntary employer contributions unless the employer has committed to matching contributions . C] A profit sharing contribution formula may not be included in the plan D] The plan may be designed as a Roth 401(k) plan

C, A 401(k) defined contribution plan is a qualified retirement plan that allows a worker to defer the receipt of a part of his/her current compensation and contribute it into a personal retirement account inside the plan. These plans are sometimes called CODA plans - cash or deferred plans. The contributions by the employees are voluntary. Contributions by the sponsoring employer are also voluntary unless the employer has committed to matching contributions. The plan may be designed with a profit sharing contribution formula or as a Roth 401(k) plan.

From a tax perspective which of the following factors for an investor in a high income tax bracket would be least important when designing his portfolio? A] how much to allocate to cash equivalent B] actively managed funds vs. passively managed funds C] the investment strategies of a prospective, active fund manager D]the relative merits of taxable vs. tax exempt portfolio

C, A high income tax bracket investor will want to minimize his taxes in his taxable portfolio. Cash equivalents are fully taxable. Actively managed funds have more taxable capital gains than passively managed funds. The strategies of a prospective, active fund managers would not matter since you are just considering using them and have not actually hired them yet.

According to the Uniform Prudent Investor Act, a trustee's investment and management decisions should be evaluated both as part of the A] beneficiary's investment strategy, and as an individual transaction. B] trustee's overall investment strategy, and as an individual transaction. C] trustee's overall investment strategy, and as part of the entire portfolio. D] beneficiary's investment strategy and as part of the entire portfolio.

C, A trustee's investment and management decisions with respect to individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as part of an overall investment strategy. The trustee has to do what he or she feels is right for the beneficiary by looking at the overall investment strategy, and the risk and returns for the trust

Under the Uniform Securities Act, which of the following securities would be considered to be exempt from state registration and advertising filing requirements? I. Common stock listed on the NYSE II. Municipal Bonds , General Obligation or Revenue . III. Limited Partnership interest being offered in multiple states IV. Investment Contracts in connection with employee stock purchase plans A] I and II only B] II and III only C] I, II, and IV only D] I, II, III, and IV

C, All securities listed are included in the Exempt Securities category of the USA except Limited Partnerships . Limited Partnerships may have to register at the state level since they are not "exempted ."

According to the Uniform Securities Act, of the following items listed which could be registered under the qualification registration process ? A) Commodity Futures Contracts B) Fixed annuities C)Corporate equities D) Contracts dealing in insurance

C, Any security may be registered by qualification. In this question, the answers pertaining to commodity futures, insurance contracts and annuity products would not be correct since they are not "securities". Corporate equities are generally common and preferred stock which would be considered to be securities and would be registered by "qualification" with the State

Which of the following are considered to be exempt transactions under the Uniform Securities Act? I. a sale of securities by a trustee in bankruptcy II. limited partnership interests purchased by a bank for its own account III. the offer of a pre-organization subscription to fewer than 10 persons where no commissions are paid IV. a syndicate member offering securities to the public on behalf of an issuer A] I, II B] III, IV C] I, II, III D] I, II, III, IV

C, Choice is an exempt transaction because it is a fiduciary transaction. Choice is exempt because it is a transaction with a financial institution (bank). Choice is exempt because it is specifically cited as an exempt transaction in the Uniform Securities Act. Choice IV is not an exempt transaction because it is an issuer ' transaction

Lisa is one of your clients. She has low to moderate risk tolerance, likes to avoid taxation on investment income, and has already maxed out contributions to her retirement accounts, including a Traditional IRA and a 401(k). She has additional money that she would like to invest in the market for use in retirement, but does not have a need for additional current or future income from her investments at this time. Given the information provided, it would be MOST appropriate for Lisa to A] invest the money in mutual funds specializing in growth . B] invest the money into a second Traditional IRA to get the additional tax deduction C] invest the money into a variable annuity and select investments that are appropriate for her risk tolerance . D] invest in rental properties and avoid the market .

C, Given the information and answers provided, Lisa's best option is going to be the variable annuity. It allows for market participation with tax-deferral of growth. She does not have any income needs that are fixed, so a variable annuity should be suitable for her level of risk tolerance and her needs assuming she chooses the appropriate investment options. Mutual funds will carry regular tax burdens for dividends and distributions. A second Traditional IRA would not allow additional tax deductions, as there is a maximum deductible amount for individuals in any given year, regardless of the number of Traditional IRAS opened. The client stated an interest in investing in the market. Rental properties in real estate would bring current taxation and may also require property management costs, etc.

When filing an application to become an Investment Adviser, which of the following items is NOT required under the Uniform Securities Act? A] The IA's proposed method of doing business B] The qualifications of the IA's partners, officers, and directors C] A bond which surpasses the requirements of the IA's principal office's requirements D] A Consent to Service of Process

C, No bond may be required of any registrant whose net capital , or, in the case of an investment adviser whose minimum financial requirements , which may be defined by rule, exceeds the amounts required by the Administrator [Sec 202(f)]

Which of the following is true about REITS (Real Estate Investment Trusts)? A] They are generally set up as limited partnerships, and they could be subject to double taxation. B] They are generally set up as limited partnerships, and they pass-through both profits and losses. C] They are generally set up as publicly traded companies, and they could be subject to double taxation. D] They are generally set up as publicly traded companies, and they pass-through both profits and losses.

C, REITs can become subject to double taxation if they don't distribute 90% of net earnings. Most of them are publicly traded

An recommends that a client purchase a 20-year Treasury Bond at par with a coupon of 6%. The IA tells the client that he will "earn a 6% return per year if the bond is held to maturityThis statement is A] allowed so long as the return to the client was disclosed. B] allowed because the Treasury guarantees the coupon payment . C] not allowed because IA's cannot guarantee specific returns. D] not allowed because it is possible for the client to sell the security before maturity.

C, The Model Rules prohibit an IA from guaranteeing an investment result. Even though the likelihood of default is extremely low when dealing with US Treasury Securities, it is possible that the treasury could default on an interest or principal payment

A client passes away mid -year. The decedent leaves behind a significant estate which is to be split amongst three beneficiaries who are the client's adult children. Which of the following would be responsible for the taxes associated with the client prior to her passing mid-year ? A] The tax liability would be decided by a judge in probate court B] The taxes would be owed equally by the three beneficiaries out of their income for the year of the death C] The taxes would be payable by the client's estate in the tax year of the client's death D] Taxes are not paid this year but will be forwarded to the next tax year and will be paid by the beneficiaries.

C, The decedent's estate would be responsible for the taxes in the year of death. Estate taxes would also apply to the client's estate prior to assets passing to the client's beneficiaries Though taxes for the year may reduce what is ultimately passed on to the beneficiaries , the estate is the entity responsible for the taxes , not the beneficiaries . Probate court would be used when the decedent has not left a will .

According to the Investment Advisers Act of 1940, which of the following must register as an investment adviser? I. An investment adviser whose only clients are insurance companies . II. An investment adviser whose only clients are accredited investors . III. An investment adviser whose only clients are banks, savings and loans and trust companies A] II only B] I, II C] II, III D] I, II, III

C, Under the Investment Advisers Act of 1940, one of the exceptions to registration requirements is an investment adviser whose only clients are insurance companies. There is a difference between when the bank IS the Investment Adviser or if the bank is a client of the Investment Adviser. Banks do not have to register as an However, in answer choice it says, "an investment adviser whose only clients are banksso the IA would have to register .

Bridgette is new to investing and has approximately $10,000 to invest. In opening up her account, she discusses her desire for growth and diversification with an agent. She also informs the agent that she would like to have access to the funds in about 2 yearsOf the choices listed, which is BEST for Bridgette given her objectives and time horizon? A) Class A mutual fund shares B) Class B mutual fund shares C) Class C mutual fund shares D) The agent should recommend that she create her own diversified portfolio of common stocks .

C, class A and B have load fees that won't be ideal for her time frame

An IAR has a client who is short one XYZ April 50 put at $4 in her account. She asks her IAR at what XYZ market price would she begin to incur a potential loss? The IAR correctly answers A] $55. B] $54. C] $46 D] $45 .

D

An analyst is looking to provide guidance on a particular investment. The analyst inputs the revenues and expenses of the investment over a 10-year period of time into a formula and sets the formula equal to zero in an attempt to find an unknown rate of return. Which of the following is the analyst likely seeking? A) Alpha B) Beta C) Net Present Value (NPV) D) Internal Rate of Return (IRR)

D

Pass-through of profits and losses, protection from liability, and no limitations on participants are features provided by which type of business entity ? A) These are features of a general partnership. B) These are features of a C-Corporation C) These are features of an S-Corporation D) These are features of a limited partnership.

D

State Administrators may, according to the Uniform Securities Act, require the application for registration as an investment adviser to include which of the following? A) A list of the past 5 years of records of currently employed and previously employed investment adviser representatives B) A record of client securities and the location and manner in which they are held or will be held. C) The compliance procedures of the IA D) The financial condition and history of the IA

D

The president of an IA is also an agent of a broker-dealer. The IA recommends the purchase of securities that the presidentagent is selling for his broker-dealer. The president earns a commission and the IA earns a fee, but not the commissions compensation. The IA has: A) Satisfied its duty as a fiduciary by disclosing the relationship with the broker-dealer B) Satisfied its duty as a fiduciary if the securities are suitable for the clients C) Failed to satisfy its duty as a fiduciary by allowing its president to be an agent of a broker dealer while president of the IA D) Failed to satisfy its duty as a fiduciary by not disclosing the president receives compensation in the form of commissions

D

The term agent, according to the Uniform Securities Act, would include all of the following people EXCEPT A) one who effects transactions of registered securities with clients who are members of the public B) one who works for a broker-dealer involved in selling securities that have been listed on a securities exchange . C) one who represents a broker-dealer and performs securities transactions where no transaction-based fees are charged or paid. D) one who represents an issuer in effecting exempt transactions.

D

Under the Uniform Securities Act, prompt notification to the Administrator is required when : I. An agent begins employment for a broker-dealer or issuer II. An agent terminates employment with a broker-dealer or issuer. III. An investment adviser representative begins employment with an investment advisory firm. IV. An investment adviser representative terminates employment with an investment advisory firm. A] I and III only B] II and IV only C] I, II, III only D] I, II, III, and IV

D

Which of the following would be considered a financial institution or institutional buyer which would fall within the scope of the exemptions for transactions under the Uniform Securities Act? 1. Banks and savings institutions II. Trust companies and insurance companies III. Pension or profit-sharing trusts IV. Broker-dealers A) I and II only B) I and IV only C) II, III and IV only D) 1,11,111, and IV

D

Can you split commissions with an unregistered person from another B-D?

NO, you cannot split commissions with any person not also registered as an agent with the same BD

Call options carry which of the following features? I. A call option is typically purchased by an investor who believes that the market price of the underlying security is going to go up. II. Call options can have American-style exercises or European-style exercises. III. The premium carried by a call option is tied to several factors, including supply and demand, market sentiment, and the value of the underlying security IV. Call options are generally considered to carry a higher level of risk than other types of investments like common stock and bonds. A. III and IV only B. I, II and IV only C. 1, 11 and III only D. I, II, III, and IV

D,

ABC Corporate Bond has a 10 year maturity, a coupon rate of 4%, a current yield of 4.25%, and a yield to maturity of 4.50% A 10-year Treasury Bond has a coupon rate of 3.25 %, a current yield of 3.375%, and a yield to maturity of 3.50 % When viewing both the corporate and Treasury Bond, it is accurate to state that the Bond Credit Spread is A] 0.75 annually as far as payout according to coupon rate is concerned . B] 22%, because that accounts for the percentage difference between the two bonds. C] 75 basis points , which is the difference between the coupon rate on the Treasury Bond and the coupon rate on the corporate bond D] 100 basis points, which is the difference between the yield on the Treasury Bond and the yield on the corporate bond

D, A Bond Credit Spread is the measure of the difference between the yield on a Corporate Bond verses the yield on a Treasury Bond with similar or the same maturity

All of the following are characteristics of an ERISA Sec 0.404(c) qualified plan EXCEPT: A) The plan participants control the investment of the assets in their accounts B) The plan participants must be offered at least three core alternative investments. C) Plan fiduciaries will not be held liable for losses where the plan participants have selected the investments . D) Such a plan can include a defined benefit plan.

D, An ERISA 404(c) qualified plan (aka a self-directed plan) is an individual account plan, such as a Sec.401 (k) plan in which the plan participants are given the opportunity to exercise meaningful, independent investment control over the assets in their accounts. In such a plan the plan fiduciaries (e.g. plan administrator and the plan trustee) are provided with a "safe harborfor liability for losses resulting from decisions made by the plan participants . To qualify as a " 404(c) plan", the plan participants must be given certain minimum investment information and at least three core alternative investment options, each of which is diversified. A qualified defined benefit plan is not an individual account plan and therefore is not eligible for safe harbor treatment.

For purposes of the federal income tax, all of the following are TRUE EXCEPT A] When securities are acquired as a gift and sold at a profit, the cost basis of the donor is used. B] When securities are acquired as a gift and sold at a loss, the cost basis at the time of the gift is used. C] When securities are acquired by inheritance, the cost basis at the time of death of the decedent is used. D] When securities are acquired as a gift, the charity can use the cost basis of the donor when the donor acquired the securities for income tax deduction purposes

D, Appreciated securities donated to a charity are valued at the time of the gift for purposes of the federal income tax deduction for the donor . The charity is tax exempt and does not use tax deductions

An IAR is reviewing the statistical range of potential returns for a specific investment . The IAR is most likely reviewing an illustration of the security's A] discounted cash flow B] internal rate of return . C] historical price volatility . D] dispersion .

D, Dispersion illustrates a statistical range of potential returns for an investment or a portfolio's returnsIt is a tool to help measure the risk of an investment. Types of dispersion include range, variance, standard deviation, and mean DCF and RR are concepts used in the time value of money. Historical price volatility is the plotting of past prices of the security

Which of the following statements about Roth IRA plans is TRUE? A] Roth IRA plans are not permitted to invest in individual stocks. B] Maximum contributions for a single year for an individual with a Roth IRA plan would be $5,000 C] The original owner of the plan must receive minimum distributions by the age of 70 1/2 . D] The qualified distributions of a Roth IRA plan are not taxable.

D, Qualified distributions from a Roth IRA are not taxable. Non-qualified distributions from a Roth IRA would be subject to a 10% penalty tax. In a Roth IRA, the maximum contribution for 2022 is $6,000 (same as 2021). There is an additional "catch-up" contribution of $1,000 allowed for individuals who are at least 50 years of age. Like Traditional IRAS, contributions are allowed after age 72. Minimum distributions from a ROTH IRA are NOT required by the age of 72. Investment in common stock is allowed in a Roth IRA.

The weighted average of the expected annual return of all portfolio components is known as the portfolio's A] standard deviation. B] arithmetic mean. C] current yield. D] expected annual return.

D, The key term in this test question is "weighted" average. The expected annual return is the returns on an investment weighted by the probability of the occurrence of each scenario. It weights the average of the expected returns for all components of the portfolio. For example, we take the return X the likelihood of rrence = expected return. The arithmetic mean does not include the "weighted average; it is the simple average obtained by dividend the sum of one or more items by the number of items.

An investor has a portfolio of blue-chip stocks and anticipates stability in the market with the possibility of minor declines. This investor decides to write covered calls on the securities held in the portfolio. In this scenario, the investor A] gains leverage on the underlying security by writing option contracts. B] will collect the premiums received and will not take losses because the option positions sold are covered. C] can expect exercise notices on the calls if the price of securities held in the portfolio goes down . D] can expect income from the premiums when selling covered calls and capital gains taxes if the calls expire unexercised.

D, When an investor sells covered calls and anticipates stability or minor declines in the market, the investor is looking for income from the premiums. The investor does not gain leverage by selling calls, which obligate the investor to sell stock. Collection of premiums will occur, but losses are still possible, depending upon the purchase price of the stock and the premiums received on the option contracts. When options are sold, the premiums received are taxed as a capital gain to the seller if the options expire unexercised

What is the definition of R-Squared? A] The Difference between the highest value and lowest value in a series of data points B] The measure of volatility of a security or portfolio from the expected return (mean) based on past performance C] it is used to distinguish how well the return of an asset compensates the investor for risk taken D] measures the correlation of the returns of a specific portfolio compared to the return of the market.

D, When you see R-squared, think of correlationR-Squared measures the correlation of the returns of a specific portfolio compared to the return of the market as a whole. It attempts to explain how much of the return for a given portfolio is related to the movements of the benchmark index

Which of the following transactions are considered to be a "sale" under the Securities Act of 1933 and/or the Uniform Securities Act? I. A child receives 3,000 shares of stock in trust from a parent II. An investor converts a bond into stock III. A car buyer receives one share of the automotive company stock with the purchase of a new car

III Only