series 66
A Qualified Domestic Relations Order (QDRO) must contain all of the following EXCEPT-a plan to increase benefits based on inflation
A Qualified Domestic Relations Order must contain certain information such as 1) The name and last known address of the plan participant and each alternative payee.2) The name of each plan to which the order applies.3) The dollar amount or percentage of benefit to be paid to the alternative payee.4) The number of payments or time period to which the order applies. A QDRO does NOT contain or require a plan to provide an alternate payee or participant with any type of benefit prohibited under the plan or a plan to provide for increased benefits.
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--only be compensated via commissions for the execution of the trade.
A commission is a fee for acting as a broker or agent of the customer. In this case, Patty will only pay a commission, because the question states she is enrolled for broker-dealer services only and because the firm executed the trade on a broker or agency basis (commissions) versus executing on a dealer or principal basis (mark-up/mark-down). Aside from limited exceptions, advisory firms are not permitted to charge performance-based fees and such fees would not be labelled as a mark-down. A wrap fee program would cover costs associated with execution of orders and advisory services, but there is no indication that Patty has enrolled in such a program. Sales loads are charged by mutual funds and would be paid to selling brokers upon purchase. Concessions are tied to the sale of new shares, not secondary market trades in existing shares.
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?-the investment strategies of a prospective, active fund manager
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 Securities Act, all the following must be included in a written advisory contract except:-that the investment adviser has been qualified by examination, experience or training to be an investment adviser
All choices except "B" are true statements regarding an investment advisory contract. "B" is incorrect because investment advisory contracts would not include registration information.
Under NASAA Model Rules for Broker-dealers, which of the following would be allowed for a broker-dealer firm?-Opening a margin account for a client with signed authorization and then hypothecating the securities purchased in the account. Offering a client shares in a new issue after providing the client with a prospectus on the new issue Advising the client that the investment that they wish to purchase has high risk and the potential for loss is substantial. Offering to buy shares of stock that a client wishes to sell and putting those shares into the firm's inventory account
All choices represent actions that would be allowed to be taken by broker-dealers. Remember that hypothecation requires a signed margin agreement and remember that when selling a new issue to clients, the firm is required to provide a copy of the prospectus to the client prior to the end of the transaction meaning, receipt of the customer's confirmation.
The president of an IA is also an agent of a broker-dealer. The IA recommends the purchase of securities that the president-agent 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:--[D]Failed to satisfy its duty as a fiduciary by not disclosing that the president receives compensation in the form of commissions
An IA must disclose ALL sources of compensation since they may be potential conflicts of interests.
When evaluating a project, the project manager determines that the minimum required rate of return is 12%. If the NPV of the project is positive, the IRR will be--greater than 12%
Because the minimum required return is 12% and the NPV found is positive (greater than zero), it would result in the IRR being greater than 12%. This is due to the fact that a positive NPV implies that the minimum required rate of return was exceeded.
Which of the following transactions are considered to be a "sale" under the Securities Act of 1933 and/or the Uniform Securities Act?-A car buyer receives one share of the automotive company stock with the purchase of a new car
For this question, make sure to make the distinction between a gift and a sale. A Gift is given willingly without payment. A Sale, is not a gift, but an exchange of value. Answer I, is a true gift of regular stock. There are no strings attached (A "Gift" of Assessable stock is not a true gift. Assessable Stock was abolished over 50 years ago, but you may see that term on the exam. Assessable stock is a purported "gift" which is not a gift at all. When I give away the assessable stock, I am getting rid of a huge liability. It is not a true gift of stock.) Today's common stock does not have additional liabilities attached.
All of the following options and option strategies either perform best or require any exercise to be performed at expiration EXCEPT american style
In a short straddle, the seller wants to let the options expire unexercised to profit from the premiums. American-Style options can be exercised early, prior to expiration. The Black-Scholes method is an options-trading strategy which uses European-Style options exclusively. European-style options can only be exercised at expiration.
Due to a busy schedule, an investment adviser hires a research company to complete an analysis on a stock. The adviser uses this analysis in a buy recommendation that is published in a quarterly newsletter and sent to clients. In order to best assure compliance with the Uniform Securities Act, the investment adviser should-[A]provide in the newsletter the name of the research company that was hired to complete the analysis.
In order to best assure compliance with the Uniform Securities Act, the investment adviser should provide the name of the research company in the newsletter. None of the other choices would better assure compliance with the Uniform Securities Act.
Which of the following best describes "Strategic Asset Allocation"?
It is an investment strategy where the assets in a portfolio are balanced and generally kept at an assigned balance over the long term.
A corporate bond is callable at par value and is currently trading at a premium. Which of the following is TRUE?-]The yield to call will be lower than the yield to maturity
On a bond that is callable at par value and trading at a premium, the yield to call will be lower than the yield to maturity. This is due to the fact that the yield to call is calculated on a call date that precedes the maturity date. There is less time to the call date, meaning less time to bring in interest from the bond and recover the premium paid for the bond to the call date than when going all the way to maturity.
Which of the following statements about Roth IRA plans is TRUE?-The qualified distributions of a Roth IRA plan are not taxable.
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 2021 is $6,000 (same as 2020). 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.
Does the fact that an Investment Adviser is registered in a state mean that the Investment Adviser is qualified?-No, registration does not mean that the Investment Adviser is qualified to provide investment advice to clients.
Registration as an investment adviser, broker-dealer or agent does NOT mean that the firm or person is approved or qualified according to the Uniform Securities Act.
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 Sallie Mae (SLMA).
Sallie Mae is an association established to create, service, and collect on educational or student loans. Student Loans would NOT be included in recommendations tied to mortgage-backed products such as CMOs. Each of the other entities works with CMO products.
A client would like to know the average price that they paid when buying a set number of shares of XYZ Common each month over the past 12 months. Which of the following best represents the desired figure?-The Mean price
The Mean is the average price in a series of prices or data points and would represent the "average cost" when purchasing a set number of shares of common stock. The Moving Average is used by an analyst to smooth out the price moves of a security over a specific amount of time. The Annualized Return is the annual rate of return on the investment. The Mode is the value that occurs most frequently in a series of prices or data points.
An IA 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 maturity." This statement is-not allowed because IA's cannot guarantee specific returns.
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.
An administrator may require an issuer that registers a security by qualification to deliver a prospectus to a buyer [A]prior to the sale of the security
The administrator may require that an issuer deliver a prospectus with every offer, rather than the usual requirement of no later than the completion of the purchase.
One of your clients owns a permanent life insurance policy. He needs cash. He knows that he can cash surrender the policy but he doesn't want to lose his life insurance protection. He asks you about how a policy loan works. You should tell him all of the following EXCEPT:-
The amount that the policyholder can borrow is generally limited to 50% of the cash surrender value.-Policy loans are generally available up to 100% of the cash value of a permanent Policy. (The limit for variable life is generally 90% of the cash value.) If the policyholder defaults on the repayment of a policy loan there are no negative consequences because the interest will continue to accrue and the insurance company is fully collateralized by the cash values.
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 years. Of the choices listed, which is BEST for Bridgette given her objectives and time horizon?-Class C mutual fund shares
The best recommendation here is going to be the Class C mutual fund shares. These shares will have no sales load, provide diversification, can provide for growth if the right fund is chosen, and allow for easy access to the funds in 2 years' time. Class A and B shares will have a sales load that makes these shares less than ideal for a 2-year time horizon. Bridgette is new to investing and does not have a significant amount of money to invest, so creation of her own diversified portfolio of common stocks is also not ideal in this scenario.
A 30-year Treasury bond has been trading at 4.5% and comparable high-grade corporate bonds at 5.3%. What is the spread in basis points?--80
The credit spread on debt securities is the difference between two bonds of similar maturity. The yield difference between these two bonds is .8% (5.3% - 4.5%). The question, however, asks what is the credit spread in basis points, so .8% is not correct. You must convert the yield difference into basis points. Recall that 1% is equal to 100 basis points, so .8% equals 80 points.
You are developing a financial plan to provide a retirement income for a customer starting at age 65. The customer asks you how Social Security retirement benefits work and how these benefits fit into the plan. You should explain all of the following key facts about Social Securit
The earliest age at which a retiree can elect to receive retirement benefits is 62[B]To receive full benefits requires the retiree to claim benefits at the normal retirement age of 65, 66 or 67 depending on the birthdate of the retiree[C]A Cost of Living Adjustment (COLA) will be added to the monthly benefit starting at age 63
An investor purchased 1,000 shares of XYZ at $25 on February 1st in a given year. On May 1st of the following year she sells 800 XYZ shares at $32. She is in the 32% marginal tax bracket. The tax liability for these transactions is--840
The investor in this question purchased 1,000 shares but only sold 800 shares. That being the case, the investor has realized a capital gain of $5,600 (bought 800 shares at $20,000 total and sold 800 shares at $25,600 total). There is no tax liability at this time in relation to the 200 remaining unsold shares. Because the investor held the shares longer than one year, the capital gain is considered long-term. The long-term capital gain tax rate for an investor in the 32% marginal tax bracket is 15%. Be mindful of any questions that might use the 37% tax bracket, where the tax rate increases to 20%. For this question: $5,600 long-term gain x 15% long-term capital gains rate = $840 tax liability for the purchase and sale
In which of the following scenarios is an investment advisory firm REQUIRED to register with the SEC as a Federal Covered Adviser?-The firm manages over $150 million in assets within one state only.
The only item listed that would require the firm to register at the federal level would be managing $150 million in assets. An investment manager with over $100 million in assets under management has the option of registering with the states or with the SEC at the federal level. An investment manager with over $110 million in assets under management is required to register with the SEC at the federal level.The previous thresholds for these numbers were $25 million and $30 million. We recommend being familiar with all to ensure the capability of answering old questions in the real exam database.Having clients in multiple states, recommendations related to federal covered securities, and requiring new clients to be accredited are not, by themselves, grounds for the requirement of registration at the federal level.
Of the securities listed below all of the following would be considered to be a security according the Securities Act of 1933 Act EXCEPT?-futures contracts issued on precious metals
The term "security" under the 33 Act would not include futures, real estate precious metals or collectables.
One of your clients buys one share of GHI on the first of the year for a price of $50 per share. Over the course of the year, GHI goes up as high as $60 per share and down as low as $45 per share. The client receives a dividend of $3 during the year and then sells the security at the end of the year for $49. The client asks you what the total return was on GHI. What was the client's total return?-The total return was +4%.
Total return is the actual rate of return plus capital gains or capital losses over a given period of time. In this case, the investor bought the security for $50, then received a $3 dividend, then sold the security at the end of the year for $49. Though they lost $1 in the purchase and sale of the security, the dividend made up for that loss plus $2. To calculate the total return percentage, divide $2, the gain, by $50, the purchase price, to arrive at 0.04, or a 4% total return.
-All of the following would be factors that would be used to determine if a common stock was classified as a Value Stock EXCEPT?-The current ratio of the common stock.
Value investors focus on value stocks which are undervalued companies with low price/earning ratios, low price/book ratios and good price/sales reports. The Current ratio is generally not considered when looking at Value Stock indicators.
Jake, an investment adviser representative (IAR), is discussing with his client, Suzie, her desire to invest conservatively in fixed-income securities. She states she wants a minimum return of 3%. Jake uses Net Present Value (NPV) to analyze several bonds for Suzie. He finds bonds from ABC Corporation with 3 years until maturity and a par value of $1,000. The bonds have a coupon rate of 5% and are currently selling for $1,050. Which of the following is TRUE regarding the bonds from ABC Corporation?-These bonds would be considered suitable for Suzie given her parameters and could be presented to her with other investment options that also meet her requirements.
Using NPV to evaluate the bonds from ABC Corporation, we find the following:Year 1 - $50 in interest from the 5% coupon / (1 + 3% required return)^1 = $48.54Year 2 - $50 in interest from the 5% coupon / (1 + 3% required return)^2 = $47.13Year 3 - $1,000 principal returned + $50 in interest from the 5% coupon / (1 + 3% required return)^3 = $960.90NPV = $48.54 Year 1 + $47.13 Year 2 + $960.90 Year 3 = $1,056.57Assuming Suzie's required return of 3%, these bonds are worth $1,056.57. The market price of $1,050, less than the NPV of $1,056.57, means that these bonds would slightly exceed Suzie's required rate of return and thus be suitable for her portfolio. So Jake can present these bonds to Suzie with other investment options that meet Suzie's requirements.When using NPV, we do not factor in the market price. Rather we compare it to the NPV found to assess value. Though a premium on a bond means the bond is more expensive, it does not immediately disqualify a bond from meeting a required rate of return. NPV can be used for various terms, including 3 years, and still be a very effective tool for evaluation. Simply comparing coupon rates does not factor in the premium price of the bond or the time to maturity. As well, the ABC Corporation bonds only slightly exceeded Suzie's required rate of return of 3%, so it is false to say that the bonds "greatly exceed" her return requirements or carry excessive risk.
State Administrators may, according to the Uniform Securities Act, require the application for registration as an investment adviser to include which of the following?-The financial condition and history of the IA
When filing an application for registration, an Investment Adviser must include their financial condition and history. Once the IA is registered, the IA would have to comply with other requirements.
The features of a Coverdell Education Savings Account include all of the following
[B]$2,000 is the maximum contribution in any one year.[C]Withdrawals are tax free.[D]Contributions are phased out for certain taxpayers who have adjusted gross income above a certain level.
Securities Inc, is a sub-division of a larger corporation. The firm has an assets under management fee model for a portion of its business, charges fees for one-off investment advice as another portion of its business, and effects securities transactions related to the assets under management and one-off investment advice business as a third piece of its business structure. Under the Uniform Securities Act, Securities Inc. would
be required to register at the state level as a broker-dealer firm and an investment advisory firm.-Because Securities Inc. performs assets under management services, investment advisory services, and effects securities transactions for clients, the Uniform Securities Act would require registration of Securities Inc. as both a broker-dealer firm and an investment advisory firm.
Under the Bank Secrecy Act anti-money laundering rules, if a firm becomes aware of a suspicious transaction, it must file a Suspicious Activity Report within 30 days
A Suspicious Activity Report must be filed within 30 days if the firm becomes aware of any suspicious transactions.
The term agent, according to the Uniform Securities Act, would include all of the following people EXCEPT-one who represents an issuing body in effecting transactions that are exempt.
A person representing an issuer in effecting transactions that are exempt or exempt transactions, is not considered an "agent." All of the other people listed would be considered agents because they either work for a broker-dealer effecting transactions, or because they conduct commissions-based transactions for the public.
You are developing a financial plan to provide a retirement income for a customer starting at age 65. The customer asks you how Social Security retirement benefits work and how these benefits fit into the plan. You should explain all of the following key facts about Social Security EXCEPT:-Working beyond the full retirement age will decrease the monthly benefits
All choices EXCEPT "D" are correct statements. Choice "D" is incorrect since waiting until you turn 70 before collecting Social Security benefits will increase the amount you receive.
Of the following portfolios, which would have the greatest volatility?-80% stocks, 20% bonds
As a general rule, stocks are more volatile than bonds and bonds are more volatile than money market instruments. Consequently, the portfolio with 80% stocks and 20% bonds would be the most volatile. Also, the greater the diversification of asset classes the less risk and volatility a portfolio will have. The other portfolio with 80% stocks also allocated 10% to money market instruments. It's a more diverse portfolio.
Tom Smith is a new Investment Adviser. In drafting an investment contract for his clients, he includes terms which have clients relinquish protections of securities regulations and laws of the clients' states. Tom then asks each new client to sign the new investment contract. This investment contract is:-not considered to be effective since it forces waiver of the client's basic rights.
An investment adviser shall not indicate in an advisory contract any condition, stipulation, or provision binding any person to waive any right available under state or federal securities laws. The contract would not be considered effective even if the client "agrees" to give up basic rights. Such a contract is null and void under all circumstances, even if signed by the customer.
All of the following are TRUE about the Correspondence category of communications with the public EXCEPT [A]It requires internal approval by a principal or supervisor of the firm before its use.
Correspondence does not require prior internal review.
At the beginning of the year, Mr. and Mrs. Smith's portfolio is made up of $200 cash, stocks, with value of $236,000, and bonds worth $163,000. Mr. Smith received $5,000 in dividends and bond interest of $4,150. At year end, Mr. Smith has $200 cash, stocks $250,000 and bonds worth $159,000. What was Mr. Smith's total return for the year?-4.8%
Initial portfolio Cash $200 Stocks $236,000 Bonds $163,000 Total $399,200 Ending Portfolio Cash $200 Stocks $ 250,000 Bonds $159,000 Total 409,200 $10,000 Gain + $5,000 Dividend + $4,150 Interest = $19,150 Total Gain $19,150 / $399,200 = .04797 = 4.8% total return for the year
Which of the following would be the most common issuer of Private CMOs?
Private institutions such as banks, investment banks, and home builders-Private CMO's are securities issued by private institutions such as banks, investment banks, and home builders.
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?--Because Joe and Mike work for unaffiliated broker-dealers, they are not permitted to share or split commissions, making this arrangement unacceptable.
Splitting of commissions is only allowable if the two agents work for the same broker-dealer firm. In this situation, Joe and Mike may not split the commissions, because they work for unaffiliated broker-dealers.
A federally covered investment adviser (IA) instructs its investment adviser representatives (IARs) to add the initials "RIA" (registered investment adviser) after their names on their business cards.-This is prohibited by the SEC because the use of "RIA" implies that the IAR is competent
The SEC prohibits the use of "RIA" because it may suggest that an IAR has obtained a certain level of competence.
Which of the following persons would be included in the definition of an "investment adviser" under the Uniform Securities Act?-A college professor who provides limited investment advice only for fellow professors for an established flat fee
The college professor is not excluded from the definition of an IA as a "teacher" if he or she as advising for a fee and the advice is not "incidental" to the profession of teaching. A person is only an IA if he or she gives advice about securities, not fixed life insurance or fixed annuities. The lawyer and accountant would be examples of incidental advice, where no registration is required.
The features of a Coverdell Education Savings Account include all of the following EXCEPT:-The contributions are deductible.
The contributions are not deductible.
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?--the taxes would be payable by the client's estate in the tax year of the client's death
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.
The term agent, according to the Uniform Securities Act, would include all of the following people
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.
According to the Uniform Securities Act, all the following must be included in a written advisory contract
that the investment adviser will not receive compensation based on the profit or loss in the account--]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
A hedge fund discloses to a prospective investor that it is a high frequency trading firm. The prospective investor should understand from this disclosure that the hedge fund has all of the following characteristics EXCEPT:-Typically relies on fundamental analysis to identify which securities to trade.
High frequency trading (HFT) firms are short-term traders. They are not buy and hold, long-term investors who rely on fundamental analysis for their stock picking. The other choices are characteristics of classic HFT firms.
Your company is considering making a substantial investment in a project. Projections currently show a Net Present Value (NPV) equal to zero on the project and the company has a required rate of return on the project of 5%. With these factors in mind, what can you determine about this proposed project's Internal Rate of Return (IRR)?--The project has an IRR that is equal to 5%.
If the required rate of return is 5% and the NPV has been determined to equal zero, then the assumption can be made that the Internal Rate of Return on the project will equal the required rate of return on the project.
It is ACCURATE to state that Real Estate Investment Trusts (REITs)-are subject to single taxation, passing profits on to shareholders in the form of dividends which are taxable as ordinary income.
REITs avoid double taxation by meeting certain criteria. This means that taxation of profits typically only exists at the shareholder level, with dividends being classified as ordinary income to shareholders. REITs must distribute 90% of profits in the form of dividends on an annual basis and must have at least 75% of assets invested in real estate and real estate related activities. REIT shares are NOT considered derivatives, because the shares represent real assets.
Which of the following is a benefit of a UGMA Account?-[A]lower tax potential on earnings
Since the minor may be in a lower tax bracket there is the potential for lower tax on earnings.
Strategic Asset Allocation"
Strategic Asset Allocation keeps an assigned balance over the long term. Tactical Asset Allocation focuses on short-term asset mix. Active Asset Allocation includes stock picking and market timing to constantly re-balance to beat a benchmark or expected return. Finally, Passive Asset Allocation refers to the investment strategy where re-balancing is performed at predetermined times such as quarterly, semi-annually, or annually.
Technical analysis would be concerned with all of the following EXCEPT:The price earnings ratio of a stock compared to other securities within the same sector
Technical Analysis would be concerned with the following factors: Trading volume Moving averages Advances and declines Odd lot purchases and sales Timing of purchases and sales Support and resistance levels but not with fundamental analysis.
The Dividend Discount Model is used to determine which of the following items?-Common stock values
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.
Books and records of Investment Advisers (IAs) must be kept for how many years in an easily accessible place?-5years
The Uniform Securities Act and the Investment Advisers Act of 1940 regulations require Investment Advisers to maintain books and records for 5 years.
Which of the following considerations must an Investment Adviser make in relation to the NASAA Investment Adviser Information Security and Privacy Rules?-Train staff to recognize suspicious emails Install anti-virus software Use cloud-based servers
Under the NASAA Investment Adviser Information Security and Privacy Rules, IA firms must make considerations to train staff to recognize suspicious emails, install anti-virus software, use cloud-based servers, and use TWO forms of ID for access to systems, not one.
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?-The Agent's registration application would have to be updated promptly.
under the Uniform Securities Act, an Agent's application would have to amended "promptly" when the Agent has change in their home address.
According to the Uniform Prudent Investor Act, a trustee's investment and management decisions should be evaluated both as part of the-[C]trustee's overall investment strategy, and as part of the entire portfolio.
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.
When representing an issuer, an individual would fall under the USA's definition of "agent" when performing which of the following?-The sale of a limited partnership to an individual investor.
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.
Under the USA, all of the following registrants may be required to post a surety bond if they have custody of or discretion over clients' assets except?--Individual Investment Adviser Representatives
IARs are excluded because they do not have custody or discretion as an individual. It is the "firm" which may have custody and discretion.
Under the Uniform Securities Act, which of the following functions are included in the definition of an Investment Adviser Representative? Makes recommendations or gives advice regarding any securities Manages client accounts
The statutory definition of an "investment adviser representative" includes rendering advice or giving recommendations with regard to securities. Fixed Annuity contracts, precious metals, futures, and commodities are not considered "Securities."
hedge fund charateristics
[A]Uses sophisticated computer algorithms to rapidly trade securities for the firm.[B]Moves in and out of shot-term positions in high volumes and high speeds.-does not hold positions overnight
value stock indicatators
]The stock's current P/E ratio.[C]The price of stock versus the sales of the company.[D]The stock's price to book value.
Which of the following is an example of an indirect investment in real estate?-A purchase of Real Estate Investment Trust shares
A Real Estate Investment Trust (REIT) is a form of business where multiple investors pool money for real estate-related purchases. The investor owns shares of the REIT and is indirectly investing in real estate by purchasing REIT shares. Leasing a condo on a long-term basis is not a direct or indirect investment in real estate. Investments in property used for manufacturing plants and a purchase of a mobile home and the lot on which it sits are direct investments in real estate.
All of the following statements pertaining to investment advisers (IAs) possessing the funds of clients are TRUE
Accounts that contain the funds of clients must be specific to that purpose.[D]Immediate notification must be given to the client as to where the firm will maintain the client funds.-Possession of funds by a custodian that meets certain qualifications is acceptable.
Which of the choices below is deemed to be an 'asset class'?- real estate
An "asset class" is a general class of assets. Real estate is the only option listed that fits this description. All of the other choices are too specific. Gold bullion would be under the asset class of precious metals. Collectible dolls would be under collectibles. Stocks listed on NASDAQ would be included in equities.
Which of the following taxes would be deferred on contributions made by an individual to her 401(k) plan?-Income tax
Contributions to a 401(k) plan defer income taxes until distributions from the plan are taken. In theory, this allows the investor to pay lower income taxes because income during retirement is expected to be lower than current income levels from employment. Medicare and unemployment at the federal and state level are deducted from an employee's check regardless and cannot be not deferred because of the retirement plan. Real estate taxes have nothing to do with 401(k) contributions. Within a 401(k) plan, contributions made are pre-tax and earnings grow on a tax-deferred basis, so all distributions are subject to ordinary income tax, not capital gains taxes.
An investment adviser intends to charge 5% per month based on assets managed. The IA will disclose the fees in both Form ADV and in the advisory contract. Are the adviser's actions appropriate?-No, this is a violation of the Investment Advisers Act of 1940 even with full disclosure
Excessive fees charged by an IA cannot be justified by disclosure. A fee of 5% per month is clearly excessive (Most fees are in the range of 1% to 2% of assets under management per year). The law does not specify a permissible fixed percentage. Instead, it provides that the fee should be comparable to fees charged by other IAs for the same or similar services.
The results of calculations of both the Current Ratio and the Quick Ratio would incorporate-the current liabilities of the company.
The Current Ratio and Quick Ratio measure corporate liquidity. Both work with current assets and current liabilities. In the calculation of the Quick Ratio, a company's inventory is subtracted from Current Assets, which would mean that results found using the Quick Ratio would NOT incorporate inventory. The Quick Ratio is a more stringent measurement of liquidity since inventory is subtracted from current assets.
One of your clients owns a permanent life insurance policy. He needs cash. He knows that he can cash surrender the policy but he doesn't want to lose his life insurance protection. He asks you about how a policy loan works. You should tell him all of the following
The loan will have to be paid back with interest.[B]Outstanding policy loans that are unpaid at death will be subtracted from the policy proceeds.[C]The loan amount is not subject to federal income taxes.
According to the criminal penalties of the Uniform Securities Act, which two of the following apply if a person knowingly makes a misleading filing with the administrator? That person may be:-fined not more than $5,000 and imprisoned for no more than three years
Under the Uniform Securities Act, penalties are limited to a fine of $5000, imprisonment of 3 years, or a combination of both.
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-can expect income from the premiums when selling covered calls and capital gains taxes if the calls expire unexercised.
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.
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--100 basis points, which is the difference between the yield on the Treasury Bond and the yield on the corporate bond.
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. In this question, the yield to maturity of the 10-year Treasury Bond is 3.5%, while the yield to maturity of the 10-year corporate bond is 4.5%. This equates to a difference of 100 basis points. Bond credit spreads are not measured as an actual coupon payout difference per year, as a percentage of difference between YTM, or as a basis point difference between coupon rates on bonds.
According to Uniform Securities Act Regulations, which of the following statements are correct regarding "advertising"?--Websites are considered advertising and records must be kept in relation to previous versions of websites as well as material revisions to websites.,Electronic records are permitted on advertising, however certain criteria regarding locations, access, and inability to alter must be met
According to the Uniform Securities Act, websites are considered a form of advertising. Because of this, copies of the "advertising" must be maintained, and records related to the current version of a website, as well as previous versions and revisions to the site, must be maintained by the firm. Such records are permitted to be in electronic form, but must adhere to certain rules. The records may not be in a form that can be altered. As well, the records must be readily accessible, must be in a format that can be copied as needed, and must be stored in two separate locations.
Which of the following would be considered an "offer" or "solicitation" when it comes to the sale of securities?-An advertisement placed in a local newspaper which is seen in many states An advertisement places in a local newspaper which only seen by local residents and commerical
Advertisements would be considered offers and/or solicitations to sell the securities whether published just locally or seen in many States. Publication of an annual report for distribution to existing shareholders would NOT be considered offers or solicitations.
A federally registered investment adviser is required to provide all of the following EXCEPT: Provide a Brochure or Part II of Form ADV to any person who receives general investment information included in an advertisement.
All choices except for "C" are true. "C" is incorrect because advisory firms are not required to provide Brochures or Part II of Form ADV to any person who sees general information in an advertisement. Brochures and Part II of Form ADV are required for clients and prospective clients of advisory firms.
According to the Uniform Securities Act, which of the following activities constitutes market manipulation?-phony market quotations-disseminating false information making false trades
All choices represent "market" manipulation except choice II. Choice II is a violation but is NOT market manipulation.
Which of the following must be addressed in an investment adviser's Business Continuity and Succession Plan according to the NASAA Model Rule?--The protection, backup, and recovery of books and records Alternate means of communications with customers, key personnel, employees, vendors, service providers, and regulators
All of the items listed are requirements except for the signed lease agreement for a secondary location. Business continuity planning should provide for office relocation in the event of temporary or permanent loss of a principal place of business, but a signed lease agreement for a secondary location is NOT a requirement.Also, the plan should consider how the firm can minimize service disruptions and client harm that could result from a sudden significant business interruption.
All of the following statements pertaining to investment advisers (IAs) possessing the funds of clients are TRUE EXCEPT:-At least annually, clients must receive a statement which includes details related to the funds possessed by the firm.
All of the statements listed above are true except for the answer about annual statements. Statements must be sent at least quarterly.
The Uniform Securities Act provides that which of the following statements is/are correct with regard to post registration provisions for registered IA's whose principal place of business is in a given state?-The filing of financial statements with the state may be a requirement. By rule or order, the IA must maintain certain records per the Administrator. If the Form ADV becomes materially inaccurate, it is the IA's responsibility to update the form.
All records required to be kept may be examined by the Administrator at any time within or outside of the state. IAs do not schedule their own annual examinations!
All of the following are characteristics of an ERISA Sec.404(c) qualified plan EXCEPT:-Such a plan can include a defined benefit plan.
An ERISA Sec.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 harbor" for 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.
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 client, the 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?-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".
An IAR who advertises as "fee only" must ensure that the fees charged to clients are the only form of compensation received for their services. Failure to disclose receipt of a portion of 12b-1 fees as well as failure to disclose the potential tropical vacation as compensation would violate industry regulations.
The brother-in-law of an agent of a broker-dealer has asked the agent if he will be willing to offer his clients shares of a private placement in a brand new company the brother-in-law is starting. The agent would earn substantial commissions from the sale of the shares. Under NASAA Regulations, which of the following would be required by the Broker-Dealer and/or Agent?
An agent shall not effect transactions not recorded on the regular books of the broker-dealer unless the transactions are authorized in writing by the broker-dealer prior to the execution of the transactions.
In which of the following scenarios would an access person, a director, officer, partner, or supervised person with access to non-public information, be exempt from reporting their personal securities holdings and transactions?-The access person is a limited partner in a hedge fund.
An exception from reporting requirements exists when an access person's securities are held in an account over which the access person has "no direct or indirect influence or control". As a limited partner in a hedge fund, the access person would not have direct or indirect influence or control. In each of the other scenarios, the access person would have direct or indirect control over investments held within the portfolios or investment vehicles listed.
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?-[C]Publish the report as planned without revisions.
Even though the report may have a negative impact on business between the two companies, it is your responsibility to publish the report, as is. Delaying the issue for convenience or as a favor to the other company's directors is unethical as is changing the report to downplay negativity.
An investment adviser intends to charge 5% per month based on assets managed. The IA will disclose the fees in both Form ADV and in the advisory contract. Are the adviser's actions appropriate?-No, this is a violation of the Investment Advisers Act of 1940 even with full disclosure.
Excessive fees charged by an IA cannot be justified by disclosure. A fee of 5% per month is clearly excessive (Most fees are in the range of 1% to 2% of assets under management per year). The law does not specify a permissible fixed percentage. Instead, it provides that the fee should be comparable to fees charged by other IAs for the same or similar services.
Greg puts $10,000 into an equity indexed annuity which allows compounding on gains within the annuity. The product has a minimum guaranteed return of 3% annually. Greg's participation rate is 90% of the S&P 500 index in years exceeding the minimum guaranteed return. There is also a cap of 10% on gains. After 3 years and with no fees taken into consideration, Greg is trying to figure out the value of his equity indexed annuity. Returns were as follows:Year 1 - 12.5%Year 2 - -4.0%Year 3 - 5%With these returns, Greg should find that the balance of his annuity is approximately which of the following after year 3?-$11,840
Greg put $10,000 into the equity indexed annuity. In year 1, Greg's returns were 12.5%. 90% participation would be 11.25%, which exceeds the 10% cap.In year 2, Greg's returns were negative, so the minimum guaranteed return of 3% kicks into effect.In year 3, Greg's returns were 5%. 90% participation would be 4.5%, which is below the cap of 10%.In year 1, the returns exceeded the 10% cap, so he received 10% in year 1, bringing his balance at the end of year 1 to $11,000 ($10,000 x 1.10 = $11,000). In year 2, the returns were negative, so Greg would receive the minimum guaranteed return of 3% on the balance from year 1 of $11,000, leaving him with $11,330 ($11,000 x 1.03 = $11,330). In year 3, the return was 5%. Greg's participation rate of 90% means he would receive 4.5% on top of the previous year's balance of $11,330, leaving him with $11,839.85, closest to $11.840 (5% x 90% = 4.5%, $11,330 x 1.045 = $11,839.85 or $11,840).
Which pricing methodology, model, or theory uses the following formula? Expected Return = Risk-Free Rate of Return + [Beta x (Market Return - Risk-Free Rate of Return)]-capm
In CAPM, Expected Return = Risk-Free Rate of Return + [Beta x (Market Return - Risk-Free Rate of Return)]. In other words, CAPM evaluates the expected return of an asset or investment by setting it equal to the risk-free rate of return plus a risk premium adjusted with beta (via the beta)--assuming investors demand higher returns for greater risks. Modern Portfolio Theory attempts to optimize returns for a given level of risk, or optimize risk for a given level of returns. Sharpe Ratio is a measure of the risk-adjusted return relative to a portfolio's volatility. It is calculated as: The return of the portfolio - Risk Free Return / Standard Deviation. Discounted Cash Flow Methodology involves discounting returns to assign value in today's dollars, either via a number (Net Present Value) or a percentage (Internal Rate of Return).
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--made an unsuitable investment recommendation to Shawna.
In determining suitability, the client's age and income are factors, but her investment history and risk tolerance are also key factors. Bob's "strong" recommendation could come across as pressure to invest in something with which Shawna is not comfortable. For this reason, Bob is making an unsuitable recommendation to Shawna, even though that investment may be suitable for other young investors with the same circumstances. Bob is Shawna's IAR, so he must also consider his fiduciary responsibility. Each of the other statements is false. Bob does not have Shawna's best interest in mind if he is pressuring her into investment choices. Bob's recommendations are unsuitable given Shawna's resistance to risk. Bob did not fail to make disclosures related to the small-cap fund.
In fundamental analysis, an analyst would focus on all of the following EXCEPT-moving averages for the corporation.
In fundamental analysis, the focus is on the "fundamentals" of a specific corporation including financial statements, earnings per share, price earnings ratio, leverage (borrowing), management and book value for the company but would NOT consider the moving averages for the company's stock. Moving averages would be considered Technical Analysis.
Which of the following statements by an agent would be grounds for denial, suspension, or revocation of registration of a broker-dealer or agent in connection with solicitation of investment company shares?--Stating to a customer the fund's current yield without disclosing the fund's most recent average annual return. Stating to his client that the investment performance of an investment company portfolio is comparable to that of a certificate of deposit, without disclosing the shares are not guaranteed by the FDIC. Stating to his client that the investment performance of an investment company portfolio is comparable to that of a savings account, without disclosing the shares are not guaranteed by the FDIC.
In order to disclose current yield or income for a fund in association with the solicitation of investment company shares, the agent must disclose the funds most recent average annual return, calculated using the SEC's calculation for the one, five, and ten year periods and fully explaining the difference between current yield and total return. Each of the other answers would be grounds for denial, suspension, or revocation of registration of a broker/dealer or agent in connection with soliciting investment company shares.
Which of the following circumstances, governed by the Uniform Securities Act, would require the individual to either register or be registered as an investment adviser representative (IAR)?-Solely in the state where the IAR holds offices of business, the IAR offers financial planning services.
In this instance, the BEST answer would be the IAR which is in a given state and offering financial planning services in that state. Though arguments might be made regarding RIAs and the money management services, this answer is far more questionable and would require more information. Business planning does not constitute investment advice and trust services are explicitly exempt under the USA. A broker-dealer that is offering a wrap fee program would not be required to register as an IAR. A wrap fee would be a means for an investor who makes a substantial amount of trades to cut back on transaction fees but it does not automatically imply that investment advice is given.
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?-Internal Rate of Return (IRR)
Internal Rate of Return (IRR) is a form of Discounted Cash Flow Methodology (DCF) that attempts to find a project's rate of return, assuming that the project has a Net Present Value (NPV) of zero. The IRR that is discovered using this formula is then compared to the cost of capital or a hurdle rate to determine if the project's present value and returns are adequate to justify expenses related to the project.
Of the following three choices, which are exempt according to the USA? Transactions taking place between issuers and underwriters Any isolated non-issuer transaction After receiving an unsolicited order, a registered broker-dealer takes care of a non-issuer transaction
Isolated non-Issuer transactions (normal secondary market trades), unsolicited transactions, and underwriter transactions are all exempt.
New structured products issued with principal protection have a guarantee of-either full or partial return of the original investment if held to maturity.
Many structured products are issued with a principal protection guarantee of either full or partial return of the original investment if the structured product is held to maturity. You can sell it prior to maturity but the value could be lower than the maturity value. However, the market value could also go higher than the maturity value.
Mark is looking to add a few stocks to his portfolio. He takes time to review the financial statements of several companies and various aspects of the stock price, debt of the company, and various forms of valuation for the company. Mark is using--fundamental analysis, where the ultimate goal is to identify undervalued companies and buy with the anticipation that the underlying company's value will increase.
Mark is using fundamental analysis. Fundamental analysis involves review of a company's financials and seeks to find companies that are undervalued where stock prices should increase as the company's pricing moves to appropriate levels. This differs from technical analysis, where the goal is to identify trends and patterns in relation to a company's stock price and buy when an upward trend is expected.
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?-market risk
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.
In order to comply with NASAA Statements of Policy, when must the prospectus of a mutual fund be delivered to a client?-Such a prospectus must be delivered on or prior to the due date of the confirmation of the transaction in the mutual fund.
NASAA Statements of Policy state that the prospectus of a mutual fund must be delivered to the client no later than the due date of confirmation of the transaction.
When filing an application to become an Investment Adviser, which of the following items is NOT required under the Uniform Securities Act?-A bond which surpasses the requirements of the IA's principal office's requirements
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)].
A 62 year old client calls you to report that they have received news that they have earned $5,000 on a $30,000 fixed annuity. Your client is wondering what the tax ramification will be on the $5,000. Your client is in the 28% tax bracket. Which of the following is correct with regard to this situation?-They will pay no tax unless the clients withdraw the earning from the annuity.
Of the choices offered the best answer is "C". The earning in a fixed or variable annuity are tax deferred. There will be no current tax liability unless the client withdraws the earnings from the annuity.
Although she has some short-term financial needs, she wants to protect her portfolio because she believes there will likely be hyper-inflation, currency devaluation, and eventual economic collapse. Given this situation, which of the following changes to the portfolio would be most appropriate?-move from stocks and bonds to commodities, precious metals, and cash
Of the choices offered, commodities and precious metals typically perform best during periods of hyper-inflation, currency devaluation, and potential economic collapse. The question also specifies that the client has some short-term financial needs, so there is a need to allocate some of the client's resources to cash. During periods of hyper-inflation and currency devaluation, 100% allocation to cash is not ideal, as that cash could very well lose value. A mixture of 50/50 in stocks and bonds does not decrease the client's exposure to risk or exploit potential opportunities in relation to the conditions that the client anticipates.
Of the following account types, which represents co-ownership with no rights of survivorship-Tenants in common
Tenants in common do not have a right of survivorship. Upon the death of one owner his interest in the account passes to his estate, not to the surviving owner of the account. Choice A and D have a right of survivorship where the surviving owner becomes the sole owner upon the death of the first owner. Choice B involves a landlord-tenant relationship in real estate.
Which of the following actions, according to the Uniform Securities Act, must be taken by a State Administrator prior to the revocation of an investment adviser's registration?-The Administrator must provide appropriate prior notice to the IA, after which the IA is entitled to the opportunity of a hearing, and finally the IA must be allowed to view the written conclusions of the laws and written findings of the Administrator.
The Administrator may revoke an IA's registration but must provide appropriate notice, opportunity for a hearing, and written finding of facts and conclusions. There is no such thing as a disciplinary panel that is required to agree with the Administrator's decision.
Currency Transaction Reports mandated by Anti-Money Laundering rules require a report to be filed in which of the following situations?-Throughout the course of the trading day, an investor performs several cash transactions in his account which total $12,000.
The Currency Transaction Report must be filed by a broker-dealer if the total CURRENCY transactions in one business day exceeds $10,000. Checks, both cashiers and personal, are not included.
Which of the following laws does not apply to the regulation of mutual funds?-The Glass-Steagal Act of 1933
The Glass-Steagal Act of 1933 separated commercial and investment banking. It did not regulate mutual funds. For all intents and purposes, its regulations have, for the most part, been repealed.
You are computing the anticipated portfolio return on a client's portfolio. The formula that you are using incorporates the cash inflows and outflows in the portfolio. Which return calculation are you most likely using?-The internal rate of return calculation
The Internal Rate of Return (IRR) is the interest rate that will discount future cash inflows and outflows of an investment to its present value (i.e. - the market price). For example, the yield-to-maturity (or basis) of bonds discounts all of the bond's cash flows to its present value (the current market price).
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 entities. Which of the following is TRUE of securities issued by these entities under the regulations of the Uniform Securities Act?-Registration and filing of advertising will not be required for both the securities of the public utility and the securities of the railroad.
The Uniform Securities Act provides exemptions for securities issued or guaranteed by any railroad, common carrier, public utility, or holding company which is regulated in respect of its rates and charges by a governmental authority of the United States or any State. In this situation, both the utility and the railroad would qualify for the exemption from registration and filing of advertising.
Before executing a recommended trade for a customer, an agent of a broker-dealer must make reasonable efforts to obtain which of the following pieces of information about the customer?-Financial resources and tax status-Investment objectives and risk tolerance Other information considered relevant and reasonable by the agent
The agents of a broker-dealer are subject to the "know-your-customer" rules. These rules require the agent to obtain specific information such as the client's financial resources, tax status, marital status, investment objectives, risk tolerance, and other information that is relevant and reasonable in determining suitability and making recommendations to the client. The financial resources of extended family members would not be part of knowing a specific customer and would not be relevant to a specific customer's account, though an agent may use that information to solicit and acquire additional accounts.
The written disclosure document that must be furnished by a solicitor to a client under the Investment Advisers Act of 1940 must include all of the following except-the name of the broker dealer that will affect the trades
The name of the broker-dealer used to affect the trades is not required to be in the disclosure document.
All of the following are characteristics of an ERISA Sec.404(c) qualified plan
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.
On February 1st of this year an investor buys 100 shares of XYZ at $25 and 100 shares of ABC at $92. The investor sells the XYZ shares at $28 on February 1st of the following year and sells the ABC shares at $94 on March 10th in the following year as well. What are the short-term gains of these transactions?-300
The short-term gain is $300. Short-term capital gains are incurred when the security is held for 1 year or less. Long-term capital gains are incurred when the security is held for 1 year plus 1 day or longer. XYZ shares have been held for one year (February 1st to February 1st the following year - Short Term) and shares were sold for a profit of $300. However, ABC shares were held for more than a year so the gains ($200) are long-term.
Pass-through of profits and losses, protection from liability, and no limitations on participants are features provided by which type of business entity?
These are features of a limited partnership.--Limited partnerships provide limited liability to limited partners while passing through profits and losses to investors. There are no direct limitations on the number of limited/general partners allowed in a limited partnership. Sole proprietorships and general partnerships do not provide liability protection. S-Corporations offer many of the benefits of a limited partnership including pass-through treatment of gains/losses and limited liability, but S-Corporations must have 100 or fewer shareholders.
An individual purchases $250-worth of a broad-based index fund on a bi-weekly basis in their 401(k) plan. The individual is-utilizing a dollar cost averaging strategy in relation to passive indexing.
This individual is using a dollar cost averaging approach in conjunction with passive indexing by buying a broad-based index fund. Dollar Cost Averaging (aka Constant Dollar Plans) involve investing fixed amounts at regular intervals, such as $250 bi-weekly. The strategy involves buying a broad-based index fund, which is a form of indexing, and it is a passive strategy, where no active trading is mentioned in relation to the investments. The investor is not using strategic asset allocation or technical analysis to make investments. In terms of risk, a broad-based index fund is assumed to carry lower levels of risk, particularly business risk, due to the fact that such an index fund will have holdings in a very diverse grouping of companies. Market risk would apply to all investments in the stock market, but would not necessarily be any more "significant" than other strategies unless investments were made in other markets/asset classes.
All factors considered, which of the following categories of bonds would carry the least amount of risk to an investor?-Municipal Bonds with a AA rating, maturing in 2 years
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.
If the rate of inflation remains the same at 2% during the 5-year life of a TIPS bond with a coupon of 3%, what would the nominal value of the bond be at maturity to the nearest dollar?-$1,104
Treasury Inflation Protection Securities (TIPS) adjust the principal value of the bond yearly for inflation. The interest rate or "coupon rate" remains fixed and is not a factor in arriving to the correct answer. The formula you need to use is Future Value which uses compounding. Because the principal amount will increase each year to adjust for inflation, you will get your principal amount plus the rate of inflation (the Consumer Price Index, CPI, is often used to measure inflation). In this question, the inflation rate is 2%. The Future Value formula is: Principal X ( 1 + Rate)^# of years. Par value of a bond is $1,000 and the inflation rate is 2%. Future Value = $1,000 X (1+.02)^5 years.1. We do what is in the parenthesis first.(1 + .02) = 1.02 (.02 represents 2% inflation) 2. Next we deal with the power. The Power means, we multiply the number times itself 5 times. We use 5 because that is the number provided in the question.(1.02)^5 = 1.02 X 1.02 X 1.02 X 1.02 X 1.02 = 1.104083. Lastly, we plug it back into the equation.$1,000 X 1.10408 = $1,104.
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? Banks and savings institutions Trust companies and insurance companies Pension or profit-sharing trusts Broker-dealers
Under Section 402 of the 1956 version of the Uniform Securities Act, all of these entities are listed as financial institutions that qualify for exempt transactions. The list also includes investment companies defined under the Investment Company Act of 1940 and other financial institutions or institutional buyers.
An IAR holds a meeting with a client who is an executive at a large, publicly-traded company. During the meeting, the client takes a call on her cell phone and the IAR, who works for a federal covered adviser, overhears something which would be considered "insider information." The information is newsworthy and has not been made available to the media or the public. It is also likely to cause an increase in the stock price of the large company. Which of the following is TRUE regarding this scenario and the Investment Advisers Act of 1940?-The IAR is obligated to abide by policies set forth by her firm with regards to non-public information.
Under the Investment Advisers Act of 1940, policies and procedures must be set in place regarding the handling of non-public information, AKA - Insider Information. The IAR in this instance would be required to abide by her firm's policies and would not be permitted to trade on the information or spread the information. The policies would likely indicate that the IAR should go to her compliance or legal department to ensure that no violations have taken place or will take place.The IAR would not be in trouble for overhearing the information, and the client would not be in trouble for discussing business matters on her cell phone in an area where someone could overhear her. Again, the IAR would be in violation of insider information rules if she traded in her personal account or in discretionary accounts. The IAR would also be in violation if the IAR spread inside information to other parties who would make trades based on the information. Also, there is no insider information suspicion report requirement.
Under the Uniform Securities Act, a firm with its only office in State A that offers and sells securities exclusively to a registered investment company in State B is-exempt from registration as a broker-dealer in State B.
Under the USA, it is unlawful for a firm to transact business in a state as a broker-dealer unless it is registered in the state or exempt from registration. The exemption applies to broker-dealers who sell exclusively to sophisticated institutional investors including registered investment companies.There is no exclusion for a broker-dealer not having an office in a state. For example, if the broker-dealer has no place of business in State B, and it has one retail client, it would not be exempt, and the broker-dealer would have to register. The exemption says: The broker-dealer has no place of business AND its only clients are institutions. We must see both in order for the broker-dealer to qualify for the exemption.
Under the Uniform Securities Act, registered agents may hire assistants who are unregistered to do which of the following?-Update a client's records in relation to executed trades at the direction and under the oversight of a registered agent
Unregistered employees may not accept orders, execute orders, execute transfers, or perform solicitation of new clients on behalf of registered agents. However, they may update and post client account records under the direction and supervision of the registered agent.
The Administrator of California sends a request for financial statements to a small broker-dealer firm. Which of the following are requirements?-For firms registered at the Federal and State levels, the State cannot force additional recordkeeping requirements that exceed the Federal requirements.and 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.
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).
Monte Carlo Simulation
uses a frequency distribution table to indicate potential outcomes that can range significantly.--A Monte Carlo simulation uses a wide and randomized series of data points across a distribution table in order to identify potential outcomes when there is a random nature to results. For example, a Monte Carlo simulation can be used to identify the probability of various results when rolling dice (two die with the numbers 1-6), where the results of each roll are random (a number between 1 and 12), but where certain numerical outcomes are more probable than others given the input.
Standard Deviation
measures the degree of variation of an investment's returns when compared to the mean return on the investment. The greater the deviation from the mean, the greater the risk. Stock C has the highest standard deviation of 14%.
