Simulated Exam #1 Wrong
Which investment style does NOT take into consideration whether a specific security is under or overvalued? A) Indexing B) Growth C) Active D) Contratian
A The style known as indexing merely attempts to mimic the underlying index. Therefore, security selection is not based upon any fundamental (or technical) parameters, but only changes made to that index. Reference: 16.2.2.2 in the License Exam Manual
An investor wishing to add some diversification to his portfolio wishes to purchase 200 shares of an ADR for a Japanese electronics manufacturer. The ADR is listed on the NYSE. Which of the following risks should be of most concern to this investor? I. Business. II. Currency. III. Inflation. IV. Liquidity. A)I and II. B)I and IV. C)II and III. D)III and IV.
A. Owning stock in any corporation always subjects the holder to business risk, the uncertainty that the entity might fail to meet its economic goals. Whenever one invests internationally, whether directly or through the vehicle of an ADR, one is subject to currency risk. Inflation risk is of concern to those who purchase fixed income investments, and any security listed on the NYSE has little or no liquidity risk. Reference: 13.1.2.1 in the License Exam Manual
A technical analyst would be least concerned with A)S&P 500 index. B)book value per share. C)advance/decline. D)short interest.
B A technical analyst is not concerned with any fundamental aspects of a company, including company financial. Open short interest theory, overall market movements, and advance/decline ratios are of concern to technical analysts Reference: 4.1.9 in the License Exam Manual
One method os securities registration under the USA is Qualification. The effective date of a security registered using this method is A) when the offering is made effective by the SEC B) when so ordered by the administrator C) within 2 business days of the filing of maximum and minimum proposed offering prices D) by Noon of the 30th day following the filing of the application
B Registration by Qualification becomes effective on the date set by the Administrator Reference: 2.7.3.1 in the License Exam Manual
An investment adviser should develop an investment policy based on the needs and objectives of the client. When the client is a business entity structured as a general partnership, the investment policy would have to consider the A)mean requirement of the wealthiest and the poorest partner B)objectives of all of the partners on a collective basis C)liability of the general partner D)number of limited partners
B. Because all income and gains pass through to the partners, and because there is unlimited personal liability for all general partners, we must examine the objectives of each of them to determine proper suitability. Reference: 14.3.2 in the License Exam Manual
A stock has a beta of 0.8, and the risk-free return is 9%. If the market return was 15%, what would be the expected return of the stock? A)13.2% B)13.8% C)12.0% D)14.2%
B. The computation is the risk-free rate (RF) plus the (beta × [market return - RF]). That would be 9% + (.8 × 6%) or 9% + 4.8% = 13.8%. Reference: 16.5.3 in the License Exam Manual
Under the Uniform Securities Act, which of the following is included in the definition of an investment adviser? A)Bank that offers investment counseling to its high net worth customers. B)A broker-dealer who receives a flat fee for analyzing a customer's investment objectives and recommending a portfolio of securities. C)Antiques dealer who receives a fee for advising customers as to the value of antiques and rare coins. D)Publisher that receives a yearly subscription fee for a newsletter that provides nonspecific investment advice.
B. A broker-dealer who receives fees for investment recommendations is an investment adviser because that fee is considered special compensation relating to securities advice. The antiques dealer provides nonsecurities related advice. Publishers may provide generic investment advice without registering as investment advisers. Commercial bankers are excluded from the definition of an investment adviser. Reference: 3.2.1 in the License Exam Manual
Formula methods of investing that involve selling equities in rising markets and buying them in falling markets would include I constant dollar plan II constant ratio plan III dollar cost averaging IV DRIPs A)II and III B)III and IV C)I and IV D)I and II
D. In both a constant dollar plan and a constant ratio plan, the goal is to maintain a balance between equity and debt securities in the portfolio. This is done by selling equities as their price rises (the proportion has now changed) and buying equities when the prices fall to get back to the constant dollar or ratio. Reference: 16.1.1.1.2 in the License Exam Manual
In the assessment of a company's stock, a technical analyst takes into consideration all of the following EXCEPT: A) earnings B) price momentum C) market price D) volumen
A. A market technician deals primarily with timing of activity and market trends, while a fundamental analyst centers on a particular industry or company within an industry and its relative health and market potential. Reference: 4.1.10 in the License Exam Manual
When a bank's reserve account is running low, it might choose to borrow from the Fed. When doing so, the bank will be charged A)the discount rate B)the federal funds rate C)the prime rate D)the call loan rate
A. When a bank borrows from the Federal Reserve, it does so at the discount rate. When borrowing from another bank, it is at the federal funds rate. The prime rate is charged by the banks to their stronger borrowers, and the call loan rate is what broker-dealers pay on stock market collateral pledged for margin accounts. Reference: 11.1.1.3.1 in the License Exam Manual
As compared to value investors, growth investors tend to: A)look for companies whose sales, earnings, or market share are increasing at an above-average rate. B)look for companies that are undervalued or overlooked by other investors. C)be very price-conscious when purchasing stocks. D)take more of a long-term approach to their investments.
A. Growth investors look for stocks in companies that are growing very quickly. Because they focus on growth rates, they do not look so closely at price when they make their investments; they don't mind paying a high price for a stock they believe will continue to grow. Growth stocks tend to be somewhat volatile, so growth investors must actively manage their portfolios in response to fluctuating growth rates. Because growth stocks are volatile, growth investors take more of a short-term approach to investing than do value investors. Reference: 16.3.1 in the License Exam Manual
Which of the following is used in technical analysis in an attempt to modify fluctuations of stock prices over the long term into a smoothed trend? A)moving averages. B)consolidation. C)support and resistance. D)trend lines.
A. To avoid the volatility frequently present in stock price trends, analysts will frequently use moving averages. These averages reduce short-term distortions to a minimum. Reference: 4.1.10.3 in the License Exam Manual
In order to comply with the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following is NOT required to open a margin account for a trust? A)Approval of the account by the designated supervisory person B)A completed margin suitability form C)Specific text in the trust agreement authorizing a margin account D)A margin agreement
B. A margin account allows the customer to borrow money from the broker-dealer in order to buy securities. Although that does entail assuming greater risk on the part of the trust, there is no such thing in the Statement of Policy as a margin suitability form. However, under the Statement of Policy, the margin forms and agreements must be completed promptly after the initial margin trade. All accounts, not just margin, or trust accounts, require the approval of an appropriate supervisory person. Reference: 18.1.2.1 in the License Exam Manual
Which of the following is not traded on any exchange? A. Futures contracts B. Forwards contracts C. Closed-end funds D. ETFs
B. Forward contracts are non-standardized and, as such, do not trade on any exchange. Reference 9.2.2 in the License Exam Manual
Final approval of the annual operating budget for the United States is given by the: A)President. B)Congress. C)Conference of Governors. D)Cabinet.
B. The United States Congress is responsible for voting approval of the budget submitted by the President. Reference: 11.1 in the License Exam Manual
When an open-end management investment company computes its NAV per share, each of the following occurrences would have an impact EXCEPT A) a capital gains distribution B) a drop in the value of the equity securities held in the fund's portfolio C) a greater value of shares being redeemed than purchased D) interest payments made on debt securities held in the fund's portfolio
Because shares are purchased and redeemed at NAV, net redemptions (this case) or net purchases have no effect on the net asset value of the fund's shares. However, receipt of cash in the form of interest payments causes assets to increase while falling equity prices leads to a decrease. Distributions of capital gains (or dividends), represent a payment of cash, thus decreasing the amount of asses on hand. Reference: 7.1.1.3.5 in the License Exam Manual
A client investing $50,000 into the KAPCO Growth Fund would most likely be eligible for a breakpoint if purchasing A)the closed-end shares B)the Class B shares C)the Class A shares D)the Class C shares
C. Breakpoints for quantity purchases are available on shares that carry a front-end load. Those are Class A shares. Class B shares have a back-end load, Class C shares are considered level load, and when one purchases shares of a closed-end company, commissions are charged as would be on any stock purchase. Reference: 7.1.2.5.1 in the License Exam Manual
Which of the following are asset classes? A)Options B)Large cap stock funds C)Forward contracts D)REITs
D. The general consensus is that the major classes, for purposes of an asset allocation program, are equity, debt, cash (or cash equivalents), real estate, and commodities. Large cap stock funds are not an asset class; they are a way to invest in the asset class known as equity. Derivatives, such as options, are not generally considered an asset class, and it is the actual commodity (precious metals, oil, and so forth), not a forward or futures contract, that is the asset class. Most agree that REITs are a proxy for real estate itself. Reference: 16.1 in the License Exam Manual
An investor has her agent enter a sell stop order at 60, limit 60. Following the order entry, trades occur at 62.12, 60, 59.95, 60.06, 61. More than likely, the investor received: A)61 B)59.95 C)60.06 D)60
C. This is really two orders. The first is to "stop" at 60. That is, once the stock trades at 60 or lower, enter my order. That second order is a sell, but with a limit of 60. So, the first time the stock hits 60 (or less), is the trade at 60. That triggers the sell limit. The next trade is a 59.95. Since the limit order is saying, "Get me 60 or higher, the 59.95 is not an acceptable price." But, the next trade, 60.06 will meet the client's goal of receiving no less than 60. Reference: 18.2.6.1 in the License Exam Manual
One of your clients is in the process of forming a new business venture with a friend and is considering whether to operate as a partnership or a C corporation. Among the advantages of operating as a partnership are: I.ease of dissolution. II..ease of raising additional capital. III. flow-through of income or loss. IV. limited liability.
C. Unlike a C corporation, operating income or losses of a partnership flow through directly to the partners. There are several easy ways to dissolve a partnership. However, they do not offer the limited liability protection of a corporation. The corporate form of business is generally the most suitable for raising additional capital. Reference: 14.3.2 in the License Exam Manual
Which of the following permits the highest annual contributions? A)A Coverdell Education Savings Account. B)A traditional spousal IRA for which the contribution has been deducted. C)A traditional nondeductible IRA. D)A SEP IRA.
D Under most circumstances, the annual contribution to a SEP IRA will be higher than those allowed for ESAs or traditional or Roth IRAs. Reference: 20.1.3 in the License Exam Manual
Which of the following assets will have the greatest effect on minimizing financial assistance when an individual is applying to college and using the FAFSA application? A)A prepaid tuition plan B)A Coverdell ESA C)A Roth IRA D)An UTMA account
D. Although the exact percentages will likely not be tested, 20% of the money in an UTMA (or UGMA) account is counted, while only 5.64% of a Section 529 plan (either option) is counted. Retirement accounts are not considered assets on the application for student aid, which means the value of a Roth IRA won't hurt the individual's chances for financial aid eligibility. Reference: 20.7.2.6 in the License Exam Manual
An issuer of registered securities must file form 8-k when any of the following events occur EXCEPT: A) when control of the company changes B) when significant amount of assets is disposed C) when a member of the board of directors resigns due to a disagreement over an operational matter. D) when an overseas subsidiary issues a news release
D. An issuer of registered securities must file form 8-K when control of the company changes, a significant amount of assets is disposed, or when one or more members of the board of directors resigns because of a disagreement over an operational matter. A news release by an overseas subsidiary would not require the filing of Form 8-K because that is a foreign entity and Form 8-K only deals with domestic companies. Reference: 11.5.1 in the License Exam Manual
If a customer's chief concern is to shelter as much of his portfolio earnings from tax as possible, which of the following securities would be most suitable? A. Treasury receipts B. Money market instruments C. High-yield bonds D. Municipal GOs
D. The interest on municipal GOs is exempt from federal income tax and perhaps state income tax, depends on the investor's residency.
All of the following are true of negotiable, jumbo certificates of deposit EXCEPT: A) They are usually issued in denominations of $100,000 to $1 Million B) they usually have maturities of 1 year or less C) they are readily marketable D) they are secured obligations of the issuing bank
Negotiable CDs are general obligations of the issuing bank; they are not secured by any specific asset. They do qualify for FDIC insurance (up to $250,000) but that is not the same as stating that the bank has pledged specific asses as collateral for the loan. Reference: 6.1.1 in the License Exam Manual
Which of the following would NOT be of interest to a technical analyst? A)P/E ratio B)Moving averages C)Advance/decline line D)Volume
A. A technical analyst charts movement in market price and volume over a period of time. The price-to-earnings ratio is a tool used by fundamental analysts. Reference: 4.1.11 in the License Exam Manual
Which of the following debt instruments generally present the least amount of default (credit) risk? A) Muni GO bonds B) High-yield corporate bonds C) Convertible senior debentures D) Muni revenue bonds
A. Because the full taxing power of the municipality back a GO muni bond, it will exhibit the least amount of default risk. A corporate debenture is an unsecured debt security with potentially a greater degree of risk, as is a junk or high-yield corporate bond. Reference: 5.1.3 in the License Exam Manual
According to the Investment Advisers Act of 1940, the SEC must either grant investment adviser registration or begin proceedings to determine whether registration should be denied within how many days of filing? A)60 days. B)45 days. C)90 days. D)30 days.
B. The SEC is required by the Investment Advisers Act of 1940 to either grant an adviser registration or begin proceedings to determine whether the registration should be denied within 45 days of application. Reference: 3.5.3.1 in the License Exam Manual
What is the term used to describe a common stock issued below it par value? A) Nonassessable B) Subpar C) Assessable D) Below Book
C Assessable stock is a stock that is issued below its par or stated value. The issuer and/or creditors have the right to assess the shareholder for the deficiency. All stock issued today is nonassessable. Reference: 2.12.1.2 in the License Exam Manual
Which of the following would not be an issuer? A) a corporation selling certificates of interest in a mining lease B) a governmental agency borrowing money for short-term needs C) a partnership selling partnership interests D) an investment company
A Although the coporation issuing its own stock and/or bonds would be an issuer, under the USA, selling certificates of interest in mining leases or similar items doe not make one an issuer. Even though the choice does not indicate how the governmental agency is borrowing, we can assume they are issuing a short-term note. Reference: 2.5.3 in the License Exam Manual
One of the primary reasons for one of your clients to consider reinvesting in commodities is A) current income with possibility of capital appreciation B) positive correlation of commodities with unexpected inflation C) positive correlation of commodities with stock market performance D) the reduced volatility of commodities investments compared to equities
A primary motivation for an investment in commodities is the diversification benefits provided due to the negative correlation with the stock market and the positive correlation with unexpected inflation (inflation hedge)
A client has made both tax-deductible and nondeductible contributions to a Traditional IRA. When taking distributions from the IRA: A. they are taxed on a pro rata basis B. They are treated as being from the nondeductible portion first and the deductible portion last. C) that portion derived from the nondeductible contributions is not subject to penalty if withdrawn prior to age 59-½. D) they are treated as being from the tax-deductible portion first and the nondeductible last.
A. The portion of the distribution that is nontaxable must be prorated with amounts that are taxable. For instance, if the individual contributed $2,000 in after-tax amounts and $8,000 in prtax amounts, a distribution of $5,000 would be prorated to include $1,000 after tax and $4,00 in pretax assets Reference: 20.1.4.1 in the License Exam Manual
Which of the following are exempt from state registration? I. A common stock traded on the OTC Bulletin Board whose bonds are listed on the NYSE II. An isolated nonissuer transaction III. A transaction by an administrator of an estate IV. A transaction with no commissions directed by the offeror to no more than 50 persons in the state who buy the security for investment purposes only A)III and IV B)II and III C)I and II D)I and IV
B. Isolated nonissuer transactions and transactions by an administrator are included in the list of exempt transactions. The private placement exemption is limited to a maximum of 10 offers to retail clients. If this were to institutions, (where there is no numerical limitation), commissions would be paid and immediate resale is permitted. If the common stock is federal covered (listed on the NYSE) and, therefore exempt from registration, then a senior security, such as the bond, would also be covered. But, it doesn't work in reverse. Reference: 2.8.2 in the License Exam Manual
The Federal Reserve Board has just taken action leading to an increase in interest rates. Which of the following industries is most likely to be affected adversely by this action? A)Cyclical industries. B)Heavy industries such as steel. C)Utilities. D)Defensive industries.
C. Utility stocks tend to be interest rate sensitive for two reasons. First, they are typically bought for income portfolios and, as such, changes to interest rates impact their price. Second, because utilities are typically the most highly leveraged of all industries, an increase in interest rates could substantially increase their debt service costs and thus reduce earnings. Reference: 13.1.2 in the License Exam Manual
An 8% corporate bond is offered on a 8.25 basis. Which of the following statements are TRUE? I. Nominal yield is higher than YTM. II. Current yield is higher than nominal yield. III. Nominal yield is lower than YTM. IV. Current yield is lower than nominal yield. A)II and IV. B)I and III. C)II and III. D)I and IV.
C. A bond offered on an 8.25 basis is the same as at a YTM of 8.25%. Because the yield quoted is higher than the 8% coupon, the bond is trading at discount to par. For discount bonds, the nominal yield is lower than both the current yield and the yield to maturity. Reference: 5.3.4 in the License Exam Manual
Which of the following statements regarding U.S. government agency issues is NOT true? A)Federal National Mortgage Association (FNMA) is a publicly held corporation that provides mortgage capital in much the same fashion as GNMA, except that Fannie Maes are backed by the general credit of the FNMA, and not by the full faith and credit of the U.S. government, as is the case with GNMAs. B)Government National Mortgage certificates carry higher interest rates than U.S. Treasury securities because of prepayment risk. C)Government National Mortgage Association (GNMA) obligations are mortgage-backed securities that pass through principal and interest free of federal, but not state income tax. D)The Federal Intermediate Credit Banks (FICBs) lend money to credit companies, agricultural institutions, and commercial banks which in turn lend the money to farmers.
C. Government National Mortgage Association (GNMA) obligations are mortgage-backed securities that pass-through principal and interest and are backed by the U.S. government. However, the interest is taxed on all levels; federal, state and local. Government National Mortgage certificates carry higher interest rates than U.S. Treasury securities because of prepayment or reinvestment risk. The Federal National Mortgage Association (FNMA) is a publicly held corporation that provides mortgage capital in much the same fashion as GNMA. However, Fannie Maes are backed by the general credit of the FNMA and not by the full faith and credit of the U.S. government, as is the case with GNMAs. The Federal Intermediate Credit Banks (FICBs) lend money to credit companies, agricultural institutions, and commercial banks which in turn lend the money to farmers. Reference: 5.1.1 in the License Exam Manual
According to the ethical guidelines set forth in the NASAA Statement of Policy and Model Rules which of the following statements regarding discretion is CORRECT? I. An agent of a broker-dealer must have written prior discretionary authorization prior to effecting discretion in a client's account. II. An agent of a broker-dealer must receive written discretionary authorization within ten business days of the first discretionary transaction in the account III. An investment adviser representative must have written prior discretionary authorization prior to effecting discretion in a client's account. IV. An investment adviser representative must receive written discretionary authorization within ten business days of the first discretionary transaction in the account A) II and III B) I and III C) II and IV D) I and IV
D One respect in which the use of discretionary authority differs between agents and IARs is that agents may never exercise discretion without prior authority. IARs must receive the written consent no later than ten business days after the first discretionary transaction in the account. Reference: 3.17 in the License Exam Manual
All of these would be characteristics of a traditional 401(k) plan EXCEPT: A)in service employees may be eligible for hardship withdrawals. B)employees may have a portion of their contribution matched by the employer. C)employees can choose from a variety of investment options. D)the employer can contribute more than 15% of total payroll.
D. 401(k) plans provide for hardship withdrawals, a choice of investment options, and employer matching. Reference: 20.4.5 in the License Exam Manual
Which of the following individuals would be considered a noninterested person in a mutual fund? A)A member of the board of directors who is also employed as the investment adviser. B)A member of the board of directors who does not hold another position within the investment company. C)A shareholder who owns 10% of the fund's shares. D)A person who holds a position with the fund's underwriter.
B. The investment company act of 1940 defines an interested person as someone employed by or has a material business relationship with the fund, it adviser, or underwriter. Someone who owns 5% or more of the outstanding shares (an affiliated person) is also considered "interested". Merely sitting on the board does not make someone an interested person. Thus, a director with no other relationship with the fund qualifies as a noninterested person. Reference: 1.10.9.1 in the License Exam Manual
On June 20, 2003, an investor in the 30% marginal federal tax bracket acquired a growth stock paying no dividend for $10 per share. On June 22, 2004, the investor sold the stock for $20 per share. Presuming capital gains rates are 15%, the investor's after-tax rate of return is closest to: A)100%. B)70%. C)85%. D)200%
C. Although the stock grew at a 100% rate of return (by doubling), the investor must pay capital gains tax on the investment at 15%, and the investor realizes an after-tax rate of return of approximately 85%. Because the investor held the stock for more than one year, the sale is taxed at a favorable capital gains rate rather than at the investor's ordinary income tax rate. Reference: 19.2.5 in the License Exam Manual
All of the following are leading indicators for economic growth EXCEPT: A)orders for durable goods. B)stock prices as measured by the S&P 500 index. C)average weekly initial claims for state unemployment compensation. D)average prime rate.
D. The average prime rate is a lagging indicator. The duration of unemployment is also a lagging indicator, but the number of initial unemployment claims is a leading indicator. The S&P 500 index and orders for durable goods are leading economic indicators. Reference: 11.3.6.1 in the License Exam Manual
Many savvy investors use options as portfolio insurance. An example of this would be which of the following positions? A) Long in the put, short in the stock B) Short in the put, long in the stock C) Short in the put, short in the stock D) Long in the put, long in the stock
D. When you are long the stock you want insurance to protect you from what risk? The possibility of that stock going down! If you purchase (long) a put, you know that no matter how long the stock falls, you have a fixed selling price by exercising the put. The way to hedge (protect) a long position is with a long put. the way to hedge a short position is with a long call. Reference: 9.1.4 in the License Exam Manual
Mrs. Beech, age 52, as the sole survivor of her mother, recently inherited, among other assets, an IRA. After the account was distributed to her, she ditifully roller over 100% of the account value into a new rollover IRA. As a result, Mrs. Beech. A) will only be liable for the 10% premature distribution penalty tax B) will have to declare the entire IRA value as ordinary income C) should have left the funds in her mother's IRA, because she is not yet 59.5 D) will be able to avoid taxation on the distribution until she begins to take distributions from the rollover IRA
When an IRA is inherited, other than from a spouse, the only way to avoid a reportable distribution is to do a trustee-to-trustee transfer. Because Mrs. Beech received the distribution, the normal rollover rules do not apply. However, Mrs. Beech will not have to pay the 10% penalty tax.
An agent is discussing an equity index annuity purchase with a client. The agent explains that there are several which she feels are equally suitable for the client, but one of the companies is offering a trip for 2 to Las Vegas for reaching certain sales goals. She continues by stating that this sale will put her over the goal and win her the trip. If the client purchases that annuity, the agent A)should pack her bags for the trip; she earned it B)should only sell what is suitable for the client based on all available information C)should pack her bags and leave the firm before the compliance department learns of her actions D)will probably be disciplined for failure to disclose the potential conflict of interest
A. The annuity recommended by the agent is offering an incentive. The agent is clearly disclosing that fact to the client and, if the client goes ahead and makes the purchase, it is with full knowledge of the potential conflict of interest. The question states that the agent considers this annuity, along with others, to be suitable. Reference: 2.11.17 in the License Exam Manual
If the U.S. dollar is devalued relative to other world currencies, which of the following will occur with respect to the prices of goods? I. U.S. exports will be more price-competitive overseas. II. U.S. exports will be less price-competitive overseas. III. Foreign imported goods will be more price-competitive with ours. IV. Foreign imported goods will be less price-competitive with ours. A)I and IV. B)I and III. C)II and III. D)II and IV.
A. If the dollar goes down in relation to foreign currencies, then foreigners can buy more U.S. goods with the same amount of their currency, making U.S. goods more competitive in foreign markets. This same movement in the dollar means it takes more dollars to buy the same amount of foreign goods in domestic markets, making foreign goods less competitive with U.S. goods. Reference: 11.3.4 in the License Exam Manual
A "margin account" is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities. Which of the account documents authorizes the use of the account as collateral? A)The loan consent agreement B)The credit agreement C)The secured agreement D)The hypothecation agreement
B. It is the credit agreement, sometimes referred to as the margin agreement, which authorizes the broker-dealer to use the value of the account as collateral for the margin loan. The hypothecation agreement permits the broker-dealer to pledge the client's margin securities as collateral for a loan that the BD takes out. It is the credit agreement that, in addition to all of the other terms of the loan, contains the stipulation that the broker-dealer may use the client's margin securities as collateral for the loan that it makes to the client. In simple terms, there are two loans taking place: The loan from the BD to the client with the client's securities used as collateral. That is covered in the credit agreement The loan from a bank to the BD with the client's securities used as collateral for the BD's loan. The authorization for the BD to use those securities is found in the hypothecation agreement. Reference: 18.1.2.1 in the License Exam Manual
USATrade Securities, a FINRA member broker-dealer, is registered in 10 midwestern states. Regarding financial requirements, USATrade must meet those of A)the state in which the principal office of the member is located B)FINRA C)the state with the most stringent financial requirements D)The SEC
D. It may be assumed that a broker-dealer member of FINRA is also registered with the SEC. As such, when it comes to financial requirements, bonding, recordkeeping, and so forth, the SEC's requirements always trump those of the states. Reference: 2.3.1.3 in the License Exam Manual
In the banking industry, the term POD refers to an account similar to the TOD designation used by broker-dealers. An old, but sometimes still used term to describe this kind of account is A)Passbook savings account B)Revocable trust C)Demand deposit account (DDA) D)Totten trust
D. The name comes from a 1904 decision in a New York case called In re Totten. The court ruled that someone could open a bank account as a trustee for another person, who had no right to the money until the account owner died. The account owner is the trustee, in control of money that will eventually go to the trust beneficiary, and could change beneficiaries as desired. But whether the arrangement is called a Totten trust or a POD account, the result is the same. Reference: 14.2.3 in the License Exam Manual
Which of the following is a method for determining the internal rate of return by portfolio managers without the influence of additional investor deposits or withdrawals to or from the portfolio? A)Discounted cash flow B)Dollar cost averaging C)Dollar-weighted return D)Time-weighted return
D. Time-weighted returns are used to evaluate the performance of portfolio managers separate from the influ-ence of additional investor deposits or withdrawals. Dollar-weighted return is more commonly used for evaluating investor performance. Reference: 19.2.8.1 in the License Exam Manual
