TUESDAY MORNING TEST
Which of the following would be least likely to meet the cyber security definition of a covered account? A) An account held by a company listed on the NYSE B) A customer with an automobile loan at a bank C) An account with a registered investment company that permits the owner to wire funds to a third party D) A customer with a margin account at a broker-dealer
A) An account held by a company listed on the NYSE In general, business accounts are not included in the term covered account. There could be an exception for a sole proprietorship or other small business where there is a reasonably foreseeable risk to customers due to the inability of the customer to provide adequate internal safeguards. That is unlikely to be the case with a listed company.
A speculator, believing that a drought in the Midwest will lead to a weak corn crop, would probably A) take a long position in corn futures B) take a long position in orange juice futures C) take a short position in corn futures D) take a long position in corn forwards
A) take a long position in corn futures A weak corn crop means a shortage in the supply. That will lead to an increase in prices. When one is speculating that prices will go up, the best position is a long one. So, why not the long forwards? Those who purchase forwards contracts anticipate accepting delivery of the asset. This individual is merely speculating and has no interest in taking physical possession of the commodity and paying for transportation, silage, and insurance until the commodity is sold. If the person in the question had been a user of corn (a cereal maker, for example), then the forward contract would have been a better choice
Investing in inverse funds is primarily suitable for those A) with a short time horizon B) believing the current market trend will continue C) who are risk averse D) with a long time horizon
A) with a short time horizon Because most inverse funds reset daily, they are best utilized by investors with a short time horizon. Inverse funds bet against the current trend which is why they are sometimes called reverse funds. They are certainly not appropriate for those wishing to avoid risk.
An investor owns a common stock that has been paying a $2.00 annual dividend. If the investor buys 100 shares of the stock at $50 and sells it 3 months later for $52, the approximate annualized rate of return is: A) 12%. B) 20%. C) 5%. D) 4%.
B) 20%. Annualized rate of return is computed by taking the investor's total return and annualizing it. In this case, the investor had $2 of appreciation and $.50 (one quarter) in dividends. Total return of $2.50 divided by the $50 cost is 5%. But, that is for three months - one quarter. Multiply that by 4 to get the annual rate.
An investor has a portfolio diversified among many different asset classes. If there were an immediate need for cash, which of the following would probably be the most liquid? A) XYZ International Stock Mutual Fund. B) QRS Money Market Mutual Fund. C) CDL Common Stock Mutual Fund. D) Cash value from a variable life insurance policy.
B) QRS Money Market Mutual Fund. Money market funds generally come with a check-writing privilege, offering this investor the opportunity to convert the asset to cash at once. That is even more liquid than the 7-day redemption requirement for all mutual funds under the Investment Company Act of 1940. One must request the cash value from the insurance company.
Which of the following is not included in adjusted gross income on an individual's federal income tax return? A) Wages and tips B) Stock dividends C) State income tax refunds D) Income from a sole proprietorship
B) Stock dividends Stock dividends (dividends paid as additional shares of stock rather than in cash), adjust the investor's cost basis and don't come into play until the stock is sold.
Under the USA, the term "security" refers to all of the following EXCEPT: A) put, call, straddle, or option. B) commodity futures contract. C) certificate of deposit for a security. D) bonds.
B) commodity futures contract. Commodities and futures contracts on commodities are not securities. Just remember the short list of items that are not securities.
Under which of the following circumstances can an agent conduct customer transactions without the activity being recorded on the books and records of his broker-dealer employer? A) The securities are exempt under the Uniform Securities Act. B) The customer is a member of the agent's immediate family. C) The transactions are authorized in writing by the broker-dealer before execution of the transactions. D) The agent will receive no compensation.
C) The transactions are authorized in writing by the broker-dealer before execution of the transactions. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, it would be considered contrary to the standards imposed for an agent to effect securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transactions are authorized in writing by the broker-dealer before execution of the transaction.
One of the rights of those owning common stock is the opportunity to vote on issues brought up at the corporation's annual meeting. To be eligible to cast a vote, A) the company must be current on its dividends to preferred stockholders B) the stockholder must be a natural person C) ownership must be established by the record date D) the stock must be paid for in full prior to the annual meeting
C) ownership must be established by the record date Only stockholders who are on the company's books by the record date are eligible to vote.
Under the exchange provision, within the first 24 months, a variable life policy may be converted into a A) term insurance policy B) variable annuity C) permanent form of life insurance policy D) mutual fund shares
C) permanent form of life insurance policy The variable life exchange provision allows a policyholder to convert the variable policy into a permanent form of life insurance policy within the first 24 months of variable policy ownership. The insurance company must use the initial contract date and can not require proof of insurability.
An IA hires a third-party solicitor to recruit new clients. Which of the following records is the IA required to keep? A) A receipt for any fee charged by the solicitor, signed by the client B) Copies of all investment recommendations made by the solicitor C) A copy of the written agreement between the IA and the solicitor, signed by the client D) A statement, signed by the client, that both the IA's and solicitor's brochures were receive
D) A statement, signed by the client, that both the IA's and solicitor's brochures were received When a third party solicitor engaged by an investment adviser makes contact with a potential client, that client must acknowledge, in writing, the receipt of the brochures of both the adviser and the solicitor. There must be a written agreement between the adviser and the solicitor, but the client has nothing to do with that. Solicitors don't recommend investments.
Which of the following securities would most likely have the lowest expense ratio? A) Variable annuity. B) Balanced mutual fund. C) Hedge fund. D) Exchange-traded fund.
D) Exchange-traded fund. Generally, most ETFs have a lower expense ratio than do comparable mutual funds. ETFs have other advantages over mutual funds in that they can be bought or sold at any time during the trading day (as opposed to end of day pricing), they can be bought on margin, and they can be sold short. Variable annuity expense ratios tend to be higher than mutual funds and those for hedge funds are the highest of all.
Assets that might be found on a family balance sheet include:car loan.gold watch.Keogh plan.salary. A) III and IV. B) I and II. C) I and IV. D) II and III.
D) II and III. An asset is something that is owned. Jewelry is part of the family's assets, as is the value of any retirement plan. A loan is a liability (the car is the asset), and salary represents income.
An analyst has been charting previous 9 year's returns for a stock and displays the following results: 5%, 5%, 8%, -3%, 10%, 12%, 5%, 17% and 22%. If you were asked the mode of these returns, you would reply:
D) 5%. The mode of a series of number is that number that has the largest number of occurrences. In this case, 5% appears three times, more than any other number. Note that the mode is not similar to the mean (in this example 9%) or the median (in this case 8%).
According to the Uniform Securities Act, which of the following would be considered exempt transactions? The sale of a unlisted corporate bond by an executor of an estate. The gift of 100 shares of a NYSE-listed stock from a father to his minor child. Preorganization certificates subscribed to by 14 institutional investors during a 12-month period for which no payment has been made. An unsolicited order from an individual client to purchase a nonexempt, unregistered security.
I and IV. Fiduciary transactions and unsolicited orders, regardless of the security being purchased or sold, are always exempt transactions under the USA. Preorganization certificates are limited to a maximum of 10 subscribers, whether individuals or institutions. A gift of securities is not a sale, so no transaction has taken place.
Discounted cash flow is commonly thought of as applying solely to fixed-income securities. However, forms of DCF used for the valuation of common stock also include the price-to-earnings ratio the dividend discount model the discounted book value model the dividend growth model
II and IV The 2 most common forms of DCF used in the valuation of common stock are the dividend discount and dividend growth models.
A broker-dealer with an office in this state would be defined as an investment adviser if it charges: commissions for selling securities. commissions for selling securities while offering investment advice incidental to the sale of the securities. a fee for selling investment research and additional fees in the form of commissions for the sale of securities. fees for investment research sold exclusively to institutions located in this state.
III and IV. A broker-dealer would be considered an investment adviser if it has a place of business in this state and if it charges a fee for selling investment research or any other form of investment advice, even to institutions. If a person is in the business of selling research for a fee, that person or firm meets the definition of an investment adviser. If a broker-dealer charges commissions for selling securities and offers investment advice incidental to the sale of the securities, the broker-dealer is not an investment adviser because it is not compensated for the research.
Customer A and Customer B each have an open account in a mutual fund that charges a front-end load. Customer A has decided to receive all distributions in cash, while Customer B automatically reinvests all distributions. How do their decisions affect their investments? Receiving cash distributions may reduce Customer A's proportional interest in the fund. Customer A may use the cash distributions to purchase shares later at NAV. Customer B's reinvestments purchase additional shares at NAV rather than at the offering price. Due to compounding, Customer B's principal will be at greater risk.
B) I and III If the customer elects to receive distributions in cash while other investors purchase shares through reinvestment, his proportional interest in the fund will decline. Automatic reinvestment is always at NAV.
Nonqualified corporate retirement plans differ from qualified retirement plans because: nonqualified plan contributions are not exempt from current income tax. nonqualified plan earnings accumulate on a tax-deferred basis. the corporation need not comply with nondiscrimination rules that apply to qualified plans. the corporation must comply with ERISA requirements dealing with communications to plan participants.
C) I and III. Two of the primary ways in which nonqualified corporate retirement plans differ from qualified retirement plans in that contributions are not exempt from current income tax and they need not comply with nondiscrimination rules that apply to qualified plans. Under most circumstances, the accounts do not provide for tax deferral on earnings because these plans are rarely funded. The ERISA communication requirements apply to qualified plans only.
Which of the following statements regarding non-qualified annuities is CORRECT? A) Because taxes on earnings are deferred, all withdrawal proceeds will be subject to income tax when received. B) The exclusion ratio applies to accumulation units only. C) It is possible to start distributions from an annuity before age 59 ½ without incurring tax penalties. D) Since only insurance companies issue variable annuities, they are not considered securities.
C) It is possible to start distributions from an annuity before age 59 ½ without incurring tax penalties. Non-qualified annuities, fixed or variable, are those where contributions are made with after-tax dollars. Withdrawals due to death or disability or taking substantially equal annuity distributions over the life of the insured can begin before age 59 ½ without being subject to a tax penalty. The exclusion ratio only applies during the payout period. Even though taxes on earnings are deferred, that portion of the withdrawal that represents a return of principal on a non-qualified annuity, is not subject to tax or penalty.
Which of the following items would be found on a family balance sheet? A) Dividends and interest received B) Income taxes paid C) Spouse's engagement ring D) Annual salary
C) Spouse's engagement ring A balance sheet, whether for a family or a business, shows assets and liabilities, not income and expenses. The ring is certainly an asset; the others are income or expenses.