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Series 66 > 66-11 > Flashcards

66-11 Flashcards

1
Q

True or False: All corporate officers may effect transactions for the corporation.

A

False, only those named in the Corporate Resolution

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2
Q

A ___________________ is required to open an account for a partnership.

A

partnership agreement

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3
Q

___________ stock fluctuates with the business cycle.

A

cyclical

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4
Q

____________ stock is resistant to recession.

A

defensive

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5
Q

What instruments are used to facilitate trading of foreign securities in the U.S.?

A

ADRs

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6
Q

What is a derivative?

A

A financial product that derives its value from the value of underlying assets such as stocks, bonds, or mortgages

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7
Q

Is a CMO considered a derivative?

A

yes

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8
Q

What are TIPS?

A

Treasury Inflation Protected Securities

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9
Q

The principal value of TIPS may be adjusted based on changes to the __________________________.

A

Consumer Price Index (CPI)

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10
Q

True or False: The interest rate on TIPS is fixed, but the principal may be adjusted.

A

True

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11
Q

Money-market securities have a maturity of __________________.

A

one year or less

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12
Q

Name some of the different types of money-market instruments.

A

T-Bills, Bankers’ Acceptances (BAs), Commercial Paper, Negotiable CDs

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13
Q

With options, what terms are synonymous with buyer?

A

Owner, holder, long

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14
Q

A call option gives the owner the right to _____.

A

buy

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15
Q

With options, what terms are synonymous with seller?

A

Writer, short

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16
Q

If exercised against, the writer of an equity call option is obligated to _____ the underlying stock.

A

sell

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17
Q

A put option gives the owner the right to ______.

A

sell

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18
Q

If exercised against, the writer of an equity put option is obligated to ____ the underlying stock.

A

buy

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19
Q

True or False: Options are derivatives since their value is based on the changing value of an underlying instrument.

A

True

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20
Q

Name three important factors for determining the premium of an equity option

A

The stock’s market price versus the strike price, time left until expiration, and volatility of the underlying security

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21
Q

Calls and puts are the two ________ of options.

A

types

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22
Q

Sandra buys 1 ABC Dec 70 Call at 4. What is Sandra’s strategy?

A

Bullish

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23
Q

An investor writes 1 DEF May 55 Call at 6. What is the investor’s strategy?

A

Bearish

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24
Q

An investor writes 1 DEF May 55 Call at 6. Later at expiration, if DEF has fallen to 53, would there be a gain or loss?

A

gain of $600 on premium

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25
Q

An investor holds 1 XYZ Jan 80 Put at 5. What is her strategy?

A

Bearish

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26
Q

When may American Style options be exercised?

A

anytime

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27
Q

After the initial offering, where are shares of a closed-end management company purchased?

A

secondary market

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28
Q

What price is paid for closed-end management company shares?

A

Market price plus a commission

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29
Q

True or False: The market price of closed-end shares could be higher, lower, or equal to the NAV.

A

True

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30
Q

If a client’s goal is preservation of principal, what fund would be most appropriate?

A

money-market

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31
Q

The annuity with growth dependent on the performance of securities in a separate account is called a __________ annuity.

A

variable

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32
Q

Which type of annuity is considered a security, fixed or variable?

A

variable

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33
Q

True or False: Variable annuities are subject to registration requirements of the Act of 1933 and sold by prospectus.

A

True

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34
Q

In a Non-Qualified Annuity, how is the payout taxed?

A

Only the earnings portion is subject to tax as ordinary income

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35
Q

At annuitization (payout), accumulation units are exchanged for __________ units.

A

annuity units

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36
Q

At annuitization (payout), what will determine the annuitant’s payment?

A

A fixed number of annuity units with a fluctuating value per unit

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37
Q

_________________ is the payout option that provides payments for the annuitant’s whole life and will cease at death.

A

straight-life

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38
Q

What is the benefit of the Straight-Life payout option to the annuitant?

A

This option provides the highest monthly income

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39
Q

What modification is made to the Straight-Life payout option to guarantee payments for a minimum number of years?

A

Straight-Life with Period Certain

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40
Q

What payout option requires the insurance company to provide payments for as long as one of two people remain alive?

A

Joint and Last Survivor

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41
Q

What are the two types of partners in a limited partnership?

A

General partner and limited partner

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42
Q

Describe the liability of the two partners in a limited partnership.

A

General partners have unlimited liability, while limited partners have limited liability.

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43
Q

The _________ partner is in charge of management and decision-making for the partnership

A

general

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44
Q

What actions are considered a violation for the general partner of a limited partnership?

A

Admit another general partner, change the partnership, compete with the program, personally use partnership assets

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45
Q

What are some of the acceptable actions for the limited partner?

A

Inspecting partnership books, suing the general partner, voting on major issues affecting the partnership, competing

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46
Q

To invest in a limited partnership, an investor must complete the _________________________.

A

subscription agreement

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47
Q

What does a Limited Partnership’s Subscription Agreement state in regard to a purchaser?

A

He’s aware of risks, can meet suitability standards, has read disclosure document, and knows the required investment.

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48
Q

Over-development and high leverage are the risks associated with a __________________ Program.

A

new construction

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49
Q

Exploratory Drilling Programs are also referred to as _______________.

A

wildcatting

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50
Q

What type of oil and gas program drills for new oil reserves in unproven areas?

A

exploratory

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51
Q

________________ Drilling Programs drill in proven areas.

A

developmental

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52
Q

True or False: Income Programs purchase already producing wells, but offer few intangible drilling costs.

A

True

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53
Q

Passive losses can only be used as deductions against ____________________.

A

passive income

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54
Q

True or False: Passive income is income derived from dividends and interest generated by securities in a portfolio.

A

False. Passive income is derived from an investment in a direct participation program (e.g., limited partnership).

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55
Q

What happens when an investor’s passive losses exceed her passive income?

A

She is able to carry forward the passive losses

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56
Q

True or False: Limited partnership units are illiquid and require permission of the general partner to sell.

A

True

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57
Q

What does it mean to say “a limited partnership is a pass-through investment?”

A

The results of the business venture (profits and losses) flow through directly to the investor.

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58
Q

Is income generated by a limited partnership taxed once or twice?

A

once

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59
Q

Identify the position: An investor buys 1 GDG Mar 50 call at 4 and buys 1 GDG Mar 50 put at 4.

A

a straddle

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60
Q

An investor buys 1 XYZ Dec 70 call at 4 and buys 1 XYZ Dec 70 put at 4. What is the investor’s strategy?

A

volatility

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61
Q

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor’s strategy?

A

stability

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62
Q

True or False: To hedge a stock position, buying options provides more protection than writing options.

A

True

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63
Q

Investors wishing to generate income on a stock position should ______ an option.

A

sell

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64
Q

True or False: Covered call writing is a conservative option strategy designed to generate income.

A

True

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65
Q

What is a covered call position?

A

The sale of a call (obligation to sell) against stock that is owned

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66
Q

An investor buys 100 shares of IBM at 91 and also 1 IBM Nov 90 put at 2. Is the investor bullish or bearish on IBM?

A

bullish

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67
Q

An investor buys 100 shares of RST at 30 and sells 1 RST Oct 35 call at 2. What’s the reason for selling the call?

A

income

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68
Q

True or False: Cash forwards can be for any amount of a commodity.

A

True, cash forward transactions are negotiated between a buyer and seller and can be for any amount.

69
Q

Which is easier to offset, a futures contract or a cash forward?

A

Futures contract are easier to offset; forwards are generally non-transferrable.

70
Q

What is the breakeven point? Buy 1 XYZ Jan 75 Call at 1.90

A

76.90

71
Q

What is the breakeven point? Sell 1 RFQ Feb 60 Call at 1.90

A

61.90

72
Q

What is the breakeven point? Long 1 MNO March 75 Put at 1.30

A

73.70

73
Q

What is the breakeven point? Short 1 XYZ Apr 80 Put at 3.30

A

76.70

74
Q

What is the breakeven point? Buy 100 shares of XYZ at 80 and Write 1 XYZ July 80 Call at 8.25

A

71.75

75
Q

True or False: An American Depositary Receipt (ADR) is a security.

A

True

76
Q

What restrictions exist in describing a fund as no-load?

A

It may have no front-end or deferred sales charge, and a 12b-1 fee may not exceed .25%.

77
Q

In a limited partnership, which partner has unlimited personal liability and which has limited liability?

A

General partners (GPs) have unlimited liability, while the limited partners (LPs) have limited liability.

78
Q

Is a hedge fund investment considered liquid?

A

no

79
Q

May hedge funds sell stocks short and use margin?

A

yes

80
Q

What is a fund of funds?

A

A mutual fund that invests in other mutual funds

81
Q

What is the dollar limit that may be contributed annually to a non-qualified annuity?

A

unlimited

82
Q

True or False: The AIR is a guaranteed minimum rate of return.

A

False

83
Q

If performance in a given period is greater than the AIR, the next payment will ___________.

A

increase

84
Q

If performance in a given period is below the AIR, the next payment will ___________.

A

decrease

85
Q

If performance in a given period equals the AIR, the next payment will __________________.

A

remain constant

86
Q

True or False: Performance must be negative for a variable annuity’s payment to fall.

A

False. Performance below the AIR will cause the payment to fall, even if the investment result was positive.

87
Q

What technique can be used to roll assets from one annuity into another without taxation?

A

a 1035 exchange

88
Q

Variable contract assets are placed in the insurance company’s ___________ account.

A

separate

89
Q

Prospectus delivery is required for all ___________ insurance contracts.

A

variable

90
Q

Who assumes the investment risk in a variable insurance contract?

A

the client

91
Q

May loans be taken against variable life policies?

A

yes

92
Q

Traditional contract assets are placed in the insurance company’s __________ account.

A

general

93
Q

Clients redeeming mutual fund shares must be paid within ___ calendar days.

A

7

94
Q

Can a variable life policy’s death benefit grow over time?

A

yes

95
Q

True or False: In a straight-life annuity payout option, no beneficiary will receive payments at the annuitant’s death.

A

true

96
Q

Which annuity payout option provides for the greatest monthly payment?

A

straight-life

97
Q

A client has annuitized her contract under the straight-life option and soon dies. What is her death benefit?

A

$0

98
Q

Identify the acronym: AIR

A

Assumed Interest Rate

99
Q

Identify the acronym: VLI

A

Variable Life Insurance

100
Q

Identify the acronym: EIA

A

Equity Indexed Annuity

101
Q

All variable contract premiums are placed in the insurance company’s ________account.

A

separate

102
Q

What is a 1035 Exchange?

A

A tax-free exchange of one annuity for another, allowed under Section 1035 of the Tax Code

103
Q

What’s a no load fund?

A

A mutual fund with no front-end sales charge, no deferred sales charge, and no 12b-1 fee exceeding .25% per year.

104
Q

Define insured.

A

The person whose life is covered by an insurance contract

105
Q

Describe term life insurance.

A

A life insurance policy that pays a death benefit to a beneficiary if the insured dies within the term specified

106
Q

Describe whole life insurance.

A

A life insurance policy that has a fixed death benefit, fixed premium payments, and builds cash value over time

107
Q

Describe universal life insurance.

A

A permanent life insurance policy designed so the policy owner may adjust the death benefit and premium payments

108
Q

Describe variable life insurance.

A

A life policy where the death benefit varies depending upon the performance of the investment options

109
Q

Define futures contract.

A

An agreement to buy or sell a specific amount of a commodity on a stipulated date in the future

110
Q

True or False: Forward contracts are exchange traded.

A

False

111
Q

What are the two main uses of futures?

A

The two main uses are hedging and speculation.

112
Q

True or False: LEAPS and interest Rate Swaps are derivatives.

A

True

113
Q

True or False: A Section 3(c)(1) hedge fund may contain performance based fees.

A

True

114
Q

List some of the characteristics of hedge funds.

A

Hedge funds are often leveraged, unregistered, and illiquid.

115
Q

Identify the position: An investor sells 1 ELG May 75 call at 6 and sells 1 ELG May 75 put at 6

A

straddle

116
Q

Define decreasing term life insurance.

A

A type of term policy with level premiums and a death benefit that declines at a pre-determined rate.

117
Q

If Erin wants to cover her mortgage in the event she passes away, what type of life insurance would be most suitable?

A

Decreasing term life policies are often used to cover large liabilities (e.g. mortgage) in the event of death.

118
Q

True or False: Decreasing term insurance is beneficial for investors with no insurance coverage.

A

False. It’s usually a supplement to an existing policy

119
Q

True or False: Contribution limits and employment requirements apply to both qualified and non-qualified plans.

A

False, they apply to qualified plans only

120
Q

A _____________ plan has no contribution limit.

A

non-qualified

121
Q

A 62-year-old investor withdraws everything from her non-qualified fixed annuity. What are the tax consequences?

A

earnings are taxed as ordinary income

122
Q

True or False: An investor may roll a non-qualified annuity into an IRA without taxes.

A

False. Withdrawing from a non-qualified annuity would be taxable. A 1035 exchange does not apply to non-qualified plans.

123
Q

Give some examples of financial derivatives.

A

Rights, warrants, swaps, forwards, options, and structured or exchange-traded notes

124
Q

What is not considered a derivative?

A

Mutual funds, stocks, bonds, and notes

125
Q

A variable annuity would be most suitable for a client who is seeking ____________________ over a long period.

A

capital appreciation

126
Q

________ life insurance is suitable for a client who is willing to assume market risk.

A

variable

127
Q

What type of insurance policy expires at the end of a specified period?

A

term

128
Q

A ____ life policy expires at the end of a specified period.

A

term

129
Q

True or False: Deferred compensation plans are tax-deductible.

A

False. Employee deferrals and corporate contributions are not tax-deductible until actually paid

130
Q

A mutual fund that focuses on a company’s year-to-year earnings momentum would be considered a ______ fund.

A

growth

131
Q

Define leveraged investing.

A

Using borrowed funds to buy securities (e.g., margin trading) that may lead to greater returns and losses

132
Q

True or False: On average, variable annuities have lower fees and expenses than mutual funds.

A

False

133
Q

What type of fund uses leverage, derivatives, and short positions, and invests in illiquid asset classes?

A

hedge funds

134
Q

True or False: Investors sell covered options in order to generate income.

A

True

135
Q

True or False: Investors may buy options in an effort to hedge stock positions.

A

True

136
Q

Long (buying) calls may be used to hedge a _____ stock position.

A

short

137
Q

Long (buying) puts may be used to hedge ____ stock positions.

A

long

138
Q

Is a person who invests in a variable annuity more susceptible to legislative risk or investment risk?

A

investment risk

139
Q

An investor wants to invest in bonds so she can buy a car in two years. What would be an appropriate recommendation?

A

Buying bonds with less than two years to maturity would be best. Money-market securities would also be suitable.

140
Q

True or False: Buying call options is a leveraged position.

A

True. Buying options allows you to pay a little to have control of a larger position.

141
Q

Which contracts trade on centralized exchanges—futures or forwards?

A

futures

142
Q

When is a limited partner taxed on income generated by a partnership?

A

in the year in which the income is reported

143
Q

True or False: Limited partners are taxed when they receive a distribution from the partnership.

A

False. Partners are taxed in the year in which the income is reported, not in the year in which it is received.

144
Q

The money invested in a variable annuity is used to buy ________________________.

A

accumulation units

145
Q

Does an equity-indexed annuity transaction require the delivery of a prospectus?

A

no

146
Q

Is registration required for a Section 3(c)(1) hedge fund?

A

no

147
Q

True or False: A registered representative (RR) may present variable annuity performance projections.

A

False

148
Q

If an approved formula is used, may an IAR project the future performance of a variable annuity?

A

No, predicting future performance for a variable annuity is never permitted

149
Q

Who assumes the investment risk in a traditional insurance contract?

A

Insurance company

150
Q

Identify the acronym: TSA

A

Tax Sheltered Annuity

151
Q

Describe a whole life policy.

A

A policy providing death benefit protection for life or to age 100, cash value, level death benefit, and level premium

152
Q

Are life insurance death benefits taxable?

A

no

153
Q

Does a variable life policy have a guaranteed minimum death benefit?

A

yes

154
Q

Does a term life policy have cash value?

A

no

155
Q

True or False: An investor may lose money when investing in an Equity Indexed Annuity.

A

False

156
Q

What is the primary benefit of including insurance in a financial plan?

A

To transfer to an insurance company the risk of losing a person’s wages due to death

157
Q

What economic factor may impact the value of ADRs, but not domestic stocks?

A

change in exchange rates

158
Q

__________ is a form of life insurance that may be suitable for people with a fixed time horizon.

A

term life

159
Q

True or False: Closed-end fund shares are valued at their NAV at the close of the market each day

A

False

160
Q

When calculating the POP for a mutual fund, the sales charge is added to the ______.

A

NAV

161
Q

An __________ policy is a type of life insurance that pays face value at the end of a period.

A

endowment

162
Q

True or False: European options are considered derivatives because they may only be exercised at expiration.

A

False. European options are considered derivatives because their value is derived from an underlying security.

163
Q

An investor buys a March corn contract at $6.00. If the contract expires and settles at $6.05, what is the profit/loss?

A

Since corn futures have 5,000 bushels/contract and the investor makes $.05/bushel, the profit is $250 ($.05 x 5,000).

164
Q

Bill shorts July soybeans at $15.00. If he later covers the sale at $15.25, what is his profit/loss?

A

Since soybean futures have 5,000 bushels/contract and Bill lost $.25/bushel, his total loss is $1,250 ($.25 x 5,000).

165
Q

Who typically buys hedge funds?

A

Accredited (sophisticated) investors through Reg. D offerings

166
Q

What type of bond is collateralized by specifically issued 30-year U.S. Treasury bonds?

A

Brady Bonds. The bonds convert U.S. bank loans made to Latin American countries into more widely traded bonds.

167
Q

When a term life policy expires and is renewed, will the premium be higher, lower, or stay the same?

A

Higher, since the insured is older and riskier to insure

168
Q

Which of the following is not a security - an equity-indexed annuity, variable life policy, bank stock, or swap contract?

A

equity-indexed annuity

169
Q

True or False: An investor who has already annuitized a variable annuity may roll it over into an IRA.

A

False. Once annuitization begins, a rollover is no longer permitted.

Series 66 (12 decks)

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