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66 Flashcards

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Series 66 flashcards
1
Q

a tips bond is issued in the principal amount of $1,000, paying 3.5%. over the security’s 5 year term, the inflation rate is 4%. what is the amount of the final semiannual interest check?

A

17.50. $1,000 X 102% ten times = $1,219 X 3.5% and then divide by 2 equals 17.50.

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2
Q

how are unit values and cash values computed in a variable life separate account valuation?

A

unit values are computed each day. cash values are a monthly computation.

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3
Q

ERISA covers?

A

private employee pension plans

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4
Q

what is the sharpe ratio?

A

is used to measure risk-adjusted returns.

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5
Q

what kind of investment is tax exempt to a corporation?

A

municipal bond interest

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6
Q

in which asset allocation program is most likely that commission expenses will have a significant impact on portfolio performance?

A

tactical

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7
Q

one way in which internal rate of return (IRR) differs from most computations is that..

A

it takes into consideration the time value of money

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8
Q

investing the same amount at regular intervals is the formula method of investing known as?

A

dollar cost averaging

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9
Q

a growth investor looks for stocks with?

A

above average price to earnings ratio

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10
Q

a value investor looks for stocks with?

A

low PE ratios and high dividend yields

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11
Q

when an investor’s original value is subtracted from the ending value, and then has the income received over that time period added to it which is then divided by the original cost, the result is?

A

holding period return

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12
Q

a firm whose exclusive business is placing client’s assets into model portfolios is considered a?

A

investment cousel

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13
Q

what types of business have an income tax filing due date of march 15th?

A

multiple LLC electing to be treated as a corporation

s corporation

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14
Q

what type of industry is most exposed to regulatory risk?

A

public utilities

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15
Q

a limited liability company is..

A

a company with tax consequences similar to a partnership

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16
Q

what would most likely limit the amount of interest earned on an index annuity?

A

the cap rate

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17
Q

what is found on an order ticket?

A

account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order.

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18
Q

why are “country” funds organized as closed-end funds?

A

because it is often difficult to liquidate the foreign securities to get their value into the U.S.

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19
Q

an investment of $1,000 made ten years ago is now worth $4,000. using the rule of 72, the approx compounded annual rate of return is?

A

14.40%
the investment has quadrupled in 10 years. using rule of 72, we know how to compute the rate of return when an investment doubles. the on has doubled every 5 years. dividing 72 by 5 years gives us an appx rate of 14.4%.

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20
Q

what would be a fitting description of an alternative investment?

A

DPP and Hedge funds

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21
Q

which investment generally carries the least reinvestment risk?

A

newly issued stock in a small, over the counter growth corporation

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22
Q

what kind of investment typically has the lowest volatility?

A

a money market fund

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23
Q

an application to register securities may be filed under the USA by who?

A
  • broker/dealer acting on behalf of the issuer
  • person on whose behalf the offering is made
  • issuer
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24
Q

risk management tools would include?

A

beta
sharpe ratio
standard deviation

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25
Q

if one were analyzing mutual funds, the one with the highest standard deviation would most likely be what kind of fund?

A

small-cap fund

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26
Q

a mutual fund would have net redemptions when..

A

the number of shares being liquidated by investors exceeds those being purchased.

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27
Q

a well-diversified investor following a rebalancing portfolio strategy in a rising market will most likely..

A

sell part of the stock in the portfolio

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28
Q

a strategy that seeks to maintain a constant ratio of a portfolios original investment allocation would be?

A

portfolio rebalancing

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29
Q

what are the three components of modern portfolio theory?

A

capital asset pricing model
feasible set
efficient set

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30
Q

what is the def of future value?

A

what will an investment made today at a given rate be worth at some point in the future?

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31
Q

what factors must be taken into consideration with future value?

A
  • initial capital
  • time capital will remain invested
  • anticipated rate of return
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32
Q

what is the def of present value?

A

how much needs to be given today at a given rate to equal specific value at a point in the future.

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33
Q

what factors must be taken into consideration with present value?

A
  • future goal
  • time to reach goal
  • anticipate rate of return
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34
Q

rule of 72 rule

A

appx formula for doubling investment
72 / return percentage = years to double
72 / number of years = percentage return needed to double

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35
Q

IRR

A

internal rate of return

  • the discount rate that results in a net present value of zero for a series of future cash flows.
  • yield to maturity of a bond reflects IRR
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36
Q

net present value

A

difference between an investment’s present value of future revenues and its cost.

  • used by corps to determine feasibility of capital investments
  • positive NPV desirable
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37
Q

time weighted returns

A

used to evaluate the performance of portfolio managers

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38
Q

dollar weighted returns

A

used to evaluate the individuals account performance

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39
Q

total returnom

A

gains + income = total return

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40
Q

after-tax return/yield

A

pretax return x (1.00-tax rate) = after tax return

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41
Q

inflation adjusted return / real rate of return

A

received rate - inflation rate = inflation adjusted return

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42
Q

holding period return

A

gain received / original investment

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43
Q

annualized return

A

time value x (gain received / original investment)

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44
Q

efficient market hypothesis

A

all investors have equal access to the same market information
-cant beat market (throw darts)

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45
Q

three forms of EMH

A

weak form-info everyone knows
semi-strong form-info available with some effort
strong form-info available to insiders, still no benefit

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46
Q

monte carol simulation

A

runs hundreds or thousand of trials based on varying factors and measures the probability of meeting specific objectives based on varying conditions.
-predicting sustainability

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47
Q

dividend discount model

A

a method used to value the common stock of a company that is based on present value of the expected future dividends

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48
Q

dividend growth model

A

a method to value the common stock of a company on the basis of assumed constant growth of dividends in the future

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49
Q

mean

A

arithmetic mean- simple average

geometric mean-always lower

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50
Q

median

A

the middle number

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51
Q

mode

A

the most frequently occurs number

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52
Q

range

A

distance from top to bottom

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53
Q

modern portfolio theory

A

diversify by using securities with a low or negative correlation, thereby reducing portfolio volatility

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54
Q

positive coorelation

A

two securities move in similar directions

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55
Q

negative coorelation

A

two securities move in opposite directions

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56
Q

standard deviation

A

measures volatility of investment compared with its own past returns

57
Q

systematic risk is measured by?

A

beta

58
Q

standard deviation measures?

A

total risk (systematic and nonsystematic risk)

59
Q

alpha measurements

A

comparing actual returns to expected returns

positive alpha is good and outperforming expectations

60
Q

sharpe ratio

A

measures risk adjusted return
(actual return-risk free return) / standard deviation = sharpe ratio
higher the better

61
Q

duration

A

measures volatility of bonds by weighing the time the bond interest take to pay for the bond

62
Q

market risk

A

systematic - measured by beta

  • risk that overall market will affect individual securities adversely regardless of company’s circumstances
  • cannot be diversified away
63
Q

business risk

A

(nonsystematic)

  • risk that a business will perform poorly as a result of specific characteristics of company or industry in which it operates.
  • can be diversified away
64
Q

interest rate risk

A

(systematic)

-risk that a change in interest rates will affect a security adversely

65
Q

inflation risk

A

(purchasing power) (systematic)

  • erosion of a dollar’s buying power
  • fixed dollar investments are affected the most
  • TIPS offer protection
66
Q 
which of the following quantitative tools is used to measure risk-adjusted returns?
correlation
sharpe ratio
beta
standard deviation
A

sharpe ratio

67
Q

sharpe ratio

A

used to measure risk-adjusted returns.

68
Q

formula methods of investing that involve selling equities in rising markets and buying them in falling markets would include?

A

constant dollar plan

constant dollar ratio

69
Q

a mutual fund would have net redemptions when..

A

the number of shares being liquidated by investors exceeds those being purchased

70
Q

the tactical approach to the asset allocation review process ..

A

intentionally deviates from the normal asset mix to take advantage of market opportunities

71
Q

rule 482

A

describes a from of allowable mutual fund advertising, commonly referred to as an omitting prospectus.

72
Q

what is the standard benchmark used to measure the “risk-free” rate of return?

A

90-day treasury bill

73
Q

if there are material changes to a brochure, a copy must be sent to customers when?

A

within 120 days of the end of the fiscal year

74
Q

An investment adviser representative is looking for a suitable investment for a client. The IAR wishes to find something that will offer an attractive return commensurate with its systematic risk. The choices have been narrowed down to Security C and Security L and the selection will be based on alpha. C has a beta of 1.0 and earned 13% while L has a beta of 0.8 and earned 10.1%. The alpha of Security L is:

A

-.3
Alpha is obtained by comparing how a security actual performed to the performance one would have expected based upon its beta. A beta of 1.0 is used to indicate the expected volatility of the overall market. Because Security C has a beta of 1.0, its 13% return matches that of the “market”. With a beta of .8, one would expect Security L to produce a lower return, but how much lower? Its return should be 80% of the “market” or, in this case, 80% of 13% which computes to 10.4%. However, its actual return fell short of that by 0.3% giving it a negative alpha of 0.3. Had its actual return been 10.7%, it would have had a 0.3 positive alpha. Although this question doesn’t ask it, based upon the criteria given, the IAR would have selected Security C.

75
Q

when would a preorganization subscription be an exempt transaction?

A

no more than 10 subscribers

no commissions paid (directly or indirectly)

76
Q

what does a fund with net redemptions mean?

A
  • less money coming in than is going out.

- fund’s manager is going to have to sell securities.

77
Q

describe a prudent investor

A

someone who invests with reasonable care, skill, and caution.

78
Q

what does a fund with net redemptions mean?

A
  • less money coming in than is going out.

- fund’s manager is going to have to sell securities.

79
Q

describe a prudent investor

A

someone who invests with reasonable care, skill, and caution.

80
Q

what does a fund with net redemptions mean?

A
  • less money coming in than is going out.

- fund’s manager is going to have to sell securities.

81
Q

describe a prudent investor

A

someone who invests with reasonable care, skill, and caution.

82
Q

what does a fund with net redemptions mean?

A
  • less money coming in than is going out.

- fund’s manager is going to have to sell securities.

83
Q

describe a prudent investor

A

someone who invests with reasonable care, skill, and caution.

84
Q

what does a fund with net redemptions mean?

A
  • less money coming in than is going out.

- fund’s manager is going to have to sell securities.

85
Q

describe a prudent investor

A

someone who invests with reasonable care, skill, and caution.

86
Q

what does a fund with net redemptions mean?

A
  • less money coming in than is going out.

- fund’s manager is going to have to sell securities.

87
Q

describe a prudent investor

A

someone who invests with reasonable care, skill, and caution.

88
Q

positive margin

A

profits exceed interest cost

89
Q

a person is not?

A

a minor
dead person
or someone declared mentally ill

90
Q

name the things that are NOT securities

A 
retirement plans
non-variable insurance
collectibles 
commodities
condos used as personal residence
currencies
91
Q

a security registered by qualification becomes effective when?

A

after an active review of registration info and n the day ordered by the administrator

92
Q

what are the common exempt transactions?

A

isolated non issuer transaction
unsolicited orders
transactions with institutions
transaction between issuer and underwriter
transactions by fiduciaries
private placements (10 or fewer offers in a year)

93
Q

who notifies admin if a IAR leaves a state covered and fed covered IA?

A

state- only the IA

federal- only the iAR

94
Q

snowbird rule?

A

provides an exemption from registration when dealing with vacationing clients. subject to 30 day rule for change of residence

95
Q

how long do BDs and IAs have to keep records?

A

BDs-3 years

IAs- 5 years

96
Q

when must a civil suit be filed under USA?

A

within 3 years of alleged infraction or 2 years from discovering the violation. FED law is 1 year from discovery

97
Q

right of rescission

A

is the offer to return a customers money, when a sale has taken place in violation of the USA. clients have 30 days to accept or reject

98
Q

stop order

A

used t stop registration of securities issue.

can be appealed within 60 days in court

99
Q

cease and desist

A

used to halt activities of a person

no need for prior hearing.

100
Q

summary action

A

admin may summarily suspend the reg of any person or security as long as a hearing is granted within 15 days.

101
Q

LATE

A

lawyers, accountants, teachers, engineers

102
Q

IAs exercising discretion need?

A

10,000 net worth or a surety bond (USA)

103
Q

iA maintain custody of customer accounts need?

A

35,000 net worth or a surety bond (USA)

104
Q

rule on use of third-party research reports?

A

if it is distributed, attribution must be given.

it if is used as the basis for the IAs report, no mention is necessary

105
Q

form ADV

A

requires info on how adviser will be compensated.

106
Q

form ADV-E

A

annual financial examination of an IA completed by the IA and submitted by an independent accountant

107
Q

term insurance

A

is pure protection and has no cash value

108
Q

whole life insurance

A

guaranteed cash value with policy loans

109
Q

universal life insuracne

A

has flexible premiums - insufficient payments could cause policy lapse

110
Q

variable life insurance

A

guaranteed minimum death benefit
cash value based on sub account performance
minimum 75% loan after 3 years
exchange privileges

111
Q

types of derivatives

A

options, futures, and forwards

112
Q

forwards

A

not standardized and do not trade on exchanges

113
Q

futures

A

are standardized and trade on exchanges

114
Q

limit order

A

an order that instructs BD to buy or sell at a certain price

115
Q

buy stop order

A

used to stop losses by persons with short position. can accelerate the direction of a bull market.

116
Q

sell stop order

A

used to stop losses by persons with long position. can accelerate the direction of a bear market.

117
Q

investing in a fixed dollar amount on a regular basis and purchasing at different prices

A

dollar cost averaging

118
Q

investor looks for stocks that trade at higher PE ratios. Earnings momentum is important.

A

growth

119
Q

investor looks for stocks that are cheaper and trading at low PEs. higher dividends

A

value

120
Q

investor thinks majority is wrong, so does opposite of what most investors are doing

A

contrarian

121
Q

done periodically to bring a portfolio back to target allocation percentages

A

rebalancing

122
Q

someone who attempts to profit by finding the best performing sectors of the economy and buying stocking in that sector.

A

top-down analyst

123
Q

attempts to profit by identifying individual companies that will outperform other in the industry.

A

bottom-up analyst

124
Q

placed in a portfolio to reduce inflation risk

A

tangible assets

125
Q

clients in need for cash in the near term should invest in?

A

money market instruments, like T-bills

126
Q

simple trusts must do what?

A

distribute all income each year

127
Q

the grantor of the trust can also be what?

A

trustee and beneficiary

128
Q

sole proprietors file taxes on?

A

schedule C

129
Q

who files taxes on a Schedule K-1?

A

LLCs, limited partners, and shareholders in S corps

130
Q

C corps report income on what?

A

Form 1120

131
Q

one dying without a will has estate handled by?

A

an administrator in intestacy

132
Q

size of a small cap

A

300 million to 2 billion

133
Q

size of a mid cap

A

2 billion to 10 billion

134
Q

size of a large cap

A

over 10 billion

135
Q

tracking small cap securities is done by measuring against the?

A

Russell 2000

136
Q

tracking mid cap securities is done by measuring against the?

A

S&P 400

137
Q

tracking large cap securities is done by measuring against the?

A

S&P 500

138
Q

section 28e of the securities exchange act of 1934 provides what?

A

a safe harbor for research and brokerage services provided in exchange for directed transactions.

series 66 (1 decks)

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