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BL class notes > BL 66 class notes > Flashcards

BL 66 class notes Flashcards

1
Q

Do uits have management fees

A

no because its not a management company

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2
Q

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

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3
Q

A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption?

A

7

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4
Q

Capital Needs Analysis is used

A

determine the use and amount of insurance needed to meet future needs.

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5
Q

If information filed with the Administrator by a broker-dealer as part of its registration changes in a material way, the registrant must

A

amend or update the information promptly regardless of the renewal date

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6
Q

When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed?

A

As ordinary income based on an exclusion ratio

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7
Q

Selling away

A

refers to offering or obtaining financial products for a client that are not approved by a brokerage.

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8
Q

A benefit of waiting until the age of 70 to claim Social Security benefits is that

A

benefits are increased by 8% for each year from the full retirement age.

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9
Q

The 457 plan allows participants to withdraw funds at

A

any time

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10
Q

Investment Company Act of 1940 requirements for sending report to shareholders and sec

A

semiannual reports from the fund to its shareholders and an annual filing with the SEC.

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11
Q

Beta is a measure of relative

A

systematic risk for stock or portfolio returns.

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12
Q

When analyzing a security’s standard deviation, which of the following statements accurately describes observations according to a normal frequency distribution curve?

A

Approximately two-thirds, or 68%, of observations will be within one standard deviation on either side of the mean.

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13
Q

midrange

A

The midrange of any group of numbers occurs between the highest and lowest in the group

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14
Q

Present value is calculated to determine

A

the amount required now to have a specified value at some time in the future. It is what we are looking for so we don’t have it now.

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15
Q

FinCEN Form 112, the Currency Transaction Report, is filed with

A

the Department of the Treasury

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16
Q

When an Administrator issues a final order, an agent subject to the order may

A

obtain a review of the order in an appropriate court of law

request that additional evidence be presented to the court

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17
Q

A change of management control is deemed to be considered an

A

assignment and requires customer consent

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18
Q

A registered investment adviser recommends a stock that will be sold to his client in a principal transaction. The broker-dealer that will sell the stock is also registered as an investment adviser and employs the investment adviser as an agent. This transaction requires

A

requires both written disclosure to and the consent of the client prior to the completion of the transaction

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19
Q

Asset-based sales charges will generally be lowest when holding which of the following mutual fund share classes?

A

A

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20
Q

duration

A

it measures the effect of an interest rate change on the price of a bond or bond portfolio. Duration measures a bond’s price volatility by weighting the length of time it takes for a bond to pay for itself. Duration is also a weighted-average term to maturity of a bond’s cash flows.

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21
Q

One of your clients has a margin account. There is a drop in the value of the stock owned in the account, and additional funds are required based on the terms of the firm’s margin agreement. This would be known as

A

When additional funds are required, it is known as a house or maintenance call

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22
Q

IAs must have at least $100 million in AUM in order to register with the SEC. If it is reasonable to expect reaching that level within the next 120 days,

True or false

A

true

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23
Q

Market efficiency assumes active portfolio management

A

cannot help earn abnormal (excess) risk-adjusted returns.

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24
Q

It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients?

A

Life stage

Retirement savings

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25
Q

coupon in relation to duration

A

lowest coupon has longest duration which makes it more vulnerable to interest rate changes

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26
Q

support and resistance as it relates to buy or sell recomendations

A

If a support level is broken, this provides a sell signal. Once the stock has lost its support, expectations are that it will continue to fall.

The breaking of a resistance level, as the price of the asset gathers momentum to the upside, indicates a buying opportunity.

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27
Q

Under the Uniform Securities Act, which of the following statements regarding the employment of investment adviser representatives by a state-registered investment adviser is (are) TRUE?

The investment adviser must notify the Administrator whenever a representative is terminated.
An investment adviser is not required to notify the Administrator when a representative begins employment.
The registration of a representative is effective only as long as the individual is employed by a registered investment adviser.

A

the investment adviser must notify the Administrator whenever a representative is terminated.

The registration of a representative is effective only as long as the individual is employed by a registered investment adviser.

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28
Q

Written advisory contracts must contain

A

A description of the services to be provided
B)
The advisory fee

Amount of prepaid fees to be returned to a client if the contract is terminated

don’t need past performance

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29
Q

Hedge funds are usually structured as a

A

partnership

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30
Q

A bond with a basis, or yield to maturity, greater than its coupon is

A

trading at a discount, or below par

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31
Q

The final responsibility for ensuring that investment adviser representatives are adequately supervised is that of

A

Chief compliance officer

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32
Q

he IRS requires that RMDs commence no later than

A

April 1 of the year following the year that the owner turned 70½ years old.

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33
Q

What information do you need to determine the future cash flow from a bond

A

The future cash flow of a bond is determined by its principal, coupon rate and maturity date

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34
Q

One method used by some analysts to estimate the future value of a stock is the dividend growth model. This model would probably be most useful in the case of

A

Large cap stocks

The dividend growth model is a method to value the common stock of a company on the basis of assumed constant growth of dividends in the future. Therefore, it can only be applied to a corporation whose dividends might be expected to increase. It is far more likely that a large-cap stock will be paying dividends than a small-cap.

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35
Q

One of the provisions of the Investment Company Act of 1940 is that the maximum permitted termination notice

A

is 60 days in writing

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36
Q

types of businesses taxation

A

sole april 15
single member llc april 15
multi member llc march 15
c orp march 15

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37
Q

Investment advisers may lend money only to

A

persons affiliated with the firm

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38
Q

Affiliated persons are any

A

investment company directors, officers, employees, or owners of 5% or more of the voting shares of stock, and/or any persons controlling or controlled by such persons.

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39
Q

in open end management company , net redemptions (this case) or net purchases have what effect on the net asset value of the fund’s shares

A

none

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40
Q

is there cost basis on coins

A

yes

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41
Q

Under modern portfolio theory (MPT), all portfolios that can be constructed from a given set of stocks is referred to as

A

feasible set

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42
Q

The term “Chinese wall” is used

A

to describe the separation of divisions within the firm, protecting sensitive information from leaking to the wrong people.

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43
Q

which business entity is easiest to raise capital

A

LLC

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44
Q

mong the advantages of including preferred stock in an investor’s portfolio are

A

dividends must be paid before any distribution to common stockholders

a fixed rate of return that is likely higher than that for a debt security offered by the same issuer

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45
Q

bonds quoted as percentage of

A

par

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46
Q

If your 60-year-old customer purchases a nonqualified variable annuity and withdraws some of her funds before the contract is annuitized, what are the consequences of this action?

A

Ordinary income tax on earnings exceeding basis

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47
Q

The term “sale” does not include

A

a bonafide pledge

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48
Q

when acting in pricipal capacity, when is diclosure required for IA or IAR

Does this apply to broker dealers

A

when making recommendations or advising a client to purchase (or sell) a security, any transaction in which the firm is a principal requires disclosure in writing to and consent from the client prior to the completion of the trade. However, if merely accepting a client order (no advice rendered), consent is not required.

Does not apply to broker dealers.

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49
Q

Revocation of the registration of that agent’s broker-dealer will result in

A

cancellation of that agent’s effective registration.

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50
Q

Why consumers buy and sell futures

A

Consumers BUY futures to lock in price in which to buy a commodity, producers SELL futures to lock in price to sell a commodity

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51
Q

Disclosure to customers of an investment adviser’s control relationships(conflict of interest) is required in

A

agency, principal, and exempt

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52
Q

Potential investment company clients should be advised to investigate a fund by looking at which of the following?

A

Investment policy and portfolio

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53
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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54
Q

Bonds present value

A

Present value is the sum of all the discounted future payments.

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55
Q

S corp

A

Small corporations that satisfy certain criteria can elect not to pay income tax at the corporate level but instead pass their earnings through to their shareholders. These corporations are known as

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56
Q

factors that increase working capital

factors that decrease

A

issuing securities
profits
sale of noncurrent assets

declearing cash dividends
called early
net operating losses

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57
Q

the SEC requires investment advisers registered under the Investment Advisers Act of 1940 to maintain certain books and records for a minimum of

A

5 years

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58
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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59
Q

Under the Rule of 72

A

72/half amount of years

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60
Q

SEC has jurisdiction over the following

A

The SEC has jurisdiction over exchanges and SROs.
The SEC has jurisdiction over broker-dealers, investment advisers, and registered representatives that are required to be registered under federal law.

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61
Q

IA vs IAR who can be bonded

A

IA only

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62
Q

Growth investors usually seek stocks

A

with high-growth expectations, reflected by a higher-than-normal P/E ratio, typically 20:1 or higher, and a low dividend yield, usually caused by a low dividend payout ratio. It would be unlikely to find a growth stock selling for close to its book value and certainly not below it.

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63
Q

The Sharpe ratio measures a stock’s

A

excess return earned compared to its total risk.

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64
Q

Discounts for quantity purchases of mutual fund shares are not permitted for

A

investment clubs

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65
Q

There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:

A

commissions;
markups and markdowns; and
advisory fees for those firms that are also registered as investment advisers

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66
Q

Individuals representing issuers in the sale of their securities

A

may or may not be defined as agents. When the transaction is exempt, such as sale to an institution like an insurance company, the individual is not defined as an agent.

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67
Q

Which of the following best describes net present value?

A

The difference between the sum of the discounted cash flows that are expected from an investment and its initial cost

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68
Q

can we project volatility

A

no

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69
Q

All investment adviser advertising must

A

reflect fees, state actual market conditions, disclose specific groups and must show past performance for one year

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70
Q

To calculate the future value of an investment, which of the following must be known?

A

assumed interest rate and duration of investment

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71
Q

Advisers must disclose any material conflicts of interest

A

in writing

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72
Q

effiecient market hypothesis

A

known information already reflected in the market price.

Weak –only price and volume known

.Semi-strong –Economic factors and company financials.

Strong –Insider information. Strongest form when no historical research

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73
Q

Under the Uniform Securities Act, a consent to service of process must accompany which of the following?

A

An agent’s initial registration application

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74
Q

When a beneficiary of an IRA decides not to accept the proceeds, the legal term used is

A

disclaiming

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75
Q

When does a customer have to receive the OCC Options Disclosure Document?

A

Before accepting the customer’s first order to trade options covered by the ODD

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76
Q

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
A

UTMA

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77
Q

the Investment Company Act of 1940 defines an interested person as someone

A

employed by or who has a material business relationship with the fund, its 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.

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78
Q

A performance-based fee must be based on

A

capital gains minus capital losses, include both realized and unrealized gains and losses and must reflect a time period of no less than 12 months.

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79
Q

One of the most significant features of the UPIA is the ability of a trustee to delegate investment decisions to a qualified third party. Delegation is permitted as long as the fiduciary to whom the powers are delegated

A

acts with skill and caution

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80
Q

Net present value (NPV) is the difference

A

s the difference between the initial cash outflow (investment) and the future value of discounted cash flows.

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81
Q

is change in minority interest considered an assignment

A

no

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82
Q

what is an offer

A

Under the USA, the term “offer” includes an attempt to dispose of securities for value, or a solicitation of an offer to buy a security. Gifts, whether legal or not, are not considered an offer except when dealing with gifts of assessable stock.

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83
Q

Market makers exist in the

A

otc markets

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84
Q

The difference between present value and net present value represents

A

the initial cash outlay

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85
Q

how are rmds computed for 401k in terms of where they can be paid from

A

each rmd needs to be paid from that 401k

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86
Q

When a couple has been married for at least 10 years, the ex-spouse is entitled

A

to full spousal Social Security benefits unless remarried. By remarrying, you lose that benefit

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87
Q

The 2 most common forms of DCF used in the valuation of common stock are the

A

dividend discount and dividend growth models.

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88
Q

In order to achieve its goals, an inverse ETF uses

A

derivatives and debt.

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89
Q

IRR is the one rate of return that results in an investment having a net present value (NPV) of

A

zero

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90
Q

What is the appropriate procedure to follow when an advisory client delivers a stock certificate to the office of a broker-dealer?

A

Accept the certificate and give the customer a receipt.

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91
Q

NASAA’s Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents permits commission sharing as long as

A

the agents are properly registered with the same broker-dealer or one under common control.

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92
Q

parity

A

par/ conversion price and then the actual price/ the other number

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93
Q

pay to play max contribution amount

A

150

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94
Q

The importance of ERISA Section 404(c) to an employer sponsoring a Section 401(k) plan with self-directed investment or earmarking provisions is the relief

A

fiduciary responsibility for unsatisfactory investment results experienced by the employee.

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95
Q

As a rule, loans from a 401(k) plan must be repaid within how many years?

A

5

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96
Q

A registered investment adviser has been investigated by the Administrator for fraudulent misrepresentations purportedly made to several clients. If the IA is found to have been in violation of the Uniform Securities Act, this may result in

A

restitution made and a receiver being appointed over advisors assets.

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97
Q

A benefit of active investment in real estate that is not available to purchasers of REITs is

A

the Section 1031 exchange privilege.
Under Internal Revenue Code Section 1031, no gain or loss is recognized on the exchange of real estate held for investment if such property is exchanged solely for real estate of like-kind which is to be held for investment. This does not apply to REITs where an exchange is considered a sale with a realized gain or loss for tax purposes. Section 1035 is similar in concept, but deals with insurance products, usually annuities. Dividends are paid by corporations, not those who flip houses and, because most REITs are publicly traded, they are the ones with greater liquidity.

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98
Q

prospectus delivery requirement

A

At or prior to confirmation

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99
Q

Which of the following is (are) TRUE regarding qualified pension plans?

A

They must not discriminate.
They must have a vesting schedule.
They must be in writing.

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100
Q

All contracts between an investment company and an outside adviser must be

A

in writing and must contain certain provisions; these include that the contract may not be unilaterally assigned to another adviser. The initial contract may be for 2 years, but it is subject to annual reapproval by a majority vote of the outstanding shares or the board of directors, as well as a majority of the directors who are considered to be non interested parties.

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101
Q

internal rate of return considers

real rate of return considers

A

time value of money

Inflation rate

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102
Q

estate taxes must be paid within

A

9 months

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103
Q

If the executor elects to value the decedent’s estate by using the alternate valuation date, the value per share is the value at the date

A

6 months after death

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104
Q

The Uniform Securities Act defines a guaranteed security as one

A

where the payment of interest and principal (bond) or dividend (stock) is guaranteed by a party other than the issuer

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105
Q

An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks?

A

Loss of principal
Price volatility of preferred stock is closely related to interest rates
If the stock is callable, the client’s income can be suddenly lowered

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106
Q

mode

A

number repeated the most

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107
Q

A QDRO applies

A

A QDRO applies only to assets in a qualified employer plan.

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108
Q

Which of the following investments is not registered under the Investment Company Act of 1940?

FACCs
B)
ETFs
C)
ETNs
D)
UITs
A

ETNS

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109
Q

mean

A

average

110
Q

Stock dividends make the number of shares owned

A

increase and the cost per share decrease. The overall value should remain unchanged

111
Q

Among the differences between futures and forwards is that futures contracts

A

are rarely exercised while forwards generally are.

forwards preferred tool by producers and

futures which are standardized and CFTC regulates,

112
Q

alpha =

A

(Port actual return-RFR)- Beta* (MAR-RFR)

113
Q

Employee contributions to a 401(k) plan are subject to

A

Social Security taxes

federal unemployment taxes

114
Q

Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns?

A

week

115
Q

Because of the limited secondary market for life settlements, any firm that engages in these transactions should

A

obtain several bids to ensure the customer receives a fair price for her policy.

116
Q

Which of the following are regulated under the Securities Exchange Act of 1934?

A

Broker-dealers

Transfer agents

117
Q

discretion rules for agent vs advisory

A

An agent of a broker-dealer must have written prior discretionary authorization prior to effecting discretion in a client’s account.

An investment adviser representative must receive written discretionary authorization within 10 business days of the first discretionary transaction in the account.

118
Q

when putting title on a business card, can an advisor use RIA?

A

never

119
Q

The expected return on an equity investment is the

A

RFR +equity premium

120
Q

under usa who does areconsidered investment advisors

does this apply to federal

A

banks
broker dealers
other ia’s and iras

no

121
Q

An investment advisory contract is considered assigned if an adviser formed as

A

If an advisory firm is formed as a partnership and there is a change in the majority of partners, this is considered to be an involuntary assignment to the new partnership. In this case, client approval is required.

122
Q

A basic difference between a Section 457 plan established on behalf of a governmental entity and one established by a private tax-exempt organization is that

A

a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants

123
Q

rules with ias in terms of recommending advice outside scope of business vs giving advice and then doing similar action in own account without saying anything

A

you need to disclose when it is outside scope of business.

Don’t need to disclose if in the scope.

124
Q

Derivatives are generally not appropriate for

A

highly risk-adverse investors due to the risk and sophistication involved.

125
Q

According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts,

A

he schedule should be made available on the broker-dealer’s public website without requiring any login or password

126
Q

for state the definition of a substantial prepayment is

A

more than $500, 6 or more months in advance

127
Q

median

A

middle value

128
Q

Under the Uniform Securities Act, registration of an investment adviser in a state automatically constitutes registration of any investment adviser representative who is a

A

partner, officer, or director, or a person occupying a similar status or performing similar functions.

129
Q

Loans may not be made available to highly compensated employees in

A

amounts greater than that made available to other employees.

130
Q

Hardship withdrawals are not permitted from

A

IRAS

131
Q

main advantage of leaps is

A

time

132
Q

In portfolio theory, the alpha of a security or a portfolio is

A

the difference in the expected return of the portfolio, given the portfolio’s beta, and the actual return the portfolio achieved

133
Q

An investor owns a debenture convertible into 20 shares of the issuer’s common stock. After a 2-for-1 stock split, the terms of the debenture provide for conversion into 40 shares. This is because the debenture has

A

anti dilution clause

134
Q

In general, a broker-dealer will disclose any changes to its fee schedule

A

by notifying clients in advance

135
Q

The bullet strategy is used when

A

aiming at a target

136
Q

futures contracts can be written on

A

financial assets or commodities

137
Q

an exchange is the sale and then a purchase of a new security and is therefore a

A

a taxable event

138
Q

The National Securities Markets Improvement Act of 1996 (NSMIA)

A

defined the term investment advisor

139
Q

Preservation of capital means

A

no fluctuations. Money market funds are the only logical choice here

140
Q

dividend discount model

A

amt. of div./expected return= present value

141
Q

As a rule, the longer the duration, the greater the price

A

appreciation

142
Q

An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients

A

when informed by the investment adviser that the representative’s registration is effective

143
Q

The Investment Company Act of 1940 permits a reduction in sales charge when reaching a breakpoint for

A

purchasers meeting the definition of any person

144
Q

are commodities good for retirement planning

A

no

145
Q

An individual purchasing a flexible premium variable life contract should know which of the following?

A

Timing and amount of premiums generally are discretionary.

The performance of the separate account directly affects the policy’s cash value.

146
Q

High income level and participation in an employer-sponsored plan will affect the amount you may

A

deduct but not the amount you may contribute.

147
Q

Stock prices in the over-the-counter market are determined by

A

negotiation

148
Q

here are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:

A

commissions;
markups and markdowns; and
advisory fees for those firms that are also registered as investment advisers

149
Q

Those who supervise the activities of investment adviser representatives are themselves defined as

A

IARs

150
Q

max prison term and fine

A

3 years 5000

151
Q

Which of the following is generally believed to present a more accurate picture of a portfolio manager’s performance

A

time weighted return

152
Q

Payments into a nonqualified deferred annuity are made with

A

after tax dollars

153
Q

do hedge fund managers get high fixed fees

A

no

154
Q

hen an investment company employs an outside investment advisory firm to manage its portfolio, the act requires a

A

written contract setting forth the adviser’s compensation. The contract is for 2 years initially and must be renewed annually thereafter. The contract must be initially approved by a majority vote of the outstanding shares and the noninterested members of the board of directors and annually renewed by either a majority vote of the board of directors or of the outstanding shares, as well as a majority vote of the noninterested members of the board. The contract must be terminable at any time, with a maximum of 60 days’ notice and with no penalty, upon a majority vote of the board of directors or of the outstanding shares, and it must terminate automatically if assigned.

155
Q

when can an agent to share commissions with any person not also registered as an agent for the same or affiliated broker-dealer.

A

Unless an exception is granted by the Administrator, it is prohibited for an agent to share commissions with any person not also registered as an agent for the same or affiliated broker-dealer.

156
Q

Catch-up contributions are allowed to participants who are age

A

50 and over

157
Q

index annuity participation rate means

A

that percentage of the gain is what they actually get

158
Q

NPV assumes the cash flows

A

can be reinvested at market interest rates

159
Q

A variable life insurance plan may charge a maximum sales charge of

A

9%

160
Q

Surrender charges never apply in the case of

A

a death benefit

161
Q

It is generally agreed that one of the primary benefits offered by UTMA over UGMA is

A

greater flexibility in the type of property that may be transferred.

The property that may be transferred into an UGMA account is generally limited to cash and securities, while in an UTMA account, almost any kind of property—real or personal, tangible or intangible—can be transferred to the custodian.

162
Q

The penalty for failure to make the correct amount of required minimum distribution is

A

50% of the difference between the minimum required amount and the actual distribution.

163
Q

There is nothing wrong with an investment adviser devoting time, even a majority of the time, to nonadvisory pursuits, as long as

A

it is disclosed

164
Q

A widower wants to fund a Section 529 plan for his daughter. What is the maximum amount he may initially contribute in 2019 without having to pay gift taxes?

A

A special rule under Section 529 allows the donor to load front-end load contributions and avoid paying gift taxes. Five years’ worth may be used under this method (5 × $15,000 = $75,000). If he remarries, his wife may also consent to gift split, thereby doubling this amount to $150,000. Please note

165
Q

Registration of IARs is done solely on the

A

state level

166
Q

are Holding companies are included in the definition of an investment company.

A

no

167
Q

when determining perpetuity

A

make sure to understand you need to multiply the amount by 12 and then divide by rate

168
Q

Changes in investment policy require a vote of the

A

majority of outstanding shares for approval.

169
Q

when can you defer rmd with 403b

A

The rule is that you can only defer RMDs in the plan of the employer where you are currently employed

170
Q

who are considered supervised persons to a federal covered advisor

A

All individuals working for an investment adviser who provide investment advice or management are considered supervised persons.

171
Q

One of the ways in which a simple trust differs from a complex trust is that simple trusts

A

must distribute their distributable net income each year.

172
Q

are special situation funds risky

A

yes

173
Q

When a bond’s NPV is zero, it is usually an indication that

A

markets are highly efficient

174
Q

Charging an unreasonable commission (or markup or markdown) is a prohibited practice, but it is

A

not considered fraud

175
Q

In general, one would prefer to purchase a bond when its current market price is

A

less than its present value

176
Q

Which of the following investment vehicles provides for redemption by the issuer?

A

UIT

177
Q

It is the Class C shares that have no front-end load, but they do have a

A

1% CDSC for a period of 1 year.

178
Q

he geometric mean could never be greater

A

than the arithmetic mean

179
Q

Yield to maturity reflects the

A

internal rate of return on a bond

180
Q

Under federal law, the statute of limitations for civil liability is

under state law it is

A

1 year after discovery or 3 years after the action, whichever is sooner

2 years discovery 3 year action

181
Q

Under the USA, no suspension or revocation may take place without an opportunity

A

for a hearing

182
Q

The main benefit that variable life insurance has over whole life insurance is

A

the potential for a higher cash value and death benefit

183
Q

class a b and c

Meantion 12-b

A

Class A shares have a front-end sales charge and a low 12b-1 fee.
Class B shares have a declining contingent-deferred sales charge and a high 12b-1 fee.
Class C shares have a high 12b-1 fee and a level contingent-deferred sales charge.

184
Q

Under the provisions of the Dodd-Frank Act of 2010, once a pension consultant’s AUM reaches $200 million

A

t has the choice of state or SEC registration.

185
Q

the bond with the _____ coupon has the shortest duration.

A

highest

When the coupons are the same, the bond with the nearest maturity has the shortest duration.

186
Q

tactical asset allocation

A

market timing

187
Q

strategic asset allocation

A

rebalancing is strategic asset allocation, i.e. 60/40, 70/30, et

188
Q

A unit investment trust has no board of directors; rather, it has a

A

board of trustees

189
Q

Investors with a short time horizon most likely will invest in which class of mutual fund shares

A

C

190
Q

In order to have matching contributions, participants in a Roth 401(k) plan must

A

actually have 2 accounts—the Roth and a regular 401(k). The employer contributions are made on a tax-deductible basis to the regular 401(k) and are fully taxable upon withdrawal.

191
Q

total risk measured by

A

standard deviation

192
Q

Only earned income can be used to fund an

how it relates to sole proprietorship

What is not earned income

alimony?

A

IRA

When a business is run as a sole proprietorship, the income reported on the taxpayer’s Schedule C is considered earned.

Capital gains and dividends not considered earned income

alimony is considered earned income

193
Q

Quality has no substantial impact

A

on interest rate risk.

194
Q

futures or forwards have standardized terms

A

futures

195
Q

prepayment for state advisors vs federal

A

500 for state

1200 for federal

196
Q

Your client has $10,000 to invest and expects to earn an after-tax return of 8% to send his daughter to college in 12 years. Which of the following items will help determine whether the investment is likely to satisfy the client’s goal?

A

expected cost of college

197
Q

Both supervisory personnel and agents need to understand the difference between

A

interactive and static content

198
Q

The longer the duration, the greater the

A

interest rate risk

199
Q

mr. Hawkins sets up a revocable trust for the benefit of his adult daughter, Madeleine. His wife may draw from it only if she needs to. Income on the trust will be taxed to

A

Because Mrs. Hawkins has an economic interest, this is a grantor trust. Thus, all income will be taxed to the donor, Mr. Hawkins.

200
Q

The statement, “Stock prices fully reflect all information from public and private sources,” can be attributed to which form of the efficient market hypothesis (EMH)?

A

Strong

201
Q

A letter of intent must be met with dollars invested within

A

13 months

202
Q

Whenever an individual begins or ends employment with a state-registered investment adviser, the investment adviser

A

notify the Administrator. A representative’s registration is only valid while employed by a registered investment adviser.

203
Q

Advisers may use the term “investment counsel” only if two conditions are met

A

rendering investment advice must be their principal business and a substantial part of that business must be providing investment supervisory services—that is, continuous advice based on the individual needs of each client.

204
Q

Investors with a short time horizon most likely will invest in which class of mutual fund shares?

A

Class C shares

205
Q

A broker-dealer is

A

any person that buys or sells for the accounts of others or for his own account. broker dealer not issuer or agent

206
Q

ia realized that they have fallen below the net capital requirement. When do they have to contact administrator

A

one day after given notice

207
Q

term life most appropriate for

A

younger people with children

208
Q

Only_____________ investment advisory firms are required to notify the appropriate state Administrator when employment is terminated or begun

A

state-registered

209
Q

The barbell strategy gets its name from the fact that the holdings

A

are split into two maturity ranges

210
Q

Jim Thomas contracts with XYZ Advisory Services for the design of a financial plan and investment advice. He pays an up-front fee when the contract is signed and receives XYZ’s disclosure brochure at that time. After 3 days, Jim decides to cancel the investment advisory service with XYZ. According to the Uniform Securities Act, which of the following statements is TRUE?

A

Because the brochure was delivered at the time of the signing of the contract, the client may cancel without penalty within 5 business days. The firm must return all the up-front fees collected except for an amount that is proportionate to the time advisory services were rendered. This is commonly known as the 48-hour rule because anytime the client does not receive the adviser’s brochure at least 48 hours prior to entering into the contract, this refund right is in effect.

211
Q

Which of the following is the simplest portfolio management style for individual stocks?

A

Buy and hold

It would be indexing for managing a portfolio

212
Q

As long as a married couple’s AGI does not exceed ____ a Roth IRA can be opened without any restrictions.

A

203000

213
Q

if you over contribute to an IRA you can avoid the 6% penalty by

A

removing the excess contribution plus any growth it experienced before removal

214
Q

Breakpoints for quantity purchases are available on shares that carry a

A

front end load(a)

215
Q

sharpe ratio does not care about

A

beta

216
Q

are certain coins allowed in an ira

Life insurance?

A

There are certain coins minted by the U.S. Treasury that are eligible for inclusion in an IRA.

NO but annuities are

217
Q

An IA is meeting with a new prospect. Which of the following performance data could be presented?

A

all client managed

218
Q

In a life settlement, the seller receives more than the premiums paid into the policy but less than

A

the face amount

219
Q

The simplest model for valuing equity is

A

dividend discount model

220
Q

When a bond can be purchased for less than its present value, it has a

A

positive net present value (NPV)

221
Q

The currency reporting threshold for cash and equivalent instruments is

A

10000

222
Q

The only types of accounts that may have the Transfer on Death (TOD) designation are

A

ndividual and JTWROS

223
Q

when can administrator cancel registration

A

But when the Administrator is unable to locate the registrant, or the registrant is declared mentally incompetent or is deceased, registration is canceled.

224
Q

The terms mean, median, and mode are all measures of

A

Central Tendency

225
Q

c corp

A

Its earnings are taxed at the corporate level and again at the individual level when they are paid out as dividends.

226
Q

An individual wishing to register as an agent with a broker-dealer may have to

A

pass an exam and post a bond.

227
Q

It is possible, although very difficult, to calculate IRR for investments with uneven cash flows such as

A

growth stocks where dividends are generally not reliable.

228
Q

The bond with the _____coupon and _____maturity is subject to the greatest price volatility.

A

The bond with the lowest coupon (8%) and longest maturity (12 years) is subject to the greatest price volatility.

229
Q

One of the benefits of owning a home is the tax treatment of a sale of a primary residence. Under current IRS regulations,

A

a married couple is permitted to exclude the first $500,000 of gain.

230
Q

Which of the following types of life insurance has premiums that increase each time the policy is renewed, and no cash value buildup?

A

TERM

231
Q

12b-1 fees are subject to

A

annual approval by a vote of the board of directors of the company and of the directors who are not interested persons (outside directors) of the company.

232
Q

can affiliated person be elected board of directors

A

yes

233
Q

Under NASAA’s Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, an investment advisory contract must contain

A

the formula used to compute an advisory fee
provisions on discretionary power
a clause stating that the client’s consent is needed to assign the contract

234
Q

The required disclosure statement for wrap fee programs must contain

A

at least the information in Appendix 1 of Form ADV Part 2A, but duplicates need not be provided to clients who have already received the required disclosure on that program from another adviser.

235
Q

staddles and volatility and stability

A

buyer wants volatility and seller wants stability

236
Q

If a federal covered investment adviser intends to pay a third party solicitor to solicit clients for investment advisory services, which of the following must be TRUE?

A

The registered investment adviser must be properly registered as an investment adviser under the Investment Advisers Act of 1940.
There must be a separate written agreement between the solicitor and the registered investment adviser

237
Q

Under the Investment Advisers Act of 1940, an adviser who has custody of a client’s funds must

A

notify a client when the client’s funds are moved to another location
segregate client’s funds and keep them identified by client

238
Q

current yield =

A

dividend/POP

239
Q

A venture capital fund

A

seeks opportunities to get in on the ground floor.

240
Q

Who can’t receive a breakpoint?

A

Investment clubs and otherwise unaffiliated groups may not pool their money to receive a breakpoint.

241
Q

The date that determines which shareholders are eligible to votes is

A

record date

242
Q

CAPM accounts for the impact of

A

systematic risk (as measured by beta) only and does not take into consideration unsystematic risk, which is assumed to have been diversified away.

243
Q

Gross margin, sometimes referred to as gross profit on the exam, is computed by

A

net sales-cogs

244
Q

For BDs registered in more than one state must be registered with the

A

the SEC because they are dealing in interstate commerce

245
Q

Current ratio

A

current assets / currentliabilities

246
Q

A prospective client has been interviewing a number of investment advisers and wishes to see your firm’s investment policy statement. Your IPS would probably include which of the following headings?

Investment objectives
Investment philosophy
Investment selection criteria
Monitoring procedures

A

All

247
Q

A mutual fund investor is using a dollar cost averaging strategy. For the average price per share to exceed the investor’s average cost, which of the following conditions must be present?

A

The market price per share fluctuates with each purchase.

A fixed dollar amount is invested at regular intervals.

248
Q

Although not illegal, it is generally considered inappropriate to include tax-exempt securities, such as municipal bonds (whether individual bonds or in a fund), in a

A

tax differed retirement account

249
Q

The commonly tested investment constraints are

A

liquidity needs, time horizon, taxes, legal and regulatory factors, and unique needs and preferences.

250
Q

The YTC computation involves knowing

A

the amount of interest payments to be received, the length of time to the call, the current price, and the call price.

251
Q

earnings momentum

A

An increase in the earnings per share growth rate from one reporting period to the next

252
Q

A unique requirement for those investment advisers who maintain custody of customer assets is the filing of

A

the Form ADV-E

253
Q

Internal rate of return (IRR) is a

A

discount rate at which the net present value (NPV) of an investment is equal to zero.

254
Q

Private equity investment in real estate refers to

A

direct ownership of real estate properties

255
Q

When a stock has a beta of less than 1, this indicates that

A

it will, on average, give a return below that of the market

256
Q

Automatic reinvestment is always at

A

NAV

257
Q

Duration does not measure the

A

holding period return on a bond

258
Q

401k can may not contribute more than

A

25% of total payroll

259
Q

current yield=

A

dividend/market price

260
Q

Which of the following business accounts does not require considering the suitability of the owners?

A

c corp

261
Q

Among the reasons why a corporation might choose to utilize a deferred compensation plan for retirement planning would be

deferred qualified or non?

A

employees who leave the company prior to retirement would not receive benefits

plans are discriminatory

non

262
Q

The Investment Company Act of 1940 requires that an open-end investment company have a minimum

Reports must be sent to shareholders on a

A

$100,000 in net assets prior to commencing a public offering. Reports must be sent to shareholders on a semiannual basis

263
Q

top down vs bottom up approach

A

.Whenfirstresearchingindividualcompaniesandthenexpandingeventuallytobroadeconomicconditions you are researching from narrow to broad or bottom-up. If you start first with broad economic conditions eventually focusing on individual companies you would be researching top-down

264
Q

Which of the following may be required by the Administrator to post surety bonds?

A

A broker-dealer, investment adviser, or agent who has discretion over or, in the case of broker-dealers and advisers, custody of funds or securities may be required to post a bond.

265
Q

Any attempt to hold oneself out as offering investment advice as part of a business would require the person to be

A

registered in the state, unless that person qualifies for an exclusion or exemption.

266
Q

sharpe ratio doesn’t care about

A

beta

267
Q

If the customer elects to receive distributions in cash while other investors purchase shares through reinvestment, his proportional interest in the fund will

A

decline.

268
Q

risk with forwards contracts

A

Liquidity

Creditworthiness of the buyer

269
Q

quick ratio

A

current assets(excluding inventories)/ currentliabilities(short-term debt

270
Q

Modern PortfolioTheory

A

Different asset classes to reduce marketriskTEST TIP –Real Estate is an asset class, not derivativesb.Efficient Frontier –set of efficientportfolios

271
Q

what is prohibited with agency cross transactions

A

you can’t RECOMMEND to both parties. Only one recommendation.

BL class notes (3 decks)

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