BL 66 class notes Flashcards
Do uits have management fees
no because its not a management company
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?
moving averages
A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption?
7
Capital Needs Analysis is used
determine the use and amount of insurance needed to meet future needs.
If information filed with the Administrator by a broker-dealer as part of its registration changes in a material way, the registrant must
amend or update the information promptly regardless of the renewal date
When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed?
As ordinary income based on an exclusion ratio
Selling away
refers to offering or obtaining financial products for a client that are not approved by a brokerage.
A benefit of waiting until the age of 70 to claim Social Security benefits is that
benefits are increased by 8% for each year from the full retirement age.
The 457 plan allows participants to withdraw funds at
any time
Investment Company Act of 1940 requirements for sending report to shareholders and sec
semiannual reports from the fund to its shareholders and an annual filing with the SEC.
Beta is a measure of relative
systematic risk for stock or portfolio returns.
When analyzing a security’s standard deviation, which of the following statements accurately describes observations according to a normal frequency distribution curve?
Approximately two-thirds, or 68%, of observations will be within one standard deviation on either side of the mean.
midrange
The midrange of any group of numbers occurs between the highest and lowest in the group
Present value is calculated to determine
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.
FinCEN Form 112, the Currency Transaction Report, is filed with
the Department of the Treasury
When an Administrator issues a final order, an agent subject to the order may
obtain a review of the order in an appropriate court of law
request that additional evidence be presented to the court
A change of management control is deemed to be considered an
assignment and requires customer consent
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
requires both written disclosure to and the consent of the client prior to the completion of the transaction
Asset-based sales charges will generally be lowest when holding which of the following mutual fund share classes?
A
duration
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.
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
When additional funds are required, it is known as a house or maintenance call
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
true
Market efficiency assumes active portfolio management
cannot help earn abnormal (excess) risk-adjusted returns.
It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients?
Life stage
Retirement savings
coupon in relation to duration
lowest coupon has longest duration which makes it more vulnerable to interest rate changes
support and resistance as it relates to buy or sell recomendations
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.
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.
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.
Written advisory contracts must contain
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
Hedge funds are usually structured as a
partnership
A bond with a basis, or yield to maturity, greater than its coupon is
trading at a discount, or below par
The final responsibility for ensuring that investment adviser representatives are adequately supervised is that of
Chief compliance officer
he IRS requires that RMDs commence no later than
April 1 of the year following the year that the owner turned 70½ years old.
What information do you need to determine the future cash flow from a bond
The future cash flow of a bond is determined by its principal, coupon rate and maturity date
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
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.
One of the provisions of the Investment Company Act of 1940 is that the maximum permitted termination notice
is 60 days in writing
types of businesses taxation
sole april 15
single member llc april 15
multi member llc march 15
c orp march 15
Investment advisers may lend money only to
persons affiliated with the firm
Affiliated persons are any
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.
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
none
is there cost basis on coins
yes
Under modern portfolio theory (MPT), all portfolios that can be constructed from a given set of stocks is referred to as
feasible set
The term “Chinese wall” is used
to describe the separation of divisions within the firm, protecting sensitive information from leaking to the wrong people.
which business entity is easiest to raise capital
LLC
mong the advantages of including preferred stock in an investor’s portfolio are
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
bonds quoted as percentage of
par
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?
Ordinary income tax on earnings exceeding basis
The term “sale” does not include
a bonafide pledge
when acting in pricipal capacity, when is diclosure required for IA or IAR
Does this apply to broker dealers
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.
Revocation of the registration of that agent’s broker-dealer will result in
cancellation of that agent’s effective registration.
Why consumers buy and sell futures
Consumers BUY futures to lock in price in which to buy a commodity, producers SELL futures to lock in price to sell a commodity
Disclosure to customers of an investment adviser’s control relationships(conflict of interest) is required in
agency, principal, and exempt
Potential investment company clients should be advised to investigate a fund by looking at which of the following?
Investment policy and portfolio
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
holding period return
Bonds present value
Present value is the sum of all the discounted future payments.
S corp
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
factors that increase working capital
factors that decrease
issuing securities
profits
sale of noncurrent assets
declearing cash dividends
called early
net operating losses
the SEC requires investment advisers registered under the Investment Advisers Act of 1940 to maintain certain books and records for a minimum of
5 years
A mutual fund would have net redemptions when
the number of shares being liquidated by investors exceeds those being purchased
Under the Rule of 72
72/half amount of years
SEC has jurisdiction over the following
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.
IA vs IAR who can be bonded
IA only
Growth investors usually seek stocks
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.
The Sharpe ratio measures a stock’s
excess return earned compared to its total risk.
Discounts for quantity purchases of mutual fund shares are not permitted for
investment clubs
There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:
commissions;
markups and markdowns; and
advisory fees for those firms that are also registered as investment advisers
Individuals representing issuers in the sale of their securities
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.
Which of the following best describes net present value?
The difference between the sum of the discounted cash flows that are expected from an investment and its initial cost
can we project volatility
no
All investment adviser advertising must
reflect fees, state actual market conditions, disclose specific groups and must show past performance for one year
To calculate the future value of an investment, which of the following must be known?
assumed interest rate and duration of investment
Advisers must disclose any material conflicts of interest
in writing
effiecient market hypothesis
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
Under the Uniform Securities Act, a consent to service of process must accompany which of the following?
An agent’s initial registration application
When a beneficiary of an IRA decides not to accept the proceeds, the legal term used is
disclaiming
When does a customer have to receive the OCC Options Disclosure Document?
Before accepting the customer’s first order to trade options covered by the ODD
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
UTMA
the Investment Company Act of 1940 defines an interested person as someone
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.
A performance-based fee must be based on
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.
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
acts with skill and caution
Net present value (NPV) is the difference
s the difference between the initial cash outflow (investment) and the future value of discounted cash flows.
is change in minority interest considered an assignment
no
what is an offer
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.
Market makers exist in the
otc markets
The difference between present value and net present value represents
the initial cash outlay
how are rmds computed for 401k in terms of where they can be paid from
each rmd needs to be paid from that 401k
When a couple has been married for at least 10 years, the ex-spouse is entitled
to full spousal Social Security benefits unless remarried. By remarrying, you lose that benefit
The 2 most common forms of DCF used in the valuation of common stock are the
dividend discount and dividend growth models.
In order to achieve its goals, an inverse ETF uses
derivatives and debt.
IRR is the one rate of return that results in an investment having a net present value (NPV) of
zero
What is the appropriate procedure to follow when an advisory client delivers a stock certificate to the office of a broker-dealer?
Accept the certificate and give the customer a receipt.
NASAA’s Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents permits commission sharing as long as
the agents are properly registered with the same broker-dealer or one under common control.
parity
par/ conversion price and then the actual price/ the other number
pay to play max contribution amount
150
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
fiduciary responsibility for unsatisfactory investment results experienced by the employee.
As a rule, loans from a 401(k) plan must be repaid within how many years?
5
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
restitution made and a receiver being appointed over advisors assets.
A benefit of active investment in real estate that is not available to purchasers of REITs is
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.
prospectus delivery requirement
At or prior to confirmation
Which of the following is (are) TRUE regarding qualified pension plans?
They must not discriminate.
They must have a vesting schedule.
They must be in writing.
All contracts between an investment company and an outside adviser must be
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.
internal rate of return considers
real rate of return considers
time value of money
Inflation rate
estate taxes must be paid within
9 months
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
6 months after death
The Uniform Securities Act defines a guaranteed security as one
where the payment of interest and principal (bond) or dividend (stock) is guaranteed by a party other than the issuer
An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks?
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
mode
number repeated the most
A QDRO applies
A QDRO applies only to assets in a qualified employer plan.
Which of the following investments is not registered under the Investment Company Act of 1940?
FACCs B) ETFs C) ETNs D) UITs
ETNS
mean
average
Stock dividends make the number of shares owned
increase and the cost per share decrease. The overall value should remain unchanged
Among the differences between futures and forwards is that futures contracts
are rarely exercised while forwards generally are.
forwards preferred tool by producers and
futures which are standardized and CFTC regulates,
alpha =
(Port actual return-RFR)- Beta* (MAR-RFR)
Employee contributions to a 401(k) plan are subject to
Social Security taxes
federal unemployment taxes
Which form of the efficient market hypothesis (EMH) suggests that fundamental analysis and insider information may produce above-market returns?
week
Because of the limited secondary market for life settlements, any firm that engages in these transactions should
obtain several bids to ensure the customer receives a fair price for her policy.
Which of the following are regulated under the Securities Exchange Act of 1934?
Broker-dealers
Transfer agents
discretion rules for agent vs advisory
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.
when putting title on a business card, can an advisor use RIA?
never
The expected return on an equity investment is the
RFR +equity premium
under usa who does areconsidered investment advisors
does this apply to federal
banks
broker dealers
other ia’s and iras
no
An investment advisory contract is considered assigned if an adviser formed as
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.
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 governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants
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
you need to disclose when it is outside scope of business.
Don’t need to disclose if in the scope.
Derivatives are generally not appropriate for
highly risk-adverse investors due to the risk and sophistication involved.
According to the NASAA investor advisory regarding fees charged by broker-dealer firms for services and maintenance of investment accounts,
he schedule should be made available on the broker-dealer’s public website without requiring any login or password
for state the definition of a substantial prepayment is
more than $500, 6 or more months in advance
median
middle value
Under the Uniform Securities Act, registration of an investment adviser in a state automatically constitutes registration of any investment adviser representative who is a
partner, officer, or director, or a person occupying a similar status or performing similar functions.
Loans may not be made available to highly compensated employees in
amounts greater than that made available to other employees.
Hardship withdrawals are not permitted from
IRAS
main advantage of leaps is
time
In portfolio theory, the alpha of a security or a portfolio is
the difference in the expected return of the portfolio, given the portfolio’s beta, and the actual return the portfolio achieved
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
anti dilution clause
In general, a broker-dealer will disclose any changes to its fee schedule
by notifying clients in advance
The bullet strategy is used when
aiming at a target
futures contracts can be written on
financial assets or commodities
an exchange is the sale and then a purchase of a new security and is therefore a
a taxable event
The National Securities Markets Improvement Act of 1996 (NSMIA)
defined the term investment advisor
Preservation of capital means
no fluctuations. Money market funds are the only logical choice here
dividend discount model
amt. of div./expected return= present value
As a rule, the longer the duration, the greater the price
appreciation
An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients
when informed by the investment adviser that the representative’s registration is effective
The Investment Company Act of 1940 permits a reduction in sales charge when reaching a breakpoint for
purchasers meeting the definition of any person
are commodities good for retirement planning
no
An individual purchasing a flexible premium variable life contract should know which of the following?
Timing and amount of premiums generally are discretionary.
The performance of the separate account directly affects the policy’s cash value.
High income level and participation in an employer-sponsored plan will affect the amount you may
deduct but not the amount you may contribute.
Stock prices in the over-the-counter market are determined by
negotiation
here are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:
commissions;
markups and markdowns; and
advisory fees for those firms that are also registered as investment advisers
Those who supervise the activities of investment adviser representatives are themselves defined as
IARs
max prison term and fine
3 years 5000
Which of the following is generally believed to present a more accurate picture of a portfolio manager’s performance
time weighted return
Payments into a nonqualified deferred annuity are made with
after tax dollars
do hedge fund managers get high fixed fees
no
hen an investment company employs an outside investment advisory firm to manage its portfolio, the act requires 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.
when can an agent to share commissions with any person not also registered as an agent for the same or affiliated broker-dealer.
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.
Catch-up contributions are allowed to participants who are age
50 and over
index annuity participation rate means
that percentage of the gain is what they actually get
NPV assumes the cash flows
can be reinvested at market interest rates
A variable life insurance plan may charge a maximum sales charge of
9%
Surrender charges never apply in the case of
a death benefit
It is generally agreed that one of the primary benefits offered by UTMA over UGMA is
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.
The penalty for failure to make the correct amount of required minimum distribution is
50% of the difference between the minimum required amount and the actual distribution.
There is nothing wrong with an investment adviser devoting time, even a majority of the time, to nonadvisory pursuits, as long as
it is disclosed
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 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
Registration of IARs is done solely on the
state level
are Holding companies are included in the definition of an investment company.
no
when determining perpetuity
make sure to understand you need to multiply the amount by 12 and then divide by rate
Changes in investment policy require a vote of the
majority of outstanding shares for approval.
when can you defer rmd with 403b
The rule is that you can only defer RMDs in the plan of the employer where you are currently employed
who are considered supervised persons to a federal covered advisor
All individuals working for an investment adviser who provide investment advice or management are considered supervised persons.
One of the ways in which a simple trust differs from a complex trust is that simple trusts
must distribute their distributable net income each year.
are special situation funds risky
yes
When a bond’s NPV is zero, it is usually an indication that
markets are highly efficient
Charging an unreasonable commission (or markup or markdown) is a prohibited practice, but it is
not considered fraud
In general, one would prefer to purchase a bond when its current market price is
less than its present value
Which of the following investment vehicles provides for redemption by the issuer?
UIT
It is the Class C shares that have no front-end load, but they do have a
1% CDSC for a period of 1 year.
he geometric mean could never be greater
than the arithmetic mean
Yield to maturity reflects the
internal rate of return on a bond
Under federal law, the statute of limitations for civil liability is
under state law it is
1 year after discovery or 3 years after the action, whichever is sooner
2 years discovery 3 year action
Under the USA, no suspension or revocation may take place without an opportunity
for a hearing
The main benefit that variable life insurance has over whole life insurance is
the potential for a higher cash value and death benefit
class a b and c
Meantion 12-b
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.
Under the provisions of the Dodd-Frank Act of 2010, once a pension consultant’s AUM reaches $200 million
t has the choice of state or SEC registration.
the bond with the _____ coupon has the shortest duration.
highest
When the coupons are the same, the bond with the nearest maturity has the shortest duration.
tactical asset allocation
market timing
strategic asset allocation
rebalancing is strategic asset allocation, i.e. 60/40, 70/30, et
A unit investment trust has no board of directors; rather, it has a
board of trustees
Investors with a short time horizon most likely will invest in which class of mutual fund shares
C
In order to have matching contributions, participants in a Roth 401(k) plan must
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.
total risk measured by
standard deviation
Only earned income can be used to fund an
how it relates to sole proprietorship
What is not earned income
alimony?
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
Quality has no substantial impact
on interest rate risk.
futures or forwards have standardized terms
futures
prepayment for state advisors vs federal
500 for state
1200 for federal
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?
expected cost of college
Both supervisory personnel and agents need to understand the difference between
interactive and static content
The longer the duration, the greater the
interest rate risk
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
Because Mrs. Hawkins has an economic interest, this is a grantor trust. Thus, all income will be taxed to the donor, Mr. Hawkins.
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)?
Strong
A letter of intent must be met with dollars invested within
13 months
Whenever an individual begins or ends employment with a state-registered investment adviser, the investment adviser
notify the Administrator. A representative’s registration is only valid while employed by a registered investment adviser.
Advisers may use the term “investment counsel” only if two conditions are met
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.
Investors with a short time horizon most likely will invest in which class of mutual fund shares?
Class C shares
A broker-dealer is
any person that buys or sells for the accounts of others or for his own account. broker dealer not issuer or agent
ia realized that they have fallen below the net capital requirement. When do they have to contact administrator
one day after given notice
term life most appropriate for
younger people with children
Only_____________ investment advisory firms are required to notify the appropriate state Administrator when employment is terminated or begun
state-registered
The barbell strategy gets its name from the fact that the holdings
are split into two maturity ranges
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?
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.
Which of the following is the simplest portfolio management style for individual stocks?
Buy and hold
It would be indexing for managing a portfolio
As long as a married couple’s AGI does not exceed ____ a Roth IRA can be opened without any restrictions.
203000
if you over contribute to an IRA you can avoid the 6% penalty by
removing the excess contribution plus any growth it experienced before removal
Breakpoints for quantity purchases are available on shares that carry a
front end load(a)
sharpe ratio does not care about
beta
are certain coins allowed in an ira
Life insurance?
There are certain coins minted by the U.S. Treasury that are eligible for inclusion in an IRA.
NO but annuities are
An IA is meeting with a new prospect. Which of the following performance data could be presented?
all client managed
In a life settlement, the seller receives more than the premiums paid into the policy but less than
the face amount
The simplest model for valuing equity is
dividend discount model
When a bond can be purchased for less than its present value, it has a
positive net present value (NPV)
The currency reporting threshold for cash and equivalent instruments is
10000
The only types of accounts that may have the Transfer on Death (TOD) designation are
ndividual and JTWROS
when can administrator cancel registration
But when the Administrator is unable to locate the registrant, or the registrant is declared mentally incompetent or is deceased, registration is canceled.
The terms mean, median, and mode are all measures of
Central Tendency
c corp
Its earnings are taxed at the corporate level and again at the individual level when they are paid out as dividends.
An individual wishing to register as an agent with a broker-dealer may have to
pass an exam and post a bond.
It is possible, although very difficult, to calculate IRR for investments with uneven cash flows such as
growth stocks where dividends are generally not reliable.
The bond with the _____coupon and _____maturity is subject to the greatest price volatility.
The bond with the lowest coupon (8%) and longest maturity (12 years) is subject to the greatest price volatility.
One of the benefits of owning a home is the tax treatment of a sale of a primary residence. Under current IRS regulations,
a married couple is permitted to exclude the first $500,000 of gain.
Which of the following types of life insurance has premiums that increase each time the policy is renewed, and no cash value buildup?
TERM
12b-1 fees are subject to
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.
can affiliated person be elected board of directors
yes
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
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
The required disclosure statement for wrap fee programs must contain
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.
staddles and volatility and stability
buyer wants volatility and seller wants stability
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?
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
Under the Investment Advisers Act of 1940, an adviser who has custody of a client’s funds must
notify a client when the client’s funds are moved to another location
segregate client’s funds and keep them identified by client
current yield =
dividend/POP
A venture capital fund
seeks opportunities to get in on the ground floor.
Who can’t receive a breakpoint?
Investment clubs and otherwise unaffiliated groups may not pool their money to receive a breakpoint.
The date that determines which shareholders are eligible to votes is
record date
CAPM accounts for the impact of
systematic risk (as measured by beta) only and does not take into consideration unsystematic risk, which is assumed to have been diversified away.
Gross margin, sometimes referred to as gross profit on the exam, is computed by
net sales-cogs
For BDs registered in more than one state must be registered with the
the SEC because they are dealing in interstate commerce
Current ratio
current assets / currentliabilities
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
All
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?
The market price per share fluctuates with each purchase.
A fixed dollar amount is invested at regular intervals.
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
tax differed retirement account
The commonly tested investment constraints are
liquidity needs, time horizon, taxes, legal and regulatory factors, and unique needs and preferences.
The YTC computation involves knowing
the amount of interest payments to be received, the length of time to the call, the current price, and the call price.
earnings momentum
An increase in the earnings per share growth rate from one reporting period to the next
A unique requirement for those investment advisers who maintain custody of customer assets is the filing of
the Form ADV-E
Internal rate of return (IRR) is a
discount rate at which the net present value (NPV) of an investment is equal to zero.
Private equity investment in real estate refers to
direct ownership of real estate properties
When a stock has a beta of less than 1, this indicates that
it will, on average, give a return below that of the market
Automatic reinvestment is always at
NAV
Duration does not measure the
holding period return on a bond
401k can may not contribute more than
25% of total payroll
current yield=
dividend/market price
Which of the following business accounts does not require considering the suitability of the owners?
c corp
Among the reasons why a corporation might choose to utilize a deferred compensation plan for retirement planning would be
deferred qualified or non?
employees who leave the company prior to retirement would not receive benefits
plans are discriminatory
non
The Investment Company Act of 1940 requires that an open-end investment company have a minimum
Reports must be sent to shareholders on a
$100,000 in net assets prior to commencing a public offering. Reports must be sent to shareholders on a semiannual basis
top down vs bottom up approach
.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
Which of the following may be required by the Administrator to post surety bonds?
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.
Any attempt to hold oneself out as offering investment advice as part of a business would require the person to be
registered in the state, unless that person qualifies for an exclusion or exemption.
sharpe ratio doesn’t care about
beta
If the customer elects to receive distributions in cash while other investors purchase shares through reinvestment, his proportional interest in the fund will
decline.
risk with forwards contracts
Liquidity
Creditworthiness of the buyer
quick ratio
current assets(excluding inventories)/ currentliabilities(short-term debt
Modern PortfolioTheory
Different asset classes to reduce marketriskTEST TIP –Real Estate is an asset class, not derivativesb.Efficient Frontier –set of efficientportfolios
what is prohibited with agency cross transactions
you can’t RECOMMEND to both parties. Only one recommendation.
