Chapter 1 - Intro to investments

Question 1

This act requires that investment advisors register with their state or the SEC.

Answer 1

The Investment Advisors Act of 1940

Question 2

What is the 3 prong test when determining an investment advisor?

Answer 2

1) Compensation
2) Engaged “in the business of”
3) Providing Advice (to others)

Question 3

An advisor who meets the 3 prong test must…

Answer 3

Register as ‘RIA’ with his state or SEC unless he qualifies for an exemption

Question 4

Registering RIA with state or SEC ?

Answer 4

Excess of $110 MM –> SEC

Between $100 - 110 MMM –> Either SEC or State

Question 5

Exclusions from IA definition?

Answer 5

1) Bank
2) Lawyer, Accountant, Teacher, Engineer
3) Broker Dealers
4) Publishers of bona fide newspaper
5) Govt. Security Advisors
6) Credit Rating Agencies
7) Govt. and Political Subdivisions
8) Non-USA Advisors

Question 6

List those who are exempt from registration as an IA?

Answer 6

1) Foreign Advisor
2) Clients are insurance companies
3) Clients residents of state where advisor maintains principal office
4) Clients are only Venture Capital Funds
5) Clients are only private funds (advisor has < $150MM AUM in USA)

Question 7

What is a foreign advisor?

Answer 7

1) No US office
2) Manages < $25MM
3) Fewer than 15 US Clients
4) Does not hold itself out to public as IA in USA

Question 8

Disclosure to current and prospective clients helps clients make informed decisions on whether to hire or retain an advisor?

Answer 8

Brochure Rule

Question 9

According to brochure rule, advisors must disclose education background and legal or disciplinary action taken within the last how many years?

Answer 9

10 years

Question 10

SEC may refer a non-compliant firm/individual to justice department for criminal prosecution that can result in ____________ and __________.

Answer 10

Fines up to $10k and/or Imprisonment

Question 11

How does the federal government borrow money?

Answer 11

Through the issuance of Treasury Securities

Question 12

How to calculate Standard deviation on financial calculator?

Answer 12

N1 E1
N2 E2
N3 E3
OS, (Sx, Sy)

Question 13

Measures total risk

Answer 13

Standard Deviation

Question 14

Measures systematic risk

Answer 14

Beta

Question 15

Measures Degree of Diversification or strength of relationship

Answer 15

R^2

Question 16

These securities are subject to federal income tax, and exempt from state income tax

Answer 16

Treasury Securities (T-Bills, T-Notes, T-Bonds)

Question 17

How to calculate after tax yield on a bond?

Answer 17

Current Yield % X (1-Tax)

Question 18

What is the 2022 SIMPLE Plan limit? And catch-up contribution?

Answer 18

$14,000 Limit

$3,000 Catch up contributions (over 50)

Question 19

Not having a will before someone dies

Answer 19

Intestate

Question 20

5 year period for a ROTH IRA withdrawals begins when?

Answer 20

Beginning of the taxable year of the individual contribution