Exam 1 Missed Questions

Question 0

A broker dealer offers 4 summer passes to an amusement park to each of it’s agents who sell at least $10,000 of bonds during the month of June. Is this permitted or prohibited? Would it be considered a soft dollar transaction or not?

Answer 0

Permitted and not soft dollar

Question 1

Which statements are true about the alternative minimum tax computation?
A. Alternative minimum tax computation is required for all tax payers
B. Is only required for investors in limited partnerships
C. If the alternative minimum tax amount is greater than the regular income tax amount, the larger amount must be paid
D. If the alternative minimum tax amount is greater than the regular income tax amount, then the smaller amount must be paid

Answer 1

The correct answers are a and c

Question 2

Which of the following persons must register as an investment advisor?
A. An executor who recommends securities investments for an estate
B. A bank trust department who recommends securities investments for it’s accounts
C. A broker dealer who recommends securities investments to it’s customers
D. A newspaper publisher who makes specific securities recommendations to customers

Answer 2

The correct answer is d

Question 3

An IAR associated with a state registered adviser receives correspondence from his uncle about the uncles securities account that the IAR handles. Under the uniform securities act, this letter is considered what?
A. Private property of the IAR and can be disposed of as the IAR sees fit
B. The private property of the IAR and must be kept on file for 2 years.
C. A record of the investment advisor, subject up examination by the administrator.
D. A record of the investment advisor, but not subject to examination by the administrator.

Answer 3

The correct answer is c

Question 4

The major difference between an open end fund and a unit investment trust is what?
A. A UIT imposes a management fee while and open end fund does not
B. A UIT portfolio is fixed while an open end fund portfolio changes
C. A UIT is defined as an investment company while an open end fund is not
D. A UIT HAS A BOARD OF DIRECTORS WELL A MANAGEMENT COMPANY DOES NOT

Answer 4

The correct answer is b

Question 5

Prior to licensing an agent in a state, the administrator may require the agents to do all of the following except which?
A. Pass a qualifying examination
B. Certify that the individual has reviewed that states blue sky laws
C. Certify that the individual understands his responsibilities
D. Maintain a minimum net worth requirement

Answer 5

Correct answer is D
Individuals are not required to maintain a minimum net worth requirement to be registered in a state, this requirement is imposed only on broker-dealers and investment advisors.

Question 6

Which statement is true?
A. Universal variable life insurance was derived from a fixed annuity
B. Variable life insurance was derived from whole life insurance
C. Term life insurance was derived from variable life insurance
D. Whole life insurance was derived from Universal variable life insurance

Answer 6

Correct answer is B
Variable life is a whole life product and was developed from the whole life design with the added feature of investment of cash value in separate accounts.
The variable life policy has a fixed annual premium like the whole life policy but the cash value can be invested in equity securities in a separate account for better returns. The cash value can be used to increase the death benefit or can be borrowed against.

Question 7

Which asset allocation is best for a 35-year-old single risk tolerance investor looking to achieve the highest returns?
A. 25% stock, 25% bonds, 25% REITs and 25% money markets
B. 50% stock 50% bonds
C. 60% stock 40% bonds
D. 95% stock 5% money markets

Answer 7

Correct answer is D
The investors 35 years old single and risk tolerance. While an argument could be made for any one of the choices offered, but one choice that is clearly different from the others his choice D. This gives both the greatest growth potential for a relatively young investor along with the greatest risk, and this investor is risk tolerance. The other choices have a fairly large portion of the portfolio allocated to bonds, which do not have any growth potential over a long-term investment time horizon, but also have much lower risk

Question 8

How soon after an advisor opens a new account for a client paid for in cash must be advisor file a CTR report with FINCEN?

Answer 8

The correct answer is 15 days

Question 9

A portfolio characterized by high growth and low dividend paying stock would be invested in stock in the
A. S&P 500 index
B. New York Stock Exchange composite index
C. NASDAQ composite index
D. Wilshire index

Answer 9

Correct answer is C

Question 10

Under the provisions of the uniform securities act, NAFTA and Gats, the state administrator has the power to designate all of the following non-issuer transactions as exempt except which?
A. Trades effected on the Toronto Stock exchange
B. Trades effected on the American Stock Exchange
C. Trades effected on the Mexico stock exchange
D. Trades effected on the London Stock exchange

Answer 10

Correct answer is D
The uniform securities act exams secondary market trades of securities that occur on registered stock exchanges from state securities registration requirements. Under the provisions of the North American free-trade agreement between the United States Canada and Mexico, and the Gen. agreement on trade in services, the administrator is empowered to exempt trades that occur on stock exchanges in these other two countries. Currently only trades on the Toronto Stock exchange are exempted. The administrator has no power to exempt trades that take place on the London Stock exchange

Question 11

12B-1 fees are assessed by investment companies
A. When shares are held
B. When shares are redeemed
C. When shares are purchased
D. When shares are exchanged

Answer 11

Correct answer is a

Question 12

Which of the following statements are true regarding non-revocable trust?
A. Income is taxed at the rate scheduled for the grantor
B. Income is taxed at the rate scheduled for the trusts
C. The grantor has the right to reassume control over the assets of the trust
D. The trustee has the right to manage the assets of the trust

Answer 12

The correct answers are B and D

Question 13

Which of the following is an unethical business practice?
A. Publication of a tombstone announcement by a broker dealer in a local newspaper on the effective date of a registered new issue offering managed by that broker-dealer
B. Publication of a research report by a broker-dealer that shows the performance of prior recommendations made by that broker-dealer during the prior 12 months
C. Publication of a report by an agent detailing the performance of transactions recommended by that agent over the prior 12 months
D. Publications of a report by a broker-dealer written by an agent detailing the performance of transactions recommended by that agent over the prior 12 months

Answer 13

Correct answer is C
An agent cannot publish and distribute report detailing the performance of recommended transactions. Broker-dealers on the other hand may do so but the state administrator can require the filing of these reports

Question 14

Under NASAA rules, an:
A. Agent is permitted to share in the gain and loss of a customer account if a joint account is opened up with the customer and sharing is proportional to capital contributed
B. Agent is not permitted to share in the gain and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed
C. Investment advisor Rep. is permitted to Share in the game and loss of a customer account if a joint account is opened with the customer and sharing is proportional to capital contributed
D. Investment advisor Rep. is not permitted to share in the gain and loss of a customer account if a joint account is opened it with the customer and sharing is proportional to capital contributed

Answer 14

Correct answer is a and D

Question 15

An investment advisor has developed a proprietary trading system that is consistently achieved 20% annual returns over the past five years. During this period, the Standard & Poor’s 500 Index has increased by 10% per year. Other advisers that offer similar services charge an annual advisory fee equal to 5% of annual assets under management. This advisor wishes to change an annual fee equal to 10% of assets under management since it believes that it’s services are superior. Which statement is true?
A. The 10% annual fee is reasonable because the advisers excellent track record
B. The 10% annual fee is reasonable because the advisor is developed a trading system that is different from that used by other advisers.
C. The 10% annual fee is unreasonable because it is not comparable to other advisers that perform similar services
D. The 10% annual fee is unreasonable because advisory fees must conform to the 5% policy

Answer 15

The correct answer is C

Question 16

If an investment advisor buys out another investment advisory firm which statement is true about filing fees paid to the state?
A. Two additional separate filing fees must be paid for each of the advisory firms
B. A new filing fee covering the entire year must be paid for the combined advisory firm
C. In additional pro rata filing fee covering the balance of the year for the combined advisory firm must be paid
D. No additional filing fee is required

Answer 16

Direct answer is D
If an investment advisor buys out another advisory firm, then the firm that is bought out ceases to exist. And the accounts of the firm that is bought out become part of the existing acquiring advisory firm. No additional filing fee must be paid by the advisory firm that acquired the bought out firm

Question 17

Are NASAA recordkeeping rules for investment advisors, any advertisement, circular or other communication:
A. Be retained if it is circulated to two or more persons
B. Must be retained if it is circulated to five or more persons
C. Cannot recommend the purchase or sale of a specific security
D. Can recommend the purchase or sale of a specific security and if it does not state the reason for the recommendation, a memo must be retained indicating the reason for the recommendation

Answer 17

Correct answers are a and C

Because this is a state regulation the number is 2 instead of 5 persons

Question 18

Under the uniform securities act, the registration of an agent may be denied, suspended or revoked if the:
A. Application contains false statements or omits required information
B. Applicants have been arrested for a security related matter
C. Applicant has been charged by the Securities and Exchange Commission with a securities felony

Answer 18

The correct answer is a only
Had the applicant been arrested and convicted on a security related matter or charged and convicted on a securities felony in the last 10 years B and C would also be correct

Question 19

All the following are required to be disclosed by investment advisors to their clients under the NASAA statement of policy except that the:
A. Broker-dealer that effects recommended securities trades compensates the investment advisor with commission
B. Investment company whose shares are recommended by the investment advisor compensates the investment advisor with management fees
C. Investment advisor will buyback any recommended securities at the original purchase price upon request
D. Investment advisor will be buying recommended securities for his personal account

Answer 19

Correct answer is C

Question 20

Registration by filing would most likely be used for a:
A. Issue that is being registered in another state
B. Issue that is being registered with the SEC
C. Secondary offering from an established company
D. Primary offering from a new company

Answer 20

The correct answer is C

Question 21

A customer has purchased shares of stock over an extended period of time at varying prices. The customer now sells some of the shares. Which statements are true regarding the tax treatment of the sale?
A. The tax code allows specific identification of the shares being sold
B. The tax code prohibits the specific identification of shares being sold.
C. LIFO accounting must be used to establish the cost basis of the shares sold, if no other tax election is available.
D. FIFO accounting must be used to establish the cost basis of the shares sold, if no other tax collection is available

Answer 21

The correct answers are a and D

Question 22

Under the investment advisors act of 1940, all of the following statements about investment advisory contracts are true except investment advisory contract:
A. Must be filed with the SEC 10 days in advance of their effective date
B. Must provide for notification to customers if there is a change in the composition of the advisory partnership
C. Must be in writing
D. May provide for a fee that is partially based upon capital gains for customers who have at least $1 million of assets invested or who have a net worth of $2 million

Answer 22

The correct answer is a

Question 23

An options strategy where the maximum potential loss is equal to the difference between the increase in value of the underlying short securities position and the premiums received is known as what?
A. Naked call writer
B.  Covered call writing
C. Covered put writer
D. Naked put writer

Answer 23

Correct answer is C

Question 24

Which statements are true?
A. Alpha measures a stock price volatility relative to the market as a whole
B. Beta measures a Stocks price volatility relative to the market as a whole
C. Alpha measures a Stocks price volatility relative to Stocks specific non-market factors
D. Beta measures a stock price volatility relative to a stock specific non-market factors

Answer 24

The correct answers are B and C

Question 25

The primary reason for a customer to make a tax shelter investment is the
A. Immediate deductions generated by the project
B. Immediate tax credits generated by the project
C. Economic viability of the project
D. Future capital gains generated by the project

Answer 25

The correct answer is C

Question 26

An investment advisor is opening that day’s mail and received a check from a customer for $5000, however there is no payment due from the customer. The customer mailed the check on accident. The same day at the investment advisor mail us the check back to the customer. Under NASAA rules, the investment advisor
A. Is deemed to have taken custody of the customers funds
B. Has not taken custody of the customers funds
C. Must keep a record of the check received
D. Is not required to keep a record of the check received

Answer 26

The correct answer is B and C

Question 27

What index specializes in portfolios built around small capitalization issues?

Answer 27

The Russell 2000 index

Question 28

Under the requirements of the investment advisors act of 1940, the separate disclosure document that the solicitor must provide it to a potential investment advisory client must include all of the following except:
A. The nature of the relationship between the solicitor and investment advisor
B. A statement that the solicitor will be compensated by the investment advisor for the referral
C. Disclosure of the specific amount or percentage being paid to the solicitor by the investment advisor for the referral
D. A copy of the written agreement between the investment advisor and of the solicitor

Answer 28

The correct answer is D

Question 29

Investment advisor, age 33 and married, needs cash for the down payment to buy his first house. He asked his father if he can help out with the down payment. His father is one of his advisory clients. Which statement is true about the situation?
A. The investment advisor can except the money from his father if he gives it as a loan
B. The investment advisor can except the money from his father if he gives it as a gift
C. The investment advisor cannot except the money from his father weather given as a loan or a gift
D. The investment advisor can only except the money from his father if there is a written agreement that details the terms and conditions

Answer 29

Direct answer is B

Question 30

With a variable annuity, the issuer takes the risk that expenses for administration will not be more than expected. What is the charge the issuer makes for taking this risk?
A. Investment management
B. Administrative expense food
C. Mortality risk charge
D. Expense risk of charge

Answer 30

The correct answer is D

Question 31

Under the uniform securities act an application to register securities may be filed by the
A. Broker-dealer
B. Agent
C. Issuer
D. Person on whose behalf the offering is to be made

Answer 31

The correct answer is a B and D

Question 32

Which of the following risks is the primary concern when investing in a municipal bond?
A. Purchasing power risk
B. Legislative risk
C. Market risk
D. Credit risk

Answer 32

Correct answer is B

Question 33

A customer has $20,000 to invest but needs immediate access to the funds to pay a variety of bills that will arrive over the next three months. The best recommendation is for the customer to deposit the funds into which kind of account?
A.  Money market mutual fund
B. Money market instruments
C. Money market checking account
D. Treasury direct account

Answer 33

Correct answer is C