EXAM 1 SERIES 65 10 CARDS - 4

Question 1

If an investment is purchased on **Septembr 30th **of the curent year, October 1 is the first day in the following year that the investment is considered long term. Why?

Answer 1

Investments are long term once they are held for over 1 year. Since September onlly has 30 days, October 1st of the following year is the first day that the investment is considere long term.

Question 2

Withdrawals from appreciation of investments are tax-free from a Roth IRA. Why?

Answer 2

Roth IRA withdrawals from appreciation of investments are tax-free if the owner wiats to witdraw money untl at least age 59 1/2 and the Roth IRA has been open for at least 5 years.

Question 3

Resistance is the price at which a security is considered to be overbought. Why?

Answer 3

Resistance is the highest price in the recent trading range of a security. In theory, when a price reaches resistance, the price of the security should decline>

Question 4

A Money Purchase Plan is a corporate retirement plan that a company will make A d**efined contribution **whether the company has a profit or loss at the end of the year. Why?

Answer 4

In a money purchase plan, the company will make a defined contribution for each employee whether the company has a profit or loss. A money purchase plan may be established by a new company to attract the best empoyees possible.

Question 5

For commercial paper to be state exempt, allof the following conditions must be true:

Answer 5

1. The securitiy must be rated in a top 3 credit rating category.
2. The maturity must be 270 days or less.
3. The minimum par value of the offering must be $50,000.

Question 6

An investor buys 500 shares of XYZ at $20 per share. After 18 months, the investor sells the stock at $32 per share. During the holding period, the investor receives $8 per sharae in qualified dividend. What is the after-tax return if the client is in the 20% tax bracket?

Answer 85%. Why?

Answer 6

Long-term capital gains and qualified dividends are taxed at a maximum rate of 15% for most investors. Therefore, the after-tax return is 85% (100% - 15%). The investor realizes $12 in long-term capital gains ($32 - $20 with holding period of over 1 year) + $8 in dividends = $20. The after-tax return is $20 x 85% = $17/$20 purchase price = 85%.

Question 7

T-Bills is a US Government security is not priced in 32nds. Why?

Answer 7

Bond without coupon rates are quoted on a discount yield basis instead of prices. A discount yield basis is an apporximate yield to maturity.

In simple terms, saying that a T-bill (Treasury bill) is “not priced in 32nds” means that its price is not quoted using fractions of 1/32.

Explanation:

For some financial securities, particularly U.S. Treasury bonds, prices are often quoted in fractions of 1/32. For example, a bond price might be quoted as 101-16, meaning 101 16/32, or 101.5 in decimal form.

However, T-bills, which are short-term debt securities issued by the government, are quoted differently. They are typically quoted at a discount to their face value and not in 32nds. The price of a T-bill is usually expressed as a percentage of the face value and reflects the discount from face value rather than using fractional pricing.
This distinction simply reflects different conventions used for pricing different types of securities.

Question 8

An institutional money manager must file a Form 13F with the SEC when managing at least $100 million in assets. Why?

Answer 8

An institutional money manager must file a Form 13F with the SEC when managing at least $100 million in assets. The reports disclose trading activity in 13F stocks and closed-end funds. 13F securities are determined by the SEC.

Question 9

The Statute of limitations for criminal court at the state level is 5 years after the occurrence of the potential violation.

Answer 9

True. The Statute of limitations for criminal court at the state level is **5 years **after the occurrence of the potential violation.

Question 10

If an IA wishes to execut an agency cross transaction all of the following are true:
1. The IA needs writtenpermission from both clients to execute the transaction
2. The adviser must provide annual disclosure to all clients about agency cross transactions
3. The IA may not solicit both clients.

Explain:

Answer 10

An agency cross transaction is executed when two clients of the same BD or IA trade a security with each other. If an IA wishes to execute an agency cross transaction, the IA cannot solicit both clients. One or both of the clients must enter an unsolicited order.