Exam 3 Flashcards
A young couple wishes to save $50,000 as the down payment on a new house that they plan to purchase in the next six months. Which of the following are suitable investment vehicles to recommend to the couple? A. Money market funds B. Bank certificates of deposit C. Blue-chip stocks D. Commercial paper
The correct answers are A B and D
This is a very tricky question because clearly a and B are suitable investments for this couple. Blue-chip stocks are not suitable since they are subject to market risk. Commercial paper is usually not marketed to individuals and up until this point you have only been taught that corporations are allowed to buy commercial paper. However there are some corporations that are willing to sell commercial paper directly to customers in minimum $10,000 units via their website. This is another very safe short-term investment and is suitable
Which statements are true regarding total return and standard deviation?
A. The greater the risk level of the security, the greater the total return demanded by the market
B. The lower the risk level of the security, the greater the total return demanded by the market
C. The greater the risk level of the security, the greater the standard deviation of total return
D. The lower the risk level of the security, the greater the standard deviation of total return
The correct answers are A and D
Markets demand a risk premium above the risk-free rate of return provided by riskless investments such as one year treasuries for any investment that shows variability in its return as measured by standard deviation. The’s the greater the risk level of a security the greater the total return is demanded by the market. Since the measure of risk is standard deviation, this, by definition, Increases as risk of a security increases.
One of the oldest portfolio strategies that is used in a stable interest-rate environment is what? A. Swaps B. Options C. Buy and hold D. Momentum
The correct answer is C
Payments received by the owner of a tax qualified variable annuity are:
A. 100% taxable as investment income
B. Only taxable to the extent of earnings above the holders cost basis
C. Only taxable to the extent of the holders cost basis
D. Nontaxable
The correct answer is a
An elderly widow age 81 is seeking to supplement her retirement income with an investment that will provide income that will grow with inflation. Which statement about variable annuities could be made to this client?
A. A variable annuity is guaranteed to give a rate of return that matches the inflation rate
B. A variable annuity is backed by the investment assets of the insurance company which are always growing
C. A variable annuity will give a rate of return that closely matches the performance of the mutual fund that you select
D. A variable annuity will give a rate of return that is adjusted each year by the growth in the CPI
The correct answer is C
Which of the following statements are true when a bond sells at a discount?
A. The nominal yield is less than the yield to maturity
B. The nominal yield is more than the yield to maturity
C. The current yield is less than the yield to maturity
D. The current yield is more then the yield to maturity
The correct answers are A and C This is worded tricky. For discount bonds the relationship of yields from highest to lowest is yield to maturity, current yield, nominal yield
Yield to maturity is highest for a discount bond because it reflects both the fact that the bond was purchased for less than par and that the discount will be earned over the life of the bond
Current yield only reflects the fact that the bond was purchased for less than par it does not include the annual earnings of the discount
Nominal yield is that you’ll based on purchasing the bond at its original par value, it is the lowest yield of the choices offered because it neither reflects the discount price nor the annual accretion of that bond
Acme securities is a registered broker-dealer instate a. Acme is soliciting individuals to work for the firm in their spare time, from the home-office. For selling acnes products to customers, these individuals will be paid 25% of commissions generated. Since these individuals are not working in Acme’s office, acme has classified them as independent contractors. Which statement is true?
A. These individuals are not required to be registered as representatives in state a because they are not Acme employees
B. These individuals must register themselves as representatives in state aid because they are not Acme employees
C. These individuals must be registered as representatives in state a by Acme securities
D. These individuals only need to be registered in the state a by Acme if they become full-time representatives
The correct answer is C
And investment advisor Rep. has an oral agreement with the customer to provide advisory services and is given the new customer a glossy brochure describing the advisers services, but has forgotten to give the customer part two of form ADV. Which statement is true?
A. The customer must be given the form ADV part two at the time of signing the agreement
B. The customer must receive the form ADV part two and then has two days to sign the agreement
C. The oral agreement is binding because the customer receives the glossy brochure
D. The customer must receive the form ADV part two and then has five days to sign the agreement
The correct answer is B
Under NASAA rules, customers must receive part two of form ADV, the brochure and brochure supplement, at least two business days prior to the completion of an oral or written contract to provide advisory services. As an alternative to this, two day free look, the customer can be given the brochure at the time the contract is signed, but must have the right to rescind the contract within the next five days after examining the brochure
A block trade is a trade of at least how many shares?
10,000
Under the uniform securities act an investment advisor must inform a client about what?
A. Change of address
B. Addition of new partners to advisory partnership
C. Change of phone number
D. Addition of client accounts from another advisory firm that was bought out
The correct answers are a B and C
Under I a – 1092, which of the following are defined as “giving advice about securities”? A person who:
A. Advises on the selection of an investment advisor
B. Prepares a list of securities that may be purchased without making specific recommendations
C. Prepares an asset allocation plan that specifies percentage investments in stocks, bonds, real estate and insurance
D. Charts the price movements of stock and distributes them to subscribers
The correct answers are a B and C
A portfolio invested in actively managed funds that is rebalanced annually is considered to be what? A. Active/active B. Passive/passive C. Active/passive D. Passive/active
The correct answer is D
The terms active and passive are most often used when looking at the management of a stock portfolio. And actively managed portfolio has no investments selected by a professional manager, whereas a passive portfolio has a composition that is matched to a market index.
However, active and passive can also be used to refer to the frequency of portfolio rebalancing. A portfolio that is rebalanced once annually is said to be passive. A portfolio that is rebalanced more frequently or as market conditions moved is said to be active.
