Exam 5

Question 1

Registration by filing would most likely be used for a

Answer 1

Secondary offering from an established company.

Registration by filing can be used by an established company that have been in continuous operation for the past three years who have already registered securities with the securities and exchange commission. A secondary offering by an issue or is defined as an issue from a company that already has registered securities outstanding.

Question 2

Under the securities exchange act of 1934, and investment manager that has discretion over $100 million or more of customer assets must file which of the following forms

10k
10-Q
13 D
13 F

Answer 2

13 F

Securities exchange act of 1934 requires investment managers that have discretion over $100 million or more a customer assets to file a form 13 F with the SEC. The form 13 F is filed 45 days after the quarter ends where the advisor at the end of any month and a quarter had $100 million or more a customer assets with discretionary authority

Question 3

A broadly diversified portfolio:

A. Is subject to market risk
B. Is not subject to market risk
C. Can have its systematic risk reduced by the purchase of index puts
D. Cannot have it systematic risk reduced because it is fully diversified

Answer 3

A and C

Question 4

A blue-chip corporation experiencing a short-term cash flow shortage could use:
Bankers acceptances
Commercial paper
Money market certificates
Subordinated debentures

Answer 4

Commercial paper

Commercial paper is a short term money market instrument issued by corporations

Question 5

Supply side theory states what?

Answer 5

Tax rate reductions and lower government spending will stimulate the economy

Question 6

The underwriter of a mutual fund is known as what?

Answer 6

The sponsor

Question 7

Which statements are true when comparing options contracts to future contracts?

A. A futures contract requires future delivery of the underlying physical asset
B. A Futures contract does not require future delivery of the underlying physical asset
C. An options contract requires future delivery of the underlying physical asset
D. A options contract does not require a future delivery of the underlying physical asset

Answer 7

A and D

Question 8

REITs receive preferential tax treatment based upon:

A. Portfolio real estate investments
B. Registration with the securities and exchange commission
C. Distribution of income to shareholders
D. Listing on the New York Stock Exchange

Answer 8

C

Question 9

Which of the following persons is excluded from registration as investment advisor under the investment advisor active 1940?

A. A person who renders advice only on foreign securities
B. A person who renders advice only on US government securities
C. A person renters advice only on municipal securities
D. All of the above

Answer 9

B.

Question 10

An advisor is creating a financial plan for retirement using a capital needs approach. Which type of insurance policy would be recommended as part of the plan?

Answer 10

Variable life or variable universal life

Capital needs analysis determines the amount of capital that a person needs to have at retirement in order to meet their anticipated standard of living. The state capital needs analysis is really looking at the future value of the clients current asset holdings, versus what they will really need as an asset base at retirement at a future date.

Question 11

Which statements concerning open end management companies are true? Open end management company shares:

A. Are issued in a one time offering
B. Trade in the secondary market
C. Are continuously issued
D. Are continuously redeemed

Answer 11

C and D

The shares of open end companies are continuously issued as customers make additional investments in the funding, and are continuously redeemed as customers decide to cash out their fund holdings. Open end management chairs are nonnegotiable they do not trade in the secondary market

Question 12

Zero coupon bonds:

A. Pay interest semiannually
B. Pay interest at maturity
C. Are bought at a discount and mature at par
D. Are bought at par and mature at a premium

Answer 12

B and C

Zero coupon bonds are often called capital appreciation bonds since the bondholder does not receive annual interest payments from the issuer. Instead, the bonds are bought at a discount from par, and I redeemed at par at maturity, similar to savings bonds. The discount is earned over the life of the bond and is the income from this type of investment

Question 13

A father is writing his will and his name and his beneficiaries his two adult sons, sun eight and Sunday. Each one will get an equal share of the father’s estate “per capita” upon the father’s death. Each of the sons has children who are not yet adults. If son A predeceases his father then:

Answer 13

Son As shares go to son B

Question 14

Interest income from which of the following bond issues is subject to state and local tax?

A. Issues of territories purchased by residence of that territory
B. Issues of territories purchased by non-residents of that territory
C. Issues of states purchased by a resident of that state
D. Issues of states purchased by non-resident of that state

Answer 14

D only

Interest income received from bonds issued by territories or possessions such as Puerto Rico Guam in the Virgin Islands is exempt from federal state and local tax no matter where the purchaser lives. Interest income from state issues is always exempt from federal income tax but is only exempt from state and local tax if purchased by a resident of that state

Question 15

Which of the following statements concerning 403B plans are true?
A. Investments are limited to annuities
B. Employee who elects salary deferral to a 403B plan cannot elect salary deferral to another retirement plan
C. A 403B plan can provide only for employee contributions without employer contributions
D. Deferrals to a 401(k) plan reduce the amount that an employee can differ to a 403B plan

Answer 15

C and D

Question 16

For initial registration as an agent in a state, all the following are required except

Consent to service of process
Filing fee
Government issued photo ID
Registration application

Answer 16

Government photo ID

In an initial registration with the state, A concent to service process must be filed, in addition to the registration application which can include fingerprints and any filing fees designated by the administrator. There is no requirement for a government issued photo ID to be registered

Question 17

Under the uniform securities act, the definition of guaranteed means that the security is guaranteed by another party as to:

Dividends
Interest
Principal
Any of the above

Answer 17

Any of the above

Question 18

All of the following actions will dilute the shareholders equity except
A. Payment of a stock dividend
B. Conversion of convertible preferred stock
C. Exercise of stock options granted to officers
D. Issuance of additional common shares

Answer 18

A.

Question 19

Which of the following would be considered to be owners of a corporation?

Common shareholders
Preferred shareholders
Convertible bond holders
Warrant holders

Answer 19

A and B

Question 20

If an investment advisor puts its records on electronic storage media, all the following statements are true except

The paper or hardcopy form as those records are capped in their original form must be preserved and maintain for five years

The duplicate copy of the record may be immediately reproduced in the median chosen and must be preserved and maintain for five years

The original record and duplicate copy of the record in the chosen median must be stored in separate locations for five years

Duplicate copy must be preserved in a format that is alterable rewritable and erasable

Answer 20

D is not true

Question 21

A customer approaches your firm stating that he wishes to fund his three-year-old son’s future college education. He states that he wants to maximize his contributions, minimize taxes, and maintain complete control over the account. Based on these objectives the best recommendation is a

Answer 21

529 college savings plan

Question 22

During a period When the yield curve is flat.

Short term bond prices are more volatile than long-term bond prices

Long-term bond prices are more volatile than short-term bond prices

Answer 22

Long term bond prices are more volatile than short-term bond prices

Question 23

Which of the following persons is in the business of giving investment advice?

A full service broker dealer charges higher commissions the discount brokers because of the value of recommendations made

An insurance agent that advertises no fee financial planning but who sells insurance for a commission to advisory clients

A real estate agent receives a fee from customers to appraise the value of the real estate holdings

An accountant who charges a fee to customers where the services rendered include tax deferral strategies on securities positions

Answer 23

B

Question 24

In a corporate liquidation the first to get paid is who

Answer 24

Secured bond holders

Question 25

When the market is reaching an overbought condition which of the following statements are true?

A. Market price averages are decreasing daily
B. Market price averages are increasing daily
C. The number of advancing issues is declining relative to falling issues
D. The number of the cleaning issues is rising relative to advancing issues

Answer 25

B and c

Question 26

If market interest rates rise from 6 to 7% which security price would be least adversely affected?

Six month treasury bill
Five year treasury note
15 year treasury bond
15 year treasury strip

Answer 26

Six month treasury bill

As market interest rates rise the price of fixed income securities drop with shortening maturities and highest coupon rate issues being the least susceptible to interest rate risk. The shortest maturity given his six month treasury bill. If you’re not given coupon rates for the four choices this is not a factor in the question

Question 27

840-year-old man wishes to withdraw funds from his traditional Aire without paying a penalty. This is permitted:

Under no circumstances

If the funds are borrowed and read posited into the account within 60 days of a withdrawal

To pay for qualified educational expenses

If the regular taxes paid on the distribution

Answer 27

C.

Prior to age 59 1/2 funds give me withdrawn from a traditional IRA without penalty if the person dies is disabled or to pay for qualified first time home purchase expense, there are limitations on this, and to pay for qualified educational expenses, there are limitations on this as well.

Question 28

Under the uniform securities act registration application of an investment advisor must include which of the following

A listing of advisors customers and their financial holdings

A copy of the advisers policy and procedures manual

The advisers financial condition and business history

A copy of the advisers code of ethics

Answer 28

C.

Question 29

Which of the following are components of common stockholders equity?

Common at par

Capital in excess of par

Retained earnings

Intangibles

Answer 29

A B C

Question 30

All the following are deductible from a taxable estate except:

Funeral and estate administrative expenses

Claims against the estate and mortgages

State death tax liability

The difference between cost basis and fair market value for depreciated assets owned by the estate

Answer 30

The difference between cost basis and fair market value for depreciated assets owned by the estate.

All assets in the estate are valued at fair market value at the time of death. There is no calculation of capital gain or capital loss within the estate

Question 31

Registered investment advisor that except customer funds must:

A. Deposit the funds to the advisers general bank account
B. Segregate the funds from proprietary advisor assets
C. Provide each customer with an account statement at least monthly
D. Pay interest on the funds at the legal rate specified by the state

Answer 31

B

Question 32

The cost of money is known as the

Answer 32

Interest rate

Question 33

Which statement is true about the grantor of a trust?

The grantor can be the grantor only

The grantor can be the trustee

The grantor can be the beneficiary

The grantor can be all of the above or any of them

Answer 33

The grantor can be any of the above

Question 34

A customer wishes to buy a security that provides monthly payments for his retirement. Which of the following is suitable?

Treasury bonds, income bonds, GNMA pass-through certificates, treasury notes

Answer 34

Ginnie Mae pass through certificates

Question 35

Which action taken regarding a universal variable life insurance policy will not result in tax liability?

A. Partial withdrawal
B. Pay out of death benefit
C. Partial surrender
D. Loan of up to 95%

Answer 35

D.

Although pay out of definite fit is tax-free to the recipient it is included in the estate of the owner. The only move that will not create any tax liability is a loan of up to 95% of cash value

Question 36

Under the uniform securities act the unintentional mission of material fact when offering are selling a security can result in what?

Answer 36

Civil liability

This is a subtle question. The omission of material fact an offer and are selling a security can result in civil liability under the act. There are no civil penalties. The Willful omission of material fact can result in criminal liability and criminal penalties

Question 37

Registration of securities in a state by coordination becomes effective when?

Two business days after the filing with the state is completed

Five business days after the filing with the state is completed

10 business days after filing with the state is completed

When the SEC registration becomes effective

Answer 37

When the SEC registration becomes effective

Question 38

If a corporation has not previously filed a federal registration statement for an initial offering of securities Solee and it’s home state, registration in that state must be completed by

Answer 38

Qualification

Registration by qualification is used by first time issuer of securities in a state that is not currently registering issues with the SEC. Because the state does not know the issue are you sure must “qualify” the issue for registration in the state. If you she were previously registered securities in the state then the state knows the issuer. Then they can registers by simply method of “registration by filing” if the issue or is registering the issue with the SEC, they can use the SEC documents as the registration application in the state under the registration by coordination method

Question 39

The dividend discount model can be used for determining appropriate market price for what?

Answer 39

Common stock only

Question 40

If the required rate of return on a security is less than the internal rate of return on that security then:

The security should be purchased for investment

Security should not be purchased for investment

Security has positive risk premium

Security has negative risk premium

Answer 40

Security should be purchased for investment

The required rate of return is the minimum rate of return necessary for someone to purchase a security the internal rate of return is the current rate of return on a security or yield to maturity. If the actual rate of return is higher than the minimum required then it would make sense to purchase that security

Question 41

All of the following statements are true regarding the annuitization of a variable annuity contract except

A. Variable annuity payout may vary depending on the performance of the underlying securities
B. Variable annuity contracts require the holder to select a life annuity with period Certain payout option
C. The number of variable annuity units is fixed
D. The holder may not change the payout option after it is elected

Answer 41

B.

Question 42

If the alternative minimum tax computation is less than the regular income tax computation, which statement is true?

A. The alternative amount is due
B. The regular amount is due
C. The alternative amount is added to the regular amount which is combined amount is due
D. The tax pair selects the contribution he wishes to use for that year but must continue using that method for future years

Answer 42

The regular amount is due