Exam 6

Question 1

A customer wishes to open an account at a bank and name her son as beneficiary. She has $4500 to deposit and wishes to maintain control of the account and be able to use the funds as she wishes. What type of account can be opened?

POD account
Totten trust account
Demand deposit account
Intervivos trust account

Answer 1

Totten trust account

This is the same as transfer on death account

Question 2

Which of the following is not a benefit of making an investment in emerging markets fund?

Diversification
Liquidity
Higher investment yield
Reduced investment risk

Answer 2

Higher investment yield

Due to the fact that it is a mutual fund this increases diversification liquidity and reduce his investment risk however the yield may be higher or lower than individual investments

Question 3

Registration of securities in a state by filing becomes effective when

Answer 3

Five business days after filing with the state is complete

Question 4

An agent of a broker-dealer registered in all 50 states is located in the state of Missouri, where the broker-dealer maintains a call center. A new customer that is a resident of Florida has seen one of the broker dealers television commercials and calls the one 800 number. Reaching the agent located in Missouri, the customer states that she wants to buy some good stocks what do you recommend? Under the uniform securities act the agent

Can recommend securities to the customer because the broker-dealer is registered in the state of Florida

Can recommend securities to the customer because the call was received in the state of Missouri where the agent is registered

Cannot recommend securities to the customer because the agent is not registered in the state of Florida

Cannot recommend securities to the customer unless the securities recommended are exempt from registration

Answer 4

C

cannot recommend securities to the customer because the agent is not registered in the state of Florida

Question 5

All the following statements are true regarding the private placement exemption under uniform State law except

A. Offers can be made to no more than 10 persons in a 12 month period To qualify for the exemption
B. All purchases must be made for long-term investment
C. No commissions baby paid to anyone other than for transactions with financial and institutional investors
D. All payments made by subscribers must be deposited to an escrow account until the offering is completed

Answer 5

D

Question 6

The individuals who make a secondary market in corporate bonds include all the following except
Registered Representatives
Traders
Dealers
Market makers

Answer 6

Registered Representatives

The secondary market is the trading of issues outstanding in the market. The individuals making the secondary market are the marketmakers also known as dealers and traders. Both market makers and traders deal with the public through registered Representatives.

Question 7

Which statements are true?

A. Alpha measures a stock price volatility relative to the market as a whole
B. Alpha measures a Stocks price volatility relative to stock specific non-market factors
C. Beta measures a Stocks price volatility relative to the market as a whole
D. Beta measures a Stocks price volatility relative to stock specific nonmarket factors

Answer 7

B and C

Question 8

A soul proprietor 60 years old has been in business for many years and the business is doing very well. He would like to retire at age 70. He asked his investment advisor representative about the potential benefits of changing the business structure to a C corporation or a general partnership. In terms of a business advantage the investment advisor representative could tell the sole proprietor that:

A. Corporate dividends are not taxed until retirement
B. Partnerships have unlimited life
C. Ownership in a corporation can be transferred upon retirement
D. Corporate ownership will provide the owner with limited liability

Answer 8

D.

Question 9

A portfolio manager generated 20% rate of return on a small cap portfolio, compared to a 15% rate of return on the benchmark portfolio and a 10% rate of return on the Standard & Poor’s 500 index over the same period. The passive rate of return on the portfolio is what

Answer 9

15%

The passive rate of return is that achieved by investing in an appropriate index fund. Here the benchmark index has a 15% rate of return this is the return that any passive investor could achieve by investing in an index fund that Mimmics that index.

Question 10

Which statements are true regarding ADRs?

A. ADRs are vehicles for trading United States securities in foreign countries
B. ADRs our vehicles for trading foreign securities in the United States
C. ADR market prices are influenced by foreign currency exchange fluctuations
D. ADR market prices are not influenced by foreign Currensy exchange fluctuations

Answer 10

B and C

Question 11

What is the penalty for making an excess contribution to an IRA

Answer 11

6% of the excess contribution

Question 12

A broker-dealer located in state day makes an offer of securities to a customer who’s principal residence is in state beach. The customer has temporarily moved to state C and has asked the post office in state be to forward the mail to customers address and state C. Which state administrator has jurisdiction over the offer

Answer 12

State a only

Because the broker-dealer is located in state A that administrator has jurisdiction. Typically because the offer was sent to state B, that administrator would also have jurisdiction. However since the offer was never received in-state be the jurisdiction is not valid for the state administrator of state b. You would think since ultimately the offer was received in state C, that administrator would have jurisdiction however there is an exemption for this specific case. To prevent entrapment of innocent broker-dealers, when mail is forwarded by a third-party to a different state without the broker dealers knowledge that state does not have jurisdiction

Question 13

Which of the following is an acceptable investment in an individual retirement account?

Municipal bonds
US minted gold coins
commodities futures contracts
variable annuity contracts

Answer 13

US minted gold coins

Because the writers of this Test are fucking idiots

Question 14

The interest rate charged on euro dollar loans between major international banks is:

Answer 14

LIBOR

Or London interbank offered rate which is the rate on which most euro dollar loans are based

Question 15

A corporate bond which is backed solely by the full faith and credit of the issueris a

Answer 15

Debenture

Question 16

Which of the following persons with no place of business in a state is excluded from the definition of an investment advisor?

A bank that receives special compensation for rendering advice about securities

A person who gives advice for a fee about investment grade corporate bonds

A person who gives advice for a fee about municipal securities

A person who gives advice about securities for a fee solely to lawyers and accountants

Answer 16

A

Banks are covered as exempt from registration as investment advisors

Question 17

Which of the following is an example of purchasing power risk?

A. The balance of payments deficit increases and the value of the US dollar declines as a result
B. The market value of all equity securities listed on an exchange declines due to worries about increasing interest rates
C. The financial statements that a company has issued are not reflective of the companies actual financial status
D. Inflation increases at a greater rate than expected, causing bond yields to rise and stock prices to fall

Answer 17

D

Question 18

Which of the following information must be recorded on in order ticket

Time of execution
Time of receipt
Account number
Solicited or unsolicited

Answer 18

All of the above

Question 19

If I percent coupon bond is being offered on a 6% basis. If interest rates for similar bonds fall below 6% the basis for this bond will

Answer 19

Also decrease

Question 20

Which of the following tools are used by the Federal Reserve to control the money supply

A. Setting reserve requirements
B. Setting the federal funds rate
C. Setting the discount rate
D. Open market operations

Answer 20

A C and D

Monetary policy tools of the Fed include setting reserve requirements setting the discount rate setting margin rates and conducting open market operations. The fed funds rate is the charge for overnight loans of reserves from bank to bank

Question 21

If you’re able annuity contract shows an AIR in it’s prospectus of 5%. The performance of the separate account to drain the first month is actually 8% on an annualized basis. In the second period discount performance at 6% on an annualized basis. The separate accounts performance in the third month is 6% as well a person who has Annuitized his or her contract can expect that the:

A. First second and third payments will be the same
B. First payment will be the largest, second payment will be lower, and third payment will be the lowest
C. Second payment will be larger than the first or third payments
D. Third payment will be the largest the second will be lower in the first payment will be the lowest.

Answer 21

D

Here is an example of how the assumed interest-rate works relative to the actual performance of the separate account in determining the monthly annuity payment.

Month one:
Assumed monthly payments $100 based an account earning 5% AIR.
Assumed interest-rate 5% actual interest-rate 8%
Since the actual performances 8% the excess is 3% over the 5% AIR. This goes to increase the access and is now $100 +3 dollars equals $103. This becomes the basis for next months computation.

Month two:
Assumed monthly payment $103.
Assumed rate 5% actual rate 6%
Since the actual performance with 6% the excess has 1% over the 5% AIR. The second month payment is now $103 +1 dollar equals $104 this becomes a base for the next months computation

Question 22

Under the investment advisors act of 1940 if registered investment advisor for the first time decides to require prepayment of $1200 or more of advisory fees six months or more in advance of rendering services the advisor must:

A. File an audited balance sheet with the securities and exchange commission
B. File a new brochure with the securities and exchange commission promptly
C. File a new initial ADV application with the securities and exchange commission
D. Notify customers no later then with the next trade confirmation

Answer 22

A.

Question 23

Under the provisions of the securities exchange act of 1934 margin on securities is set by the:

Answer 23

Board of governors of the Federal Reserve system

Question 24

A customer wishes to open an account to find a payment of private middle school tuition. If the customer does not wish to deposit more than $2000 per year and wishes to get a tax benefit the best advice is for the customer to open which type of account

Answer 24

Coverdell ESA

529 plans can only be used for higher education

UTMA and trust accounts could be used to pay for middle school tuition but do not offer any tax breaks

Question 25

A 62-year-old client makes her first with drawl from a non-tax qualified annuity. This will result in what type of tax

Answer 25

Ordinary income taxed at ordinary income tax rates it is not subject to a penalty

Question 26

Which of the following can be purchased on margin?

A. Mutual fund shares
B. Options
C. Futures
D. OTC BB issues

Answer 26

Futures

Question 27

Which item is not included in a clients income statement?

A. Interest received from municipal bond investments
B. Qualifying dividends received from stock investments
C. Interest paid on a mortgage on the clients primary residence
D. Unrealized gains from appreciated securities positions

Answer 27

D

Question 28

The dividend discount model can be used to determine what?

Answer 28

An approximate market price for a common stock

Question 29

And advisor with $133 million of assets under management has its main offices in Illinois and branch offices in Wisconsin Indiana and Missouri. Which statement is true regarding registration of the advisor?

The advisor must register only in Illinois

The advisor must register and all four states

The advisor must register with the SEC

Advisor must register with the SEC and all four states

Answer 29

Advisor must register with the SEC

Any advisor with $100 million of assets under management or more is a federally covered advisor and must register with the SEC

Question 30

All the following statements are true regarding an investment advisor that wishes to take custody of client funds under the investment advisors act of 1940 except the investment advisor:

A. Must send an itemized statement of account to each customer at least quarterly
B. Must be audited on a surprise basis at least annually
C. Must segregate each customers funds from those of other customers
D. Need not comply with the custody rules if the firm is already a registered broker dealer

Answer 30

c

Question 31

Which of the following statements concerning an open end investment company are true?

A. They can sell common stock
B. They can sell bonds
C. They can sell preferred stock
D. They can pledge their portfolio of investments for loans

Answer 31

A and D

Question 32

An investor in municipal bonds would be primarily concerned with which risk?

Answer 32

Regulatory risk

Regulatory risk is the risk of law changes primarily the risk of tax law changes. Since the interest income for municipal bonds is exempt from federal income tax the main risk associated with the securities is that the federal government may attempt to tax their interest income

Question 33

A 62-year-old man owns a nonqualified variable annuity contract. He makes a withdrawal. The amount of the with drawl is:
Not taxable

Potentially subject to taxation are capital gains rates

Potentially subject to taxation at ordinary income tax rates

Not taxable if used to pay for special medical expenses

Answer 33

Potentially subject to taxation at ordinary income tax rates

Question 34

Commercial paper is an exempt security under the securities act event in 33 as long as it’s maturity does not exceed how many days

Answer 34

270

Question 35

270. In order for a person to be “in the business” of giving investment advice, rendering advice about securities:

A. Must be the sole activity of that person
B. Must be the principal activity of that person
C. Must be a regular activity of that person
D. Need only be an isolated activity of that person

Answer 35

C.