Exam Two Questions

Question 0

A person makes an initial application for state registration on March 31 which statement is true regarding the filing fee
A. The fee will be prorated and only 3/12 of the annual fee must be paid
B. The fee will be prorated and only 9/12 of the annual fee must be paid
C. The annual fee is not prorated and the full year filing fee must be paid
D. no filing fee is due until The annual December 31 renewal

Answer 0

Correct answer is C

Question 1

If a corporation issues new stock at a price above par value, the excess above par is termed what?
A. Retained earnings
B. Surplus capital
C. Earned surplus
D. Adjusted par value

Answer 1

The correct answer is B

Question 2

It is unethical Business practice for an investment advisor to borrow money from a:
A. Bank that is the advisors client
B. Pension fund that is the advisors client
C. Broker-dealer that is the advisors client
D. Any of the above

Answer 2

Correct answer is B
It is unethical business practice for an investment advisor and their agents to borrow money from customers, unless the customer is in the business of lending money, which is the case with banks and broker-dealers.

Question 3

Under the uniform securities act, a person who sells an unregistered nonexempt security in a state has civil liability for:
A. The original investment amount
B. The original investment amount plus interest and attorneys fees
C. Any amount lost on the investment plus interest and attorneys fees
D. The amount lost on the investment plan plus compensation for pain and suffering

Answer 3

The correct answer is B

Question 4

The risk premium is the rate of return on investment over the:
A. Holding period Return
B. Stock dividend rate
C. Current yield
D. Money market return

Answer 4

The correct answer is D
The risk premium is the excess return that an investment gives over the risk-free rate of return. Money market instruments are considered to be almost risk list, so their rate of return approximates the risk free rate of return

Question 5

In March and investment advisor wishes to increase its annual management fee from 1% of assets annually to 1.25% of assets annually, starting the following July 1. In order to do this:
A. The investment advisor must file the change with the administrator immediately
B. The investment advisor must file the change with the administrator within 30 days
C. The advisers customers must approve of the change by July 1
D. The advisers customers are not required to approve of the change

Answer 5

The correct answers are B and C

Question 6

To hedge an adverse currency move, it currency trader that is long the currency could:
A. Buy currency calls
B. Buy currency puts
C. Buy forward contracts
D. Sell forward contracts

Answer 6

The correct answers are B and D
If a trader is long the currency, the risk is that the price of the currency will drop. The purchase of put options, right to sell at a fixed price, will protect from a downward market move. The sale of a forward contract will also protect the trader, since the currency is then presold at a fixed price.

Question 7

An administrator will give a specific response before the effective date for issues that are registered by:
A. Filing
B. Coordination
C. Qualification
D. All of the above

Answer 7

The correct answer is C

Question 8

An individual wishes to form a broker-dealer as a sole proprietor ship. Which of the following can the state require?
A. Filing of a form BD
B. Consent to service of process
C. Surty bond
D. Posting of minimum net capital

Answer 8

The correct answer is all of the above

Question 9

Which of the following are advantages of “DRIPS”?
A. Additional shares of the issuer are purchased with no commission charges
B. The investor gets to decide the timing of additional stock purchases in that issuer
C. The investor can add to an existing position in there that issue or without having to place an order through a broker
D. Process of buying additional shares via a DR I P allows for dollar cost averaging

Answer 9

The correct answers are A C and D
DR I P stands for dividend reinvestment plan. These are plans offered by corporate issue orders that give shareholders the ability to reinvest cash dividends paid by the company in additional shares of that company. This is a feature similar to automatic reinvestment of dividends at NAV in a mutual fund. There are no commission charges on reinvested dividends and fractional shares can be purchased. The issuers allow the shareholders to build an increased position in that issuers stock overtime in a passive fashion

Question 10

Under the provisions of the uniform prudent investor act, a trust:
A. Can customize it’s investments based on suitability as determined by the needs of the beneficiaries
B. Can only invest in securities that are included on that states legal list
C. Must determine that each individual investment is prudent
D. Gives the trustee complete discretion as to which investments are suitable

Answer 10

Correct answer is a

Question 11

Who does not have to be registered in the state as an agent of a broker-dealer?
A. A trading assistant to only accept unsolicited customer orders
B. A director of the company that is not involved in sales
C. A secretary that answers the phone and who takes orders
D. An officer of the company that oversees the firms marketing

Answer 11

Correct answer is B

Question 12

The person who prepares the trust agreement is the:
A. Grantor of the trust
B. Beneficiary of the trust
C. Trust attorney
D. Trustee

Answer 12

The correct answer is C

Question 13

If a callable bond is purchased at a premium, and it is then called at par which of the following is true?
A. The yield to call is higher than the nominal yield
B. The yield to call is the same as the nominal yield
C. The yield to call is lower than the nominal yield
D. The yield to call moves inversely to the nominal yield

Answer 13

Correct answer is C

Question 14

Which of the following would be defined as “being in the business” of giving investment advice?
A. A newsletter that discusses in general terms, the advisability of investing in securities, as part of a broad discussion of the future direction of the US economy
B. A lecturer that is hired to give an annual talk to the employees of an investment advisor, where the merits of specific blue-chip stocks are discussed
C. A consultant, who, on a rare and isolated basis, prepares reports or analysis on asset allocation across various asset classes
D. In market timing service that does not recommend securities but which gives customers “buy” and “sell” signals on heavily traded ETFs based on technical factors

Answer 14

The correct answer is D
There are advisers that specialize in offering market timing services, of about 8000 SEC registered advisors, there are 200 or so of these firms. They are considered to be “in the business” of giving investment advice for a fee and must register.

A newsletter that discusses investing in securities in general terms as part of a broad discussion of the US economy is not giving advice about investing in securities. The giving of isolated advice means that one is not “in the business” of giving advice which covers choices C and D

Question 15

An investment advisor Rep. has constructed a buy and hold bond portfolio. The major factor to consider is:
A. Selecting bonds that will give superior performance
B. Making sure all of the bonds have the same maturity
C. Selecting bonds with high credit ratings
D. Choosing bonds with differing issuers

Answer 15

The correct answer is C

Question 16

Which of the following statements is true regarding the compensation of an unlicensed solicitor for referring a customer to an investment advisor?
A. A referral fee cannot be paid to an unlicensed solicitor
B. A referral fee may be paid to an unlicensed solicitor only if there is a prior written agreement detailing the work to be performed in compensation to be paid
C. A fixed fee may be paid it to an unlicensed solicitor only if the investment advisor is a federal covered advisor
D. The referral fee can be paid as long as the amount is fair and reasonable

Answer 16

The correct answer is a

Question 17

In investment policy statement prepared for a client would include which of the following?
A. Expected returns of the recommended strategy and the variance of these returns
B. Recommended allocations among different asset classes
C. Strategies used for selecting specific Stocks in the equity portion of the portfolio

Answer 17

The correct answer is all of the above
The investment policy statement prepared for a client for who a portfolio is to be constructed details the allocation percentages for each chosen asset class, and the expected returns from each class along with the possible variance of these returns. In addition it can detail any strategies used for tactically timing the market when choosing specific investments within each class. This mean The customer has a written statement detailing the major aspects of how the portfolio will be constructed and managed

Question 18

A company that is listed on the NYSE has been in business for three years. It has a high P/E ratio, has rapidly growing earnings, but has never paid a dividend. This would be categorized as a:
A. Value stock
B. Blue chip stock
C. Growth stock
D. Defense of stock

Answer 18

The correct answer is C

Question 19

An order ticket for the purchase of stock does not contain what?
A. Time that the order is placed
B. Market price at the time that the order is placed
C. Fill price
D. Quantity

Answer 19

Correct answer is B

Question 20

What happens to the rate of return calculation on a non-callable bond if the rate of interest stays the same as the time intervals are changed?
A. Shortening the time intervals will increase the rate of return
B. Shortening the time intervals will decrease the rate of return
C. Lengthening the time intervals will increase the rate of return
D. Lengthening the time intervals will decrease the rate of return

Answer 20

The correct answers are A and D
When the question is stating that the time intervals shorten. This means that the time period Between each interest payment received shortens.
When the question is stating that the time intervals lengthen this means that the time in between each interest payment received lengthens

Question 21

The variability of an investments return is measured by:
A. Standard deviation
B. Beta coefficient
C. Duration
D. Total return

Answer 21

The correct answer is a

Question 22

The independent auditors annual report of verification of customer funds held in custody by an investment advisor, as required by the investment advisors act of 1940 is filed with the SEC on what form?
A. Form ADV part one
B. Form ADV part two
C. Form ADV – W
D. Form ADV – E

Answer 22

The correct answer is letter D

Form ADV-e the e stands for exam