Exam Wrong Answers Flashcards
Railroads whose rates are subject to regulation by state and federal agency, the…
Securities issued qualify for exemption under USA
In order for commercial paper to qualify for exemption from USA, the…
Denomination needs to be $50,000
Under the Investment Advisers Act of 1940, Advice relating to types of securities…
Is specific enough to require the individual to register as an investment adviser
Under the investment advisor act of 1940, a bank that charged a fee for providing investment advice…
Is excluded from registering as an investment adviser
An administrator has jurisdiction over an offer to sell securities if it is made in a newspaper published out of state…
Under no circumstances
The exemption from registration for those who have no five in the state and only deal with issuers applies to…
But not…
Applies to broker dealers
But not investment advisers
Under NASAAS Model rule of unethical business practices for IAs, oral discretionary authority is…
Permitted for initial transactions in customer’s account for 1st
10 business days after date of 1st transaction
Even if client has not yet returned signed paperwork
If a broker dealer is registered in state A, but its principal office is in state B, the Administrators of…
Both states can perform unannounced onsite examinations during normal business hours
States can require federal covered investment advisors to…
File any documents with the state that are filed with the SEC
States cannot require Federal Covered investment advisors to…
Maintain net capital requirements
Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and investment manager, among these requirements is…
No contract may be terminated with more than 60 days notice in writing
Section 15 of the Investment Company Act of 1940 spells out many of the specific requirements for the contract between a management investment company and investment manager, among these requirements is the initial contract is for a…
2 year period and can be renewed on an annual basis
A customer requests information on a new mutual fund and asks her agent to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted…
Under no circumstances
The prospectus is a legal document and may…
Not be altered
The Administrator, with proper notice, may examine the financial records of which of the following persons registered in his state?
Broker dealers
Investment advisors
Only broker dealers and investment advisors are required to…
Maintain financial records
Under USA agents must maintain…
Sales records
There are no financial inspections for…
Agents or
investment adviser representatives
When an investment adviser representative begins or terminates employment with an adviser registered under the USA, Who must notify the administrator?
Investment advisor only
When an investment adviser representative begins or terminates employment with a federal covered adviser, who must notify the administrator?
The investment adviser representative only
When an agent of a broker dealer begins or terminates employment, who must notify the administrator?
Both the agent and broker dealer
A stop order from another state that affects the offering of the security within that state…
Must be specified in the state registration statement of a security
The total amount of the security that will be offered in each state…
Doesn’t have to be specified in the state registration statement
An issuer is offering an IPO in its home state and neighboring states. How must they register?
Register by coordination
If an IPO is offered in more than one state…
SEC registration is required
Define registration by coordination
Simultaneous registration of security with both SEC and the states
Pertaining to federal covered securities, states still have the right to…
Require notice filings
Federal covered securities, as defined under USA, must be register with…
SEC before they can be offered in the state
Under NASAAs Model rule dealing with unethical business practices of investment advisers:
an investment adviser would have to have to disclose that the firm was acting in a principal capacity when…
Purchasing shares from an advisory client, originally acquired as a result of the advisor’s previous “buy” recommendation
According to the SEC’s rule 501, any registered investment company, bank or insurance company is defined as…
An accredited investor regardless of size
Any security given or delivered, or as a bonus of an account under USA is defined as…
A sale
A broker dealer sends an email of its clients stating that anyone purchasing at least 100 shares of an IPO that had just become effective will receive at no additional cost, a bonus of 10 shares of a Nasdaq traded stock. Under USA, delivery of this stock to a qualifying client would represent…
A sale
Administrators impose that Broker dealers may have to meet…
Certain net capital requirements
A federal covered investment advisor prepares form ADV part 2 and has his IAR tell the client they may withdraw from the contract within the first 48 hours without penalty. This statement is…
Unethical, they have 5 days to withdraw
If an investment adviser anticipates having at least $100 million under management within its first 120 days it is…
Eligible to register at the federal level
If a state registered advisor has been convicted of a nonsecurities related felony, the administrator can…
Revoke a state registered investment advisors registration
If an adviser committed a felony or participated in an unethical business practice, it’s registration will be…
Revoked
The Securities Act of 1934 prohibits a broker dealer from exercising discretion in a client’s account unless…
Written discretionary authority is received prior to first trade for the client
The bad actors provision is found in…
The Securities Act of 1933
Time and/or price discretion (when a client makes an order) is only good…
For the day placed
During the application process for registration as an agent, the Administrator may request information about the applicant’s…2
Citizenship
Proposed method of doing business
In the application process for registration of an agent non-securities misdemeanors are…
Not relevant
During the application process for registration, financial condition is only a requirement for…2
Broker dealers and investment advisers
An administrator is granted power to permit an investment adviser to charge performance based fees on an account of a client with a net worth of…
And an account balance of…
Net worth of $750,000
Account balance of $200,000
Under the Investment Company Act of 1940, an investment company must have a net worth of at least $100,000 before being…
Offered to the public
According to the Investment Company Act of 1940, at least what percentage of the board of directors must be non-interested persons?
At least 40%
According to the Investment Company Act of 1940, what is the maximum percentage of the board of directors that can be interested persons?
No more than 60%
The so-called bargain element of the non-qualified stock option (NSO) is taxed to the recipient as…
Salary income at time option is exercised
When you sell (write,go short) an option, you create…
An obligation
In the case of a selling a put, you are obligated to…
Purchase stock that is “put” to you
In the case of selling a call, you are obligated to…
Sell stock that is “called” away from you
Option buyers have rights, they can choose what they wish to do, there are…
No obligations
Options positions can either create rights or obligations. In which option position has the investor created the possible obligation to purchase stock?
Selling a put
The residual right of common shareholders refers to their position in…
The event of bankruptcy
Federal law requires that issuers of variable life insurance (VLI) policies allow exchange of these policies for a…2
Permanent form of life insurance policy
Issued by same company for period no less than 2 years
Federal law requires that issuers of variable life insurance (VLI) policies for a permanent form of life insurance policy, issued by the same company for a period of no less than 2 years. The exchange must be made without…
Without additional evidence of insurability
Treasury notes provide a client with both…
Marketability and income
A CD will provide income, but they are…
Non-marketable (only redeemed at bank)
If a CD is redeemed prior to maturity, you will suffer a…
Penalty to interest, principal or both
Compared to other alternatives of preferred stock, straight preferred stock is most sensitive to…
Interest rate changes
Convertible preferred stock is most sensitive to…
Changes in price of underlying common stock
Because the dividend rate on adjustable rate preferred stock is usually tided to changes in interest rates, the price of stock…
Remains stable when interest rates rise and fall
CMOs are a form of…
Mortgage-backed security
When interest rates fall, there is an increase in refinancing causing the mortgages to be…
Paid off ahead of schedule
Prepayment risk is…
Investor receiving principal ahead of time but only able to reinvest at current lower rate
Prepayment risk is a major concern to an investor purchasing…
CMOs
When an investor who is under 59.5 years old withdraws from a non-qualified variable annuity his gain is subject to…
Ordinary income tax + 10% penalty
Even though short interest represents the number of shares sold short (typically by bearish investors), technical analysts believe that when it gets high its is…
A bullish indicator
Each share that has been sold short must be replaced (covered) at some point. To replace the stock shorted, an investor must go into the market to buy that stock. When all of those short sellers have to buy back stock they shorted, it puts…
Upward pressure on the price of that stock
Your client has heard about investment opportunities in life settlements. Among the risks involved with this investment is…
The insured may live well past expected mortality date
Direct participation programs (DPPs) and exchange traded notes (ETNs) are considered…
Alternative investments
Preferred stock and closed end investment company (CEFs) are…
Not considered alternative investments
A REIT is a diversified portfolio that invests in…
A diversified portfolio of real estate holdings
For REITs the IRS does not permit…
Tax deferrals
The term yield spread refers to…
The difference in yield between very high quality debt and those with lower ratings
While listening to a commentator on cable TV, you hear the statement, “the flight to quality has ended.” What would you expect the effect of this to be?
Yield spreads are narrowing
The Federal National Mortgage association is trade on the…
It is not…
OTC bulletin Board
Not publicly traded
Securities issued by GNMA trade on…
The NYSE floor
The concept of inflation inertia is that price will…
Rise slowly during initial period, then pick up steam
Which leading economic indicator would reveal an indication of an expected reduction in the rate of inflation?
High unemployment
In 1986, a sweeping change was made to the US tax code. This change had a severe effect upon those who had been investing in certain limited partnership tax shelters. This is an example of…
Legislative risk
An investor using yield curve analysis would expect to view…
Bonds of a single issuer over varying maturities
Money supply is considered…
A leading economic indicator
Simple trusts must annually…
Distribute income to beneficiaries.
Complex trusts are not required to…
Annually distribute income to beneficiaries
If the grantor makes the trust revocable what are the tax consequences…
The grantor must pay tax on income distributed by the trust
Mrs. write wishes to set up a trust where income must be annually distributed to her son and her son pays income taxes on that income, what should she do?
Set up a simple trust with the son as irrevocable beneficiary
Defined contribution plans have the same contribution limits as…
Keogh plans
With defined benefit plans who bears the investment risk?
The employer
According to MPT, a security should be chosen if it has higher…
And lower…
Higher return
Lower risk
According to MPT if one security has higher return and higher risk than another it should…
Not necessarily be chosen
One measure of an investor’s total return is called holding period return. The computation includes both income and appreciation and is used for both debt and equity securities. An investor’s holding period return would exceed the bonds yield to maturity if…
The coupons were reinvested at a rate exceeding the yield to maturity
The calculation of yield to maturity assumes reinvestment of the bond’s interest at the coupon rate. Therefore, if the investor were able to do better than that…
Holding period return would be increased
According to efficient market hypothesis, The closer to inside information, the…
Stronger the information
According to efficient market hypothesis, anything published in widely read media would be considered…
Very weak
According to efficient market hypothesis, information found when reading the Wall Street Journal would be considered…
Weak-for, market efficiency
A Health Savings Account (HSA) offers the benefit of…
Tax deductible contributions
Coverdell Education Savings Account (ESA), contributions are made with…
After tax funds
In a constant dollar plan, an investor keeps a constant dollar amount of the portfolio in…
Equity securities
In a constant dollar plan, if the equities market value rises, the excess is…
Transferred to fixed income securities
Rebalancing does not…
Does not describe an investment management style
Large capitalization is considered…
An investment management style
Sector rotation would most likely be employed by an investment adviser using which of the following investment styles?
Tactical
In which of the following business entities is an owner jointly and severally liable for the obligations of the business?
A general partnership
An estate planning tool that may be used to take advantage of the lifetime estate tax exclusion is…
Bypass trust
The NASAA model rule dealing with business continuity plans is concerned with assignment of…
Duties to qualified individuals in event of death/ unavailability of key personnel
Ensuring that the investment adviser continues to generate profits during business interruption is…
Not of concern to NASAAs business continuity plans
The registration requirements of the Securities Act of 1933 would apply to…
Securities issued by foreign governments
If the agent is a partner, officer or director and held that position at the time the broker dealer was registered in that state, the individual…
Need not register separately
Rescission is the…
Return of the customers money + interest less any income made on investment
Federal covered securities includes securities that do not need to be registered with the SEC, such as…
Government and municipal bonds
A consent of device of process allows the Administrator to be the registrant’s attorney to receive service of any lawful process in any…3
Non-criminal suit, action or proceeding against registrant
A long term municipal bond fund is more…
Liquid because it is a mutual fund
A mutual fund is liquid because it can be redeemed in…
7 days of redemption request
OTC stocks can be thinly traded and are therefor considered…
Thinly traded
Even though the crime is a misdemeanor in the state where registration is being sought, the applicant’s record shows a felony convection, therefore the individual is subject to…
Statutory disqualification
Seven years ago Sarah smith is convicted of a felony in her home state for using a controlled substance. If she is trying to apply as an agent in a state where this is considered a misdemeanor, the administrator will treat this crime as…
A felony
Clearance an settlement services provided by the broker dealer….
Qualifies under section 28e of safe harbor soft dollar provisions
Providing access to the broker dealer’s computerized accounting system, allowing the investment adviser to prepare its financial statements does…
Not qualify under safe harbor soft dollar provisions
The participation rate in index annuities is…
Percentage of index’s earnings that will be credited to the account
Not all index annuities have…
Cap rates
Which if the following is most likely to affect the amount of interest credited on an index annuity?
The participation rate
ADRs are issued by domestic banks, but they are not issued…
Not issued by foreign branch of domestic banks
USA permits filing an amendment to an existing registration to…
Increase number of shares offered
Front end load fees for class B shares in the first year would never be lower than…
4%
What class of shares would a short term investor want to invest in to pay the lowest fees?
Class C shares
Members of the underwriting syndicate on an IPO are prohibited from…
Withholding shares on that issue in their own accounts
As a market maker, a firm is permitted to…
Adjust the size of is inventory to take advantage of market conditions
An investment adviser representative may share in the profits and losses of a customer’s account…
Under no conditions
Investment adviser representatives are not allowed to share in the capital appreciation or depreciation of their customers’ accounts in the same manner as…
Are agents
Negotiable jumbo CDs trade in…
The secondary market
Most Jumbo CDs are issued with maturities of…
1 year or less
Anyone who represents an issuer in effecting transactions between the underwriter and the issuer is…
Excluded from agent registration under USA
A broker dealer with no office in the state is not defined as a broker dealer in that state if it’s only business is underwriting with…3
Institutions, other broker dealers and issuers
For broker dealers there is no deminimis exemption, any solicitation into the state whether in person, radio, television, publication requires…
Registration in state
Under the Securities Act of 1933 who is civilly liable for false registration statements? 3
Experts, underwriters, individuals named
When registering a security under the Uniform Securities Act, the registrant must indicate…
All other states in which the security is registered
The effective date of a security offering is determined by…
The administrator or SEC (not the registrant)
Unless the adviser is federal covered, any adviser with a place of business in the state, no matter who the advice is sold is required to…
Register with the state
An adviser with a place of business in the state who only provides advice to open end investment management companies registered under the Investment Company Act of 1940 must…
Register in the state
In a scheduled premium variable life insurance policy a minimum cash value is…
Not guaranteed
In a scheduled premium variable life insurance policy a minimum death benefit is…
Guaranteed
Bonds selling at a discount can indicate that…
The issuers credit rating has fallen
Issuers tend to call bonds with…
Higher coupons
Bonds selling at a discount are less likely to…
Be called than bonds selling at a premium
A broker dealer registered in multiple states must meet the record retention requirements of…
The SEC
An investment adviser registered on the state level must meet the record retention requirements of…
The state where the principal office of the investment adviser is located
An administrator of a state can get an SRO like FINRA to…
Examine financial records
Both the broker dealer and the agent must be registered in…
Each state where they plan to do business
A sales agent who is only registered in Nebraska works for a broker dealer that is registered in all 50 states. A customer who is a resident of North Dakota calls the representative in Nebraska and offers to purchase securities. Under the USA, the agent should…
Reject the order because she isn’t registered in North Dakota
An investment adviser cannot lend money to a customer unless the loan is made through a regulated lender such as…
An affiliated broker dealer or an affiliated bank
An investment adviser structured as a partnership lends money to a customer to buy recommended securities. Under NASAAs Model Rule on Unethical Business Practices of Investment Advisers, this activity is…
Unethical
The Investment Advisers Act of 1940 requires that investment advisers make certain disclosures to their customers through the delivery of the adviser’s brochure. However, there are instances where the Act grants exemption if the client is…2
Investment company
Person receiving impersonal advice for annual fee less than $500
