Final Exams

Question 1

What type of investors like SPACs?

Answer 1

Risk tolerant looking for a payday

Question 2

Irrevocable trust assets. Included or excluded from estate?

Answer 2

Excluded from the estate

Question 3

Do Zero Coupon bonds have tax implications?

Answer 3

Yes, bondholders pay tax each year on accretion.

Question 4

Describe Accretion, context Zero Coupon bonds

Answer 4

Accretion is kind of like having to pay taxes on unrealized gains, but in this case it’s for interest income. Taxable at the normal ordinary income rates.

Question 5

Can a BD agent sell a security in a state they’re not registered in?

Answer 5

Yep, if an existing client moved to that state and they’re still pending registration. Up to 60 days.

Question 6

Do stop orders give you a specific price upon execution.

Answer 6

No. Think “Sell Stop” means “Start Selling”, meaning you start selling immediately after trigger, whatever that price is. Same goes with buying.

Question 7

Are stop orders used to protect gains?

Answer 7

Yes, they can act as a PEG (long) or a CAP (short) to lock in investments.

Question 8

Give an example of a structured note

Answer 8

ETN

Question 9

What is the holding period required for restricted stock under Rule 144 of the Securities Exchange Act before it can be sold by affiliates?

Answer 9

Under Rule 144 of the Securities Act, affiliates of the issuing company must hold restricted stock for at least six months before it can be sold, assuming the company is subject to the reporting requirements of the Securities Exchange Act of 1934.

Question 10

Which Act contains Rule 144 about the sale of restricted stock?

Securities Act of 1933
Securities Exchange Act of 1934
NSMIA
IA Act of 1940

Answer 10

34

Question 11

Which forms need filing to go from state registered to federal registered?

Answer 11

ADV W (to withdraw from State level), ADV 1 and 2 (A [Brochure] and B [Brochure Supplement]).

Consent to service of process also needs filing but that’s part of PART 1.

Question 12

How long do client files need to be kept after a client leaves an IA firm?

Answer 12

5 years at the end of the year.

Question 13

What’s ADV-A for?

Answer 13

ADV-A kind of opens the business and provides the general details. After initial registration, no need to fill this out again.

Question 14

Portability?

Answer 14

Used in the context of estate/lifetime gift tax exclusion amount. Surviving spouse can use the deceased spouse’s unused portion.

Question 15

What are some very important parts of an IA contract?

Answer 15

Non-Assignment clause.
Term of the contract.
Clause that says notice will be given if any level of change in ownership.

Question 16

Gift tax exclusions?

Answer 16

Tuitions if paid directly to the school. Med Expenses. Spousal gifts to an unlimited degree.

Question 17

How can BD Agents split commissions?

Answer 17

They must be employed by the same BD and in the same state. With one exception. They can be employed by different broker dealers, as long as it’s the same common control (parent company I think).

Question 18

Which one passes through gains and losses?

REITS
RELPS

Answer 18

RELP. Take note - LP

Question 19

Which of these would be the worst for a college fund?

Educational IRA
Common stock fund
Zero Coupon Bond
Variable Life Policy

Answer 19

var

Question 20

Mut Fund shares are ____

Answer 20

Redeemable.

Question 21

Have fun with this one

When would these be the time frames for prospectus issuance?

90 days
40 days
25 days
0 days.

Answer 21

Exchanges have shorter time frames. If you’ve had an IPO before, you’re better known now and don’t have as stringent of prospectus requirements.

90 days - IPO on an OTC Market
40 days - Follow on offering on OTC Market
25 days - IPO on Exchange
0 days - Follow on offering on exchange.

Question 22

Irrevocable trust. Taxable to?

Answer 22

The Trust. It cannot be taxed to the grantor because the grantor can’t even revoke it anymore.

Question 23

Revocable trust. Taxable to?

Answer 23

Grantor, since the grantor can revoke it.

Question 24

What’s the trust tax form number?

Hint: it’s almost the normal one

Answer 24

1041.

Question 25

All general partners can bind. What’s that mean

Answer 25

Each general partner has the authority to act on behalf of the partnership. They can enter into contracts, make business decisions.

To do this though they’d need the Certificate of Limited Partnership (Birth cert), Partnership Agreement (Rights, responsibilities and authority of each owner), and some operating docs

Question 25

What are three examples for statutory disqualification in the securities industry?

Answer 25

In the last 10 years: Any securities related misdemeanor, any felony, or revocation of an insurance license.

Question 26

What docs are needed to act on behalf of a C Corp?

Answer 26

Corporate Resolution, Articles of Incorporation (Birth Cert), and Corporate Bylaws (Internal management/procedures of corporation).

Corporate resolution: formal doc that records decisions made by the BOD or shareholders.

Question 27

What’s Beta based on?

Answer 27

Covariance

Question 28

Which of these are these traded?

Variable annuities
Mut Funds
UITs
FACCs

Answer 28

Vars are not traded they’re bought.
MutFunds, FACCs and UITs are all acquired the same way - by going to the issuer and buying in the primary market.

Question 29

UIT vs FACC go

Answer 29

First both are traded with Mutual Fund shares - primary market. Both are under Inv Comp Act of 1940.

FACCs are like Zero coupon bonds, they pay the fixed return at maturity, and are debt securities.

UITs are very similar to MutFunds, except two things: UITs are passively managed, and UITs have an end date.

Question 30

UIT vs Mut Fund

Answer 30

Mut Fund: Active management, only in primary market, can have all kinds of things in them, Filed under INV COMP ACT 1940.

UIT: Basically a Mutual fund except passively managed, and has an end date.

Question 31

When must material changes be filed?

Answer 31

I’m fairly certain it’s the same for both SEC and Admin, but

Material changes need prompt correction via Correcting Amendment, filed in the IARD within 30 days of the thing.

Question 32

What’s the formula for Book Value?

Answer 32

Acquisition cost - Dep/Amort

Question 33

Which are riskier?

Preferred stock or Common Stock

Answer 33

Common stock

Question 34

Can you open a Solo 401k if you have no employees?

Answer 34

Yes

Question 35

Sovereign bond

From Foreign company?
Or Foreign government?

Answer 35

Foreign Government

Question 36

What is hedging in options?

Answer 36

You’re trying to limit losses

Question 37

To which persons does the deminimis rule apply?

Answer 37

IARs and IA firms

They are separate but equal exemptions, example..

IA is located principally in Texas. IAR 1 has three clients in New York. IAR 2 has three clients in New York. Neither IAR 1 nor 2 have to register in NY. BUT the IA has a total of 6 clients in NY and must register there.

Question 38

An individual who effects transactions with exempt securities wouldn’t need to register if they are part of what type of firm?

Answer 38

Issuer

ChatGPT says ERAs as well.

Question 39

What’s an ETN?

Answer 39

It’s VERY close to Zero coupon bond.

It’s exchange traded (so it’s liquid), it doesn’t pay interest generally until maturity, and it’s an unsecured note (bond). Subject to CREDIT RISK AND MARKET RISK OF BENCHMARK.

Now that interest up there is referring to gains/losses from tracking an underlying asset/index. No taxable offenses unless you buy/sell/wait for maturity on it.

Question 40

I’m a business entity that files a K-1 (1065) tax return to determine percentage ownership and dole out profits/losses to individual members, what am I?

Answer 40

LLC, Keyword: Members

Question 41

I’m a business entity that files a K-1 (1065) tax return to determine percentage ownership and dole out profits/losses to individual partners, what am I?

Answer 41

Some form of Partnership.
GP, LP, LLP

Question 42

I’m a business entity that files a K-1 tax return to determine percentage ownership and dole out profits/losses to individual shareholders, what am I?

Answer 42

S-Corp. Keyword: Shareholders.

Question 43

Can an S-Corp issue shares?

Answer 43

Yes. And they can have a max of 100 shareholders. Remember: married couples who both own shares are considered 1 individual in this case: to squeeze in more owners.

Question 44

What types of people can be shareholders in an S-corp

Answer 44

Citizens, residents.

NR’s are not allowed.

Question 45

You buy a bond. At the time you bought it, the YTM was 4%, coupon was 5%. You sell the bond. At the time of sale the bond’s YTM was 6%.

How was the bond selling when you both bought and sold it?

Answer 45

Don’t overthink it.

YTM was lower than Coupon at the time you bought it - that means the bond price was premium.

YTM was higher than the Coupon at the time you sold it, that means you sold at a discount.

If you want to think a level further: The YTM on the bond is lower than coupon. That means bonds since have had lower coupon rates, which has driven up the price of the original bond and LOWERED it’s YTM (because it factors in current price).

If a bond value increases, a current yield (Coupon / now larger Market Value) decreases, and YTM decreases more.

Question 46

Big Question:

Accredited Investor?
Qualified Purchaser?
Qualified Client?

Answer 46

Qualified Client. This is for eligibility of performance-based-fees from IA’s. $1.1 million AUM OR $2.2 Net worth without personal residence.

Qualified Purchaser. This helps with determining if a security is a federal covered security. Remember: Fed cov sec - Mut funds, Reg D 1933, Sales to Qual purchasers, Exchange listed securities and shares with seniority over Exchange listed securities.
Qualified Purchasers must have at least $5 million in securities. If a corporation, then $25 million in investments.

Accredited Investor. Someone with a net worth of $1 million or more OR annual income over $200k ($300k MFJ). Past two years at that income level and expected to continue (no soon to retirees). Accredited investors is used in federal law under Reg D 1933. Two types.
Reg D 506(b): max of 35 non-accredited allowed. NO ADVERTISING.
Reg D 506(c): only accredited investors. Advertising/solicitation allowed generally.

Question 47

Big Question:

Accredited Investor?
Qualified Purchaser?
Qualified Client?

Answer 47

Qualified Client. This is for eligibility of performance-based-fees from IA’s. $1.1 million AUM OR $2.2 Net worth without personal residence.

Qualified Purchaser. This helps with determining if a security is a federal covered security. Remember: Fed cov sec - Mut funds, Reg D 1933, Sales to Qual purchasers, Exchange listed securities and shares with seniority over Exchange listed securities.
Qualified Purchasers must have at least $5 million in securities. If a corporation, then $25 million in investments.

Accredited Investor. Someone with a net worth of $1 million or more OR annual income over $200k ($300k MFJ). Past two years at that income level and expected to continue (no soon to retirees).
Two types.
Reg D 506(b): max of 35 non-accredited allowed. NO ADVERTISING.
Reg D 506(c): only accredited investors. Advertising/solicitation allowed generally.

Question 48

Big Question:

Accredited Investor?
Qualified Purchaser?
Qualified Client?

Answer 48

Qualified Client. This is for eligibility of performance-based-fees from IA’s. $1.1 million AUM OR $2.2 Net worth without personal residence.

Qualified Purchaser. This helps with determining if a security is a federal covered security. Remember: Fed cov sec - Mut funds, Reg D 1933, Sales to Qual purchasers, Exchange listed securities and shares with seniority over Exchange listed securities.
Qualified Purchasers must have at least $5 million in securities. If a corporation, then $25 million in investments.

Accredited Investor. Someone with a net worth of $1 million or more OR annual income over $200k ($300k MFJ). Past two years at that income level and expected to continue (no soon to retirees). Accredited investors is used in federal law under Reg D 1933. Two types.
Reg D 506(b): max of 35 non-accredited allowed. NO ADVERTISING.
Reg D 506(c): only accredited investors. Advertising/solicitation allowed generally.

Question 49

Big Question:

Accredited Investor?
Qualified Purchaser?
Qualified Client?

Answer 49

Qualified Client. This is for eligibility of performance-based-fees from IA’s. $1.1 million AUM OR $2.2 Net worth without personal residence.

Qualified Purchaser. This helps with determining if a security is a federal covered security. Remember: Fed cov sec - Mut funds, Reg D 1933, Sales to Qual purchasers, Exchange listed securities and shares with seniority over Exchange listed securities.
Qualified Purchasers must have at least $5 million in securities. If a corporation, then $25 million in investments.

Accredited Investor. Someone with a net worth of $1 million or more OR annual income over $200k ($300k MFJ). Past two years at that income level and expected to continue (no soon to retirees). Accredited investors is used in federal law under Reg D 1933. Two types.
Reg D 506(b): max of 35 non-accredited allowed. NO ADVERTISING.
Reg D 506(c): only accredited investors. Advertising/solicitation allowed generally.

Question 50

Types of Federal Covered Securities, and which are required to notice file with the Administrator?

Answer 50

Exchange listed securities, Shares with higher seniority than their exchange listed securities (example preferred stock), Shares sold to Qualified Purchasers ($5mn or more in securities).
-These are NOT required to notice file

Investment company shares, Reg D under 1933 (accredited one, not state one), may be required to notice file.

Question 50

Must Exempt Reporting Advisors Notice File?

And what are they?

Answer 50

They must notice file and pay a fee with Admin.

Advisors to Private Funds with LESS THAN $150 million, and advisors to venture capital funds are ERAs.

If that private fund crosses $150mn, they must file with SEC.

Question 51

Interest rate risk hits longer term or shorter term bonds harder?

Answer 51

Longer term, because higher duration. Duration measures sensitivity of price to interest rate changes.

Question 52

What’s the Price to Book Ratio?

Answer 52

It’s basically the MVE against the Accounting Value of the company.

MV Share / Book value of share
Both are outstanding shares.
How much more than par are the shares currently selling for?

Question 53

Bankers Acceptances. FDIC Covered?

Answer 53

No. And whenever you see this think imports, exports.

Question 54

Demand Deposits. FDIC Covered?

Answer 54

Yes.

Demand deposits include both Savings and Checking accounts.

Question 55

Brokered CD’s FDIC Covered?

Answer 55

Yes

Question 56

Brokered CD vs Non-Negotiable CD vs Negotiable CD vs Traditional CD?

Answer 56

All are covered by FDIC up to the $250k limit per account type per issuer.

Two main types of CDs:

Negotiable CDs are issued by banks. Higher denominations $100k or more. Can be traded in the secondary market.

Non-Negotiable CDs are issued by banks or credit unions. No secondary market trading and EWPs.

Brokered CDs are NEGOTIABLE, and are issued by banks but sold through brokerage firm.

Traditional CDs are NON-NEGOTIABLE, and are issued by banks or credit unions.

Question 57

Duration vs Convexity

Answer 57

Duration looks at changes in price from changes in interest rates.

Convexity looks at changes in Duration from changes in interest rates.

Question 58

Capacities. Principal vs Agency vs Broker vs Dealer

Answer 58

Principal and Dealer are the same. You’re buying and selling for/from the firm’s inventory and are charging markups and markdowns.

Broker and Agency are the same. You’re effecting securities transactions for others and charging commissions on those transactions.
For Agency, think Agent - they get commissions.

Question 59

Where are SPAC shares issued initially?

Answer 59

IPO in the primary market, and then they end up on the exchanges registered with the SEC. They don’t do OTC markets.

Question 60

Can you have capital gains under the passive income umbrella?

Answer 60

Kinda. Capital gains earned from LP are treated as capital gains on personal tax returns.

Question 61

ABC test. What’s the nuance for A?

Answer 61

A- Advice must be periodic, regular advice.

Question 62

What’s Layering?

Answer 62

Relates to Money Laundering. Means that you’re blending real money with illicit money.

Question 63

Inherited IRA with an adult kid, how can they deal with distributions?

Answer 63

10 year rule. The account must be emptied by the 10th anniversary of the end of the year of the death. So, person died in June of 2024. That means the account has to be emptied by December 31, 2034.

Question 64

What must BD’s have in order to require the posting of a surety bond?

Answer 64

Custody / Discretion

Question 65

Are LEAPS derivatives?

Answer 65

Yes. They’re long term options, and options are derivatives.

Question 66

Several money managers have had differing rates of deposits and returns. How should we compare their returns fairly?

Answer 66

Time weighted return for money managers

Dollar weighted returns for individuals/investors.

Question 67

Can an IAR manage the portfolio of an estate?

Answer 67

Yea

Question 68

Preferred stock pricing follows which?

Tbonds
Tbills
CDs
Common stock

Answer 68

Preferred stock pricing (non-convertible) closely follows Tbonds.

Question 69

If you see a question that says “registered representative”, what must you realize?

Answer 69

FEDERAL LAW

Question 70

If you see a question that says “person” what must you remember?

Answer 70

It could be a natural person or a firm.

Question 71

Cumulative Preferred stock has skimped on the last few years of dividends. What’s this mean?

Answer 71

You gotta include the amount they should’ve paid on top of what was paid, to the amount this year

Question 72

ERAs from state registration includes private fund advisers. What type of customers can invest in these private funds?

Answer 72

Accredited and up (Qual and Qual)

Question 73

What do trade blotters need?

Answer 73

Transaction unit value, transaction total value, trade date, account of trade.

Trade blotters are internal

Question 74

Who enacts fiscal policy?

Answer 74

President and congress

Question 75

Random Walker is another term for:

Answer 75

Efficient Market

Question 76

Who are the big three Government securities agencies and which one actually has the backing?

Answer 76

Ginnie Mae (GNMA). This one has the Full faith and credit of the US Gov.

Other two are:
Fannie Mae and Freddie Mac

Question 77

Efficient portfolio, Optimal portfolio =

Answer 77

Highest returns at lowest risk

Question 78

A Bond is called at a premium, how does this affect the YTC?

Answer 78

YTC goes up. You’re gonna get paid more money at call or something. Just memorize this for this exam.

Question 79

Viatical Settlements can be offered to which type of investors?

Answer 79

SUITABLE Investors.

According to NASAA, anyone who meets the definition of Accredited Investor under Sec Act 33, qualifies as a Suitable Investor..

Acc:
Net worth of $1 million
Or Income > $200k ($300k MFJ) last two years and expected to continue

Below also qualify as suitable:
Or Executive officer, director, partner of the firm

Or single or MFJ that has NW of $150,000 AND Gross income >$100k (house excluded here)

Or Minimum net worth of $250,000 (house excluded here)

Question 80

What are the qualifiers for Accredited investors?

Answer 80

$1 million Net worth
Or $200k ($300k MFJ) income past two years, expected to continue

Question 81

High spread between Bid and Ask. Efficient or Inefficient?

Answer 81

Inefficient. Potentially illiquid.

Question 82

Low spread between bid and ask. Eff or Ineff?

Answer 82

Efficient. Probably liquid.

Question 83

What do you do as an IAR if an ERISA plan participant didn’t tell you what to invest in?

Answer 83

You allocate the client’s retirement plan assets in a way that complies with a QDIA (Qualified Default Investment Alternative). ERISA says if the allocation matches the QDIA standards, then the IAR cannot be held legally responsible if shit hits the fan.

Question 84

When is form CRS submitted and filled out?

Answer 84

Customer Relationship Summary Form. Must be documented whenever a new account is opened. This is also true if an existing customer opens a new account.

Question 85

Can BD agents and IAR’s borrow from family members? How about share an account with a client?

Answer 85

In both cases, BD Agents can, IAR’s cannot.

Question 86

If you want to participate in recurring investments, which is better ETF or Mut Funds?

Answer 86

Mut Funds. If you continuously invest in the same one, they’ll often waive the sales charge.

ETFs incur brokerage commissions each time you purchase them, which means DCA doesn’t work as well here as with MutFunds.

Question 87

What four things are needed to do a cross trades?

Answer 87

Written disclosure to the client (this may not be the best idea), Revocable written consent from the customer, Written confirmation with details and date, Annual updates sent to client.

Question 88

How often are P-stock divs paid?

Answer 88

Quarterly

Question 89

How do you hedge market risk?

Answer 89

Index Cap stocks…?

Question 90

A client is risk averse and needs income, what should they invest in?

Answer 90

CD’s. Highly liquid, low risk, provides income.

Question 91

Which of these are sold by markup?
ETFs
Mutual Funds
Fixed Income Securities

Answer 91

Fixed income is sold with markups. ETFs are sold at NAV + commission, Mutual Fund shares are sold at the NAV + Sales charge (POP).

Question 92

You see a life insurance question that mentions conservative. What do you think immediately?

Answer 92

STC - Whole

I think Term also fits.

Question 93

Under the USA, are banks considered BDs?

Answer 93

No, BUT they CAN BE if they do BD stuff, in which case they’d have to register as such. Generally they’d create a subsidiary to register as a BD, rather than registering the entire bank.

Question 94

JTIC provides owners with undivided interest in the account. What’s that?

Answer 94

Undivided interest means the assets are not separated by amount, but they are responsible for a portion/percentage of the account.

Question 95

These accounts avoid Probate. (Not trusts)

Answer 95

Common property (only for married couples), JTWROS, Pay on Death, Transfer on Death.

Question 96

Does JTIC go to probate?

Answer 96

YES. JTIC goes to the estate on death, which then goes through probate.

Question 97

Which can have more owners? LPs or S-corps

Answer 97

LPs. At most S-corps can have 100 owners (200 if all are married).

Question 98

Under USA, are you an agent if you trade commodities?

Answer 98

NO. You have to trade securities to need to be registered as an agent.

Question 99

What’s high P/E mean in the context of future earnings?

Answer 99

You’re expecting higher future earnings.

Question 100

What’s special about commodities?

Answer 100

They give UNCORRELATED returns.

Question 101

Which method uses price charts?

Answer 101

Technical analysis looks at market prices of a company’s stock historically.

Fundamental analysis = financial analysis where company’s financial statements are looked at.

Question 102

Pension consultant is advising. IAR?

Answer 102

Yes, don’t think about it.

Question 103

At what point in the business cycle do you get a decrease in purchasing power (inflation)?

Answer 103

Peak is when you start to feel inflation.

Question 104

You have insider info on a company. Client calls and places a massive order on the stock, what do you do?

Answer 104

You complete the order and do not disclose anything to the client. You can talk to your compliance officer.

Think about it, if you complete the order, there’s no chance that the client will feel anything is wrong. If you refuse, client may realize that something’s going on.

Question 105

Up to 35 non-accredited investors can purchase securities in this exempt transaction. What is it?

Answer 105

Securities Act of 1933, Regulation D, Section 506(b).
Think 506(b) But No advertising or solicitation.

There’s also Section 506(c) where general solicitation and advertising are both allowed as long as all investors are accredited.

Question 106

Name the four markets.

1st, 2nd, 3rd, 4th.

Answer 106

1st - Primary, this is the market between the issuing company and their customers directly. This includes Mutual Funds, FACCs, UITs.

2nd - Secondary, this includes the National Exchanges and OTC markets. Pink market’s in here too if your security is shitty enough.

3rd - This is for securities that are trading OTC despite being listed on an Exchange.

4th - This is the market between institutions.

Question 107

Time period usages for Quick Ratio and Acid Test Ratio?

Answer 107

Quick ratio is within the year, while Acid Test Ratio is within 1-3 months.

Question 108

Before what date must you buy a stock to get the dividend?

Answer 108

BEFORE the ex-dividend/record date.

Question 109

If you don’t care about the dividend and want to get a stock cheaper after the dividend, when should you buy?

Answer 109

On or after ex-dividend/record date.

Question 110

Who issues a POA?

Answer 110

The grantor of it issues it, it’s not court issued.

Question 111

Who issues a Durable POA?

Answer 111

Grantor, not court

Question 112

Who issues a Certificate of Incumbency?

Answer 112

Court. It’s basically a company focused POA for corporate matters. While POA is stronger for personal affairs.

Question 113

What form needs filing by an IA if it falls below the Net Worth requirement set by the Admin?

Answer 113

You let the Admin know within one day, and within the following day you file a “Statement of Financial Condition”

Question 114

Open Purchase vs Open Sale vs Closing Purchase vs Closing Sale

Answer 114

Open Purchase, you’re opening a long (buy) position.

Open Sale, you’re opening a short (sell) position.

Closing Purchase, you’re closing a long position (liquidating)

Closing Sale, you’re liquidating a short position.

Question 115

When do you have to provide a prospectus with a MutFund?

Answer 115

When it’s solicited.

Question 116

Which is more of a risk in fixed income, in general?
Inflation or Credit risk

Answer 116

Inflation in general.

I would assume this would shift towards credit risk, the further into junk bonds you go.

Question 117

Can you have more than one POA designated?

Answer 117

Yeah, you’d have Consecutive agents. Example: This person has POA, and if they die, This other person gets it, and so on.

Question 118

Exempt securities advertising, can the Administrator require those advertisements?

Answer 118

No, they’re exempt from state registration.

Question 119

Which investment company type has shares that can be sold on margin and sold short?

Answer 119

Closed End Investment Companies

Question 120

How do you calculate breakevens on a straddle?

Answer 120

You add both premiums, then apply to call up and put down.

Question 121

Can an Administrator subpoena BDs in other states?

Answer 121

Yes, broad inspectorial powers

Question 122

Can an Administrator subpoena?

Answer 122

Yes

Question 123

Which records must be held for the life of the firm? (+3 years after)

Answer 123

Articles of Incorporation/Partnership Agreement, Minute books from BOD Meetings, Stock certificate books

Question 124

What type of business entity are most custodians?

Answer 124

Broker Dealers.

Question 125

Broker dealer agent commission splits

Answer 125

Same BD, Same State. OR Same state and two BDs under common control.

Question 126

Dual registered company. Has an IA client in another state. Must the BD register there?

Answer 126

No. Assuming this is all the info, the BD side does NOT have a customer in that state, but the IA does and has registered.

Question 127

What’s the difference between the Current Account and the Capital Account?

Question 127

Difference between a TOD deed and a TOD account?

Answer 127

TOD deed is for real estate property to be transferred w/o going to probate.

TOD account is for financial accounts, example Brokerage.

Question 127

The sum of Capital account and Current account must equal?

Answer 127

Zero

Question 127

What’s the Current Account?

Answer 127

It shows the trade balance (exports - imports), Net income (earnings on foreign investments - payments to foreign investors), and Current transfers (foreign aid, remittances, where no goods or services are exchanged).

Question 128

What’s the capital Account?

Answer 128

FDI (foreign Direct Investment) in physical assets like real estates and factories, Portfolio investments in financial assets like stocks and bonds.

Question 129

You exercise a stock option. Sale?

Answer 129

Yes. Exercising a call means you will be buying (receiving sale) of stock.

Question 129

What’s the Subscription Agreement?

Answer 129

This is the document for a Partnership that establishes your suitability for investment. It kind of acts like a receipt/confirmation to prove your investment.

Question 130

STC says that the Ex-Dividend date is usually on the same day as the?

Answer 130

Record Date. Record date is set by the company, while Ex-Div is set by FINRA based on the Record date.

Question 131

STC says the the Record Date is usually on the same day as the?

Answer 131

Ex-Dividend Date. Ex-dividend date is set by FINRA, usually based on the Record Date which is set by the company.

Question 132

Who sets the Record Date for a dividend?

Answer 132

Company

Question 133

Who sets the Ex-Dividend Date for a dividend?

Answer 133

FINRA, regardless of the fact that the stock itself wasn’t registered with FINRA.

Question 134

Give an example or another name for a secured bond.

Answer 134

Equipment Trust Certificate.

Question 135

Why is Value investing riskier than growth investing?

Answer 135

It’s contrarian.

Question 136

Are REITs securities?

Answer 136

Yep. Remember, securities:
Are an investment of money
In a common enterprise
With the expectations of profits
Derived solely from the efforts of others

REITs fit that definition. Just feels weird since they don’t pass through losses to investors, only income.

Question 137

What is required by the firm to open an options account for a customer?

Answer 137

Dad used to be the options manager at one of his firms. He would’ve needed to sign off on that sort of thing.

Options principal’s written confirmation, or branch manager’s written confirmation.

Question 138

Must solicitors who receive payments from a Federal Covered Adviser have to register with the SEC?

Answer 138

No, they may need to register with the state though.

Question 139

What type of mutual funds are generally seen as very illiquid?

Answer 139

Fund of Hedge Funds.

Important to note that if a mutual fund invests into illiquid things, the liquidity of the Mutual Fund itself will tank.

Question 140

In what way is the Market Risk Premium included in the calculation of a DCF analysis?

Answer 140

Market Risk Premium can help you reach Return on Equity (Re), which can be used as a discount rate. Don’t forget about Valuations with Mr. Yiramilli.

Question 141

Under what law are State Administrators allowed to set minimum financial requirements (not to exceed SEC Requirements)?

Answer 141

NSMIA 1996.

Question 142

What percentage of income must be distributed by a REIT each year?
What percentage of REIT income must come from Real property?

Answer 142

At least 90% of REIT income is distributed each year. At least 75% of income from a REIT must come from Real Property.

Question 143

What’s a Suspended Market Order?

Answer 143

Stop Order, AKA Stop Loss Order

Question 144

Who cares about a company stock’s short interest positions?

Answer 144

Technical Analysts. Tech Analysts look everywhere except inside the company, shorts are outside the company. While Fundamental analysts look solely within the company to derive valuations.

Question 145

What determines SS Eligibility?

Answer 145

40 Quarters of work, not age.

Question 146

What’s a Bypass Trust?

Answer 146

Type of Irrevocable trust used to pass assets from parents to children after BOTH parents die.

Question 147

Agent resigns from one firm, signs with another. Who needs to update the state Administrator?

Answer 147

ALL THREE. U5 is filed by BD agent and Firm he’s leaving. U4 is filed by BD Agent and firm he’s joining.

Question 148

What’s your maximum loss in a RELP?

Answer 148

It’s the amount you’ve invested and any amount you’ve committed to pay in.

Question 149

Stock prices are what type of business cycle indicator?

Answer 149

Leading

Question 150

What’s the discretion amount for 13F?

Answer 150

F stands for Fucking 100 million.

When a firm, IA, BD, whoever, has discretion of $100million or more, they gotta let the SEC know via Form 13F

Question 151

Is Interest Rate Risk short term or long term primarily?

Answer 151

Shorter. I think this is why. A change in interest rates has an IMMEDIATE (and potentially large) impact on the price of your bonds.

While inflation has an immediate but almost certainly very very small impact on your security in that same time frame.

Question 152

Is Inflation Risk short term or long term primarily?

Answer 152

Inflation sucks, but at least it takes some time to do damage, longer term.

Question 153

What’s the max amount of a 529 that can be used to repay student loans?

Answer 153

$10,000 lifetime max.

Question 154

What types of things can be paid for with a 529?

Answer 154

Tuition, higher education costs, student loans (10k max lifetime), and apprenticeship program expenses.

Question 155

Registration by Coordination is used to kinda multi-task. Registering a security with the SEC and Admin within a short time frame (doesn’t have to be at the same time, but can be). What laws are these securities registered under at state and federal levels?

Answer 155

State - Uniform Securities Act
Federal - Securities Act of 1933

Remember, 1933 act is for securities. 1934 act is for the trading/exchanging of securities.

Question 156

Are ETFs Derivates?

Answer 156

NO, neither are Mutual Funds.

Question 157

Which is better for retirement? Variable Annuity or Variable Life?

Answer 157

Variable Annuity

Primary purpose of pumping money into a variable annuity is to have a stream of income during retirement (once you’ve annuitized). Primary purpose of Variable life is to get a death benefit after retirement, but you can use the cash value during retirement - not ideal though because of penalties and red tape.

Question 158

What’s another term for Strike Price?

Answer 158

Exercise Price.

Question 159

If a corporation declares a cash dividend, when is the ex-dividend date and what happens on that date?

Answer 159

The ex-dividend date is the same day as the record date and is the date on which the stock’s price is reduced by the amount of the dividend.

Question 160

You want to sell the stock but still be entitled to the dividend?

Example: Div Declared on May 1. Record date is June 9. Payment of dividend is July 10.

Answer 160

Sell on the Ex-dividend/record date.

The customer should sell the stock on Friday, June 9, for regular-way settlement. Since the record date is Friday, June 9, the ex-dividend date is also Friday, June 9 (ie., the same day as the record date). This means that a person who sells the stock on the ex-dividend date will still receive the dividend because she will still be the owner of the stock as of the record/ex-dividend date. A regular-way transaction settles one business day after the trade date. Alternatively, if the stock is sold on Friday, June 9, for cash settlement, the trade will settle on the same day and, as a result, the buver will be the owner of record and the seller will not receive the dividend

Question 161

Exceptions to Penny Stocks?

Answer 161

Securities for $5.00 or more
Exchange listed securities
Options on OCC Markets
Investment Company (1940) securities

Question 162

Client wants IAR to make transactions in a trust account. Which is needed?

POA
Cert of Incumbency
Durable POA
3rd Party Trading Authorization

Answer 162

When you see Trust, think Cert of Incumbency

Question 163

Trading authorization, what is it?

Answer 163

When you see Trading Authorization, this just means Discretion over accounts. AND it acts like a mini-POA specifically PER ACCOUNT.

So full trading authorization means full discretion over a single account, not over all the client’s accounts.

Question 164

Full vs Partial Trading Authorization?

Answer 164

Remember, Trading Authorization is mini POA. Both can trade in the account given.

Full - Can withdraw funds, transfer to other accounts, some can even rebalance the entire portfolio

Partial - Cannot withdraw, or transfer

Question 165

De-Minis for IARs working for FCAs. How’s it work?

Answer 165

It doesn’t apply for IARs of FCAs. IARs under FCAs only have to register for the state they go to office in.

Question 166

De-Minimis for Federal Covered Advisers. How’s it work?

Answer 166

De Minimis says that if you have more than 5 (so 6 or more) clients in a state you must register there as an IA. Federal law (NSMIA in this case) says not quite, you don’t have to register with the states. However, if you wouldn’t have been exempt under DeMinimis, Admins of those states can require notice filing AND fees.

Question 167

Three things on a Customer’s IPS?

Answer 167

Expectations related to the markets
Analysis of risks and rewards
Asset allocation models

Question 168

Block Order vs Bunched Order

Answer 168

Block order just means 10,000 shares or more in one order.

Bunched order means that you Bunched up a bunch of smaller orders from various clients to get better pricing.

Question 169

Who gets the Sales charge from the sale of a mutual fund share?

Answer 169

The company that brokered the transaction receives the sales charge (BD typically) and gets that in lieu of a commission.

Question 170

JTIC vs JTWROS. which is more common for married couples?

Answer 170

JTWROS. Think about it, most married couples want to pass their accounts onto their partners without having it go to estate (and therefore probate).

Question 171

Learn who would need to register as an IAR in certain circumstances, I’m still weak there.

Answer 171

This isn’t a question, go fuckin learn it

Question 172

IA gives brochure at the time of the contract signing. Client cancels contract 3 business days after. What happens if the IA has already done some services for the client since the signing?

Answer 172

The IA can keep a proportion of the fees for the services already performed, but no cancellation fees can be applied.

Question 173

Statistical method that attempts to determine the return profile of a security/portfolio by generating random values based on the risk and return characteristics of the securities/portfolios themselves is?

Answer 173

Monte Carlo Simulation

Question 174

What’s the Monte Carlo Simulation?

Answer 174

Statistical method that attempts to determine the return profile of a security/portfolio by generating random values based on the risk and return characteristics of the securities/portfolios themselves is?

Question 175

Solicitors for Federal Covered Advisers. Must they be registered to receive compensation from the IA?

Answer 175

No. You can use a BD as a solicitor (example) and they wouldn’t need to register as an IA

Question 176

Massive order from Japan for jumbo jets that are produced in America. What’s the effect on Current/Capital account?

Answer 176

Money coming into US is CREDIT TO CURRENT ACCOUNT. Or (unlisted answer I assume) would be a debit to current account of Japan.

Credit is money in, debit is money out.

Question 177

Do BD agents have to post a bond?

Answer 177

BD’s agents may have to post a bond.

Question 178

Letter of intent to buy mutual fund shares can be backdated how far?

Answer 178

90 days

Question 179

What’s an artifice?

Answer 179

Artificial sense of urgency. YOU GOTTA BUY IT NOW TO GET THE DIVSSSS

Don’t do that.

Question 180

What’s a breakpoint sale?

Answer 180

When you’re trying to maximize your commission by accepting an order that’s jusssstttt under the breakpoint amount in order to max your commission.

Example: Breakpoint if you buy $50,000. Agent tries to get you to buy $49,999 worth. If he hits $50k, he gets a smaller commission bc of that breakpoint.

Question 181

Where does the leveraging in ETFs generally come from?

Answer 181

From Futures according to Series 7 Guru

Question 182

How often do variable life policy death benefits need to be calculated?

Answer 182

Remember, in these types of policies, the death benefit grows according to the amount of earnings in your investment sub accounts, this helps to hedge the death benefit against inflation.

Question 183

What’s an associated person in a firm?

Answer 183

Someone who needs to register via a Series 65

Question 184

So to make an evaluation of future value computation, which isn’t needed?

Present value
Future Value
Rate of Return
Time period

Answer 184

When you see future value computation, they’re asking “We’re trying to get the FUTURE value”, so it’s not needed to get itself. If you swap future for present, the same applies, and the present value wouldn’t be needed.

Question 185

Matched trades?

Answer 185

Where companies agree to buy or sell at the same time. This is a no no

Question 186

What’s spoofing?

Answer 186

When BD’s enter large orders with no intention of executing them in order to falsify market activity. this is a no no

Question 187

Formula for Dividend Payout Ratio

Answer 187

Dividend / EPS

Question 188

Look out for questions that ask something like this:

The RIF Corporation can issue all of the following except:
RIF Rights
RIF Call options
RIF Warrants
RIF Common Stock

Answer 188

Call options.

They’re throwing you off, there is no RIF Corporation, it’s an example company. Companies don’t issue options on their own stock, these are found in the secondary market.

Question 189

True or False CAPM Assumes that there are no transaction costs or taxes.

Answer 189

True.

Question 189

To be a Jumbo CD, how much money?

Answer 189

100k (aka Negotiable CD)

Question 189

How do you get the information registered with the SEC on publicly traded companies?

Answer 189

Use the EDGAR

Question 189

To be a negotiable CD, how much money in it?

Answer 189

100k (aka Jumbo CD)

Question 189

Do CD’s need to be registered?

Answer 189

NO

Question 189

Interest Rates are declining. What stage of the business cycle is that?

Answer 189

Contraction

Yeah, you don’t get it yet either do you.

Question 189

Unit values and cash values are computed how often? (Variable life separation account value)

Answer 189

Unit values - daily
Cash values - monthly

Not on STC, just remember the info in case

Question 190

IA is registered in States A,B,C. IA begins the registration process for State D. Certain IARs will be automatically conferred (not granted) registration in State D alongside the firm. Who?

Answer 190

Officers, Partners, Directors of the firm who will be functioning in State D.

Question 190

Stock price has been falling for a little while. When the stock price hits $30, many investors place buy orders and the price subsequently ups to $31 as a result. What’s that?

Reversal
Support Level
Change in Polarity
Resistance Level

Answer 190

Support Level

Question 190

Disclosure of Payment for Order Flow is found where?

Answer 190

Trade Confirmation apparently

Question 190

You’re selecting an appropriate MutFund for a client. Which do you not care about?

Expense ratio
NAV
Tenure
Investment objective

Answer 190

You don’t care about the NAV.

Question 190

What form is filed if a firm’s gonna sell a wholly owned subsidiary?

Answer 190

8K - just remember this one’s for big shit.

Question 190

Close ended fund base their prices on Supply and Demand and charge markups and markdowns to the NAV, True or false

Answer 190

True

Question 191

Only Open ended funds, rather than close ended funds, bases its price on the next computed NAV. True or false

Answer 191

True

Question 192

What’s a Totten Trust?

Answer 192

Bullshit way of saying POD account.

Question 193

NAV is $100 on day 1. Day 2 they realize $2 in gains and $1 in unrealized gains. Day 3 NAV?

Answer 193

$101

$100 + $2 realized - $1 unrealized

Question 194

Suitable investor Vs Accredited investor

Answer 194

Suitable is state version of federally accredited. Suitable investors can buy viatical insurance policies. Suitable investors include anyone who qualifies as accredited investor under the 33’Act definition and any of these:
partners, directors, officers of issuer
or $250k min NW (no house)
or $150k min NW AND $100k gross (no house)

Question 195

What’s an order memorandum / order ticket?

Answer 195

They’re the recorded transactions for customers.

Account #, date of entry, date of execution.
Modified? Cancelled? Done?
Terms Conditions
Solicited vs Unsolicited
Discretionary vs Non
BD or Bank that executed

Question 196

What’s needed for an agent to be associated with two broker dealers?

Answer 196

Admin has to OKAY it

Question 197

Finder gets commission on people he finds to bring to issuers for private placements. must he register?

Answer 197

Yes, as he is soliciting and receiving compensation.

Question 198

Finder gets paid for finding a set number of potential investors for a private placement. Must he register?

Answer 198

NO.

Question 199

U4 must be updated promptly (30 days) if any material facts on it change. List some.

Answer 199

Becoming registered in another jurisdiction (i.e., another state)
 Change in legal name
 Change in residential or business address
 Violated the federal or state securities laws or SRO rules
 Been the subject of a regulatory proceeding or investigation
 Been involved in any legal proceedings (civil or criminal)
 Been the subject of a customer complaint
 Been terminated by a previous employer
 Declared bankruptcy, had a lien placed on your property or any unsatisfied judgments
 Engaged in outside business activities (e.g., acted as a general partner, job outside employment with
broker-dealer, etc.)

Question 200

BD Recordkeeping. 3yrs, 6yrs, Lifetime. What goes where?

Answer 200

3yrs: Ads, Order Tickets, Confirmations

6yrs: Blotters, Ledgers, Customer Statements

Lifetime: Articles of Incorp (Corp), Partnership Agreement (Partnership), Stock certificate books, Minutes from Shareholders meetings

Question 201

A customer buys 200 shares of Giant stock at $63 a share. The client writes 2 call options with a $75 strike price and receives a premium of $4. What is the customer’s breakeven point?

$71
$67
$55
$59

Answer 201

$59

Think positives and negatives. You write a (covered in this case) call if you’re bearish. When you’re bearish, breakeven goes down from strike price. Weird..

A type of option position where an investor buys or holds stock and writes a call option is called a covered call. This strategy is typically used to generate income. The breakeven point is $59. It is determined by subtracting the premium from the cost basis of the stock ($63 - $4). The fact that 200 shares were purchased and that two calls were written is irrelevant, since the breakeven point is calculated on a per-share basis. (74462)

Question 202

If a member firm has written procedures which allow for the borrowing and lending of funds between agents and customers, in which of the following situations is an agent NOT allowed to borrow from a customer?
QID: 2331093Mark For Review

If the customer and the agent are both registered with same firm

If the loan is based on a verbal agreement that the agent has with a non-registered person and the agent repays the loan in full

If the customer is a member of the agent’s immediate family

If the lending arrangement is based on a business relationship that exists outside of the broker-customer relationship

Answer 202

B

A person who is associated with a member firm in any registered capacity may NOT borrow money from or lend money to a customer of the firm unless the firm has an existing written policy which allows the practice and one of the following criteria is met:
The customer is a registered person with the same firm
The customer is an immediate family member
The loan is based on a business relationship that exists outside of the broker-customer relationship
The customer is a financial institution that regularly engages in the business of providing credit, financing, or loans
The answer is based on the fact that even if the agent repays the loan plus interest, it is considered a violation if the customer is not on the narrow list of permitted persons. (32497)

Question 203

What do Gamma and Theta Measure?

Answer 203

Volatility of options premium

Question 203

CIP customer id program?

Answer 203

?

Question 204

A security is being registered with the state Administrator by the issuer using registration by qualification. When investors purchase the security from the issuer, when must the prospectus be delivered?
QID: 2331045Mark For Review

Within five days of delivery

Within five days of settlement

Before the sale

No prospectus is required

Answer 204

c

Under the Uniform Securities Act, a prospectus must be delivered to an investor at the time a security is being offered under registration by qualification. Since the offer of a security occurs before the sale, a prospectus must be delivered before the sale.
(19923)

Question 204

A broker-dealer owns 100 shares of ABCO stock which it purchased at 28. If the stock is sold to a customer, the broker-dealer will base the markup on:
QID: 2331009Mark For Review

The inventory cost of 28

The highest bid on the Nasdaq system

The lowest offer on the Nasdaq system

A price that is fair and reasonable

Answer 204

c

When selling stock to a customer, a markup should be based on the lowest offer on the Nasdaq system, not the price the dealer paid to purchase the stock (dealer’s inventory cost). (62730)

Question 204

Currency values in a floating-rate system are established by:

Supply and demand for the currency

Government regulations

The World Bank

The International Monetary Market

Answer 204

Supply and demand for the currency

Question 204

If the U.S. economy was experiencing tough times with slow or negative growth, creating an extreme lack of demand for consumer goods, the result might be:
QID: 2331090Mark For Review
A
Inflation

Deflation
C
Stagflation
D
Disintermediation

Answer 204

Deflation.

Inflation is when Demand for shit is high because economy boomin. Demand products > Supply of products

Deflation is opposite. When no one wants jack shit, Demand for products < Supply of products

Question 204

Five years ago, a registered representative sold a variable annuity to a 65-year-old client. The annuity carries a seven-year surrender fee. The client made a lump-sum investment of $100,000 into a growth-oriented separate account which has grown to $150,000. The RR expects a major market correction in the near future and recommends that the client conduct a 1035 Exchange into a fixed annuity. The RR explains to the client that the surrender fee will be less than the anticipated decrease in account value. This recommendation is:

Unsuitable, since there is no benefit in surrendering the annuity due to the other investment options that are available in the separate account.

Suitable, since the surrender fees have been disclosed to the client.

Suitable, since the RR is acting in the client’s best interests.

Unsuitable, since the market correction will have little consequence over the short-term.

Answer 204

a

A 1035 Exchange permits the direct transfer of funds in a life insurance policy, endowment policy, or annuity into another policy, without creating a taxable event. However, incurring a surrender fee and then signing a new, long-term contract is not an appropriate recommendation.
Since the separate account of a variable annuity will offer numerous investment objectives, the client could move her investment to another offering within the separate account without incurring surrender charges. (89085)

Question 205

Learn 13D please for my sanity.

Answer 205

File 13D within 10 days of someone becoming a more than 5% owner. Filed under 34’ Act, yes ‘34. Since it’s filed under 34, you file with SEC.

Question 205

If an investment increases in value, which of the following statements would be TRUE?

If it was held for less than one year, the annualized rate of return would be greater than the holding period return

If it was held for less than one year, the holding period rate of return would be greater than the annualized return

Regardless of the actual holding period, the holding period and annualized return are always identical

If held for more than one year, the holding period return would be less than the annualized return

Answer 205

A

Example:

5% returns over a quarter (HOLDING PERIOD)
20% returns over a year (ANNUALIZED RETURN).

If less than a year held, Annualized will be multiplied up from the holding period.

If greater than a year held, Annualized will be divided down from the holding period.

Question 206

A market maker gives a firm quote of 15 - 15.50 for a stock. If the party on the other side decides to buy 800 shares, how many shares is the market maker obligated to sell at 15.50?

100 shares

The market maker does not have to sell any shares.

800 shares

Whatever the market maker decides upon

Answer 206

Market Maker - Think 100 shares. They MUST transact to keep liquidity.

Question 207

Jack has a substantial amount of cash value built up in his variable life insurance policy. He would like to use some of it for a home renovation project. Which TWO of the following choices would be used to explain to Jack his options for accessing his cash value?
If he withdraws some of his cash value, it will be treated as taxable earnings first, then a tax-free return of premiums (LIFO).
If he withdraws some of his cash value, it will be treated as a tax-free return of premiums first, then taxable earnings (FIFO).
If he takes a loan against the cash value, it will be taxed as earnings first, then treated as a tax-free return of premiums (LIFO).
If he takes a loan against the cash value, it will be tax-free.

Answer 207

II IV

Any withdrawal of cash value from a life insurance policy is considered a return of premiums first, which would be tax-free. Withdrawals above the amount of premiums paid will be considered interest and, therefore, taxable as income. Policyholders usually prefer to borrow against their cash value, since this would be tax-free. The loan does not need to be repaid, but any amount still outstanding upon the death of the insured will be subtracted from the death benefit. (63059)

Question 208

A whole life insurance policy may be referred to as:
Permanent life
Term life
Ordinary life
Straight life

Answer 208

I III III

Question 209

In anticipation of volatility in the price of ABC common stock, an investor purchased one ABC March 40 call at $1.35 and one ABC March 40 put at $1.15. Just before the options’ expiration, the price of ABC stock is $42.05 and the investor closes out both positions at their intrinsic value. Which of the following statements is TRUE?

The investor has a loss of $235.

The respective breakeven points were 41.35 and 38.85.

The investor has a loss of $45.

The investor has a profit of $235.

Answer 209

Loss of $45

Stock price is $42.05.
Closes out at their intrinsic value (not let them expire).
The call has an intrinsic value (in the money) of $2.05 (from $40), and the put has $0 of intrinsic value. $2.05/share * 100 shares in an option = $205 gain.

He spent $250 on both options (($1.35+$1.15)*100 shares). That’s a loss

205 gain - 250 loss = 45 loss.

Question 210

What do corporations do to borrow from banks?

Answer 210

Revolving credit facility. Kind of like credit card for a company, you owe interest on what you borrow.

Question 211

Options don’t have which two types of risk?

Answer 211

Reinvestment and Inflation

High returns / High losses, and usually shorter term - inflation loves low returns and longer term, so no risk there for inflation.

Reinvestment risk - this is tied DIRECTLY to interest rates, which don’t really do shit to options.

Question 212

IA Order ticket includes which of these?

The person who recommended the transaction

The person who placed the order

The date on which the order was entered

The time that the order was executed

Answer 212

I II III

Question 213

An investment advisory firm and an accounting firm have offices in the same building, but are otherwise unaffiliated. One of the investment adviser representatives pays a cash referral fee to a CPA in the other office for any clients she sends over to the adviser. All the following statements are TRUE, EXCEPT:
QID: 2331014Mark For Review
A
The adviser must give each client that is acquired through the CPA another copy of the separate solicitor disclosure document at the time the client agrees to enter into an advisory relationship.
B
The CPA must give a separate disclosure document to any clients that she refers to the adviser.
C
The CPA must give the investment adviser’s brochure to the clients that she refers to the adviser.
D
The adviser must make a bona fide effort to ensure that the CPA is giving the clients whom she refers copies of the adviser’s brochure and the separate solicitor disclosure statement.

Answer 213

A is false

the rest are true

Question 214

What’s the Reasonableness standard?

Answer 214

Investment is suitable for at least some investors.

FINRA has a three-part suitability standard. The first part is the reasonable basis standard, which indicates that a recommendation must be suitable for at least some investors. The customer-specific standard requires that a recommendation must be suitable for a specific customer based on the customer’s investment profile. The final part of the FINRA rule is the quantitative standard, which specifies that a series of recommendations cannot be too excessive and that they don’t leave a customer with too much invested in one type of investment. FINRA has a three-part suitability standard. The first part is the reasonable basis standard, which indicates that a recommendation must be suitable for at least some investors. The customer-specific standard requires that a recommendation must be suitable for a specific customer based on the customer’s investment profile. The final part of the FINRA rule is the quantitative standard, which specifies that a series of recommendations cannot be too excessive and that they don’t leave a customer with too much invested in one type of investment.
(13821)

Question 215

New claims for unemployment have been rising, what stage are we?

Answer 215

Contraction. Since unemployment claims are made for troughs and that’s in the future, we’re currently in contraction

Question 216

Benefits of swaps (Multiple)

Customizable
Established for short term
Hedge against risk
Lower cost

Answer 216

I II III

Swaps are customizable, remember Scion company in the Big Short MADE his own swaps at various banks.

They’re for short term, IG

They hedge against risk

Question 217

Under NASAA’s Mode Rule on Investment Adviser Representative Continuing Education Requirements, how many credits may be rolled over annually?

Answer 217

ZERO

You can’t complete more hours than necessary then roll them over

IARs must complete six credits of Regulatory and Ethics credits, and three of those six credits must specifically address ethics. IARs who are not dually registered as registered representatives with FINRA must also complete six credits covering Products and Practices each year.

Question 218

How many hours for CE for IARs?

Answer 218

12

6 for products and practices
6 for regulatory and ethics (3 must cover ethics specifically)

Question 219

Who hedges futures/forwards more?

Producers or speculators?

Answer 219

Producers. They’re making whatever is in the futures/forwards, so they want to hedge the risk on their livelihood.

Question 220

A customer buys 200 shares of Giant stock at $63 a share. The client writes 2 call options with a $75 strike price and receives a premium of $4. What is the customer’s breakeven point?

Answer 220

We’re looking at the SELLER’s breakeven.

Seller paid $63/share, but then got paid $4 for that, so it’s kinda like he paid $59 for it. If the stock goes below $59, he would lose money if he sold. If the stock stays above $59, he would have a gain if he sold, nevermind the option currently.

The buyer’s BE is easy - $79

Question 221

Which trades independently from its NAV?

Variable Annuity
UIT
Closed-end Fund
Mutual Fund

Answer 221

Closed end. it’s just a markup or markdown. Those markups and markdowns can vary wildly, without influence from the NAV. The others trade at their NAVs.

Question 222

3(c)(I)?

Answer 222

Think Hedge Fund. And remember, hedge funds are a type of Private fund, which can be an exempt reporting adviser if it’s less than $150million.

Question 223

SEC Release 1092?

Answer 223

It expanded the definition of IA to include pension consultants, sports reps and Fin planners.

IMPORTANT: they do not have to meet the ABC test to be needed to register. They just have to provide investment advice.

Question 224

Admins Cease and Desist powers?

Answer 224

ONLY IN THEIR OWN STATE.

Question 225

ABS vs CMO?

Answer 225

ABS is a CMO but without the M, no mortgages. They function the same though.

Question 226

Why does Preferred stock commonly follow the pricing of TBonds?

Answer 226

Preferred stock pays an unending dividend each quarter. TBonds are the longest term bonds that pay semi-annual interest. They’re the closest instruments.

Question 227

What is Restricted Stock?

Hint Private Placement

Answer 227

Restricted stock is stock that’s not been registered with the SEC and is typically sold under Regulation D (i.e., a private placement). Restricted stock cannot be sold unless the shares have been held for at least six months (if the issuer is an SEC-reporting company) or one year (if the issuer is a non-reporting company). In order to resell restricted stock on a stock exchange, investors must sell the shares in accordance with Rule 144, which limits the number of restricted shares that can be sold in a 90-day period.

Question 228

Learn this:

Investors often use financial futures to hedge portfolios against which of the following types of risk?

Political risk

Event risk

Market risk

Business risk

Answer 228

C

CORRECT ANSWER CHOSEN
Financial futures can be bought and sold for stock indexes, foreign currencies, and bonds. Similar to how put options can hedge a stock position, stock index futures can hedge the market risk for a portfolio that tracks an index. Investors will sell futures contracts and profit when the market falls. The subsequent profit on futures will offset the portfolio’s losses. Business risk is typically minimized through investing in an uncorrelated portfolio of stocks (i.e., through diversification). Political risk and event risk cannot be directly hedged, since there are no financial futures that address those risks.
(19152)

Question 229

Mutual Funds. Are Fractional Shares Allowed for Purchases?

Answer 229

Yes

Question 230

Broad based options vs Narrow based options?

Answer 230

Broad covers way more stuff in general

Narrow is more for one industry (eg Oil/Gas)

Question 231

All of the following economic conditions signal an upward sloping yield curve, EXCEPT:

The yields on longer maturities are significantly higher than the yields on shorter term maturities.

Fixed income investors demand higher yields on long-term bonds.

The economy is on track for a rapid expansion.

The Federal Reserve is expected to cut interest rates.

Answer 231

Fed is gonna cut.

Think of it this way:
Normal yield curve goes up and to the right. That means the economy is on track and about to expand. Increase rates so we don’t hit the ceiling so fast.
Inverted yield curve goes down and to the right, literally means shit is going downhill. If shits going downhill, the fed will cut rates.

Think about it. Fed will cut when we’re going downhill so we don’t hit the floor (trough) too hard. Inverted yield curve is indicative of a bad time coming.

Question 232

What name is given to the type of units used during the payout phase of a variable annuity?

A
Annuity units
B
Accumulation units
C
Payment units
D
Paid-in units

Answer 232

Annuity Units

For payout - Annuity
To calculate payout - accumulation

When annuitization begins, accumulation units are exchanged for annuity units. Investors then receive payments based on the value of a fixed number of annuity units. The value of the annuity units will fluctuate based on the performance of the variable annuity’s separate account, which will cause the payments to rise or fall. (67685)

Question 233

STATE IA’s that have Custody, partial discretion and accept prepayments.. What are the net capital requirements for each?

Answer 233

Prepayments: positive net worth
Custody: 35,000
Partial: 10,000

Investment advisers that maintain custody of client assets have a minimum net worth (i.e., assets - liabilities) requirement of $35,000. Investment advisers that don’t maintain have custody, but have limited discretionary authority have a minimum net worth requirement of $10,000. Investment advisers that collect pre-paid fees of more than $500, six months or more in advance, must keep a positive net worth at all times. All investment advisers must file financial reports to indicate how they’re meeting their net capital requirements. (22062)

Question 234

Which of the following is BEST described as the process of committing to various asset classes based on estimates of their near-term expected returns and their correlation to other asset classes?
QID: 3148222Mark For Review
A
Rebalancing

Tactical asset allocation
C
Fundamental analysis

Strategic asset allocation

Answer 234

Apparently committing to investments doesn’t mean shit - it’s tactical instead of strategic.

Question 235

Two advisers have entered into a finder’s agreement. Adviser A will solicit new customers and receive 2% of Adviser B’s fees. At the end of the year, the clients will only pay an advisory fee to Adviser B. Does Adviser A have a fiduciary obligation to disclose the arrangement to the clients prior to making referrals?

A
Only if Adviser A is a registered adviser.
B
Yes. Regardless of whether the client pays an additional fee, the arrangement is a conflict of interest and requires disclosure.
C
No. Although a conflict of interest exists, it doesn’t require disclosure.
D
No. Since the client doesn’t pay any additional fees, no conflict of interest exists.

Answer 235

B

CORRECT ANSWER CHOSEN
Under the Investment Advisers Act of 1940, investment advisers are permitted to pay finder’s fees to solicitors. However, a written agreement which details the arrangement between advisers must exist. Additionally, the clients need to receive a copy of the adviser’s brochure which discloses the compensation, and a signed and dated acknowledgement from the client that the brochure was provided needs to be received prior to entering into the advisory agreement. (22079)

Question 236

As it relates to the capital asset pricing model (CAPM), which of the following best describes beta?

A measurement of the volatility of investment returns

The degree to which an investment’s returns follows overall market returns

Answer 236

Degree to which investment returns follow market returns.

High beta = higher THAN MARKET (SP500) returns
Low beta = lower returns

Question 237

NMS securities, what’s that mean?

Answer 237

It’s a fancy way of saying Exchange listed securities and the term is used in FEDERAL LAW.

Connect the dots, Registered Representatives would solicit clients for the sale of NMS securities. (Means Agents solicit clients for exchange listed securities).

Question 238

ADV dates:
Updating Amendment?
Correcting Amendment?
ADV-E?
ADV-W?

Answer 238

Updating Amendment aka Annual Renewal needs to be filed within 90 days of firm’s (state or federal) FISCAL year end. Includes changes to non-material shit like AUM, # discretionary/non accounts, # accounts, # employees, #IARs.

Correcting Amendment needs to be filed within 30 days of the material change to ADV (part 1 or 2) info. Includes changes to address of firm, status change of general partner, manner of custody, fee structure changes.

ADV-E is the one that independent accounting firm files when an IA has custody of assets. ADV-E is filed within 120 days of the audit.

ADV-W becomes effective 180 days after the fiscal year of the firm ends. Not sure when it needs to be filed though.

Question 239

Repo vs Reverse Repo?

Answer 239

Repo - The FRB buys first, then sells back later.

Reverse Repo - The FRB sells first, then buys back later.

Repo - think you’re the customer and you BUY the car first, but it gets taken later.
Reverse repo - think Sell first.

Question 240

Global Depository Receipt vs American Depository Receipt?

Answer 240

ADR is an ADR while GDR is the foreign version,

Question 241

LIFO vs FIFO. Which one does liquidation of an annuity use? How about Life insurance?

Answer 241

With Annuities you wanna live a long LIFO.

With Life insurance, the insurance company suffers more if it’s sooner. FIFO.

Question 242

Newspaper offerings. What’s the deal yo?

Answer 242

If more than 2/3 of the circulation is outside the originating state, no offer has been made in any state.

Another way to think of it, at minimum, 33% of the circulation must be in the original state for it to be considered an offer.

Question 243

When going for a value stock, agent looks for high or low of these?

EPS
P/E
P/B
Div Yield

Answer 243

High earnings per share
Low price/earnings ratio
Low price to book value
High dividend yield

Question 244

Problem with ADRs?

Answer 244

Because of currency exchange rate fluctuations and supply/demand dynamics, the ADR price may not completely accurately reflect the value of the underlying foreign security

Question 245

JTWROS is a commie account, what do I mean by that?

Answer 245

It doesn’t matter how much you put in, everyone gets equality of outcomes.

Question 246

Trade deficit is decreasing. What’s that mean for these:

Bond Yield increase or decrease?
USD strengthen or weaken?

Answer 246

Deficit decreases, means more exports than imports. Other countries convert their currency to USD to buy products from US (leads to exports) which means demand for USD goes up. This strengthens the USD against OTHER CURRENCIES. Meaning a 4% bond in the USD pays more after exchanging to the home currency than before. Demand for Bonds goes up, Price of bonds rises to meet this, and as a result, the yield (relative to the new price) is now lowered.

Question 247

A publisher responds to each customer with personalized investment advice. No fee is mentioned. Must they register?

Answer 247

Yes

Question 248

Stock has large amounts of cash reserves. What type of stock?

Answer 248

Value. Think about it, growth would use as many of those dollars as they could in RnD.

Question 249

What do we think when we see Rule 147?

Answer 249

INTRASTATE. QUALIFICATION IS USED FOR THIS

Question 250

letter of intent time frame?

Answer 250

13 mo

Question 251

What’s the benchmark for small cap stocks

Answer 251

russell 2000