First Mock Exam

Question 1

What ETF can do that mutual fund can’t

Answer 1

Sell short and be bought and sold on margin

Question 2

Least exposure to reinvestment risk: STRIPS, Treasury notes, preferred stock in growth company, common stock in electric utility

Answer 2

STRIPS - no interest so no income to reinvest during period

Question 3

Tactical

Answer 3

Active

Question 4

Strategic

Answer 4

Passive

Question 5

Interest in a railroad equipment trust

Answer 5

Exempt security under Securities Act of 1933

Question 6

ADR owners have these rights:

Answer 6

Right to sell in secondary market, right to receive the underlying foreign security, right to receive dividends in USD

Question 7

ADR does not have this right

Answer 7

Right to sell ADR in the foreign market

Question 8

Must file a Form 8-K when

Answer 8

Member of board resigns, control of company changes, significant amount of assets are disposed (only deals with domestic companies)

Question 9

Number of subaccounts variable annuities can choose from

Answer 9

No limit

Question 10

Who does not have preemptive rights?

Answer 10

Preferred stockholders

Question 11

Investment strategy where higher price is paid for a stock based on expected returns

Answer 11

Growth investing

Question 12

Required to open a margin account for a trust

Answer 12

Specific text in the trust agreement authorizing a margin account, approval of the account by the designated supervisory person, a margin agreement. A completed margin suitability form does not exist.

Question 13

ADRs…

Answer 13

Are issued by large domestic commercial banks and facilitate US trading in foreign securities

Question 14

Gross margin

Answer 14

Revenues - cost of goods sold

Question 15

Statute of limitations for civil liability

Answer 15

Earlier of 3 years after date of sale or 2 years after discovery

Question 16

True or false: broker dealer commissions must always be disclosed

Answer 16

True

Question 17

Statute of limitations for criminal liability

Answer 17

5 years

Question 18

A lawsuit against a BD or adviser can be avoided if…

Answer 18

Restitution, costs, and interest are paid to a client

Question 19

True or false: payment of restitution to a client prevents the Administrator from prosecution for violating the provisions of the act.

Answer 19

False

Question 20

TIPS adjusts principal value or return?

Answer 20

Principal value

Question 21

True or false: a record by security showing each client’s interest and location thereof is required only by advisers with custody

Answer 21

True

Question 22

Number of days customer has to respond to a rescission letter from a BD offering to buy back securities sold illegally

Answer 22

30

Question 23

If individual accumulates more than 5% in voting stock of a publicly traded company, notification must be made to and in how many days:

Answer 23

10 days. Exchange from security is traded, SEC, issuer’s board of directors. Do not have to notify Administrator.

Question 24

Writing an option provides all of the following:

Answer 24

Income, hedging, limited downside protection when long the underlying asset. Cannot offer maximum protection against loss.

Question 25

Investor's investing experience and knowledge is asked on new account forms for

Answer 25

Options, stocks, bonds, commodities (not margin, retirement, or discretionary)

Question 26

Have specific net worth suitability requirements

Answer 26

Direct participation programs

Question 27

Equity straddle option

Answer 27

Option buyer is looking for market volatility, | option seller is looking for market stability

Question 28

When a pension consultant's AUM reaches $200 milliion, who does it register with?

Answer 28

Can choose state or SEC

Question 29

Method for determining appropriate market price of common stock based on present value of all future dividends to be paid on that stock

Answer 29

Dividend discount model

Question 30

True or false: A right is a derivative

Answer 30

True

Question 31

Advisor that relies on either the venture capital adviser exemption or private fund advisor exemption

Answer 31

Exempt reporting adviser

Question 32

True or false: It is possible to receive distributions from a non-qualified annuity before age 59.5 without incurring tax penalties

Answer 32

True. Due to death or disability.

Question 33

True or false: Annuity exclusion ratio applies to accumulation units only.

Answer 33

False. Applies during the payout period.

Question 34

True or false: Security trades OTC if it trades anywhere other than on an exchange

Answer 34

True.

Question 35

Defined the term "federal covered adviser"

Answer 35

National Securities Markets Improvement Act of 1996

Question 36

Difference between the sum of the discounted cash flows that are expected from an investment and its initial cost

Answer 36

Net present value

Question 37

Difference between Customer Identification Program and new account opening rules of regulatory bodies

Answer 37

CIP requires date of birth while regulators only require proof of legal age

Question 38

True or false: IAs can charge both fees and commission

Answer 38

True (with disclosure)

Question 39

True or false: Administrator can cite a witness in contempt for refusing to appear at a hearing

Answer 39

False

Question 40

True or false: Administrator can issue a subpoena for the production of documents

Answer 40

True

Question 41

Maximum contribution to a Keogh

Answer 41

Lesser of 100% earned income or $6000

Question 42

True or false: BD must register in state if it has 1 retail client in it

Answer 42

True

Question 43

BD does not have to register in state when clients are

Answer 43

Other BDs, banks, investment companies, existing customers temporarily in state

Question 44

Registration filed with SEC must state

Answer 44

Biographies or board and officers, expected use of funds, expected range of offering price

Question 45

True or false: Portfolio manager expecting a rising market would want to take advantage of that by increasing beta

Answer 45

True

Question 46

True or false: Soliciting orders for unregistered, nonexempt securities is unlawful

Answer 46

True

Question 47

Business fails bc of new technology. Systematic or unsystematic risk?

Answer 47

Unsystematic business risk that can be helped unlike market risk.