From the book 66 part 1 unit 4

Question 1

weak vs strong vs semi strong

Answer 1

weak-fundamental anal and insider
The weak form of the EMH states that all market information has already been incorporated into the current stock price. Therefore, having that information is of no help in predicting movements in the market.

semi- insider
strong- random walk
he strong form of EMH maintains that there is no information, public or private, that can assist an investor in achieving consistently superior investment returns.

Question 2

If a client who holds a convertible preferred stock believes the company may go bankrupt within the next 3 years, what would you advise the client to do with the stock?

Answer 2

In the event of bankruptcy, all debt holders have priority over equity holders in claims on the assets of the corporation in liquidation. The safest alternative is to sell the stock. Buying puts on the underlying common stock would be an effective hedge, but with a 3-year wait, the position would have to be renewed several times because the usual option only has a life of 9 months; this would lead to increased transaction costs.

Question 3

An investor would have to pay the alternative minimum tax when

Answer 3

A taxpayer must pay the alternative minimum tax in any year that it exceeds regular tax liability.

Question 4

Section 404(c) of ERISA deals with

To comply with Section 404(c) of ERISA,

Under ERISA Section 404(c), plan participants must be able to reallocate plan assets

Answer 4

fiduciary responsibilities

the plan must offer at least 3 different investment choices, including a stable value option, an income option, and a conservative growth option

once every 3 months

Question 5

A distribution from an IRA taken in equal annual amounts over the owner’s life is

Answer 5

not subject to the 10% premature distribution penalty even if started before age 59½. This is one of the exceptions that apply to IRAs.

Question 6

In a qualified plan, if the employer makes all the contributions, the employee’s cost basis is

Answer 6

zero

Question 7

The 457 plan allows participants to

Answer 7

withdraw funds at any time, not just after age 59½, without incurring the 10% tax penalty. Income taxes would, of course, be due, but no penalty.

Question 8

An investment policy statement would likely include

Answer 8

expected returns of the recommended strategy and the expected range of these returns
recommended allocations among differing asset classes
strategies used for selecting specific stocks in the equity portion of the portfolio

Question 9

the definition of prudent investor as expressed in the Uniform Prudent Investor Act of 1994

Answer 9

requires reasonable care, skill, and caution.

Question 10

Most loans from a 401(k) plan are required to be repaid within

Answer 10

5 years

Question 11

The investment policy statement would include information on how

Answer 11

the investment performance of the plan is measured as well as the investment parameters to be followed by the portfolio managers
.

determination for meeting future cash flow needs

Question 12

Contributions to a Keogh must be based on

Answer 12

self employment income

Question 13

Under IRS rules, if part of your retirement plan assets includes company stock, taking that as a distribution (not rolling it over into an IRA) subjects the cost basis to

Answer 13

ordinary income tax and any unrealized appreciation is taxed as long-term capital gain when sold.

Question 14

The contribution limit has to be aggregated when participating in both

Answer 14

a 401(k) and a 403(b)

Question 15

The 457 plan is a

Answer 15

nonqualified deferred compensation plan for municipal employees, as well as for independent contractors performing services for those entities.

Question 16

The document that gives the Administrator the right to process complaints against a registrant is known as

Answer 16

consent to service of process

Question 17

Customer assets held in custody by an investment adviser must be

Answer 17

segregated, and the adviser must send a statement every 3 months.

Question 18

Charging an unreasonable commission (or markup or markdown) is a

Answer 18

prohibited practice, but it is not considered fraud.

Question 19

If you want to sell, the dealer will pay you

Answer 19

his bid price.

Question 20

rules regarding exempt and nonexempt securities in discretionary accounts

Answer 20

Once a discretionary account has been properly documented, the agent handling the account can trade exempt and nonexempt securities.

Question 21

The total return of a mutual fund is equal to

Answer 21

the return attained by reinvestment of all dividend and capital gains distributions

Question 22

If an investor holds stock for 12 months or less and has no other transactions, any gain on the sale of the stock is taxed at the same rate as

Answer 22

ordinary income

Question 23

Why are “country” funds organized as closed-end funds?

Answer 23

Because it is often difficult to liquidate the foreign securities to get their value into the U.S.

Question 24

the term covered account applies to

Answer 24

individuals

Question 25

A positive NPV means the security is available for a price With a negative NPV, the price is With a zero NPV

Answer 25

below its present value—it is a good buy. too high accurately priced

Question 26

How often must an investment company file reports with the SEC as required by the Investment Company Act of 1940?

Answer 26

annually

Question 27

which of the following statements is TRUE concerning variable life separate account valuation?

Answer 27

Unit values are computed daily and cash values are computed monthly.

Question 28

The sale of a life insurance policy in the secondary market by a terminally ill individual is known as

Answer 28

viatical settlement

Question 29

terms found in modern port theory

Answer 29

feasible set capm efficient set

Question 30

A variable life insurance plan may charge a maximum sales charge of

Answer 30

9% over a period not to exceed 20 years.

Question 31

Formula methods of investing that involve selling equities in rising markets and buying them in falling markets would include

Answer 31

constant dollar plan constant ratio plan In both a constant dollar plan and a constant ratio plan, the goal is to maintain a balance between equity and debt securities in the portfolio.

Question 32

It is unlawful for an investment adviser, registered or required to be registered in a state, to have custody of client funds or securities unless the investment adviser

Answer 32

notifies the Administrator promptly in writing on Form ADV that the investment adviser has or may have custody.

Question 33

A bond portfolio manager who anticipates periods of rising interest rates should

Answer 33

decrease the duration of a bond portfolio to minimize the price decline.

Question 34

The risk/return pyramid where the bottom is lowest risk and the "point" is the highest, generally places commodities

Answer 34

at the top

Question 35

npv rule

Answer 35

remember, under that rule, dividing 72 by the interest rate tells you the number of years it will take for a deposit to double.

Question 36

An adviser who has control of or discretionary power over client assets or who charges fees of more than $500 six or more months in advance is required to

Answer 36

disclose any condition that might affect its ability to carry out contractual obligations to its clients. Any adviser is also required to disclose almost any legal or disciplinary proceeding that would involve its integrity.

Question 37

Consent of the client before completion of a trade made between the firm and a client must be made when

Answer 37

an investment adviser will be acting in the capacity of a principal

Question 38

block trade how many shares

Answer 38

10000

Question 39

Under current tax law (2019), how much can a married couple give to their adult son and his wife without incurring a gift tax obligation?

Answer 39

60000

Question 40

Under the provisions of the Securities Exchange Act of 1934, the SEC may suspend trading on a national exchange by notifying

Answer 40

president of the united states

Question 41

A client needs funds for an unexpected medical emergency. If the client takes out a loan against the cash value of his life insurance policy and does not pay it back, the insurance company can do which of the following?

Answer 41

Reduce the death benefit when the client dies

Question 42

Which of the following is a method for determining the internal rate of return by portfolio managers without the influence of additional investor deposits or withdrawals to or from the portfolio?

Answer 42

time weighted return

Question 43

Duration is

Answer 43

a measure of a bond’s price sensitivity with respect to a change in interest rates

Question 44

fall under the jurisdiction of the Administrator of each of those states.

Answer 44

Activities that originate in a state, are directed into a state, or are accepted in a state

Question 45

Uniform Securities Act any lawsuit for recovery of damages must commence within

Answer 45

3 years of occurrence or 2 years of discovery, whichever occurs first

Question 46

It is deemed to be an assignment whenever

Answer 46

a majority interest in an adviser changes hands. Pledging a client's contract is considered to be an assignmen

Question 47

Differences between static and interactive content on social media include

Answer 47

Static content requires preapproval. Interactive content can be reused by others and can be commented on by others.

Question 48

delivery requirements for brochure balance sheet

Answer 48

must deliver to client or prospective client 48 hours before or at the time of the investment advisory contract under state law the client has 5 days to rescind right if they havent been provided brochure in 48 hours(not federal) if any changes annually, you must deliver ether brochure or a summary of material changes in 120 days after fiscal year if no changes then no brochure fed advisor-if you require (prepayment of more then 1200 for 6 months or more) state-500 for state registered, then you must include a balance sheet with a brochure also if you have custody of funds you need to do this also in brochure must disclose disiplinary action in last 10 years if includes 2500 fine no brochure to investment company same for impersonal advice

Question 49

Third-party solicitors must provide a copy of

Answer 49

there brochure also

Question 50

Only when acting in an ______ capacity is there a requirement to obtain client consent when selling out of inventory.

Answer 50

advisory

Question 51

A website is considered advertising, and the Investment Advisers Act of 1940 requires that a

Answer 51

file copy be maintained of all advertisements that will be seen by 10 or more persons. Whenever the site is changed, it is considered new advertisement copy and must be placed into the firm's advertising file.

Question 52

are Agents allowed to correct execution orders in their customer’s accounts

Answer 52

no the firms must

Question 53

There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are:

Answer 53

commissions; markups and markdowns; and advisory fees for those firms that are also registered as investment advisers.

Question 54

Only state-registered investment advisory firms are required to notify the appropriate state Administrator when

Answer 54

employment is terminated or begun.

Question 55

It is unethical to borrow money or securities from a client, unless the client is

Answer 55

a broker-dealer, a bank or other financial institution in the business of loaning money, or an affiliated person of the adviser.

Question 56

NASAA's custody rules require that an investment adviser who does NOT maintain custody must return certificates that are mistakenly sent within

Answer 56

3 days

Question 57

Under the NASAA Model Rule on Custody Requirements for Investment Advisers, an investment adviser would be permitted to maintain custody of customer cash and/or securities if

Answer 57

notification was given to the Administrator and custody was not prohibited by that state’s rules

Question 58

Loaning money to a client is prohibited unless the investment adviser is

Answer 58

a financial institution engaged in the business of loaning funds or the client is an affiliate of the IA.

Question 59

One way in which the use of discretionary authority differs between agents and IARs is that

Answer 59

agents may never exercise discretion without prior written authority. IARs must receive the written consent no later than 10 business days after the first discretionary transaction in the account.

Question 60

sharing in profits and losses finra vs nasa

Answer 60

nasa you can and finra you cant

Question 61

Under federal (and state) law, in order to qualify for a performance-based compensation program, the client must have

Answer 61

either $1 million in assets managed by the adviser or a net worth in excess of $2.1 million.

Question 62

The SEC's pay-to-play rule

Answer 62

prohibits investment advisers from receiving compensation for advisory services to a government entity (any agency, authority, or instrumentality of a state or political subdivision), for 2 years after the advisory firm or any covered employee makes a political contribution to a public official or candidate who is or would be in a position to influence the award of investment advisory business by public retirement funds.

Question 63

Investment advisers many only lend money to

Answer 63

persons affiliated with the firm (as the IAR is) or if the adviser is in the money-lending business.

Question 64

1940 custody of a client's funds or securities

Answer 64

Advisers who have custody must segregate client securities and funds and keep them in a safe place. Client funds must be deposited in bank accounts containing only the client's funds, and unless using a qualified custodian, the adviser must be named as agent or trustee. The adviser is required to report quarterly with a written, itemized statement indicating the funds and/or securities in the adviser's possession and all transactions in the account. Annually, the adviser must arrange for an independent audit of the client's account and the results must be forwarded to the SEC. Thus, the adviser reports every 3 months

Question 65

Under the NASAA Model Rule on Custody Requirements for Investment Advisers

Answer 65

ubmit to a surprise audit of client accounts by an independent accountant each year provide an audited balance sheet to the Administrator each year and include a balance sheet with his disclosure statement (brochure) to all prospective clients

Question 66

When a third-party solicitor engaged by an investment adviser makes contact with a potential client, that client must

Answer 66

in writing, the receipt of the brochures of both the adviser and the solicitor. There must be a written agreement between the adviser and the solicitor, but the client has nothing to do with that.

Question 67

Under the NASAA Model Rule on Custody Requirements for Investment Advisers, if an investment adviser has custody of customer funds and securities, how often must the adviser send the customer a statement of account activity?

Answer 67

Quarterly

Question 68

whole life prem sche death benefit cash value accounts

Answer 68

fixed guarenteed guarenteed general

Question 69

variable life prem sche death benefit cash value accounts

Answer 69

fixed min guar no guar gen and sep

Question 70

variable universal life prem sche death benefit cash value accounts

Answer 70

flex no guarentee no guarentee sep only

Question 71

Which of the following is most likely to affect the amount of interest credited on an index annuity?

Answer 71

participation rate determines return

Question 72

ariable life insurance offers a unique conversion policy.

Answer 72

Anytime during the first 24 months after policy issue, the policy may be exchanged for a whole life policy (or some similar form of permanent insurance if the company doesn't offer whole life) using the age and medical condition at issue, regardless of the insured's current health. However, the face amount cannot be changed from its original amount.

Question 73

At any given age, ______________insurance always carries the lowest premium

Answer 73

At any given age, term insurance always carries the lowest premium

Question 74

According to federal law, an insurance company under the provisions of the Investment Company Act of 1940 must allow a variable life policyholder the option to convert the policy into a whole life contract for a period of

Answer 74

24 months

Question 75

Duration measures a bond's price volatility by

Answer 75

weighting the length of time it takes for a bond's cash flow to pay for itself. If 2 bonds with differing coupon rates have identical maturities, the one with the lower coupon has the longer duration.

Question 76

Normally, registration of persons becomes effective at noon of the 30th day following filing. If the Administrator requires the filing of amendments,

Answer 76

the clock starts over again with the filing of those amendments.

Question 77

In relation to clients making testimonials about IA. As long as this note was posted without any knowledge of the IA (or IAR), there is no problem. However, once the IA (or IAR) finds out about it,

Answer 77

a request must be made to remove it.

Question 78

A broker-dealer is defined as

Answer 78

a person in the business of effectuating securities transactions for its own account or the account of others. Those employed to open new accounts are defined as agents. Those seeking to raise new capital are issuers, and a person who provides investment advice is an investment adviser.

Question 79

An individual who believes in the EMH will likely invest in

Answer 79

index funds

Question 80

he CAPM assumes that the optimal portfolio should be the one

Answer 80

with the highest Sharpe ratio of all possible portfolios.

Question 81

State-registered investment advisers maintaining discretion over client accounts must maintain a minimum net worth of Any advisory firm whose net worth falls below required minimums is required to

Answer 81

$10,000. to send notice to the Administrator no later than the close of business on the day following discovery. This notice must be followed up no later than the next business day with a complete financial report to the Administrator.

Question 82

With few exceptions, the accounting records, correspondence, and advertising of investment advisers must be kept for a minimum of

Answer 82

5 years after the end of the year in which they were created, the first 2 years in the firm's principal office (on premises).

Question 83

The rule allows covered employees to make contributions of up to

Answer 83

350 per official or candidate per election in which they can vote, or $150 for other elections