Greenlight II Flashcards
An investor has an account with an investment adviser and has provided discretionary authority to his IAR. The client’s objectives are income and preservation of capital. Although his account has shown a positive return, he is concerned about numerous in-and-out trades that occurred on the same day. Which of the following statements best describes this situation?
QID: 1560994Mark For Review
A
The IAR’s actions are unethical.
B
The IAR’s actions are illegal.
C
No violation has occurred, since the IAR has discretion and the account’s return has been positive.
D
A violation has occurred, since day trading is specifically prohibited in advisory accounts.
The IAR’s actions are unethical.
Illegal activities are specifically prohibited by a regulations, laws, or statutes. Since the IAR has written power of attorney, he is allowed to place trades in the customer’s account and is not violating any securities laws. However, since the high frequency trading is clearly unsuitable, the IAR’s actions are unethical.
Which TWO of the following factors are used in a discounted cash flow (DCF) analysis? Present value of future cash flows Expected rate of return earned on reinvested cash flows Future value of current cash flows Expected risk-free rate of return over the life of the investment QID: 1561007Mark For Review A I and II B I and III C II and III D II and IV
I and II
Discounted cash flow analysis uses the present value formula and applies it to an investment with multiple future cash flows (e.g., the interest and principal payments of a bond). In order to find the present value of a single cash flow, an investor needs the future cash flows, an expected rate of return (i.e., discount rate), and the number of years until the future cash flow will be received. The risk free-rate of return is used in the Capital Asset Pricing Model (CAPM) formula and is generally not required when performing a discounted cash flow analysis.
Under the Uniform Securities Act, all of the following transactions are exempt, EXCEPT:
QID: 1560979Mark For Review
A
The sale of corporate bonds to a savings and loan
B
The sale of corporate bonds to an investment company
C
The sale of corporate bonds to a customer in a solicited trade
D
The sale of corporate bonds to a customer in an unsolicited trade
The sale of corporate bonds to a customer in a solicited trade
An S Corporation is similar to a partnership in that both: QID: 1560922Mark For Review A Provide limited personal liability B Require full personal liability C Do not provide flow-through of losses D Provide flow-through of losses
Provide flow-through of losses
An investor has a portfolio comprised of large-cap, mid-cap, and international equities. To which of the following risk is the investor LEAST exposed? QID: 1560906Mark For Review A Market B Regulatory C Currency D Money-rate
Money-rate
However, since the portfolio consists of equities, money-rate (interest-rate) risk less likely to be a concern. Money-rate risk is more likely to be associated with bond portfolios.
A federal covered adviser is considering the possibility of establishing an in-house custodial program to eliminate the payment it currently makes to its custodian. Which of the following statements concerning the custodian activity is TRUE?
QID: 1560986Mark For Review
A
This action is prohibited since non-bank investment advisers are not allowed to maintain custody of customer assets.
B
The adviser may only enter into direct custody arrangements with institutional clients, while retail account assets must continue to be held at with the outside custodian.
C
The adviser is permitted to establish its own program to maintain custody of client assets.
D
This is only permitted if the adviser obtains permission of its state Administrator.
The adviser is permitted to establish its own program to maintain custody of client assets.
An investor has owned stock for several years and has an unrealized capital gain. If she believes that the stock’s price will remain stable and wants to increase her portfolio’s yield, which option strategy is the BEST? QID: 1560934Mark For Review A Buying puts on the stock B Writing calls against the stock C Creating a credit call spread D Creating a debit call spread
Writing calls against the stock
A nonissuer transaction is also referred to as a(n): QID: 1560967Mark For Review A Proceeds transaction B Private placement C Secondary market transaction D Non-IPO primary distribution
Secondary market transaction
According to NASAA’s Statement of Policy Regarding Dishonest and Unethical Business Practices, which of the following statements regarding customer accounts is TRUE?
QID: 1560944Mark For Review
A
A broker-dealer must receive a written order ticket from the account owner before executing every trade.
B
Conversion of customer’s cash is acceptable; however, broker-dealers must segregate securities positions.
C
An agent of a broker-dealer is not permitted to lend money to his parents.
D
Margin agreements must be signed promptly following the first transaction.
Margin agreements must be signed promptly following the first transaction.
Which TWO of the following statements are TRUE regarding a time-weighted rate of return?
It may be used to compare the performance of two money managers.
It is a way of calculating an investor’s internal rate of return.
It does not consider the inflows and outflows of cash.
It measures the average return that a client’s investment earned.
QID: 1560989Mark For Review
A
I and III
B
I and IV
C
II and III
D
II and IV
I and III
According to the Uniform Securities Act, all of the following are excluded from the investment adviser definition, EXCEPT: QID: 1560954Mark For Review A A bank B An attorney C An insurance company D A broker-dealer
An insurance company
Under the Uniform Securities Act, which of the following firms is excluded/exempt from the definition of investment adviser?
QID: 1560977Mark For Review
A
An advisory firm that is headquartered in the State A and has $115 million under management
B
A newly established adviser in State A that manages a mutual fund’s $11 million portfolio
C
An in-state bank that conducts business exclusively with institutions
D
All of the above
All of the above
Which of the following statements is TRUE regarding research reports that are prepared by others?
QID: 1560985Mark For Review
A
Third-party research that is used to reach an independent conclusion by a broker-dealer or investment adviser must disclose the name of the provider.
B
Research that is obtained from an outside source and is made available to the public is not required to disclose the name of the provider.
C
Third-party research may not be distributed to clients under any circumstances.
D
Research that is obtained from an external source and distributed to clients must disclose the name of the source.
Research that is obtained from an external source and distributed to clients must disclose the name of the source.
An issuer has filed a registration statement in a state to offer securities. Which of the following choices is NOT a valid reason for the Administrator to deny its registration?
QID: 1560956Mark For Review
A
It is in the public interest to deny the registration.
B
The issuer’s method of doing business is illegal in the state.
C
The issuer has not filed a registration statement with the SEC.
D
The issuer has not paid a registration fee.
The issuer has not filed a registration statement with the SEC.
An IAR intends to recommend speculative debt offerings to some of her more aggressive accounts. Since the IAR specializes in equity investments, she plans to use an outside fixed-income expert to help in the selection process. In this situation, which of the following statements is TRUE under the UPIA?
QID: 1560957Mark For Review
A
The IAR may delegate her investment decision-making authority.
B
The IAR may delegate her investment decision-making authority once each client signs a third-party indemnity waiver form.
C
The IAR may use an outside resource, provided the expert is given full documentation regarding each client before any recommendations are made.
D
The IAR is prohibited from using outside experts, since any fees paid would increase a client’s management cost.
The IAR may delegate her investment decision-making authority.
