KAPLAN 2025

Question 1

An investment adviser may borrow from all of the following clients except
A) a broker-dealer in conjunction with a margin account.
B) a savings and loan association that has offered to finance new computers for the adviser’s office.
C) a mortgage broker who helped the adviser negotiate mortgage terms for its office building.
D) a commercial bank in conjunction with a mortgage on the office building from which the advisory operates.

Answer 1

C) a mortgage broker who helped the adviser negotiate mortgage terms for its office building.
* Explanation
Mortgage brokers are not in the business of lending money
* Explanation - A margin account is a type of investment account that allows an investor to borrow money from a brokerage firm to purchase securities. For example, if you want to buy $10,000 worth of stock but only have $5,000, the brokerage could lend you the additional $5,000, allowing you to make the full purchase.

Question 2

Investment Advisor “IA”: type of business that advises people for a fee. MUST register with

Answer 2

the state Administrator OR the SEC

Question 3

An investment adviser structured as a partnership lends money to a customer to buy recommended securities. Under NASAA’s Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, this activity is
A) unethical.
B) acceptable, provided the securities are used as collateral for the loan.
C) acceptable, provided the securities are used as collateral for the loan and the loan conforms to the provisions of Regulation T.
D) acceptable, provided the loan is made under the provisions of Regulation T of the Federal Reserve.

Answer 3

A) unethical.
An investment adviser cannot lend money to a customer unless the loan is made through a regulated lender such as an affiliated broker-dealer or an affiliated bank.

Question 4

An agent employed at First XYZ Securities produces his own research reports and provides them to a select group of personal clients. The agent has written permission from his employer to engage in this activity, provided the time spent on the project is conducted after working hours. Under the Investment Advisers Act of 1940, if the agent does not charge fees for the research but receives commissions from his employing broker-dealer for trades executed through the firm,
A) the broker-dealer must register as an investment adviser and the agent as an investment adviser representative.
B) neither the agent nor his employing broker-dealer need register as an investment adviser.
C) the agent must register as an investment adviser representative.
D) the agent must register as an investment adviser because the research is being done after hours.

Answer 4

B) neither the agent nor his employing broker-dealer need register as an investment adviser.

Question 5

It is correct to state that on the day they are issued, warrants have
A) time value but no intrinsic value.
B) no time or intrinsic value.
C) intrinsic value but no time value.
D) time value and intrinsic value.

Answer 5

A) time value but no intrinsic value.

Here’s a simple explanation for a teenager:
Warrants are like special tickets that let you buy a company’s stock at a set price in the future. When they are first issued, the price at which you can buy the stock (called the strike price) is usually higher than the stock’s current market price. Because of this, warrants have no intrinsic value (no immediate profit if you exercise them). However, because you can use them in the future (sometimes years later), they still have time value — meaning they could become valuable if the stock price goes up before they expire.

Question 6

One of your clients who is interested in a hedge fund notes that the fund invests in blank-check companies. He seems uncertain what blank-check companies are, so you explain that they are sometimes known as special purpose acquisition companies (SPACs) and are unique in that
A) they carry high risk because the funds will always be invested in the best available opportunity even though it isn’t immediately identified.
B) they have no business operations but instead raise money for the sole purpose of seeking out a business to engage in.
C) they are synonymous with blind-pool companies that sell shares to investors without telling them what the specific use of the funds raised will be or what industry or sector might be targeted.
D) they carry unique risks because in a blank-check company, shareholders have no vote on any business opportunity targeted for investment.