Practice Test 3

Question 1

What are the pay-to-play rules?

Answer 1

1. If AI is NOT allowed to vote, may donate up to $350
2. If AI IS allowed to vote, may donate up to $150
3. If AI donates more than $350 or $150 then the adviser is prohibited from receiving advisory fees from the elected official’s municipality for 2 years

Question 2

When are fees assessed on no-load mutual fund shares?

Answer 2

Annually

Question 3

What is AML

Answer 3

Anti-Money Laundering

Question 4

When is the Internal Rate of Return used?

Answer 4

When determining the rate that makes the net present value of an investment zero.

The IRR makes the present value of an investment equal to the market price of the investment.

Question 5

This type of BD sends orders to a MARKET MAKER in order to execute orders for retial customers

Answer 5

Introducing broker

Question 6

What is current ratio?

Answer 6

Current assets divided by current liabilities.

$16 million ÷ $6 million = 16:6 million
Reduced: 8:3

Alternative: 16÷6= 2.6
What option equals to 2.6?
8÷3 = 2.6

Question 7

What are 529 qualified expenses?

Answer 7

1. Tuition
2. Student loans

Question 8

What are NOT 529 qualified expenses?

Answer 8

1. travel
2. health insurance
3. application fees

Question 9

What is risk premium?

Answer 9

The total return and the risk-free rate of return

Question 10

A measure of non-systematic risk.

Answer 10

Alpha

Question 11

A BD’s failing to adequately supervise its agents is:

Answer 11

grounds for the denial, revocation or suspension of a registration by an administrator

Question 12

What’s the equation for current ratio?

Answer 12

Current assets/Current liabilites

Question 13

What is included in current assets to determine current ratio?

Answer 13

Cash
Accounts receivable
Inventory

Question 14

Max contribution to a 529

Answer 14

$34k annually
$170k every five years

Question 15

What is the annual gift tax limit?

Answer 15

$17k

Question 16

What is the lifetime gift tax limit?

Answer 16

$12.92 Million

Question 17

Gifts that exceed the annual gift tax exclusion are

Answer 17

Only taxable if they exceed the lifetime gift tax exclusion of $12.92 million

Question 18

A way to estimate a company’s share price by dividing a company’s future (expected) dividend by a discount.

Answer 18

dividend discount model

(Stock Price = dividend / discount rate)

Question 19

When is the interal rate of return (IRR) used?

Answer 19

When determining the rate that makes the net present value of an investment ZERO

Question 20

What corporation is double-taxed?

Answer 20

C Corporation

Question 21

Portability

Answer 21

The ability for a surviving spouse to use the deceased spouse’s unused lifetime gift tax exclusion

Question 22

Difference between futures and forward contracts.

Answer 22

Future contracts may be bought and sold.

Forward contracts require both parties to agree before the contract may be bought or sold.

Question 23

Change of fees is a material change, therefore, when and how is the change reported?

Answer 23

Promptly through Form ADV.

Question 24

Are 457 plans required to follow ERISA guidelines?

Answer 24

No, because 457 plans are non-qualified

Question 25

The difference between future contracts and forward contracts is that

Answer 25

Future contracts MAY be bought and sold.

Forward contracts, both parties must agree.

Question 26

What are the elements of a trust

Answer 26

a settlors intention to create trust
a specific subject matter
a trustee
a beneficiary

Question 27

When are fees assessed in no-load mutual funds?

Answer 27

ANNUALLY

Question 28

Schedule A is filed at

Answer 28

INITIAL REGISTRATION