Practice Test 9 Flashcards
An investment adviser whose personal investing is inconsistent with recommendations made to clients has an obligation to:
DISCLOSE this to their customers.
Two characteristics of an equity-indexed annuity.
- the owner received a guaranteed minimum interest rate
- and potential upside based on the performance of the designated index
If a client is entitled to 80% of the index return capped at 12% (in an equity-indexed annuity) and the index raises by 10%, how much does the client receive?
80% of 10% = 8%
If 80% were more than 12%, the client would receive 12%.
Under U.S.A, what persons are exempt from the definition of Investment Advisor?
banks/savings institutions
lawyers, accountants, teachers, engineers whose advice is incidental
Broker dealers who’s advisory are incidental
Bona fide publishers
Federal covered advisers
Any person designated by the Administrator
An IA may send account statements directly to clients IF
the IA is audited by an independent public accountant
Can ETNs loose value if the underlying index remains stable?
Yes
In a revocable trust, assets are assets included in the estate?
Yes, INCLUDED in the ESTATE for federal estate tax purposes
One benefit of a Tenancy-in-Common arrangement:
It’s easy to transfer assets to other investors when one person dies.
(no requirement that the couple must be married)
What happens next if an Administrator creates a rule?
It must be published.
A plan where key employees own more than 60% of the plan’s assets.
Top-Heavy plan
The potential loss for a limited partner in a real estate limited partnership is limited to:
Their initial investment plus any unpaid amounts to which she had committed to pay
What registration is needed to advise a mutual fund?
Federal registration with the SEC
What is net present value?
A way to evaluate investments using cash inflows and outflows as well as a discount rate.
Characteristics of a testamentary trust:
- goes into affect after the donor passes away
- Required to go through probate process
- the trustee manages the assets in the trust
What is needed to be eligible for Health Savings Account (HSA)?
- must be covered under high deductible health plan
- cannot be enrolled in Medicare or be claimed on another person’s income taxes
Also, joint HSAs are prohibited, withdrawls are tax-free if funds are use for qualifed medical expenses
Limited registration provision for Canadian broker-dealers conducting business in a state states that:
the BD may transact business with CANADIAN RESIDENTS with whom the BD had an existing relationship
A trust that empowers the trustees to distribute principal and is permitted to retain some of its investment income:
COMPLEX trust
What is the best source of information to estimate a company’s cash flows?
The issuer’s annual report.
It includes the income statement, balance sheet and statement of cash flows.
In order to form a limited partnership, two or more people must:
file a certificate with the appropriate state or local official
What type of bonds should be bought to make a portfolio less price sensitive to yield changes?
Bonds with SHORT duration.
Bonds with HIGH coupon.
These obtain their value from the price/value of an underlying asset.
DERIVATIVE contracts (options)
Any adviser of an investment company is considered:
a federally covered advisor
Investors should BUY securities that have a NET PRESENT VALUE that’s
GREATER than 0
In a COMMUNITY PROPERTY agreement, when one owner dies the COST BASIS of all the assets…
STEPS-UP to the MARKET VALUE thereby reducing potential capital gains.
The trustee is responsible for reporting all income, gains and losses of a trust to the IRS on Form
1041
