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Series 66 take 2 > Series 66 client investment recommendations > Flashcards

Series 66 client investment recommendations Flashcards

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Series 66 flashcards
1
Q

It is very common for a broker-dealer to charge a fee for processing the closing of an account. There are 3 primary expenses involved with brokerage accounts that are not included in the fee disclosure template. Those are

A

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

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2
Q

Which of the following methods of calculating investment returns are discounted cash flow (DCF) techniques?

A

NPV

Internal rate of return

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3
Q

It is deemed to be an assignment whenever

A

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

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4
Q

which form of business is easier to transfer ownership from? Corporate or partnership

A

Corporate

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5
Q

The required disclosure statement for wrap fee programs must contain

A

at least the information in Appendix 1 of Form ADV Part 2A, but duplicates need not be provided to clients who have already received the required disclosure on that program from another adviser.

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6
Q

c corp

A

the only logical choice for a large amount of capital being raised

no flow-through of income or loss

easiest to transfer

form 120

does not require considering the suitability of owners

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7
Q

One major difference between the customer identification program (CIP) and the new account opening rules of the regulatory bodies is that

A

The CIP requires the actual date of birth, not just proof of legal age.

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8
Q

Dying intestate means for an estate

A

that there is no valid will. In that case, the state will appoint someone as administrator of the estate with the responsibility of handling all of the affairs of the deceased.

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9
Q

When does a customer have to receive the OCC Options Disclosure Document?

A

Before accepting the customer’s first order to trade options covered by the ODD

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10
Q

A GRAT is an estate planning tool designed

A

pass assets to beneficiaries (usually children) in a way to minimize gift and/or estate taxes. Because incidents of ownership remain with the grantor, all income is taxed to the grantor.

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11
Q

joint tenants by entirety limited to

A

married couples

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12
Q

S corp

A

only us residents
limit to 100 investors
no double taxation
passes through gains and losses

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13
Q

key difference between simple trust and complex trust is

A

simple trust must distribute all of its annual income. Complex trust is not obligated to do so

Simple trusts may not make charitable contributions, and they provide no discretion on income distribution

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14
Q

progressive tax examples

and explanation

A

income
gift
estate

wealthy families and individuals pay higher taxes

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15
Q

regressive tax

A

sales tax
fuels tax

Everyone pays the same rate. Impacts lower income families

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16
Q

earned income

A

salary
wages
self employment income

alimony
commissions

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17
Q

passive income

A

rent

limited partnership interests

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18
Q

portfolio income

A

dividends
interest
capital gains

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19
Q

taxation of income

A

progressive rate dependent upon net taxable amount earned

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20
Q

dividend income reported on

A

1099div

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21
Q

corporate taxes on dividends received

A

have a 70% exclusion meaning they pay 30%

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22
Q

corporate tax taxed

A

as ordinary income

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23
Q

interest on us government direct debt

A

ordinary income at fed level excluded from state

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24
Q

interest received from mortgage back gov agencies

A

taxed as ordinary income at fed and state level

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25
Q

interest received from municipal debt

A

not taxable at fed level

may be nontaxable in state of issuance

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26
Q

default method by irs

A

FIFO

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27
Q

methods for determining what shares to sell

A

FIFO
Average cost
share identification

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28
Q

mutual funds use what share selling method

A

average cost

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29
Q

how much of net loss can be used

A

3000 per year on ordinary income

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30
Q

wash sale rule

A

can’t establish identical position with 30 days before or 30 days after

same security
rights or warrants
call option
convertible bonds

all these apply

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31
Q

wash sale total days

A

61

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32
Q

avoid wash sale for bond if one of the following applies

A

different issuer

different maturity and coupon rate

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33
Q

taxation on estate

A

estate tax based on value at death or six months later(form 706)
if valuation is lower

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34
Q

estate taxes due when

A

9 months after death

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35
Q

maritial deduction for estate

A

if us spouse- unlimited tax free

non citizen spouse there is limited amount tax free

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36
Q

step up inheritance

A

stepped us cost basis

no step up for inherited annuties

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37
Q

DNI

A

distributable net income which is dividends plus interest plus capital gains not reinvested back in trust

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38
Q

Current Social Security requirements are a minimum of

A

40 covered quarters of employment (10 years)

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39
Q

One of the nice things about life insurance proceeds

A

even when the death benefit is increased due to separate account performance, it is still free of income tax.

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40
Q

corporations have a 50% dividend exclusion

A

on dividends received from other companies.

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41
Q

A loss derived from a limited partnership may be offset against income from

A

A limited partner may use only passive income to offset the loss derived from a limited partnership

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42
Q

Which of the following vehicles make use of the unified estate tax credit

A

Bypass trust

Generation-skipping trust

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43
Q

Which of the following items are NOT included in the gross estate of a decedent?

A

Proceeds from a life insurance policy owned by the deceased’s spouse

One popular estate-planning technique is to have life insurance owned by (and premiums paid by) someone other than the insured. In that case, proceeds are generally excluded from the gross estate of the deceased. If the trust was irrevocable, that same benefit might be achieved, but not with one that is revocable.

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44
Q

As long as the grantor has the power directly or indirectly to control the trust,

A

he is treated as the owner. The grantor may be taxed on trust income if the grantor either actually or constructively receives the income.

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45
Q

Tax preference items are used for the purpose of computing the alternative minimum tax. They include all of the following

A

accelerated depreciation.
B)
excess intangible drilling costs.

certain incentive stock options

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46
Q

who is subject to tax with a gift

A

the donor

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47
Q

A taxpayer must pay the alternative minimum tax in any year that

A

it exceeds regular tax liability. Tax-preference items are re-input in figuring AMT, but the AMT is paid only if that amount is higher than the regular income tax.

48
Q

A taxpayer’s marginal tax rate is

the effective tax rate

A

the rate of taxation on any additional taxable income received

the overall rate paid on the total taxable income.

49
Q

Which of the following is (are) advantages of irrevocable insurance trusts?

A

Provide estate liquidity.

Insurance proceeds are removed from the estate of the insured for tax purposes.

50
Q

A business organized as which of the following pays federal income tax on its income?

A

sole proprietorship

51
Q

When an individual remarries, the new spouse is

A

entitled to full Social Security benefits. As long as the previous marriage lasted at least 10 years, that ex-spouse (if not remarried) is also entitled to full benefits. That means it is possible for 2 people to receive full benefits at the same time.

52
Q

AMT items that need to be added back

A

accelerated depreciation
certain costs with limited partnerships
local tax and interest on investments that do not generate income
tax exempt interest on private purpose municipal bonds
incentive stock options

53
Q

gross estate vs adjusted

vs net

A

gross does not subtract expenses. The adjusted does

Net estate subtracts anything from giving to spouse and expenses

54
Q

nav and pop for mutual funds

A

pop is the price it is bought at. NAV is price redeemed at

55
Q

In an efficient market, bonds are priced so that

A

NPV=0

That means the bond’s yield to maturity is equal to the current market interest rates for similar bonds.

56
Q

The CAPM gives us

A

The expected rate of return

57
Q

The capital asset pricing model (CAPM) is an investment theory that serves as a model for

A

pricing securities based on their systematic risk

Used to determine the required rate of return

(MR-RFR)* beta + RFR

58
Q

Derivatives are generally not appropriate for

A

highly risk-adverse investors due to the risk and sophistication involved.

59
Q

Figure out required return and expected return

A

return of market-rfr *beta

60
Q

Wrap fee accounts would tend to be most suitable for investors who follow

A

a tactical approach to investing

61
Q

Time-weighted returns are used

A

to evaluate the performance of portfolio managers separate from the influence of additional investor deposits or withdrawals

62
Q

Dollar-weighted return

A

more commonly used for evaluating investor performance.

63
Q

The total return of a mutual fund is equal to

A

the return attained by reinvestment of all dividend and capital gains distributions plus unrealized gains or minus unrealized losses

64
Q

The current yield on mutual funds is calculated by

A

dividing the annualized yield/pop

65
Q

Any question asking about the risk-adjusted return is going to be referring to

A

the sharpe ratio

Actual return-rfr / sharpe ratio

66
Q

An agent making a sales presentation to a client about a mutual fund’s historical returns is required to explain to the client the difference between the fund’s

A

current yield and total return.

When comparing to a benchmark, it is common to show various return computations. In connection with the solicitation of investment company shares, it is considered an unfair business practice to discuss returns without fully explaining the difference between current yield and total return.

67
Q

calculate current yield of mutual fund

A

annual dividend/pop

68
Q

The risk premium

A

It is the amount of total return in excess of the risk-free rate.

69
Q

The current yield on a stock

A

dividing the annual dividend rate by the current market price.

You take the dividend payout % of the eps to get the dividend rate.

70
Q

The dollar-weighted return measures

A

he internal rate of return (IRR) of a portfolio’s actual performance between 2 dates, including all cash inflow and outflows.

71
Q

The Sharpe ratio measures a stock’s

A

excess return earned compared to its total risk.

72
Q

The yield to maturity of a bond represents the bond’s

A

internal rate of return (IRR)

73
Q

The yield to call computation involves knowing

A

g the amount of interest payments to be received, the length of time to the call, the current price, and the call price

74
Q

The formula for the Sharpe ratio is

A

actual return minus the risk-free rate which is then divided by the standard deviation

75
Q

Which of the following is generally believed to present a more accurate picture of a portfolio manager’s performance?

A

Time-weighted return

Dollar-weighted is a more reliable measure of how the investor fared

76
Q

Capital market assumptions for all investors

A 
money borrowed or loaned at rfr
use the same info to generate efficient frontier
Equal time horizons
no transaction costs
no inflation
77
Q

the employer share of the contributions to a traditional 401(k) plan (or any other DC plan) may not exceed

A

25% of total payroll

78
Q

What new benefit did the TCJA of 2017 bring to 529 plans effective 2018?

A

Qualified withdrawals of up to $10,000 per year to pay for K-12 tuition

79
Q

Under a defined benefit plan, the pension payable is related to

A

the length of service and usually expressed as a proportion of final earnings. The investment performance of the fund is therefore the least important factor to consider

80
Q

if money is not used in 529 vs cordeval

A

529 goes back to doner. Goes to bene for cordeval

81
Q

An employer wishing to offer a retirement plan with a goal of retaining key employees would probably start with

A

deferred compensation Because the deferred compensation plan allows the employer to discriminate

82
Q

Because the income on the UTMAs is not considered to be earned income, the kiddie tax rules apply. Currently (2020 and beyond, but indexed), children younger than 19 having such income in excess of

A

$2,200 are subject to tax at the parent’s marginal tax rate. That means if the parent is in the 32% income tax bracket, the children’s excess income will be taxed at 32%.

83
Q

cordeval limit

A

however, the total contribution to all accounts on behalf of a beneficiary in any year can’t exceed $2,000.

84
Q

All qualified retirement plans must be established under

A

a trust agreement

85
Q

which qualified retirement plans have tax benefits

A

401k and defined benefit

86
Q

Employees of public schools can legally maintain

A

403b and 457

87
Q

A payroll deduction plan is a retirement plan

A

not subject to eligibility, vesting, or funding standards as required by ERISA plans

88
Q

A supplemental executive retirement plan (SERP) is

A

a nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees.

89
Q

You cannot use UTMA (or UGMA) money for

A

food, clothing, and shelter; those are the responsibility of the parent. An optional expense, such as summer camp, vacation, and sports league registration, would be permitted.

90
Q

Who is obligated for the payment of taxes in an UTMA account?

A

Although in practice the taxes are usually paid by the parent or legal guardian, they are the responsibility of the beneficial minor (child).

91
Q

which account can the beneficiary not be changed,

A

UTMA account

92
Q

529 and tax

A

Section 529 plan withdrawals are exempt from federal income tax if used for the right expenses. In almost all cases, if the plan is one operated by your state of residence, it will be exempt from your state’s income tax. But, if you elect to contribute to a plan operated by another state, more than likely, any withdrawals will be subject to your state’s income tax. Because the plans are state operated, the maximum contribution limits are set by each state.

93
Q

Which child custodial account allows virtually any kind of asset including real estate

A

utma

94
Q

ERISA rules only apply to

A

private sector

95
Q

most commonly used to calculate the total benefit to be paid to the employee in the defined benefit pension plan.

A

The final salary at retirement and the length of service

96
Q

A special rule under Section 529 allows

A

the donor to load front-end load contributions and avoid paying gift taxes. Five years’ worth may be used under this method (5 × $15,000 = $75,000). If he remarries, his wife may also consent to gift split, thereby doubling this amount to $150,000.

97
Q

Two of the primary ways in which nonqualified corporate retirement plans differ from qualified retirement plans is

A

that contributions are not exempt from current income tax and they need not comply with nondiscrimination rules that apply to qualified plans

98
Q

A signed loan consent agreement permits a firm to

A

loan out a customer’s margin securities.

99
Q

Which of the following securities can legally be purchased on margin?

A

Warrants, but not rights, may be purchased on margin if the underlying stock is traded on the NYSE or the Nasdaq. No insurance product is marginable and the same is true for options. LEAPS are option contracts that are marginable, but the question would have to specify that the contract was a LEAPS.

100
Q

contains the authorization for the Fed to regulate the use of credit in the securities business.

A

The Securities Exchange Act of 1934

101
Q

Any order ticket submitted by an agent for execution at a broker-dealer will always include

A

the account number, the agent’s name, and that of the BD.

102
Q

The hypothecation agreement gives permission

A

to the broker-dealer to pledge a customer’s margin securities as collateral. The firm hypothecates customer securities to the bank, and the bank loans money to the broker-dealer on the basis of the loan value of these securities.

103
Q

The Securities Exchange Act of 1934 gives the SEC the power to

A

make, amend, and rescind rules; issue cease and desist orders; administer oaths; conduct investigations; take evidence; and subpoena witnesses, books, and records. The Commission may seek temporary or permanent restraining orders (injunctions) from the courts, file civil suits, or refer evidence to the attorney general for criminal prosecution.

104
Q

A margin account that contains both long and short stock positions is known as

A

mixed margin account

105
Q

An agent of a broker-dealer has a client who lost her job but will be starting a new job in 3 weeks. The client is in need of $900 for the 3-week gap. Under what circumstances may the agent arrange a loan for the client?

A

Loans may be made to clients if the person making the loan is in the lending business. Broker-dealers are permitted to lend money against securities held in client’s portfolios. This is known as a margin loan. In fact, with $5,000 in the account, current regulations would permit a loan of up to $2,500.

106
Q

another word for maintance call

A

house call

107
Q

The Securities Exchange Act of 1934 defines a market maker is

A

a dealer who, with respect to a security, holds himself out as being willing to buy and sell that security for his own account on a regular or continuous basis

108
Q

The current minimum maintenance levels set by the SROs

A

25% equity in a long margin account and 30% equity in a short margin account

109
Q

An exchange specialist is

A

a dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks

110
Q

Stock prices in the over-the-counter market are determined by

A

negotiation

111
Q

Under the Securities Exchange Act of 1934, which body regulates the extension of credit for nonexempt securities?

A

federal reserve board

112
Q

The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket?

A

Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order

113
Q

Which of the following has the power to close a stock exchange for up to 90 days?

A

sec

114
Q

Current yield for any security is always computed on the basis of the

A

current market value.

115
Q

open end vs closed end in terms of nav in relation to ask

A

open ask can never be less than nav

closed end can have ether one be higher.

116
Q

are hedge funds regulated or unregulated

A

unregulated

117
Q

Rights and warrants values comparison

A

)

rights have intrinsic and time value while warrants only have time value.

Series 66 take 2 (28 decks)

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