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////////////What is the CAPM formula?
current return (10%) minus the risk free rate (2%) gets you 8%. Then, multiply 8% by the beta of this stock (1.5) to arrive at 12%. The stock should return 12% above the risk free rate, so the expected return would be 12% plus the risk free rate (2%) which gets you to 14%.
Does the SEC have jurisdiction over banks & savings and loans?
No; The SEC has jurisdiction over exchanges, SROs, and all persons required to be registered under federal law. The SEC does not enforce state securities statutes, nor does it have jurisdiction over banks or savings and loans regarding their securities activities.
The USA exempts investment advisers from state registration who:
I.have no place of business in the state and limit clientele to other investment advisers.
II.have no place of business in the state and limit clientele to banks and insurance companies.
IV.have no place of business in the state and limit clientele to broker-dealers.
can you be a beneficiary of a 529 and a Coverdell at the same time?
yes
in the absence of any action by the administrator, the effective date of a withdrawal is _________ days?
30
the administrator may initiate a disciplinary action within _______ of the effective withdrawal date
1 year
when must a client receive a written disclosure statement?
no later than at the tie of agreement to contract; not at the time of signing the contract
when calculating tax consequences for the purchase/sale of common stock, do you include the dividend gains?
No, you don’t
A customer purchases stock for $40 per share and holds it for one year, selling it for $50 per share exactly 12 months after the date of purchase. Four quarterly qualifying dividends of $.50 were paid during the year. If the customer’s tax bracket is 30%, what is the after-tax rate of return?
A)21.75%.
B)18.40%.
C)21%.
D)17.5%.
The customer’s return on the stock includes the $10 per share short-term capital gain ($50 − $40) plus the $2 qualifying dividend (quarterly dividend of $.50 × 4). After-tax rate of return is found by computing the total after-tax earnings. Short-term gains are taxed at the same rate as ordinary income, and qualifying dividends are taxed at a maximum rate of 15% (except for very high income earners - not tested). The tax on the $10 gain is $3, and the tax on the $2 dividend is $.30. The investor’s total return is the $12 total minus the $3.30 in taxes, or $8.70; $8.70 divided by the original investment of $40 results in an after-tax return of 21.75%.
What is the maximum tax rate for qualifying dividends?
15%
Are warrants derivatives? What about REITS?
REITs are not, warrants are derivatives
Broker dealers aren’t required to keep which? Blotters or client tax returns?
client tax returns aren’t a requirement
Flow-through is one of the features of
A)variable annuities
B)open-end investment companies
C)REITs
D)direct participation plans
4; Flow-through is the term commonly used to describe that any income or loss generated by a direct participation program “flows through” to the owner(s). In the case of a REIT, the only thing that passes through is income or gains, never losses.
An agent under the USA is a(n): I.individual who represents an issuer in nonexempt transactions.
II.registered broker-dealer that deals in registered securities.
III.individual who sells nonexempt securities as a representative of a registered broker-dealer.
IV.individual who has no place of business in the state and sells securities to an existing client who is not a resident of the state.
1 & 3; Agents generally work for and represent a broker-dealer in conducting securities sales or transactions but are excluded from the definition of an agent if they have no place of business in the state and sell securities to an existing client who is not a resident of the state. Individuals employed by issuers to sell in nonexempt transactions are also included in the definition of “agent”.
which death transfer account type doesn’t avoid probate?
TIC; Upon death of one of the co-tenants, assets in that account belong to the heirs of the deceased and will go through probate.
True or false: duration measures the holding period return on a bond
false; it measures the effect of an interest rate change on the price of a bond or bond portfolio
can you split commissions with a nonregistered person?
No; this is unethical and prohibited
Under ERISA (retirement plans), can a fund manager write uncovered calls?
no; ERISA prohibits retirement plans from making investments that are excessively speculative such as uncovered call writing, which possesses unlimited risk.
Investing in inverse funds is primarily suitable for those _____________
with a short time horizon
Two brothers are interested in forming a business together. They have three initial concerns: 1) how to maximize their benefits despite the fact that the business is expected to lose money for at least the first year or so; 2) making sure that the business will be able to continue in the event one of the brothers dies; and 3) minimizing their personal liability for the obligations of the business. On the basis of the brother’s concerns, which form of business is appropriate for the situation?
LLC: The LLC will allow losses to flow through to the brothers, continue in the event one brother should die, and have the same type of protection as that offered by a C corporation.
how do open-end investment company shares have to register?
Notice filing
What is the difference between IARs employed by federal covered IAs and the federal covered IAs themselves?
The IARs register in each place they have a place of biz whereas the IA only registers with the SEC
////////////For scheduled (fixed) premium variable life, how far can cash values / death benefit fall?
To the original value, not zero
When does registration become effective under the SEC and when does it become effective under the states?
45 days unless delayed by the SEC: 30 days unless accelerated by the administrator
////////////Are college plans used with pretax or post tax dollars?
Post tax
If your client dies, who can you take instructions regarding their estate from?
The administrator in intestacy
What is the SEC pay to play rule?
You can’t receive compensation for advisory services for 2 years after the firm or any covered employee makes a political contribution
////////////What is included in book value per share?
Good will, long term debt, retained earnings and par value of the preferred stock
(tangible assets - liabilities - par value of preferred) / shares of common stock outstanding
How many days do you have to appeal with federal court after your registration was revoked or suspended?
60
////////////What is the registration status for securities issued by an insurance company?
Securities are exempt if they are authorized to do biz in the state; the transaction is always exempt
Does universal life have flexible or fixed premiums?
Flexible
For universal life, how far can cash values fall?
To zero
What form(s) can you provide to clients instead of a brochure?
Form ADV Part2A and Part 2B
Where does an IAR of a covered IA have to register?
Only in states in which the IAR, not the IA, has a place of biz.
Does the de minimis rule still apply for an IAR of a covered IA?
No, they only register where there is a place of biz. The de minimis is only if the IAR works for a state registered IA.
What is the registration requirement if you only provide advice to insurance co’s?
They are exempt from registration but must register if there is a place of business in the state.
What is the statute of limitation for a criminal act under the Uniform Securities Act?
5 years after the violation
