Exam 2 Flashcards by Justin Bettinger

A person makes an initial application for state registration on September 30. Which statement is true regarding the filing fee?

A. The fee will be prorated and only 3/12s of the annual fee must be paid.
B. The fee will be prorated and only 9/12’s of the annual fee must be paid
C. The fee if is not prorated and the full year filing fee must be paid.
D. No filing fee is due until the annual December 31 renewal

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Foreign exchange markets:

A. Are regulated
B. Set exchange rates
C. Trade foreign currencies
D. Are centralized

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A customer buys a Tips with a 3% coupon. The customer holds the investment for five years, during which the CPI increased by 3% 4% 4% 4% and 5% respectively in years one through five. What is the customers total return over the five year holding period?

A. 3%
B. 4%
C. 7%
D. 38%

D.
A treasury inflation protection security grows principal at the rate of inflation each year and the interest paid each year is based on the inflated principal amount.

In year one the investor will get $1000 times 3% equals $30 of interest. At the end of your one the principle is adjusted by 3% inflation rate. $1000 times 1.03 equals $1030 adjusted principal amount.

In the second year the investor will get $1030 times 3% equals $30.90 of interest. At the end of the second year the principle is adjusted by the 4% inflation rate. $1030 times 1.04 equals $1071.20 adjusted principal amount

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Which of the following projects would be financed by a revenue issued bond

A. The construction of a new subway line
B. The construction of a new junior high school
C. The construction of a new Hydro electric generating plant
D. The construction of a new sewage treatment plant

A C and D

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SEC rule 12 B-1 allows open and investment companies to charge an annual fee for soliciting new investment into the fund against:

A. Any shares issued as of the date of adoption of the plan
B. Any shares redeemed as of the date of the adoption of the plan.
C. Total net assets of the fund
D. Total income of the fund

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What formula find the expected return of an investment
A. CAPM
B. duration
C. Sharp ratio
D. Standard deviation

A. CAPM Capital asset pricing model. Attempts to find the expected return of an investment by breaking the return down into two components, these are the risk-free rate of return and the risk premium.

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And investment advisor is based in California where the minimum net worth requirement is $35,000. Investment advisor which is open branch offices in Washington Oregon and Nevada all of which have $35,000 net worth requirements as well. In order to open the branch office the investment advisor must have a net worth of how much?

$35,000
Net worth requirements to be registered as an investment advisor in a state is based on the advisers principle state of residence.

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Which of the following is a federal covered security
Treasury bond
Municipal bond
Investment company share
Penny stock

C
Federal covered securities are only required to be registered with the SEC. They cannot be required to be registered in each state. Major exchange listed issues and registered investment company issues are federal covered securities.

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A customer of a broker-dealer is a sophisticated investor and is interested in purchasing the shares of XYZ corporation, a company that has recently gone public and is Finley traded in the pink OTC market. The customer contact his agent to buy the shares, but the agent does not see any shares offered in the market so he contacts one of the officers of the company to see if that officer has shares that she wishes to sell. The officer agrees to sell some of her shares under rule 144, so the broker re-contact the customer to tell him that he found that shares the customer wishes to buy. In this scenario, the agent has:

A. Violated the uniform securities act
B. Made an offer to sell to the customer
C. Made an offer to buy to the customer
D. Effected an exempt transaction with the officer

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Which of the following is not a security and is not subject to contribution limits
IRA
Universal variable life
Variable annuity
Fixed annuity

You fixed annuity is considered an insurance product not a security

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An investment advisor Representative manages the assets of the ABC corporation profit sharing plan. The trustee of the plan contact the IAR explaining to the IAR that he wants a check drawn from the plan account to buy a building that ABC corporation will occupy. The IAR should:
A. Refused to issue the check
B. Refused to issue the check because it is a breach of the IAR’s fiduciary obligation
C. Issue the check
D. Tell the trustee that the check can only be issued of paperwork is provided showing that ABC corporation has put up collateral equal to the amount of the check

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He retired investors the safety of principal and current income. All of the following funds would be suitable recommendations except:

A. Government bond fund
B. Special situations fund
C. Money market fund
D. Insured corporate bond fund

B.
Of the choices given the least safe investment is a special situations fund. Such funds invest in companies and special situations such as bankruptcies to reap capital gains if the company recovers

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Supply side theory states that the economy is stimulated by which of the following?
A. The actions of the federal reserve
B. Increased government spending
C. Tax rate reductions
D. Government incentives to consumers

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Which of the following will affect a corporations operating income?
A. An increase in the companies effective tax rate from 20% to 30%
B. An increase in depreciation expense due to the purchase of new equipment
C. An increase in the company is capital expenditures for a new plant facility
D. An increase in the companies interest expense due to the sale of a new bond issue

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And individual buy is a multiple dwelling apartment house for investment purposes. He’s hoping of the real estate market will increase in value however, real estate prices decline by 20% due to an unfavorable tax ruling. This is an example of which kind of risk?

Regulatory risk

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The lower 15% tax rate applies to:
A. Cash dividends received from stock investments
B. Stock dividends received from stock investments
C. Stock splits received from stock investments

A only

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Regarding Ginnie Mae pass through certificates:
A. Certificate paper holders on a monthly basis
B. The certificates pay holders on a semi annual basis
C. Each payment consists of interest only
D. Each payment consist of a combination of interest and principal

A and D

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And investment advisor is permitted to borrow money from which of the following clients?
A. An affiliated bank
B. An unaffiliated bank
C. An affiliated broker dealer
D. An unaffiliated broker dealer

All of the above

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A portfolio manager generates a 15% rate of return on an aggressive growth portfolio compared to a 13% rate of return on the benchmark portfolio and a 10% rate of return on the Standard & Poor’s 500 index over the same period, the managers active rate of return is what?

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An insurance company that sells an equity indexed annuity he would use any of the following methods to credit the change in investment value except:
A. Annual reset
B. Point to point
C. High watermark
D. Moving average

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D.
These annuities base their payments on the performance of a broad-based index such as the S&P 500 index. However the return is capped and there is a minimum guarantee return, regardless of the performance of the index the most common methods of measuring index performance are the point-to-point method, annual reset method, and high watermark method.

And investment advisor is placed a block trade for 100,000 shares of ABCD stock. The trade is filled in two separate lots of 50,000 shares each, with one feel that $50.01 per share any other lot filled at $50.03 per share. Advisor is developed the methodology of allocating shares purchased at the lowest price to clients with a history of referring other clients into clients with more assets under management and has been doing this unknown to staff and clients for many years. Investment advisor is guilty of:

A. Failure to supervise
B. Breach of fiduciary duty
C. Failure to adhere to prudent investor standards
D. Insider trading

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A client might not wish to invest his or her funds in a single index because the client:
A. Will get a lower rate of return then investing in a single stock or just a few stocks
B. Gives up the ability to allocate funds among different asset classes
C. Will not achieve the desired level of diversification relative to returns achieved
D. Gives up the ability to passively managed his or her portfolio

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And analyst evaluates individual companies within an industry focusing on the company’s business model, management, product line, growth prospects and historical performance, to accumulate information that will be used to make recommendations of investments to be included in customer portfolios. This is an example of:

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Bottom up investment strategy

Hey bottom up investor evaluate individual companies within an industry focusing on the company’s business model, management, productline, growth prospects and historical performance to decide from the bottom up which are the best investments. And contrast a top-down investor first looks at the market sectors that he or she things are likely to outperform the overall market, and then focuses on the specific sector and then the companies in that sector to find the best picks

A broker dealer offers for summer passes to an amusement park to each of its agents who Solleys $10,000 of bonds during the month of June this action

A. Is allowed
B. Is not allowed

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Is allowed

Investor holds an international bond fund regarding the performance of the fun, which of the following statements are true? A. If the foreign currency value rises against the dollar, the funds net asset value will increase B. If the foreign currency value rises against the dollar, the funds net asset value will decrease C. If the dollar falls against the foreign Currensy, the fun will have an inferior performance relative to dollar dominant funds D. If the dollar falls against the foreign currency, the fun will have a superior performance relative to dollar denominated funds

A and D

With regard to closed end investment companies, which statements are true? A. An initial offering must be made with a prospectus B. The issuer redeems shares at NAV C. Once issued, shares trade on the secondary market at prevailing market prices D. The portfolio of securities is fixed and is not managed

The correct answers are a and C

Monetarist theory States that the economy is stimulated by:

The actions of the federal reserve

Which of the following statements are true about the investment company act of 1940s requirement for management companies? A. At least 40% of the Board of Directors must be non-interested persons B. At least 60% of the Board of Directors must be non-interested C. To establish a fund a minimum of $10,000 of total net assets is required D. To establish a fund a minimum of $100,000 of total net assets is required

The correct answers are a and D

If a broker dealer is registered with the SEC and its representatives are registered with the SEC and if the broker-dealer does not charge separately for advice then which of the following statements are true A. Both the individual and broker-dealer must register with the SEC as an investment advisor Representative. B. The individual must register with the SEC as an IAR the broker-dealer is not required to register with the sec as an IA C. The individual need not register with the SEC as an IAR the broker-dealer is required to register with the SEC as an IA D. neither the individual nor the broker-dealer need to register with the SEC as an IAR or IA

Under the uniform securities act the basic definition of a security is:

And investment in a common enterprise for profit with management by a third-party

A customer sales short 100 shares of PDQ at 58 and buys one PDQ July 60 call at three dollars. The customers maximum potential loss is what

$500

Under the uniform securities act if an investment advisor limits it's clientele to insurance companies which statement is true? A. The investment advisor must register with the state of residence of the insurance company. B. The investment advisor is exempt from registration in the state of residence of the insurance company as long as it is not physically located in that state. C. And investment advisor dealing with insurance companies is never required to register within a state. D. None of the above

Tactical asset allocation is a method of: A. Stock selection B. Market timing C. Portfolio rebalancing D. Portfolio diversification

B. Strategic asset allocation is the setting of strategy, which is deciding how much of the total investment to allocate to each asset class. Tactical asset allocation permits the manager two very that allocation upwards buy a maximum amount to take advantage of times when the market prices for a given asset class are lower than expected. Thus it permits the manager to "time" the market within the parameter variations allowed.

What is the benefit of forming a business venture as a general partnership?

Reduce tax liability

Which of the following is not a statistical measure? | Arrhythmic average Sharpe ratio correlation coefficient or quick ratio

Quick ratio. The quick ratio is a measure of corporate solvency.

If an investment advisor requires a 5% or greater holding in a publicly held company it must file a 13 G report if A. Only if the purchase were four it's proprietary account and it intends to exercise control over that issuer B. Only if the purchase were for its customer accounts and it intends to exercise control over that issuer C. If the purchase order for either it's proprietary account or its customer accounts and it intends to exercise control over that issuer D. If the purchase order for either it's proprietary Collins ordered the customer accounts and it intends to remain a passive investor.

D. 813 G filing is required with the SEC if any one person or entity controlled by that person acquires a 5% or greater holding in a publicly held company and intends to remain a passive investor. The following must be made within 45 calendar days of year end. The advisor controls purchases made in both it's proprietary and customer accounts so these are aggregated when determining if the 5% threshold is reached.

A federal covered investment advisor will take prepaid advisory fees of $2000 one year in advance of rendering services. Which of the following must be included in the investment advisor brochure? A. The balance sheet of the investment advisor B. Any conflicts of interest that the investment advisor may have C. Information on advisory fees charged

All of the above

Which statements are true about the filing of the annual surprise audit results with the administrator by investment advisors? A. Only advisers it take custody must be audited B. All advisers must be audited C. Audit results must be filed with the administrator within 60 days of completion of the audit D. Audit results must be filed with the administrator within 120 days of completion of the audit

A and D

Which statement is true? A. All securities sold through a broker dealer in a state must be registered in the state B. An agent may maintain his registration without being affiliated with a broker dealer C. An agents registration can never be revoked without an opportunity for a hearing D. A broker-dealer cannot also be registered as an investment advisor at the same time.

The measure of incremental return earned for taking on incremental risk is:

Total return minus risk free return. Standard deviation.

Which of the following statements is true regarding investment advisor who renders advice solely to investment companies? The investment advisor: A. Must register with the SEC B. Must register with the state C must register with both the SEC and the state D. Is exempt from registering as it renders advice to professional investors

The best answer is a Advisers who manage $100 million or more of assets or rendered advice to investment companies are not regulated at the state level and must register with the SEC only. One of the main intentions of the investment advisor act of 1940 was to register advisers to insurance companies in place limits on their compensation.

All of the following are considered to be compensation to an investment advisor except. A. Commissions earned on recommended trades that are effected through a broker dealer affiliate of the investment advisor. B. Mark ups earned on recommended trades that are effected it through a broker dealer affiliate of the investment advisor C. Tax preparation fees that are paid to an advisory firm that is also a certified public accountant. D. Commissions earned on life insurance sales through an insurance company that is an affiliate of the investment advisor, that result from the implementation of an overall financial plan prepared by the investment advisor

Chinese wall must be maintained by broker-dealer between all of the following except A. Research and trading B. Investment banking and mergers and acquisition's C. Research and sales D. Investment banking and research

An investor in a Ginnie Mae Mutual fund assumes which of the following risks? A. Prepayment risk B. Extension risk C. Fluctuation of net asset value D. Reinvestment risk

All of the above

What does the current ratio measure

Liquidity

``` Which of the following debt securities maybe issued by a corporation? A. Mortgage bonds B. Equipment trust certificates C. Moral obligation bonds D. Adjustment bonds ```

A B and D Only the federal government can issue moral obligation bonds

If father gives a $22,000 gift of securities to his son and a $22,000 gift of securities to his daughter. Which statement is true? A. The father has no gift tax liability B. The father has gift tax liability on the gift to his son C. The father has gift tax liability on the gift to the daughter D. The father as gift tax liability on both gifts

``` All of the following are money market instruments except: A. Tax anticipation notes B. Treasury notes C. Certificates of deposit D. Commercial paper ```

Treasury notes Treasury notes are issued in 1 to 10 year maturities, hence they are not a money market instrument. Money market instrument is issued with a maturity under one year.

A married couple age 60 and 62 are doing their estate tax planning. Which bequeaths would be subject to the generation-skipping tax? A. A bequest to a child B. A bequest to a grandchild C. A bequest to a great grandchild

B and C

Exam 2 Flashcards

(49 cards)