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- Under the Uniform Securities Act, the statute of limitations for criminal violations of the Act is: A) 5 years B) 1 year C) 3 years D) There is no time limit for criminal violations: A) 5 years The statute of limitations for criminal violations under the Act is five years.
- Pick TWO statements that are TRUE regarding time-weighted and dol- lar-weighted rates of return. I. Time-weighted returns allow investors to measure how much money they have earned on their investments. II. Dollar-weighted returns allow investors to compare the performance of two investment advisers. III. Time-weighted returns allow investors to compare the performance of two investment advisers. IV. Dollar-weighted returns allow investors to measure how much money they have earned on their investments. A) II and III B) III and IV C) II and IV D) I and II: C) III and IV Dollar-weighted returns measure the performance of an investor's actual investment over a defined period. Time-weighted returns assume that a fixed-dollar amount was invested and then measure how that amount would have performed over a
Study online at https://quizlet.com/_d0egc defined period. Time-weighted averages are often used to compare the performance of mutual fund managers
- What are structured products? A) An investment trust that manages a portfolio of real estate investments. B) Securities which are created by financial institutions that customize returns and risks to fit the needs of specific investors. C) Contracts that derive their value from the return on an underlying security. D) A contract in which two parties agree to exchange cash flows based on different financial instruments.: B) Securities which are created by financial institutions that customize returns and risks to fit the needs of specific investors. Structured products are securities which are created by financial institutions (e.g., broker-dealers) and are often customized to fit the specific needs of customers. Although structured products are legally created as debt instruments, their rates of return are often linked to equities and derivatives. One of the most popular types of structured products is the exchange-traded note (ETN). Derivatives (e.g., options) are contracts that derive their value from an underlying security. REITs are investment trusts that manage portfolios of real estate investments. Swap contracts are agreements to exchange cash flows based on financial instruments.
- The securities holdings report that an access person of an adviser is required to file with her firm's chief compliance officer does NOT include: A) The prices paid to acquire the securities B) The type of securities held in her personal account C) The date that the person submits the report D) The name of the broker-dealer that maintains the person's account: A) The prices paid to acquire the securities The securities holdings report that an access person files with her firm's CCO include the types of securities held in her personal account, the date that the report is submitted, and the name of the broker-dealer that maintains her personal account.
Study online at https://quizlet.com/_d0egc through an affiliated broker-dealer, this practice represents a conflict of interest which must be clearly disclosed to clients. Written disclosure of the conflict is typically made on Form ADV Part 2.
- The manager of the XYZ Fund is permitted to move assets between the stock and bond markets, depending on economic conditions. Last year the manager had 70% of the fund's assets invested in stocks while only 30% in bonds. This year she has reversed the ratio. XYZ fund is most likely a(n): A) Balanced Fund B) Hedge Fund C) Equity Income Fund D) Asset Allocation Fund: D) Asset Allocation Fund An asset allocation fund permits the manager to change investment strategies and vehicles, based on changing market/economic conditions
- Which factor will cause variable annuity payments (contributions) to change from one client to another? A) Gender B) Profession C) Age D) Health: B) Profession Payments into an annuity (i.e., the premiums) are most impacted by an person's profession. High-earning individuals can contribute more than lower earners. During the annuitization phase, the payout from an annuity is driven by the age and gender of the annuity owner
- Jack has a substantial amount of cash value built up in his variable life insurance policy. He would like to use some of it for a home renovation project. Which TWO of the following choices would be used to explain to Jack his options for accessing his cash value? I. If he withdraws some of his cash value, it will be treated as taxable earnings
Study online at https://quizlet.com/_d0egc first, then a tax-free return of premiums (LIFO). II. If he withdraws some of his cash value, it will be treated as a tax-free return of premiums first, then taxable earnings (FIFO). III. If he takes a loan against the cash value, it will be taxed as earnings first, then treated as a tax-free return of premiums (LIFO). IV. If he takes a loan against the cash value, it will be tax-free. A) II and IV B) I and IV C) II and III D) I and III: A) II and IV Any withdrawal of cash value from a life insurance policy is considered a return of premiums first, which would be tax-free. Withdrawals above the amount of premiums paid will be considered interest and, therefore, taxable as income. Policyholders usually prefer to borrow against their cash value, since this would be tax-free. The loan does not need to be repaid, but any amount still outstanding upon the death of the insured will be subtracted from the death benefit.
- An investment adviser must record the personal securities transactions that are effected by its officers, directors, partners, and employees by no later than: A) 30 days after the end of the calendar quarter B) Monthly C) Within 90 days of the adviser's fiscal year D) The day of the trade: A) 30 days after the end of the calendar quarter According to NASAA's Model Rule for Recordkeeping Requirements for Investment Advisers, an adviser must maintain a record of each personal securities transaction in which the adviser, an IAR, an officer, director, partner, or employee (i.e., an access
Study online at https://quizlet.com/_d0egc Venture capital advisers and private fund advisers with assets under management of less than $150 million are exempt from registration as an adviser with the SEC and/or state Administrator; however, they must still pay fees and report public information via the IARD/FINRA system.
- All of the following statements regarding the Capital Asset Pricing Model (CAPM) are TRUE, EXCEPT it: A) Predicts future values for the stock B) Was developed to explain the behavior of security prices C) Is based on the efficient market theory and assumes all investors act rationally D) Provides a mechanism to assess risk and return: A) Predicts future values for the stock CAPM does not establish a price objective for the stock. All of the other statements regarding this theory are true
- An issuer of a closed-end fund decided to cover the sales fee for a fol- low-on offering of shares of its fund. How would the broker-dealer classify the security? A) Half Load B) Load C) Full Load D) No Load: D) No Load Like open-end funds (i.e., mutual funds), closed-end funds are regulated investment companies. Investment companies that don't charge a front-end or back-end load are referred to as "no-load" funds. Mutual funds are considered no-load if they don't have a front-end load, contingent deferred sales charge, or a 12b-1 fee that exceeds .25%. Closed-end funds are also considered no-load if they don't have underwriting fees, commissions, or other offering expenses. Since the fund has covered the sales fee on the sale, the closed-end fund can be referred to as a no-load fund. Closed-end
Study online at https://quizlet.com/_d0egc funds are exchange-traded and, as a result, don't have back-end loads and cannot assess 12b-1 fees
- Which of the following designations is acceptable on a business card? A) "RIA" for an investment adviser that's registered with the SEC B) "IAR" for an individual who has passed the Series 63 and is employed by a federal covered adviser C) "RIA" for an investment adviser that's registered with a state Administrator D) "Investment counsel" for a registered entity whose primary business in- volves acting as an investment adviser: D) "Investment counsel" for a registered entity whose primary business involves acting as an investment adviser The term "investment counsel" can be used in promotional material as long as a firm's primary business consists of acting as an investment adviser. Using the ab- breviations "IAR" and "RIA" are prohibited and misleading because 1) these initials have no generally understood meanings; 2) initials after a name typically indicate a degree or a licensed professional position for which there are certain qualifications; and 3) there are no qualifications for becoming a registered investment adviser. However, using the full term (e.g., registered investment adviser) is permissible. The purpose of such a prohibition is to ensure that investors don't confuse a mandatory registration with a professional certification (e.g., CFA or CPA).
- Which of the following is/are regulated under the Investment Company Act of 1940? I. Investment companies investing money into other investment companies II. The firm that serves as a mutual fund's custodian and holds its assets III. The minimum rate of return required to remain registered as a fund IV. The performance of the investment company A) I only B) I and II only
Study online at https://quizlet.com/_d0egc D) Internal rate of return (IRR): D) Internal rate of return (IRR) This is really a question about the present and future values of the company. The present value of the company is simply the purchase price of $10 million, while the future values are the cash flows of $2 million, $4 million, and $8 million. The internal rate of return is the rate of return that makes the present value of all cash flows [i.e. $2/(1 + r)1, $4/(1 + r)2, and $8/(1+ r)3] equal to the market value (i.e. $10 million). In the formula, the "r" is the missing IRR. Once the IRR is calculated, the client can use that rate to compare this investment to other investments (e.g., competing companies, bonds, or money market securities).
- When selecting a value stock, an agent would look for which of the follow- ing characteristics? I. High earnings per share II. Low price/earnings ratio III. Low price to book value IV. High dividend yield A) I and III only B) I, II and III only C) I and II only D) I, II, III and IV: D) I, II, III and IV A value stock is one that tends to trade at a lower price relative to its fundamentals (i.e., dividend yield, earnings per share, sales, price/earnings ratio, market price to book value) and is, therefore, considered undervalued by a value investor. These companies tend to have the following characteristics: high earnings per share, high dividend yield, low price-to-book ratio, and/or low price-to-earnings ratio
- According to the Investment Advisers Act of 1940, when must an access person submit a transaction report? A) Promptly
Study online at https://quizlet.com/_d0egc B) No later than 30 days after the end of each calendar quarter C) Within 90 days of the end of the adviser's fiscal year D) No later than 10 days after the end of the calendar quarter in which the transaction was effected: B) No later than 30 days after the end of each calendar quarter The Investment Advisers Act of 1940 requires an access person of an adviser to report his personal securities transactions by no later than 30 days after the end of each calendar quarter.
- Which TWO of the following investments are NOT considered money-mar- ket instruments? I. A U.S. Treasury bill II. A money-market mutual fund III. A convertible debenture IV. A tax anticipation note A) II and III B) II and IV C) I and III D) I and II: A) II and III Money-market securities are defined as debt instruments that have less than one year until maturity. U.S. Treasury bills and tax anticipation notes (TANs) are both short-term debt instruments and are considered money-market instruments. A money-market mutual fund is an instrument that issues common shares which represent an investor's ownership interest in a portfolio of money-market securities. Convertible debentures are debt instruments; however, since the maturity of the debentures is not provided in the answer, it should not be assumed to be one year or less.
Study online at https://quizlet.com/_d0egc D) I, II and III only: D) I, II and III only The Investment Policy Statement of a qualified plan does not address the registration requirements or status of the fiduciary. However, under the Uniform Securities Act, an IA has fiduciary responsibility and is exempt from state registration if the plan's assets are at least $1 million and the IA has no place of business in the state.
- If an agent participates in a joint account with a client, the agent may: A) Share disproportionately in any gains or losses B) Initiate transactions in the account C) Follow the client's instructions only D) Withdraw sale proceeds: B) Initiate transactions in the account If an agent has a joint account with a client, she may share in the gains and losses proportionately, and initiate transactions. However, any distribution will be made payable to all parties in a joint account unless the joint owners consent.
- Value investors would be interested in companies that have: A) High price earnings ratios B) Low dividend yields C) High price to book value D) Low price earnings ratios: D) Low price earnings ratios Value investing is a method of identifying securities that are undervalued based on company fundamentals. Value stocks tend to have low stock prices in relationship to their earnings, a higher dividend yield than their industry peers, and, typically, trade at a price closer to or at a discount to the book value than their competitors. Value investors believe that the most undervalued companies should rebound and outperform the market. This, of course, assumes that the company is financially sound.
- An adviser is constructing a bond portfolio for a client whose goals are stable income and return of principal. The adviser determines that the appro- priate benchmark to compare this portfolio's performance is the Wheyman
Study online at https://quizlet.com/_d0egc Intermediate-term Government Bond Index. Which of the following statements is NOT TRUE regarding this decision? A) The client's goals of stable income and return of principal are not guaran- teed by the choice of this benchmark. B) Choosing this index implies that mortgage-backed securities are not a large part of the portfolio. C) This portfolio should have low levels of risk to match the benchmark. D) Any returns of this portfolio that exceed the performance of the benchmark are measured by the beta of the portfolio.: D) Any returns of this portfolio that exceed the performance of the benchmark are measured by the beta of the portfolio. When constructing a portfolio, an adviser typically starts by considering the secu- rities in the benchmark and will then determine what additional securities may add value to the portfolio. The benchmark indicates not only the types of securities that should be included in the portfolio, but also the types that should be ignored. In this example, the choice of a government bond index as the benchmark for the client's portfolio is indicative of the fact that the portfolio should not include a large percentage of securities that have a high degree of risk. Since the benchmark is an intermediate-term government bond index, it is expected that it will offer a low return that is in line with the low level of risk that is typically associated with government bonds. Since a benchmark is simply a measuring stick for comparison purposes, choosing this benchmark does not guarantee that the goals will be met and it does not protect against bad investment decisions or market fluctuation. The beta of a portfolio is actually used to compare its volatility to the volatility of the market; it does not measure excess returns above a benchmark (which is measured by alpha). Another important point is that beta is not a measure to be used for fixed-income portfolios.
- As an investment adviser, you are required to record and keep a record of every transaction in a security for a client's account within: A) 20 days of the end of each quarter, excluding direct obligations of the U.S. government B) 10 days of the end of each quarter
Study online at https://quizlet.com/_d0egc Rio NOT considered to be an IA in New Jersey? I. The firm transacts business only with New Jersey broker-dealers II. The firm transacts business in New Jersey, but only with a few employee benefit plans that contain assets under $500, III. The firm's only business in New Jersey is with 10 or fewer non-institutional customers within a 12-month period IV. The firm's only business in New Jersey is with a limited number of federal covered advisers A) I and IV only B) II and III only C) I and II only D) II and IV only: A) I and IV only Under the Uniform Securities Act, any investment adviser that has no place of business in a given state and whose clients are banks, broker-dealers, investment advisers, and other institutions is exempt from registration in that state. Also, any IA that has no place of business in the state and deals with five or fewer retail customers who are residents of the state within a 12-month period is also exempt. Since this question makes no reference to Rancho Rio having an office in New Jersey, it may transact business with New Jersey institutional investors, such as broker-dealers (choice I) and investment advisers (choice IV), without being registered in New Jersey. To do business with an employee benefit plan in a state without being registered, the plan must have assets of $1 million or more.
- Modern Portfolio Theory (MPT) defines risk as the: A) Possibility that returns will be less than the rate of inflation B) Possibility of loss of principal C) Slope of the regression line of portfolio returns versus the market
Study online at https://quizlet.com/_d0egc D) Variability of expected returns about the mean: D) Variability of expected returns about the mean In MPT, risk is defined as the degree to which investment returns deviate from what was expected or predicted. It is usually measured by the standard deviation of expected returns about the mean (´),although its square, variance (´2),is sometimes used
- While acting in a fiduciary capacity, what must an investment adviser provide to a customer who's intends to make an investment? A) Information that an inexperienced investor needs in order to make an investment decision B) Information that an average investor needs in order to make an investment decision C) Information this particular investor needs in order to make an investment decision D) Information that a reasonable investor needs in order to make an invest- ment decision: C) Information this particular investor needs in order to make an investment decision As fiduciaries, investment advisers have a duty of loyalty to their clients. In addition to providing suitable advice, fiduciaries must provide their clients enough information for them to make informed investment decisions. Fiduciaries are required to make recommendations based on what a "prudent investor" would do. However, if a particular client needs additional disclosures, a fiduciary must provide them. A fiduciary that advises a more experienced client is able to tailor the information to that client's specific needs. In many cases, an adviser is not required to provide all of the information that a beginning or average investor would need.
- Under the Capital Asset Pricing Model, risk is defined as: A) Failure to accomplish the client's objective B) Loss of interest C) Loss or principal
Study online at https://quizlet.com/_d0egc share price. Market capitalization is determined by multiplying a company's shares outstanding x the price per share. The Dow Jones Industrial Average (DJIA) is a price-weighted index
- A client of a registered representative owns a small business. The business produces strong cash flow during the holiday season, but negative cash flow for the rest of the year. This may indicate a need for which of the following choices? A) Tax relief B) Liquidity C) Capital preservation D) Zero coupon bonds: B) Liquidity Since the client may need to have access to capital when the cash flow from his business is negative, the portfolio should contain some investments that are liquid. Given the liquid nature of money-market instruments, they may be suitable investments for a portion of the portfolio
- What information is important when determining whether a limited part- nership is appropriate for a particular client? I. The client's ability to assume risk II. The client's investment objectives III. Whether the client's other investments are liquid IV. The client's educational background A) I, II, III, and IV B) I and II only C) I only D) I, II and III only: D) I, II and III only
Study online at https://quizlet.com/_d0egc A client's educational background is not an important factor when determining whether a limited partnership is appropriate for the client
- If an investment adviser uses a social media site as a form of advertising, all records of its use must be maintained for at least: A) The life of the firm, plus three years B) 5 years C) 3 years D) 2 years: B) 5 years According to NASAA's recordkeeping requirements, any notice, circular, or adver- tisement, including any communications through social media, must be maintained for five years.
- Which of the following choices is NOT a broker-dealer in State B? I. An agent in State A who contacts a client in State B II. A corporation that sells commercial paper every other week in State B III. A broker-dealer registered in State A, where its only office is located, which has only insurance companies as clients in State B IV. A bank trust department that buys and sells securities for its customers A) I, II, III, and IV B) I only C) IV only D) III only: A) I, II, III, and IV Agents, issuers, and banks are not broker-dealers. Also, a person with no place of business in a state, who deals only with institutional investors, is not a broker-dealer.
- The economic cycle consists of four stages--full recession, early recovery, late recovery, and early recession. Since the market tends to move ahead of
