2. From a tax perspective which of the following factors for an investor in a high income tax bracket would be least important when designing his portfolio?
[A] how much to allocate to cash equivalent
[B] actively managed funds vs. passively managed funds
C.
A high income tax bracket investor will want to minimize his taxes in his taxable portfolio. Cash equivalents are fully taxable. Actively managed funds have more taxable capital gains than passively managed funds. The strategies of a prospective, activ
1. What is the function of a limited partner?
[A] A limited partner's primary function is to contribute services to the business when deemed necessary.
[B] A limited partner's primary function is to make operational decisions for the business.
[C] A limit
C.
Limited partners, by definition, have limited liability in a company. Their primary function is to provide capital to the company. Limited partners will lose their limited liability status if they contribute services or make operational decisions for t
1. A busy executive wants to invest a significant amount of funds into a business venture but wants to remain passive when it comes to the management of that business entity. What is the best choice for this investor?
[A] The investor should become a limi
A.
The investor is "busy" and wants to remain "passive" when it comes to management decisions and running the company. The best option for this investor would be the limited partner role in a limited partnership. This role carries the least amount of invo
4. A hedge fund discloses to a prospective investor that it is a high frequency trading firm. The prospective investor should understand from this disclosure that the hedge fund has all of the following characteristics EXCEPT:
[A] Uses sophisticated compu
C.
High frequency trading (HFT) firms are short term traders. They are not buy and hold, long term investors. The other choices are characteristics of classic HFT firms.
1. Which of the following statements is true regarding Charitable Foundations?
[A] Charities are subject to Federal Tax but exempt from State Tax
[B] Charities are subject to both Federal and State Tax
[C] Charities are exempt from Federal Tax but subject
D.
Charities are generally exempt from both Federal and State Tax.
2. Before executing a recommended trade for a customer, an agent of a broker-dealer must make reasonable efforts to obtain which of the following pieces of information about the customer?
I.Financial Resources
II.Tax Status
III.Investment Objectives
IV.Ot
ALL
The agents of a broker-dealer are subject to the "know-your-customer" rules. All of the information above is important to the agent knowing his or her customer.
2. Of the following portfolios, which would have the greatest volatility?
[A] 20% stocks, 80% bonds
[B] 80% stocks, 20% bonds
[C] 50% stocks, 10% bonds, and 40% money markets
[D] 20% stocks, 50% bonds, and 30% money markets
B.
As a general rule, stocks are more volatile than bonds and bonds are more volatile than money markets. Also, the greater the diversification of asset classes the less the risks and the less the volatility
1. Pass-through of profits and losses, along with protection from liability, is provided by which type of business entity?
[A] These are features of a sole proprietorship.
[B] These are features of a C-Corporation.
[C] These are features of a general part
D.
Limited partnerships provide limited liability to limited partners while passing through profits and losses to investors. Sole proprietorships and general partnerships do not provide liability protection and C-Corporations do not pass through profits a
1. You are developing a financial plan to provide a retirement income for a customer starting at age 65. The customer asks you how Social Security retirement benefits work and how these benefits fit into the plan. You should explain all of the following k
D.
Working beyond the normal retirement age will not change the benefit.
1. Which of the following methods of organizing a business entity gives the owner(s) the most control of the company? The entity where the owner(s) have the most control is
[A] a publicly traded C-corporation.
[B] a general partnership.
[C] a limited part
D.
The business entity where an owner would have the most control would be a sole proprietorship. In a sole proprietorship, the owner has no partners (general and limited partnership), and there is no board of directors (C-Corporation). In a sole propriet
3. An investor has a short-term capital gain of $10,000. He is in the 35% marginal tax bracket. His tax liability for the gain is
[A] $0
[B] $1,500
[C] $3,500
[D] $5,000
C.
Short-term capital gains are taxed at the taxpayer's particular tax rate bracket (35%).
1. Which of the following is a feature that is specific to a tenancy in common entity?
[A] If one owner of the entity dies, the probate process is skipped for the remaining owners.
[B] This type of ownership is only permitted for equal 50/50 ownership bet
C.
In a tenancy in common, interests pass on to the estate of the deceased individual upon death. For this reason, such agreements provide for more freely transferrable interests in the entity/partnership. These arrangements can be between non-spouses, th
3. Cash dividends from certain sources do not qualify for the 15% qualified dividend rate. These dividends are taxed at the investors ordinary income tax rate. Those sources include all of the following EXCEPT:
[A] REITs
[B] Master limited partnerships
[C
D.
Cash dividends on preferred stock may qualify as "qualified" dividends as long as the preferred stockholder has held the stock for more than 90 days during a 181 window. The other answer choices are taxed at ordinary income tax rates.
1. Social Security Retirement Benefits are available to all of the following beneficiary classes EXCEPT:
[A] Workers
[B] Spouses of workers
[C] Children of workers
[D] Surviving spouses
C.
Children of workers are not a separate beneficiary class. Workers are eligible if they worked more than 10 years. A spouse is eligible as a spouse as well as a surviving spouse.
2. A new client wants to establish an investment portfolio with an investment adviser. Before the adviser opens the account, all of the following actions should be taken by the client EXCEPT:
[A] The client must have insurance adequate to cover needs such
C.
It is not a requirement for clients to have a zero balance on all credit cards prior to establishing accounts with investment advisers. It is advisable that client have an emergency fund, long and short-term goals, and required that the client has insu
1. Which of the following statements regarding the handling of business income is correct?
[A] Owners of Limited Liability Companies (LLCs) do not receive flow-through of income.
[B] Owners of general partnerships do not receive flow-through of income.
[C
C.
Of the options listed, a C-Corporation is the only business entity where owners do not receive flow-through of income. A C-Corporation is taxed as an entity, and then shareholders are taxed on dividends.
4. A large Wall Street brokerage firm has a large stock portfolio. Its portfolio manager engages in program trading. Which of the following trades would be an example of program trading?
[A] The simultaneous purchase and sale of 15 different stocks worth
A.
Program trading usually consists of baskets of at least 15 stocks worth at least $1 million that are executed by a computer program simultaneously based on a predetermined program. Orders from the trader's computer are entered directly into the market'
1. Which of the following fall under the responsibilities that can be expected by the owner of a sole proprietorship?
[A] It is the owner's responsibility to file K-1 forms associated with the business.
[B] It is the owner's responsibility to be in regula
D.
In a sole proprietorship, there is one owner who handles the record-keeping tasks and formalities associated with the business. K-1 forms are used with partnerships and s-corporations, and only corporations will have shareholders and CEOs/CFOs.
2. If a client only wants to ensure that their current level of capital is preserved in their portfolio, which investment BEST suits this objective?
[A] gold and silver
[B] mutual funds that contain equities
[C] mutual funds that contain a mixture of muni
D.
Of the choices listed, the money market fund would be the best option in terms of preservation of capital. Fluctuations in precious metals, the equity market, and the bond market may lead to loss of some capital.
1. A major difference between a Private Foundation and a Public Foundation is which of the following?
[A] Private Foundations get most of their funds from Government Agencies and Public Foundations do not get any funding from Government Agencies.
[B] Priv
B.
Private Foundations get their funds from individuals, families, or corporations, whereas Public Foundations get their funds from individuals, other foundations, and Government Agencies.
2. Of the following items, which would be considerations as to suitability when an IA is putting together recommendations for customers?
I.The investment experience of the client prior to working with this IA
II.The investment objectives expressed by the
D.
When developing investment recommendations for a client, the IA should look at ALL available information to determine suitability. These include prior experience with investing, investment objectives, current needs and current financial condition, and
1. Limited partnerships would have which of the following features?
[A] Participants in such arrangements are taxed in proportion to their share of ownership and on the basis of classification of the income received.
[B] Limited partners in such an arrang
A.
The only statement listed that is true about limited partnerships is the statement regarding taxation according to proportionate ownership and classification of the income received. Limited partners are not permitted to be involved in management duties
1.
Which of the following statements describes one of the primary reasons to establish a general partnership?
[A] A general partnership would be established so that more than one individual could operate a business as co-owners.
[B] A general partnership
A.
A general partnership would be formed so that multiple owners (more than one owner) could operate a business as co-owners. This is the primary reason for a general partnership. General partnerships would have reduced tax consequences, but only in compa
1. Which of the following is a characteristic that is shared by both a partnership and an S Corporation?
[A] They issue common shares.
[B] Ownership is easy to transfer.
[C] They are easy to form and maintain indefinitely.
[D] Profits and losses are passe
D.
Both a partnership and an S Corporation are considered to be "pass-through" entities which means all income and expenses are passed through to the owners and reported on the individuals tax return. Partnerships and S Corps do not issue common stock, tr
1.
A client asks an IAR to draft an irrevocable living trust and move $3M in assets into the trust for management by the IAR. The IAR should
[A] do as the client requested
[B] do as the client requested, but refer the management of the trust assets to ano
C.
Lawyers draft trusts. It's unethical and illegal for IARs to draft trusts
3. Bob Smith owns 100 shares of ABC common stock and ABC Company pays shareholders a $0.25 stock dividend per share. Bob is in the 28% tax bracket. The Dividend is a Qualified Dividend, how much must Bob pay in taxes?
[A] $3.75
[B] $7.00
[C] $10.75
[D] No
A.,
Qualified dividends are taxed at 15%. Bob owns 100 shares of stock and will get $0.25 per share, so we take 100 shares times 0.25=$25 total dividend. Second, we take $25 times our tax rate of 15%=$3.75.
1. One of your customers show you a Qualified Domestic Relations Order (QDRO) that was issued by a state court judge as part of her recent divorce proceedings. It provides for the division of her ex-husband's company pension with her and their minor child
C.
The order may not provide for benefits greater than those provided by the plan. The other three items are required information in the order.
2. An investment adviser is setting up a new plan for a new client. In determining what the new client's asset allocation should be, the adviser would have to know which of the following?
[A] Whether or not the new client has established a last will and t
C.
Before establishing an asset allocation model for a new client, the investment adviser should obtain a list of the client's current investments and strategies.
2. An Investment advisor recommends that a client's portfolio include 12% of small cap securities. The customer strongly rejects the recommendation. The IA's most appropriate response would be to
[A] ask the client to have faith in their judgement
[B] exp
C.
In any situation, the wishes of the customer must be recognized. In this case, avoiding small cap stocks would not put the portfolio in any jeopardy, and thus the rejection of the customer to the small cap exposure must be noted and followed by the inv
4. A large Wall Street investment bank owns and operates a "dark pool". In explaining its popularity to potential institutional customers, it rightly claims as advantages over stock exchanges all of the following EXCEPT:
[A] Large blocks of stock can be t
D.
Institutions have always crossed large blocks of stock off the exchange floors. The other claimed advantages are legitimate.
2. Your client has decided that as well as going with some of your recommendations he wants to invest in certain companies because of his concerns about the environment as well as concerns over ethical business practices. Which of the following describes
B.
Clients will at times choose investments based on personal beliefs or morals rather than typical investment strategies or portfolio management techniques, these would be consider to be Non- Financial Strategies .
2. You are working as an investment adviser representative when a young woman walks into your office and signs up for advisory services. She proceeds to tell you that she owns her own business and makes about $100,000 per year. She is married and has one
A.
The first priority in terms of a new client is to find out what the client currently has and determine what the financial goals of the client are. Target dates and time frames should also be established for these financial goals. One of the goals may b
2. One of your clients is an elderly gentleman whose wife has recently passed away. A $25,000 life insurance policy has paid out to the client and the client wishes to invest the proceeds. The client is a conservative investor, does not have a need for in
D.
Taking all of the facts into consideration, the best investment would be the bank-issued certificates of deposit. The client is elderly, conservative, and does not need income. Government bond funds are not insured and are normally suitable for investo
1. Which of the following parties would directly receive benefit from a trust?
I.Beneficiaries, including income and asset beneficiaries
II.Children of beneficiaries who are not named in the trust
III.A Trustee's spouse
IV.Remaindermen, when named in the
I and IV only
The question asks which will directly receive benefit from a trust. The direct beneficiaries of a trust include income and asset beneficiaries who have an immediate or present interest in the trust as well as remaindermen who have a future i
3. A husband and wife sell their home. The sales price is $900,000. They bought the house for $300,000, twenty five years ago. If the couple file their federal income tax returns as a married couple filing jointly the tax treatment of this transaction is:
C.
Under the federal income tax rules, the first $250,000 of the gain is tax exempt for a single filer and the first $500,000 of the gain is tax exempt for a married couple filing jointly. The balance of the gain is taxable as a long term capital gain (us
1. A trustee manages a trust which has beneficiaries who presently receive income from the trust as well as remaindermen, who have a future interest in trust assets once certain terms of the trust have been satisfied. Which of the following are CORRECT in
II and IV only
When it comes to the management of trust assets, a trustee must manage with impartiality and attempt to follow the guidelines of the trust as best as possible. If guidelines are not given as to the treatment of income beneficiaries versus r
1. Ned sets up an arrangement where some of his property is managed by a trustee for the benefit of beneficiaries. Ned reserves the ability to terminate the agreement at any time. If he does not, all property is treated as a gift to beneficiaries. What ki
C.
A Revocable Living Trust is an arrangement in which property is managed by a Trustee for the benefit of the beneficiaries of the trust. The arrangement is established by a "grantor", Ned, the person who sets up the trust. This type of trust can be term
2. "Arbitrage" refers to:
[A] Adjudicating a dispute by arbitration
[B] Simultaneously buying a security or commodity in one market and selling it in another market for the purpose of making a profit
[C] Protecting or hedging a stock position by buying eq
B.
Arbitrage is a trading strategy whereby the arbitrageur attempts to lock in a profit from a momentary difference in price of a particular security or commodity between two or more financial markets. For example, an arbitrageur simultaneously buys (low)
4. Broker dealers are required to seek the best execution reasonably available for their customers' orders. All of the following are TRUE about this rule EXCEPT:
[A] Broker dealers must evaluate orders they receive from all customers in the aggregate and
D.
Broker dealers are subject to this rule when they act for or with customers (as a broker or as a dealer). The other choices are true.
3. Anna has decided that she is going to give her daughter, Bess, 100 shares of ABC common stock that she had originally purchased for $6,000. The stock now has a market value $8,000. Which of the following is true with regard to the gift to Bess?
[A] Bes
B.
When securities are given as a gift at a profit to a minor or adult, the person who received the gift will assume the cost basis of the donor of the gift. In this case, Bess would be required to assume Anna's cost basis of $6,000.
2. A married couple with one child have been saving for years for their child's college education. They have planned for 5 or 6 years of college and have $75,000 they wish to invest so that they will have the money they need available to them each year. T
C.
Since this couple has limited investment experience and little or no risk tolerance the best choice would be laddered investments in Treasury Bills and Treasury Notes with maturities that match the time that annual tuition payments would come due for p
1. Which of the following is TRUE of a limited partnership?
[A] The limited partners manage the entity.
[B] The general partners have limited liability.
[C] The partnership provides investors with certain tax advantages.
[D] The limited partners cannot tr
C.
Limited partnerships provide tax advantages to investors. The limited partners afford limited liability while general partners have unlimited liability. Transfer of ownership is possible provided the general partners approve.
2. Which of the following would be TRUE with relation to the credit card debt of a client and recommendations that an IAR may make?
I.Manageable amounts of credit card debt are normal and would not prohibit a client from investing in the market.
II.An IAR
I and IV only
Though credit card debt and other forms of personal debt do not prohibit a client from investing in the market, if the client has a sizable amount of credit card debt in relation to their net worth, often it is the best investment advice to
4. In going over current market conditions, an investment advisory firm with discretion over client accounts feels that now is an appropriate time for its speculative clients to participate in a few specific stocks. The firm buys a large block of one part
C.
SEC rules require that any time there is an aggregation and then disaggregation of orders to client accounts, orders must be assembled and distributed in a fair and equitable manner. Advisers are NOT permitted to allocate shares however they'd like, bu