Series 66: Comprehensive Question Review

Under the Uniform Securities Act when an Agent represents an issuer, the definition has exclusions for transactions in some exempt securities. These exemptions include all of the following except?
[A] U. S. Government Securities transactions
[B] Limited P

B
An individual that represents an issuer in the sale of a limited partnership is considered an agent. All other choices are excluded from the USA's definition of an agent.

According to the Uniform Securities Act, which of the following is a federal covered security?
[A] Pennsylvania state bonds offered outside of Pennsylvania
[B] A fixed annuity
[C] A futures contract
[D] Securities issued by a non-profit organization

A
Under the definition of federal covered security municipal bonds (Pennsylvania) offered outside the state of issue are included whereas the other choices are NOT federal covered.

A broker/dealer, with its place of business being in New York, places an ad in the Wall Street Journal. The Journal is freely circulated in all fifty states. Which of the following is true?
[A] An offer is being made in New York.
[B] An offer is being mad

D
Since 2/3rds of the offering is outside of NY, it would not be an offer.

Which of the following accurately describes an investment advisory firm registered under the Investment Advisors Act of 1940?
[A] This would be any investment advisor that operates within the boundaries of the United States.
[B] This would always describe

B
An investment advisory firm registered under the Investment Advisors Act of 1940 would meet the definition of a Federal Covered Advisor under the 1940 Act and the Uniform Securities Act. Just because an investment advisory firm operates within the US, i

According to the Uniform Securities Act, when can an agent offer to sell securities in a pending underwriting in a state?
[A] never
[B] only if the agent discloses that the securities have not yet been registered
[C] only if the agent acquires a written s

A
While underwritings are being put together (pending), those securities can never be sold until such time as registration becomes effective.

According to the Uniform Securities Act, for an offering of a pre-organization certificates to be exempt which of the following conditions must be met?
I. Commissions or other compensation may be received in connection with the offering.
II. Advertisement

C
Conditions which should be met to make a preorganization subscription exempt are as follows: subscribers cannot exceed 10, no commissions may be paid, and payments may only be made after the security is registered. Additionally, advertising is acceptabl

Under the Investment Advisors Act of 1940, if a registered investment advisor requires prepayment of $1200 or more of advisory fees, 6 months or more in advance of rendering services, the advisor must:
[A] File an audited balance sheet promptly with the S

A
When an Investment Advisor requires prepayment of fees of $1200 (formerly $500) or more, 6 months or more in advance of rendering services the advisor is required to promptly file an audited balance sheet with the SEC and with clients.

According to Federal Regulations, the SEC would have to issue an exemptive order before a mutual fund may
[A] Adopt a 12b-1 plan.
[B] Change its investment objectives
[C] Employ as an investment adviser a person who has been convicted within the past 10 y

C
The SEC would have to issue an exemptive order before a mutual fund may employ a person as an investment adviser who has been convicted within the past 10 years of a crime involving the securities business.

Under the Investment Advisors Act of 1940, which of the following statements is true regarding a firm's use of the term "investment counselor"?
[A] A firm may use the term synonymously with investment advisor.
[B] A firm may use the term if it also publis

D
The term "Investment Counsel" may be used if a substantial part of the investment advisor's business consists of providing investment supervisory services, i.e. providing continuous advice according to clients' individual needs.

The Investment Company Act of 1940 regulates which of the following?
I. investment trusts
II. real estate investment trusts
III. separate accounts established by insurance
IV. companies to run securities based on variable annuities
[A] I, II
[B] I, III
[C

B
Real Estate Investment Trusts are simply a trust and are NOT considered to be an Investment Company, whereas Investment Trust and separate accounts of Variable Annuities are considered to be Investment Companies and would be regulated under the Investme

A pension consultant receives compensation for advising an employee pension fund. Under the Investment Advisers Act of 1940, which of the following advice on securities would require the pension consultant to register as an investment adviser (IA)?
[A] In

B
Under the Investment Advisers Act of 1940, a person is an "investment adviser" if the person advises about securities for compensation.

Any person whose principal business is providing financial services other than investment advice, would not be regarded as "being in business" of giving investment advice if, as part of the services, the person does which of the following:
I. discusses in

C
Choices I, II and III would NOT be considered "in the business" since the information provided was either "general" or given on "rare and isolated instances." On the other hand, choice IV would give specific advice on market timing.

In which of the following scenarios is an investment advisory firm REQUIRED to register with the SEC as a Federal Covered Adviser?
[A] The firm has clients in 13 states.
[B] The firm only provides advice related to federal covered securities.
[C] The firm

C
The only item listed that would require the firm to register at the federal level would be managing $150 million in assets. An investment manager with over $100 million in assets under management has the option of registering with the states or with the

Which of the following statements are true concerning the enforcement of the Investment Advisors Act of 1940:
I. The state court in which the defendant lives or has a primary place of business has primary jurisdiction in both criminal and civil cases brou

C
The SEC has equal jurisdiction over advisors and if the SEC issues an order against an advisor, and the advisor wants to appeal, an appeal may be filed with the U.S. Court of Appeals.

The Securities Act of 1933:
[A] established the Securities and Exchange Commission to regulate the securities business and to administer the Federal Securities Laws.
[B] provided for the creation of FINRA to regulate the OTC securities market.
[C] was pas

D
The primary purpose of the Securities Act of 1933 is to attempt to be sure that full and fair disclosure regarding securities being offered to public is made. The Securities Exchange Act of 1934 established the SEC and the Maloney Act Amendment establis

When an investment advisor receives compensation in the form of a wrap fee, all of the following statements are correct EXCEPT:
[A] The investment advisor must provide a written copy Schedule H of Form ADV to the client.
[B] Wrap fees are allowed when the

D
All choices except "D" represent circumstances where the client would receive a written disclosure statement based on Form ADV when compensation (wrap fee or management fee) is to be paid. When a client is simply charged commissions per transaction, exe

Under SEC Release IA-1092, which of the following are included in the definition of an "investment advisor"?
I. Pension consultants
II. Advisors to entertainers
III. Advisors to athletes
IV. Advisors to issuers
[A] I only
[B] II and III only
[C] I, II, II

C
Under SEC release IA-1092 all of the following are included in the definition: Financial Planners, Pension Consultants, Advisors to Athletes and\or Entertainers, Advisors to Employee Benefit Plans, and Advisors to Clients regarding the selection or rete

Investment advisors may be formed as:
I. Partnerships
II. Corporations
III. Associations
[A] I only
[B] II only
[C] III only
[D] I, II, III

D
Investment advisors may be formed as Partnerships, Corporations, and Associations. Therefore, the correct answer is "D".

Nick is a Federal Covered Investment Adviser and has decided to expand his business by bringing in new clients. Since he will have to hire more assistants and move to a larger office to attain his goal, he has decided that he will charge new clients a hig

C
As a Federal Covered Adviser, Nick would be required to file an amended Form ADV with the SEC, update part II of Form ADV which is the Brochure Rule, and notify both the SEC and the State Administrator of the location of the new office. Nick would NOT b

According to the Investment Advisors Act of 1940, the factors that are used to determine if a person is engaged in the business of providing investment advice would include which of the following?
I. how often the advice is provided
II. whether compensati

D
All of the statements would apply when determining if a person is engaged in the business of providing advice.

The Securities Exchange Act of 1934 regulates which of the following?
I. securities offerings of companies
II. periodic filings of reporting companies
III. broker/dealers and their associated persons
IV. transfer agents
[A] I, II
[B] I, IV
[C] III, IV
[D]

D
In choice I 'securities offerings' are regulated under the Securities Act of 1933. Choice II, III and IV are regulated under the Securities Exchange Act of 1934, which regulates the secondary market.

An investment advisory firm is set up to provide advice on Treasury Bills, Treasury Notes, and Treasury Bonds. This firm will not provide advice on any other securities. According to the regulations of the Uniform Securities Act, which of the following ar

D
This firm would be required to register under the Uniform Securities Act. This is a key differentiation between the Investment Advisors Act of 1940, which provides an exemption for US Government Securities, and the Uniform Securities Act, which does NOT

In which of the following scenarios would an access person, a director, officer, partner, or supervised person with access to non-public information, be exempt from reporting their personal securities holdings and transactions?
[A] The access person is a

A
An exception from reporting requirements exists when an access person's securities are held in an account over which the access person has "no direct or indirect influence or control". As a limited partner in a hedge fund, the access person would not ha

Generally, the Investment Company Act of 1940 requires that:
[A] not more than 40% of a mutual fund's Board of Directors be from inside the company.
[B] not more than 60% of a mutual fund's Board of Directors be considered interested persons under the Act

B
The Investment Company Act of 1940 requires that at least 40% of the Board of Directors must be non-affiliated persons. That means that no more than 60% may be affiliates of the company.

If an investment adviser representative (IAR) is also a licensed insurance agent and recommends that a client sells his/her mutual fund shares to buy life insurance, all of the following disclosures should be made EXCEPT:
[A] That the sale of mutual funds

D
Remember that when an IAR sells both securities and non-securities related products, they continue to be regulated by the IA rules even when selling the non-securities products therefore the best answer is "D" since that advice would be connected to the

Investment Companies are regulated under the Investment Company Act of 1940. According to the 1940 Act which two of the following are true:
I. Open-end investment companies are also called Mutual Funds.
II. The 1940 Act regulates an investment company tha

A
The Investment Company Act of 1940 regulates the investment of one investment company in another investment company, states that Open-end investment companies are Mutual Funds and that investment companies employ custodians to hold company assets. The 1

According to the Securities Exchange Act of 1934, a person who becomes the beneficial owner of more than 5% of a security registered under the act must file a report
[A] Promptly
[B] Within 2 days
[C] Within 10 days
[D] Within 20 days

C
The Securities Exchange Act of 1934 states that any person who becomes the owner of 5% or more of a security registered on a National Securities Exchange must file a report with the SEC within 10 days.

A small investment company is owned by its own employees. The employees of the investment company have decided to focus on marketing and decide to hire an investment advisor with a good reputation to manage the investment company's portfolio. The investme

A
In order for an Investment Advisor to charge a performance based fee to a client, the client would have to be a Qualified Client. This would be a natural person or company that has at least $1,000,000 under management or has a net worth of more than $2,

Under the Investment Advisors Act of 1940, which of the following persons would be considered to be in the business of providing "investment advice":
[A] An individual is paid for giving advice about purchasing futures contracts.
[B] A firm which is paid

B
According to SEC Release IA-1092, the definition of an Investment Advisor is a person who is "in the business" of giving advice about securities and is required to register. Specifically in this question the Bank is considered a client.

What are the two primary differences between an open-end investment company and a closed-end investment company?
I. Open-end investment companies have a fixed capitalization, while the capitalization of a closed-end investment company is constantly changi

C
The primary difference between open-end and closed-end investment companies is capitalization.
Open-end investment companies are just that, open-ended. The capitalization is constantly changing as they sell and redeem shares. Open-end investment compani

A federal covered advisor is properly registered under the Investment Advisors Act of 1940. The firm plans to advertise to the public in a certain state in order to attempt to get more business. Each of the following are requirements for advertisements un

A
Each of the items listed is true except for the statement regarding submitting advertising to the SEC prior to use. This is a false statement. Federal covered advisors must abide by regulations created which cover advertising, but do not have to submit

Which of the following is NOT required to be contained in written disclosure documents provided to clients by solicitors under the 1940 Act?
[A] The name of the broker/dealer firm that will be executing trades for the account
[B] Details as to how the sol

A
Each of the items listed must be provided in the details of the written disclosure document provided by the solicitor to clients other than the name of the broker/dealer firm that will be executing trades for the account

In working as an investment adviser (IA), you see opportunity to benefit your clients holding nondiscretionary accounts by gaining access to initial public offerings. In order to have more choices as to the initial public offerings, you decide to hire a p

C
The activities of non-registered persons working together with registered investment advisers are very limited. They are basically limited to clerical work which must be closely supervised by the IA. They are usually paid either hourly or a salary, but

Under the SEC Release IA-1092, which of the following would be required to register as an investment advisor?
I. A certified Financial Planner who provides general financial planning for a fee.
II.An attorney who manages the financial affairs of athletes

D
Under the SEC Release IA-1092, any persons that give advice with regard to securities and/or hold themselves out as offering such services would be deemed an investment advisor and would be required to register. Therefore, all of the listed options woul

Under the Investment Company Act of 1940, which of the following would the shareholders in a mutual fund not have a right to?
[A] receive notice from the investment advisor of the changes in the fund's portfolio as they occur
[B] elect the fund's Board of

A
Shareholders would NOT be advised of changes in the funds portfolio as they OCCUR. That would impossible for the fund to disseminate on an on-going basis

According to the Investment Advisors Act of 1940, which of the following are excluded from the definition of "investment advisor"?
I. an insurance company formed under the laws of the state
II. a bank which is not an investment company
a person whose inve

C
According to the Investment Advisors Act of 1940, an investment advisor is an individual who receives compensation for investment advice. The exclusions from this definition include any bank or bank holding company and any person whose advice or service

Under the Investment Advisors Act of 1940, investment advisors have a fiduciary duty to their clients. Such fiduciary duty would be considered to have been broken if the investment advisor did which of the following?
[A] The IA has provided impersonal adv

B
An IA has a fiduciary duty to clients. That being said, the IA must act in the best interest of the client. A "hedge clause" is intended to limit the liability of the IA. Such a clause puts the best interests of the client behind the best interests of t

Under the Securities Act of 1933 an "accredited" investor generally refers to wealthy investors who are eligible to invest in Reg D Private Placements and would include all of the following except:
[A] Any Trust with total assets in excess of $5,000,000
[

B
Individuals with a $1,000,000 net worth would be included in the definition as well as Registered Investment Companies, any Trust with total assets of $5,000,000 and Insurance Companies. A Registered Investment Advisor, just by virtue of being an invest

According to SEC Release IA-1092, what information must IAs disclose to clients?
I. IAs must disclose that they take positions consistent with those recommended to clients
II. IAs must disclose that they take positions inconsistent with those recommended

C
The Investment Advisors Act, including SEC Release IA-1092, specifies that IAs must make full disclosure including potential conflicts of interest as well as how they personally invest, whether it is consistent or inconsistent with the positions that ar

According to the Investment Advisors Act of 1940, a person who provides investment advice may be considered to be compensated for that advice if the person receives:
I. a commission on securities transactions
II. a commission on the sale of a life insuran

C
Commission on "securities transactions" (plural) would be considered acting as aa B/D or Agent, not an IA. If choice I had said "a commission for providing advice on a securities transaction" then we would include it the answer. If an individual provide

Private Placements under the Uniform State Securities Act:
[A] Are not governed but are covered under the 1933 Act.
[B] Have an exemption that is narrower in scope than the Federal exemption.
[C] State that if you qualify under the 1933 Act, the transacti

B
The exemption under the Uniform Securities Act is limited to no more than 10 persons other than institutional investors. The exemptions under the Securities Act of 1933 and the SEC Regulation D permits an unlimited number of accredited investors.

During the "pay-out" period of a variable annuity the units are referred to as
[A] annuity units.
[B] pay-in units.
[C] accumulation units.
[D] pay-out units.

A
During the pay-out period of a variable annuity the units received by the investor are referred to as annuity units.

One of your clients owns a large block of XYZ Corporation common stock. The investor calls and wants to buy a call option for XYZ Corporation common stock. Why would this investor choose to buy a call on XYZ common stock?
[A] The investor wants to generat

D
Buying a call option on stock allows the investor to buy at the strike price of the option contract for a specified period of time. This would be the reason for buying the call. The investor is buying the call and paying premiums. If buying a call, the

The seller of a call option is obligated to
[A] sell the underlying security.
[B] buy the underlying security.
[C] short the underlying security.
[D] defer a taxable gain

A
The seller of a call option (short the option) is obligated to sell the underlying security if the option is exercised.

All of the following are TRUE about using futures contracts for hedging purposes EXCEPT:
[A] A long hedge would be used to protect against rising prices.
[B] A short hedge would be used to protect against falling prices.
[C] Hedging is typically used by s

C
Hedging is typically used by the producers or consumers of the underlying commodities to protect against the risk of future adverse price movements. Speculators are the counterparties who are willing to assume the risk to make a profit if they bet right

In order to bring in new business, an investment adviser decides to run an advertisement directed solely to accredited investors. The IA includes the following phrase in the advertisement: "We are a fee-only adviser, so come in and we'll see what we can d

C
A 12b-1 fee is an extra fee that is charged by some mutual funds. A 12b-1 fee would not be charged by an IA, it would be charged by a mutual fund, therefore it would "conflict" with other types of charges generally made by IAs.

A conservative investor has a portfolio that consists of diversified investments in equity securities, debt securities, and money market instruments. The investor is mildly concerned about a downturn in the stock market. If this investor were seeking to f

B
Of the choices listed, the best option is the Real Estate-Related Investments. The real estate market often moves in the opposite direction from or is unaffected by the equities markets. A balanced fund would be redundant with the investor's current hol

While employed, Sally purchased shares of a mutual fund with a certain investment objective. Sally has decided to retire this year, and she wants to change the investment objective of her mutual fund investments. When Sally goes to the investment company

B
When an investor wishes to change investment objective and they hold mutual fund shares, they will most likely have to exchange those shares for shares with the desired investment objective. Most companies offering mutual funds will allow an investor to

The distribution to an annuitant during the payout period of a non-qualified variable annuity contract would be taxed as:
[A] Capital gain only
[B] Ordinary income on the amount of excess over the original cost basis.
[C] Ordinary income only
[D] Capital

B
In a non-qualified annuity, the principal invested has already been taxed, so it would not be taxed again when withdrawn from the annuity. Any increase in monies over the original amount invested is considered ordinary income.

Joe recently purchased a Put option on ABC common stock. If Joe decides to exercise the Put option he would:
[A] Buy 100 shares of ABC common stock
[B] Sell 100 shares of ABC common stock
[C] Be closing out his position with an offsetting transaction
[D]

B
When an investor Buys a Put option they are in a position where they have the right to "Sell" 100 shares of the underlying stock if they decide to exercise the Put option.

A customer purchases 1 XYZ July 50 Call @5. The customer will breakeven at which of the following market prices for the underlying stock?
[A] 5
[B] 45
[C] 50
[D] 55

D
When doing breakeven questions, we have to follow one of two rules:
1. If you have a Call contract, we "Call Up", which means we ADD the premium to the strike price
2. If you have a Put contract, we "Put Down", which means we SUBTRACT the premium from t

Which of the following are features of a call or put option contract which has a "European-Style" exercise?
I. This type of option can be exercised at any time up to and including at expiration.
II. This type of option can only be exercised at expiration.

C
European-style options, calls and puts, can only be exercised at expiration. Because they cannot be exercised at other times prior to expiration, the primary use of European-style options is hedging.
American-style options, calls and puts, can be exerci

Dylan has purchased an equity indexed annuity which has a participation rate of 75%. It is indexed to the S&P 500, which rose 5% this year, from 2,000 points up to 2,100 points. How will Dylan's equity indexed annuity be affected?
[A] Dylan will see a 1.2

B
If an investor has a participation rate of 75% of gains in an equity indexed annuity, the investor can expect to participate in 75% of the amount by which the index appreciated. Here, the S&P 500 rose by 5%, so Dylan should participate in 75% of that in

Jerry has purchased an equity indexed annuity. His participation in increases in the index is capped at 4% . If the index goes up by 25%, how much will Jerry get?
[A] Jerry will see 4% of 25%, or an increase of 1%.
[B] Jerry will see a total of 4% of incr

B
When the structure of an equity indexed annuity involves a cap, that is the most that the investor will receive in appreciation in that year, despite the fact that the index could have gone up significantly more. Even though the index went up 25%, Jerry

Each of the following would be risks associated with investment in precious metals, EXCEPT:
[A] Price volatility and the influence of speculation in the market
[B] Significant domestic currency de-valuation
[C] Increased supply of the precious metal
[D] S

B
Significant domestic currency de-valuation would typically cause an increase in the demand and value of precious metals. Each of the other items are risks associated with investment in precious metals.

The seller of a put option is obligated
[A] sell the underlying security .
[B] buy the underlying security.
[C] short the underlying security.
[D] defer a taxable gain.

B
The seller of a put option (short the option) is obligated to buy the underlying security if the option is exercised.

Each of the following would be potential ways to distinguish between different classes of mutual fund shares, EXCEPT:
[A] Sales load percentages
[B] Investment objectives
[C] Fund fees and expenses
[D] Timing of the assessment of sales loads

B
Different classes of mutual fund shares can be determined by the sales loads charged by the fund, expenses and fees charged to the fund, and the timing of when fund sales loads are charged (front-end versus back-end). The investment objective of a fund

All of the following are characteristics of a call option EXCEPT:
[A] It gives the buyer or holder the right, but not the obligation, to buy an underlying asset at a fixed price for a limited period of time.
[B] The underlying asset may only be a security

B
The underlying asset does not have to be a security as in equity options ((e.g. stock). The underlying assets for options on futures contracts are often commodities such as wheat or pork bellies.

All of the following are characteristics of term life insurance, except:
[A] It provides death benefits only with no cash values.
[B] It is normally renewed for an additional term at the same premium level.
[C] It provides the most death benefits for the

B
Although term insurance is frequently renewable, the premium will increase on renewal because the policyholder will be older. The other choices are all correct.

All of the following are characteristics of Universal Life insurance EXCEPT:
[A] The cash values are interest sensitive (sometimes with a guaranteed minimum).
[B] Policyholders do not choose the underlying investments.
[C] Flexible premium payments are av

D
Premium payments are deposited into the General Account of the life insurance company. Policyholders do not have control over the investments.

Joe recently purchased a Put option on ABC common stock. If Joe decides to exercise the Put option he would:
[A] Buy 100 shares of ABC common stock
[B] Sell 100 shares of ABC common stock
[C] Be closing out his position with an offsetting transaction
[D]

B
When an investor Buys a Put option they are in a position where they have the right to "Sell" 100 shares of the underlying stock if they decide to exercise the Put option.

All of the following are characteristics of a traditional equity indexed annuities EXCEPT:
[A] Annuity payments are linked to the performance of a specific stock index.
[B] If the index rises, there may be a "cap" on how much of the gain is credited to th

C
Traditional EIA's were considered to be securities. Modern EIAs are not considered to be a security and have a "no loss" protection of capital and credit interest.

CMOs may be collateralized by which of the following?
I. Ginnie Mae
II. Fannie Mae
III. FHA mortgage loans
IV. Conventional mortgages
[A] I and II only
[B] III and IV only
[C] I, II, and III only
[D] I, II, III and IV

D
All items listed may be used to collateralize CMO's.

Which of the following investments is considered a derivative?
I. Equity Options
II. Real Estate Investment Trusts
III. Commodity Futures
IV. Mutual Funds
[A] I and III
[B] I and IV
[C] II and III
[D] II and IV

A
Futures contracts and option contracts are both considered derivatives. They can be used to arbitrage but are not "only used" in arbitrage situations. Options are used for swaps and futures contracts would not be involved. An equity index consists of eq

Which of the following are benefits of a Health Savings Account (HSA)?
I. Tax-free withdrawals are permitted for any medically-related expense.
II. Earnings within the account are tax-deferred.
III. Contributions to the HSA are tax-deductible up to limita

C
Tax-free withdrawals are permitted in HSAs for "Qualified Medical Expenses", so it would be incorrect to say that tax-free withdrawals are permitted for "any" medically-related expense, because that could include elective plastic surgeries, etc. All of

When calculating the yield to call, which of the following is typically used?
[A] The bond's next available call date
[B] A call date that is mid-way between the first call date and the maturity date on the bond
[C] The bond's final maturity date
[D] A ca

A
Yield to call is typically calculated to the bond's next available call date

An investment advisor is assisting a client in preparing a personal income statement. Which of these items would the adviser need to complete the income statement?
I. Dividends received from common stock holdings
II. Real property
III. Automotive expenses

B
An income statement would include moneys coming in and expenses paid out by the individual or entity. Dividends would be included in this, but assets (such as real property) and liabilities would not be included on an Income Statement.

Harry wants to buy a stock. He calls his agent, Penelope, and asks that she enter the order at the market. Assuming that Harry gets an execution on his order, what price will Harry receive?
[A] Harry's order will be executed at the quoted "last sale" pric

D
When customers enter market orders to buy, they can expect an execution at the applicable "ask" price. When customers enter market orders to sell, they can expect an execution at the applicable "bid" price. Last sale information and the following day's

An investor plans on retiring in six months. She wants to use her portfolio in its entirety to pay off a mortgage at the time of retirement. The best asset allocation for her portfolio is currently
[A] 20% REITS, 30% equities, 20% money market, 30% bonds

C
At this point the investment objective of the client is to maintain the amount of capital in the account. The investor also needs the money to be available in 6 months. Both the investment objective and the short term needs of the client signal that the

Paula bought her home 30 years ago for $75,000 and decides to sell her home this year for $400,000. She will have a taxable gain of?
[A] $0
[B] $325,000
[C] $250,000
[D] $75,000

D
Paula qualifies for the $250,000 deduction from gains on the sale of her home.
$400,000 Sale Price
$-75,000 Original Cost
$325,000 Adjusted Basis
-$250,000 Deduction
$ 75,000 Taxable Gain

A stop limit order to buy may result in a trade when the market price reaches the
[A] limit price.
[B] limit price then reaches the stop price.
[C] stop price then reaches the limit price or better.
[D] stop price

C
When the market price reaches the stop price, the order is activated. When a stop limit order to buy is in place, the limit order is activated once the market price reaches the stop price. Once the stop is triggered, the order may result in an execution

Rudy Smith received 100 shares of ABC stock as a gift from his Grandma. Grandma originally paid $20 per share for the stock 5 years ago. On the day Rudy received the stock gift, the market value was $30 per share. Grandma passes away a few years later and

A
The inheritance needs to be calculated separately from the gift.
Gift:
100 shares of stock with an original cost basis of $20 per share and a sale price of $100 per share.
100 shares x 20 cost basis for grandma = $2,000
100 shares x 100 per share at tim

When an Investment Advisor is considering the purchase of debt securities, they must evaluate which of the following types of risks?
I. Credit Risk
II. Purchasing Power Risk
III. Legislative Risk
IV. Interest Rate Risk
[A] I only
[B] I and IV
[C] II, III,

D
When considering the purchase of debt securities, all of the types of risks listed should be evaluated.

The person that administers a trust is the:
[A] guarantor
[B] beneficiary
[C] trustee
[D] executor

C
The person that is empowered to administer a Trust would only be the designated trustee named in the trust.

The bid price of a security is the price that a
[A] customer will receive when selling a security to a market maker.
[B] market maker will receive to sell a security to a customer.
[C] customer will pay when buying a security from a market maker.
[D] mark

A
The bid price is the price a customer will receive when selling to a market maker or the price at which a market maker will buy from a customer.

Which of the following is MOST accurate when discussing risk tolerance?
[A] A client's risk tolerance is determined using a specific formula to generate a dependable assessment.
[B] A client's risk tolerance has more to do with the client's financial cond

C
Risk tolerance is a variable that changes by customer. Each customer will have differing risk tolerances when it comes to investing in general as well as when it comes to investing in specific products or companies. Risk tolerance is largely subjective

If an investor primarily invests in FDIC Certificates of Deposit and Treasury Bills, which of the following are likely?
I. The investor likely has certain income needs related to investment.
II. The investor likely has no need for income related to invest

B
Here, investments are being made in products which may provide a minimal amount of interest income which would be suitable for someone with modest income needs. If the investor had no need for income related to investment, there are other products which

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 trad

D
Institutions have always crossed large blocks of stock off the exchange floors. The other claimed advantages are legitimate.

Suzie is very excited because she will be retiring in the next few months. Upon her retirement she plans to spend at least a year traveling and has saved the money she will need for her travel. She also has a retirement portfolio of conservative securitie

A
The advisor should tell Suzie to put the percentage of her portfolio needed to pay off her mortgage into a Money Market Fund so that she can easily liquidate when she retires and the investment will provide safety of principal and some income. The advis

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] O

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.

Of the securities listed below, which would be considered the most vulnerable to interest rate risk?
[A] Treasury bonds
[B] T-Bills
[C] Exchange listed common stocks
[D] CD's

A
Long term bonds are the most sensitive to changes in interest rates.

A municipal bond has declined in value due to a regulatory change. Of the following, which is most likely to cause such a situation?
[A] Significant increases in IPOs
[B] The municipality's credit rating is downgraded
[C] Income tax rates are reduced
[D]

C
A regulatory risk is the chance of a change in the laws, rules, or tax rates that would adversely affect a security's price or return. Even though choice "D" seems like it might be a better answer because it is talking about interest rates in "general

Which of the following securities would be most affected by interest rates?
[A] Common stock
[B] Preferred stock
[C] Treasury bill
[D] Commercial paper

B
Preferred stock is a fixed income security and is sensitive to interest rates. Preferred stock will usually move inversely to interest rate moves.

You are computing the anticipated portfolio return on a client's portfolio. The formula that you are using incorporates the cash inflows and outflows in the portfolio. Which return calculation are you most likely using?
[A] The expected return calculation

C
The Internal Rate of Return (IRR) is the interest rate that will discount future cash inflows and outflows of an investment to its present value (i.e. - the market price). For example, the yield-to-maturity (or basis) of bonds discounts all of the bond'

An investor has a broadly diversified portfolio of blue chip stocks. The use of index options to hedge the portfolio would reduce:
[A] systematic risk
[B] non-systematic risk
[C] interest rate risk
[D] timing risk

A
Systematic Risk is also known as Market Risk and the use of index Put options on a portfolio of securities would reduce the systematic or market risk of a portfolio. Remember the best downside protection on stock or on a portfolio of stocks would be thr

Of the following types of risk, which most dramatically affects a zero-coupon US Treasury Bond with a 20-year maturity?
[A] Market risk
[B] Legislative risk
[C] Liquidity risk
[D] Inflationary risk

D
The risk listed that will have the most dramatic affect on a zero coupon US Treasury Bond will be inflationary risk. This will have the biggest affect on the market price of such a bond. Typically US Treasury Securities will have little exposure to mark

Which of the following statements are true?
I. Strategic portfolio management is the determination of the asset allocation percentages among differing asset classes in the portfolio
II. Strategic portfolio management is the determination of the permitted

D
Strategic portfolio management generally occurs when assets are kept at assigned balances in differing asset classes. Tactical portfolio management is when a portfolio has targeted balances but those balances can vary based on market performance in diff

All of the following would be factors that would be used to determine if a common stock was classified as a Value Stock EXCEPT?
[A] The current ratio of the common stock.
[B] The stock's current P/E ratio.
[C] The price of stock versus the sales of the co

A
Value investors focus on value stocks which are undervalued companies with low price/earning ratios, low price/book ratios and good price/sales reports. The Current ratio is generally not considered when looking at Value Stock indicators.