Which of the following statements is TRUE regarding the purchaser of a call option?
A The yield on the purchaser's portfolio would increase by purchasing the option.
B The purchaser would have unlimited losses if the underlying stock declined.
C The purch
Answer: C
A cash forward contract is different than a futures contract because the cash forward contract is:
1 A personal transaction between the buyer and the seller
2 Not for a standard amount of the commodity, but rather is for a specific amount and quality of t
Answer: D
An individual expects the market price of XYZ to go down. This investor might:
1 Buy XYZ call options
2 Write XYZ call options
3 Buy XYZ put options
4 Write XYZ put options
A I and III only
B I and IV only
C II and III only
D II and IV only
Answer: C
Under which of the following circumstances will the payout from a variable annuity increase?
A The rate of inflation exceeds the AIR.
B The performance of the separate account exceeds the rate of inflation.
C The performance of the separate account exceed
Answer: C
According to the table in Question 5,
Which portfolio would be considered the MOST volatile?
A Portfolio A
B Portfolio B
C Portfolio C
D Portfolio D
Answer: C
In the formula Pn = P0(1 + r)n, Pn represents:
A The standard deviation
B One million dollars in U.S. currency
C The future value of money
D Excess returns
Answer: C
A client has $20,000 to invest, a 10-year time horizon, and a desire to have $50,000 at the end of the investment period. The rate of return that must be earned to arrive at $50,000 is called the:
A Expected return
B Internal rate of return
C Current yiel
Answer: B
When calculating a fixed-income security's discounted cash flow, which of the following statements is TRUE?
A A bond trading at a discount to its discounted cash flow value is overvalued.
B A bond trading at a premium to its discounted cash flow value is
Answer: C
The fact that it is better to receive $1 today and invest it, as opposed to receiving $1 at some point in the future, reflects the:
A Time value of money
B Effects of deflation
C Multiplier effect
D Results of monetary policy
Answer: A
The separate account of the variable life policy that Tom Jones bought is performing poorly. Does this have any influence on his death benefit?
A No, the death benefit is fixed over the life of the contract.
B Yes, but it could never drop below the highes
Answer: C
An investment adviser determined that XYZ stock has the following potential future returns. There is a 20% chance that in a bull market, XYZ stock will return 15%. In a flat market (60% probability), the return should be 2%. The likelihood of a bear marke
Answer: C
A corporation has the following financial information.
$1 million in cash
$2 million in accounts receivable
$5 million of inventory
$10 million of equipment
$3 million in short-term debt
$50 million in long-term debt
$2 million accounts payable
What is th
Answer: A
Which of the following statements is TRUE regarding funds of hedge funds?
A They are generally illiquid investments.
B The parent company invests in a number of mutual funds representing different asset classes.
C They have lower expenses than most mutual
Answer: A
The market theory, which states that the market price for a stock fully reflects all of the information available on the company, is known as the:
A Short-interest theory
B Odd-lot theory
C Efficient market theory
D Supply-side theory
Answer: C
Which of the following statements are NOT TRUE regarding a comparison of strategic versus tactical asset allocation?
A Strategic asset allocation focuses on the client's investment objectives and risk tolerance, while tactical asset allocation focuses on
Answer: D
Which TWO of the following types of insurance have fixed premiums?
1 Whole life insurance
2 Universal life insurance
3 Variable life insurance
4 Variable universal life insurance
A I and II
B I and III
C II and IV
D III and IV
Answer: B
An individual who is bearish would probably:
A Buy a put option
B Sell a put option
C Buy a call option
D Buy a defense stock
Answer: A
Which type of oil and gas program would offer an investor the highest potential return on investment?
A Developmental
B Exploratory
C Balanced
D Income
Answer: B
When reviewing a corporation's financials, an agent would find which of the following items on the balance sheet?
1 Cost of goods sold
2 EBIT (earnings before interest and taxes)
3 Taxes paid
4 Accounts payable
A II only
B IV only
C II and III only
D I, I
Answer: B
XYZ Corporation's common stock has the same beta as ABC Company's common stock. However, XYZ stock, on the average, produces better returns than ABC. Which of the following would explain this difference?
A XYZ stock has a higher alpha than ABC stock.
B AB
Answer: A
Which of the following statements is TRUE in relation to the buyer of a call option?
A The investor has limited risk.
B The investor has a limited potential profit.
C The investor is entitled to all dividends paid on the underlying stock.
D The investor m
Answer: A
A loss from a limited partnership's operations is passed through to a limited partner. On the limited partner's personal tax return, this loss:
A Is fully deductible against the individual's income from all sources
B Is considered a passive loss and may o
Answer: B
Those investors, who believe markets are perfectly efficient, may use a passive strategy in which the asset mix of a portfolio is altered on a periodic basis. This strategic asset allocation approach is known as:
A Tactical asset allocation
B Sector rotat
Answer: C
Which of the following results in the highest inflation-adjusted rate of return?
A A bond yields 5% when inflation is at 3%.
B A bond yields 22% when inflation is at 18%.
C A bond yields 11% when inflation is at 3%.
D A bond yields 7% when inflation is at
Answer: C
A client invested $100,000 in an Equity Indexed Annuity. The participation rate is 90% with a cap rate of 15%. In year one, the index increased by 20%. In year two, the index lost 5%. In year three, the index gained 10%. What is the value of the annuity a
Answer: D
If the dollar is increasing against foreign currencies, which TWO of the following results would most likely occur?
1 An improvement in the U.S. balance of trade
2 A worsening of the U.S. balance of trade
3 An increase in imports into the U.S.
4 Increased
Answer: C
Which of the following yields results in the highest inflation-adjusted rate of return?
A A bond yields 8% when inflation is at 3%.
B A bond yields 12% when inflation is at 8%.
C A bond yields 10% when inflation is at 7%.
D A bond yields 6% when inflation
Answer: A
Which of the following statements is TRUE of variable annuities?
A The investment risk is borne by the insurance company.
B The product must be sold with a prospectus.
C Withdrawals are first treated as tax-free return of principal.
D If the contract owne
Answer: B
The top-down approach to investing generally includes the idea that:
A The price of a stock is based on external factors, such as the economy, not just facts about the company itself
B The management team of a company is usually a reliable gauge as to how
Answer: A
Which TWO of the following statements are TRUE regarding the buyers of options?
Buyers of calls have the right to buy stock.
Buyers of calls have the right to sell stock.
Buyers of puts have the right to buy stock.
Buyers of puts have the right to sell st
Answer: D
A customer believes that a stock's price will increase in the near future. Which option position would be most appropriate?
A Buy a call
B Buy a put
C Sell a call
D Buy a put and a call
Answer: A
An investment adviser representative manages a portfolio for a client on a discretionary basis. The client's objective is conservative growth. According to prudent investor standards, which of the following statements is TRUE regarding the inclusion of op
Answer: C
Which of the following choices is NOT a characteristic of equity-indexed annuities?
A A guaranteed minimum rate of return
B A rate of return that varies along with the underlying index
C A rate of return that is determined by the subaccounts that the cont
Answer: C
On October 25, Thomas purchased 10 listed ABC Corporation Jan 40 puts and paid a $5 premium on each put. The current market price of XYZ Corporation is $48 per share.
What would the breakeven point be for Thomas per option?
A $35
B $40
C $45
D $53
Answer: A
A futures contract is different than a cash forward contract because the futures contract is:
1 A personal transaction between the buyer and the seller
2 For a standard amount of the commodity rather than for a specific amount and quality of the cash comm
Answer: D
Investors often use financial futures to hedge portfolios against which of the following types of risk?
A Business risk
B Political risk
C Event risk
D Market risk
Answer: D
Which TWO of the following statements are NOT TRUE regarding the investment risk of a life insurance policy?
1 Whole life policy writers bear the risk that the general account return will not meet the guaranteed rate.
2 Whole life policy owners bear the r
Answer: C
An investor writes an uncovered DPM Oct 55 call for a premium of 9. What is the maximum profit that the investor could realize?
A $900
B $4,600
C $6,400
D An unlimited amount
Answer: A
Mr. Brown is a client who must fulfill a $300,000 obligation in two years. He currently has the $300,000 and would like your advice as to how to invest these funds temporarily. Which of the following securities is most suitable?
A U.S. government securiti
Answer: A
Which of the following option strategies is the BEST hedging strategy if a client is short 1,000 shares of common stock?
A Sell puts short
B Buy calls
C Sell calls
D Buy puts
Answer: B
As a group, limited partners may:
A Sue the general partner
B Sell assets to pay creditors
C Manage the day-to-day operations of the partnership
D Hire new employees
Answer: A
An advisory client is pessimistic and believes that the economy is about to go into a recession. He instructs his adviser to sell his holdings in housing and technology stocks and purchase utilities and consumer staples. This strategy is known as:
A Diver
Answer: B
Which of the following would be used to determine the debt-to-equity ratio?
A The income statement
B The balance sheet
C The cash flow statement
D The statement of retained earnings
Answer: B
A client is seeking a yield of 6.8%. An investment adviser has located two bonds with similar credit quality, duration, and the client s desired yield. After performing discounted cash flow analysis on each bond, the adviser has determined that Bond A is
Answer: B
Which of the following items are listed on a balance sheet?
Assets
Liabilities
Retained earnings
Operating expenses
A I only
B I and III only
C I, II, and III only
D I, II, III, and IV
Answer: C
A customer enters a sell stop-limit order for 100 shares at 18.50. The last round-lot sale that took place before the order was entered was 18.88. Round-lot sales that took place after the order was entered occurred at 18.25, 18.38, 18.50, and 18.63.
The
Answer: C
Which TWO of the following orders will be reduced when XYZ Corporation sells ex-dividend?
A GTC order to sell 100 XYZ at $50
A GTC to buy 100 XYZ at $50 stop
A GTC to buy 100 XYZ at $50
A GTC to sell 100 XYZ at $50 stop
A I and II
B II and III
C II and IV
Answer: D
Patrick invests in a diversified portfolio of income-producing equity investments. Patrick is investing to achieve the goal of early retirement. He takes all of his dividend income and uses it to pay bills. What is the main problem with this type of strat
Answer: B
When recommending a hedge fund as an investment vehicle, an adviser would disclose all of the following points to her client, EXCEPT:
A When the fund was registered with the SEC
B The name of the general partner
C The fact the fund may use leverage
D The
Answer: A
During the first quarter, TJG common stock paid a $.75 dividend. The stock's price fell from $75 per share at the beginning of the quarter to $67.50 per share at the end of the period. Based on these results, what is the stock's annualized total return?
A
Answer: D
Any person who willfully violates SEC rules and regulations is subject to a fine and imprisonment of up to:
A $5,000 and three years
B $5,000 and five years
C $10,000 and three years
D $10,000 and five years
Answer: D
An asset on a personal balance sheet would include which of the following choices?
A Student loans
B Credit cards
C Furniture
D Mortgage
Answer: C
Jerry is a client of ABC Advisers and lives in Texas. Jerry contacted the Texas Administrator to report a possible violation of the Uniform Securities Act by ABC. ABC's home office is in New Mexico, but it is registered in both Texas and New Mexico. Which
Answer: D
An individual may give a gift of cash and securities to another individual up to a maximum of:
A $5,500
B $15,000
C $30,000
D There is no limit
Answer: D
All of the following individuals do not have unlimited liability, EXCEPT:
A A limited partner
B Owners of a limited liability company
C A sole proprietor
D The shareholders of an S Corporation
Answer: C
Which of the following actions may be taken by the Administrator?
1 Limit or restrict the functions or activities of the registrant
2 Administer an oath
3 Cancel registration if the registrant cannot be located after a reasonable search
A I and II only
B
Answer: D
A married couple would like to invest and begin saving for their 8-year-old son's college education. Which of the following options would be the most suitable investment recommendation?
A Coverdell ESA
B 529 plan
C Diversified stock portfolio
D Diversifie
Answer: B
The Employee Retirement Income Securities Act (ERISA) regulates which of the following retirement plans?
A UGMA plans
B 529 plans
C 401(k) plans
D Deferred compensation plans
Answer: C
en years ago a client transferred her 401(k), worth $80,000, into an IRA. Her account has grown to $120,000 and she takes a distribution of $10,000 at age 52. The tax consequences of her actions would be:
A $10,000 long-term capital gain plus a 10% penalt
Answer: C
When a person acquires ownership of more than 5% of a voting class of a company's equity securities registered under the Securities Exchange Act of 1934, he is required to file a:
A Schedule 13D
B Schedule 13F
C Form 8-K
D Schedule H
Answer: A
Which of the following investments would be funded with after-tax dollars?
1 Nonqualified variable annuities
2 Section 457 plans
3 Universal life policies
4 529 plans
A I only
B I and II only
C I, II, and IV only
D I, III, and IV only
Answer: D
Under the Uniform Securities Act, which of the following statements is NOT TRUE regarding a cease-and-desist order?
A It may be issued before a violation has occurred.
B It may be applied to an investment adviser.
C It must be authorized by the Administra
Answer: D
An individual must begin to receive distributions from a traditional IRA by April 1 of the year following the calendar year when she reaches age:
A 50
B 55
C 59 1/2
D 70 1/2
Answer: D
Emma, an agent, has just received a subpoena to testify at an investigative hearing. What penalty would be assessed if Emma failed to honor the subpoena?
A She will lose her registration.
B She may be found in contempt of court.
C She is guilty of fraud.
Answer: B
Which of the following persons is NOT a fiduciary?
A A trustee
B An executor
C An investment adviser
D A shareholder of 10% or more of the outstanding stock
Answer: D
According to ERISA 404(c) guidelines, which of the following actions is considered a prohibited practice?
A Failing to properly diversify the plan
B Managing plan assets
C Exercising discretion over plan assets
D Disposing of or liquidating plan assets
Answer: A
Net short-term capital gains are taxed at:
A The ordinary income rate
B The alternative minimum tax rate
C 10%
D 20%
Answer: A
Under Rule 147, securities sold within the borders of one state are exempt from
A Federal registration
B None of the above
C State and federal registration
D State registration
Answer: A
An offer to sell a security was directed by an agent in Nebraska to a client who lives in Kansas, but who is visiting a relative in Oklahoma. The customer accepts the offer and agrees to make payment upon their return to Kansas. Under the Uniform Securiti
Answer: D
Investments used to calculate liquid net worth would exclude all of the following choices, EXCEPT:
A Shares of stock in a thinly traded company
B The S&P 400 Index Fund
C Commercial real estate
D Interest in an oil and gas drilling program
Answer: B
A state Administrator has suspended a broker-dealer. Which of the following statements concerning the broker-dealer is TRUE?
A The firm is allowed to accept unsolicited orders.
B The only activity the firm may not participate in is new issue distributions
Answer: D
Form 13F must be filed with the SEC when the market value of equity securities under an adviser's control exceeds:
A $1.5 million
B $30 million
C $100 million
D $150 million
Answer: C
A married couple would like to invest and begin saving for their retirement. Which of the following instruments would be the most suitable investment recommendation?
A Diversified bond portfolio
B IRA
C Coverdell ESA
D 529 plan
Answer: B
If an investor wishes to use leverage to increase potential gains in her account, she would most likely open a:
A Custodial account and purchase Treasury bills
B Cash account and use dollar cost averaging
C Variable annuity and invest in aggressive subacc
Answer: D
An agent is licensed in both Ohio and Michigan. Two of the agent's clients, one in Ohio and one in Michigan, feel as though they have been treated unfairly and that violations have occurred. Which state Administrator would have the authority to investigat
Answer: C
The balance sheet equation is:
A Total Assets - Total Liabilities = Capital Gains
B Assets - Liabilities = Net Worth
C Total Assets - Current Liabilities = Net Worth
D Current Assets - Current Liabilities = Net Worth
Answer: B
Which of the following persons is an example of a fiduciary?
A A shareholder of 10% or more of the outstanding stock
B A beneficiary
C An authorized government employee
D A trustee
Answer: D
According to the Securities Exchange Act of 1934, which of the following organizations is NOT accountable to the SEC?
A The MSRB
B FINRA
C National banks
D National exchanges
Answer: C
Under the Uniform Securities Act, which of the following transactions would be considered a sale?
A The exercise of a call option
B A gift of assessable stock
C A stock dividend
D Lending stock to short-sellers
Answer: B
The last dollar that a client earns would be taxed at their:
A Capital gains rate
B Marginal tax rate
C Internal tax rate
D Base rate
Answer: B
Under the Uniform Securities Act, a state Administrator may deny, suspend, or revoke any registration or bar or censure a person in which of the following circumstances?
The applicant was convicted of a felony within the past 10 years.
The applicant was c
Answer: C
An agent in Maine calls a prospective client in New Hampshire and recommends the purchase of a security. Under the Uniform Securities Act, the offer is made in:
A Maine only
B New Hampshire only
C Both Maine and New Hampshire
D No offer is made unless the
Answer: C
What powers does the Uniform Securities Act provide the Administrator during an investigation of a violation?
Subpoena records located outside the state
Subpoena witnesses located outside the state and compel their testimony
Only subpoena records or witne
Answer: D
An agent recommends that a client purchase a particular security. The agent believes the client has the resources to pay for the transaction. Three days after the trade is executed, the client indicates that he cannot meet his financial obligation to the
Answer: B
In which situation would the Administrator from State A have jurisdiction over an offer?
A If the offer originated in State A and is being broadcast on a radio or television program in State A
B If the offer originated outside of State A, but is being bro
Answer: A
An agent receives an unsolicited order from a customer who wants to purchase a large amount of a speculative stock. Although the client has the financial resources to bear the risks of the investment, the agent does not think the purchase fits the client'
Answer: D
Under the Uniform Securities Act, what is the statute of limitations on taking action to recover damages on transactions made in violation of a state registration provision?
A Within two years of occurrence or discovery, whichever occurs last
B Within thr
Answer: B
Which of the following customer accounts would be funded with pretax dollars?
A Nonqualified variable annuities
B Universal life
C 529 plan
D Section 457 plan
Answer: D
Which of the following investors are considered accredited under Regulation D of the Securities Act of 1933?
1 Lawyers
2Banks
3 Any senior officer of a publicly traded company
4 Individuals with a net worth of $1 million or more
A I and II only
B II and I
Answer: B
Erica has just received a subpoena requiring her to testify at a hearing regarding the advisory firm for which she works. Erica's supervisor tells her that if she testifies and tattles on the firm, she may as well look for other employment. What should Er
Answer: A
Net long-term capital gains are taxed as ordinary income at the individual's tax bracket, up to a maximum of:
A 10%
B 20%
C 25%
D 35%
Answer: B
Investments used to calculate liquid net worth would exclude all of the following choices, EXCEPT:
A A growth mutual fund
B Real estate
C A limited partnership interest
D Shares of stock in a thinly traded company
Answer: A
ERISA prohibits a fiduciary from engaging in which of the following activities?
A Selling investments to the pension fund like stock or property
B Buying investments at prices below current market prices
C Borrowing funds for liquidity purposes
D All of t
Answer: D
All of the following individuals do not have unlimited liability, EXCEPT:
A A limited partner
B A general partner
C The shareholders of a C Corporation
D The shareholders of an S Corporation
Answer: B
Jim and Tammy decide to start a new broker-dealer and establish themselves as the sole shareholders. What facts may be used by the Administrator as grounds for denying their application?
1 Six years ago, Jim pled guilty to one felony count of criminal tre
Answer: A
One of the most common uses for a bypass trust is to:
A Provide capital to pay estate taxes
B Bypass capital gains taxes but pay ordinary income taxes on the assets
C Bypass all tax obligations on income paid to the beneficiaries
D Pass assets from the se
Answer: D
You are the executor of your parents' estate. Which of the following investments would be the most suitable for the estate?
A A diversified portfolio of hedge funds
B Insured bonds
C Treasury bills
D Credit default swaps
Answer: C
A corporation is planning an offering of common stock and has filed its registration statement with the SEC. At this time, which of the following actions taken by a registered representative would NOT be a violation of the Securities Act of 1933?
A Inform
Answer: C
According to the Uniform Securities Act, which of the following statements is TRUE?
A When an agent's registration is suspended in a state, the broker-dealer would no longer be able to conduct business in that state.
B When an investment adviser represent
Answer: C
Under the Investment Company Act, which TWO of the following statements are NOT TRUE regarding the redemption of mutual fund shares?
1 The investor will receive the net asset value as previous day's close.
2 The investor will receive the next computed net
Answer: B
Selling away is allowed if an agent completes which of the following steps?
1 Provides oral or written notification to her supervisor
2 Provides written notification to her firm
3 Receives her firm's written permission
4 Notifies the state securities Admi
Answer: B
Under the Investment Advisers Act of 1940, which of the following statements is/are TRUE concerning an investment adviser's use of a solicitor?
1 The cash fee paid to a solicitor must be disclosed.
2 A partner, officer, director, or employee cannot perfor
Answer: C
Under the Uniform Securities Act, which of the following practices is NOT prohibited?
A Sharing in the profits of a client's account without any contribution to the account
B Executing a solicited order for an unregistered, nonexempt security
C Excessive
Answer: D
Which of the following statements is TRUE according to the Business Standard Test referred to in SEC Release 1092?
1 A person is in the business of providing advice if the person holds him- or herself out to be in the business of providing advice.
2 A per
Answer: B
A broker-dealer receives an order to purchase a block of securities for an institutional client. The broker-dealer feels as though the order will create an upswing in the stock price and therefore buys call options on the subject security. What is the ter
Answer: B
Under NASAA's Statement of Policy on Unethical Business Practices of Investment Advisers, all of the following activities are considered violations, EXCEPT:
A Exercising discretion for 10 business days based on oral instructions
B Charging a client an exc
Answer: A
NASAA and the SEC recognize which of the following locations as a state?
A Puerto Rico
B The U.S. Virgin Islands
C Washington, D.C.
D All of the above
Answer: D
An investment advisory firm has three partners and ten associates. While all of the partners have earned a CFP (Certified Financial Planner) designation, the associates are attending CFP classes, but have not yet earned the designation. The advisory firm
Answer: C
According to the Investment Advisers Act of 1940, the definition of an investment adviser includes which of the following choices?
1 Pension consultants
2 Broker-dealers
3 Bank holding companies
4 U.S. government securities advisers
A I only
B I and II on
Answer: A
Which of the following statements would be considered FALSE regarding the registration provisions of the Investment Advisers Act of 1940?
A An investment adviser may operate in more than one state.
B An investment adviser may be subject to different state
Answer: B
According to the Investment Advisers Act, a financial planner's compensation may consist of which of the following choices?
1 An hourly fee
2 An overall fee for developing a financial plan
3 Commissions on insurance products
A I and II only
B I and III on
Answer: D
ABC Investment Advisers purchases quarterly research reports from XYZ Brokerage and sends the report to clients. Which of the following statements, if printed on the research reports, would violate NASAA guidelines on Unethical Business Practices of Inves
Answer: C
Which of the following choices is a custodian's primary goal under the Uniform Prudent Investor Act?
A Limiting capital losses
B Maximizing return
C Preserving purchasing power
D Investing with an eye toward the risk/reward profile of the entire account
Answer: D
An investment adviser may NOT receive which of the following forms of compensation for directing brokerage commissions?
A The travel cost of flying to London to attend an economics conference
B The cost of conducting research used in the development of in
Answer: A
Under the Investment Advisers Act of 1940, which of the following situations would NOT be a violation of soft-dollar practices?
1 An investment adviser uses a broker-dealer to execute transactions that provide the adviser with market data services.
2 An i
Answer: C
An attorney wishes to place orders for a client's account with an investment adviser. Under the NASAA Statement of Policy on Unethical Business Practices of Investment Advisers, which of the following statements is NOT TRUE?
A The investment adviser shoul
Answer: A
An adviser charges its clients a fee that's based on the dollar value of assets under management. The firm has seen the value of assets under management increase over the last 12 months due to its successful asset allocation model. One of its clients, who
Answer: A
According to the Investment Advisers Act of 1940, which of the following individuals would need to register as an investment adviser?
A An attorney who determines the fair market value of the assets inside of an estate
B An accountant who recommends a tax
Answer: D
According to the Investment Advisers Act of 1940, which of the following persons does NOT qualify for the professional exclusion from the definition of investment adviser?
A A teacher who works for a private school that offers classes on security analysis
Answer: B
One of your largest clients has consistently picked profitable stocks for his account. He has just indicated his desire to buy 10,000 shares of a Pink Sheets stock. Considering the client's successful track record, you decide to purchase a significant num
Answer: D
Under NASAA's Statement of Policy on Unethical Business Practices, an adviser may share confidential client information with all of the following, EXCEPT:
A The SEC
B The IRS
C FINRA
D An affiliated broker-dealer
Answer: D
Which of the following persons would meet the definition of an investment adviser according to SEC Release 1092?
A A broker-dealer that provides the public with asset allocation tools
B An accountant who holds herself out to the public as a provider of ta
Answer: D
Sam has custodial power over his nephew's account. He is an astute investor who is looking to maximize the child's returns. Sam is considering using a portion of the account assets to invest in an extremely speculative biotech penny stock that trades in t
Answer: C
Which TWO of the following transactions would NOT be considered an unethical business practice by a broker-dealer?
1 Buying a security on one exchange and selling it on another to take advantage of a price difference
2 Effecting a transaction in a securit
Answer: A
Which of the following investments by a fiduciary MOST likely violates prudent investor standards?
A Spreading assets in a portfolio over 10 uncorrelated asset classes
B Investing 5% of a portfolio in foreign government bonds
C Placing 100% of a portfolio
Answer: C
Under SEC Release 1092, who would NOT be exempt from the definition of investment adviser?
A A marketing firm whose investment advice is solely incidental to its profession
B An accounting firm whose investment advice is solely incidental to its professio
Answer: A
Chris is a customer who has very little understanding of financial markets. Chris has custodial power over his children's accounts and is concerned that his lack of investment experience could hurt his children's investment returns. He is considering allo
Answer: D
According to blue-sky laws, which of the following activities is prohibited or fraudulent?
A Using the dividends paid in the last 12 months to determine current yield on a common stock
B Guaranteeing to reimburse a client due to any losses incurred
C Forw
Answer: B
All of the following are acceptable reasons for disclosing confidential information regarding a client's account, EXCEPT:
A The account is discretionary
B A demand is made by the SEC
C A demand is made by an Administrator
D The client grants permission
Answer: A
H M Advisers (HMA) is a small investment adviser with $19 million under management. The firm is the adviser for a start-up, Micro Cap Mutual Fund. HMA:
A Is considered an exempt adviser and is not required to register until its assets exceed $10 million
B
Answer: D
According to the Investment Advisers Act of 1940, an advisory fee that increases and decreases based on the performance of a portfolio compared to a benchmarking index is called a(n):
A Participation fee
B Fulcrum fee
C Incentive fee
D Pay for Performance
Answer: B
Without discretionary authority, an agent may execute a client's order if the client specifies which TWO of the following details?
1 The price of execution
2 The particular security to be bought or sold
3 Whether to buy or sell
4 The time the trade should
Answer: C
Ben is an agent for a broker-dealer. One of Ben's clients is going on a business trip and is interested in adding a pharmaceutical stock to her portfolio, but is unsure of which one of three stocks to choose. The client fears that the most appropriate tim
Answer: A
An investment advisory firm has four partners. One of the partners has earned a Certified Financial Planner (CFP) designation, while the other three partners are attending CFP classes, but have not yet earned the certification. The advisory firm has publi
Answer: B
Money managers are prohibited from directing commission dollars to obtain which of the following items from registered broker-dealers?
A Office space
B Computer software
C In-house research reports
D Third-party research reports
Answer: A
When sharing in the profits of a customer's account, whose approval is required?
A The client's
B The SEC's
C The Administrator's
D This practice is prohibited and unethical
Answer: A
Which of the following choices would not be permitted under a soft-dollar arrangement between an investment adviser and a broker-dealer?
A Accounting fees
B Portfolio analysis software
C Discussions with research analysts
D A seminar where corporate execu
Answer: A
Which of the following investments are prohibited under the UPIA?
A Speculative option positions
B Penny stock investments
C Junk bonds
D None of the above
Answer: D
Under NASAA's Statement of Policy on Unethical Business Practices, which of the following statements is TRUE regarding discretionary authority exercised by an investment adviser?
A Discretionary authority must be in writing, since oral discretionary autho
Answer: C
Under the Uniform Securities Act, which of the following statements is NOT TRUE regarding an agent sharing in the profits and losses in the client's account?
A Sharing is permissible if the client has approved of it in writing.
B Sharing is permissible if
Answer: C
Betty owns and operates Right Choice Advisers, a small investment advisory firm registered with the states of Oregon, Washington, and California. Betty decides to sell 60% of her shares to another investment adviser and retire. This transaction would requ
Answer: D
According to the Disclose or Abstain Principle, an IA must disclose all of the following actions, EXCEPT:
A Using contracts that include hedge clauses.
B Providing clients with research prepared by a third-party.
C Acting as a broker-dealer and/or securit
Answer: A
William is an IA Rep. His firm has created a brochure that contains the same information as his firm's Form ADV Part 2. William gives this brochure to one of his new clients, who has verbally agreed to the contract. He has not previously provided her with
Answer: A
Under the Investment Advisers Act of 1940, which of the following situations would be a violation of soft-dollar practices?
A An investment adviser uses a broker-dealer to execute transactions that provide the adviser with third-party research.
B An inves
Answer: D
a federal covered adviser changes its fee:
1 The investment adviser must file an amended ADV Part 2 with the state Administrator
2 The investment adviser must file an amended ADV Part 2 with the SEC
3 The new fee must be reflected in the Brochure
4 All ex
Answer D
A firm has been keeping stock owned by customers and stock owned by the broker-dealer together in a way that does not clearly indicate who owns the shares. What is this prohibited practice called?
A Hypothecation
B Rescission
C Commingling
D Conversion
Answer: C
Which of the following practices are violations of the Uniform Securities Act?
1 Executing trades for the firm's account prior to executing client trades
2 Reporting inside information to an immediate supervisor
3 Inducing trades for the purpose of increa
Answer: B
An investment adviser offers a choice between a wrap-fee program and a traditional asset-based fee (fee plus commission). When working with a client, what must the investment adviser disclose?
A The option that has the lower fee
B The option that the advi
Answer: C
Which of the following persons would be considered an investment adviser under the Investment Advisers Act of 1940?
A A brokerage firm that offers advice but is compensated solely through commission income
B A brokerage firm that offers wrap accounts to i
Answer: B
Which of the following records must be kept by an investment adviser?
1 A written agreement between the adviser and client
2 A copy of each communication sent to 10 or more individuals
3 All documents needed to demonstrate the calculation of return
4 A co
Answer: D