Simulated Exams

Under the Uniform Securities Act, all of the following may provide investment advice incidental to their normal business without requiring registration as an investment adviser except

an economist.

An agent with a nationally known broker-dealer has been opening new accounts with middle-income clients. When asked for the reason for the success, the agent replies that prospects are offered a money-back guarantee. That is, if any security the agent recommends fails to increase in value by at least 25% in six months, the agent will make up the difference. This type of guarantee

is an unethical and prohibited practice.

Which of the following is a component of U.S. fiscal policy?

Taxes and budgeting

When performing a capital needs analysis for a client, factors to be considered would include

1. the client's projected earnings

2. the projected inflation rate

3. projected market volatility

4. the client's age

I, II, and IV

Relatively high portfolio volatility is most tolerable to investors with

a long-term time horizon

An agent for a broker-dealer receives a buy order from an investment advisory firm on behalf of its clients. The order is to purchase 5,000 shares of XYZ common stock at the market. The adviser informs the agent that once the purchase is completed, the account numbers and quantities for each individual client will be supplied. The buy is completed, but at various prices. How is the order allocated to the adviser's accounts?

The order is reallocated to the investment adviser's clients by using the average cost basis.

When a corporation domiciled in the United Kingdom issues U.S. dollar–denominated bonds in the United States, it is issuing

Yankee bonds.

If a nonexempt company has authorized a stock split that will give each shareholder two shares for every one share owned without charge, this action

need not be registered because it is neither an offer to sell or a sale.

A client with limited assets seeking additional income in retirement would probably find which of the following investment choices to be the least suitable?

ETNs

If an investor purchases 500 shares of an aggressive growth stock, which strategy would limit his downside risk?

Buying 5 puts on the stock

The chief compliance officer (CCO) of a registered investment adviser would generally not have responsibility for the actions of

an agent registered with an affiliated broker-dealer.

All of the following statements regarding the registration of an investment adviser in a state are true except

the annual renewal process involves payment of the appropriate fees and refiling of the consent to service of process.

Hal owns a successful plumbing business. If he engages in a substantial amount of short-term trading in stocks for his own benefit, he would be considered

an individual investor.

A grantor retained annuity trust is a planning tool designed to pass assets to beneficiaries (usually children) in a way to minimize

estate taxes.

If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within

15 days.

One of your customers called you on Wednesday at 8:00 am ET and asked you to buy $10,000 of the Liberty Balanced Fund Class A shares. If the Wednesday morning financial pages show the fund's NAV to be $45.83 and the POP to be $48.24 and the Thursday morning quote shows the NAV as $46.22 and the POP as 48.65, what is the price per share for this purchase?

$48.65

A transactional exemption would be offered when a sale is made by

a sheriff.

When it comes to borrowing and lending money, NASAA's Model Rules prohibit activity that would compromise the objectivity of securities professionals. Which of the following are not prohibited practices?

1. A broker-dealer lending money to a client to purchase additional securities

2. An agent taking out a car loan from a bank whose branch manager is a client of that agent

3. An investment adviser borrowing money from an affiliated broker-dealer

4. An investment adviser lending money to a client to enable that client to maintain the minimum required asset level in the account

I, II, and III

Many sophisticated investors have added alternative investments to their portfolios. Benefits in doing so include

portfolio diversification.

Which of the following investment vehicles provides for redemption by the issuer?

Unit investment trust (UIT)

An investor can choose between 4 portfolios with the following expected returns and standard deviations.

	Expected Return	Standard Deviation
I.	8%	20%
II.	6%	21%
III.	8%	21%
IV.	7%	23%

Based on modern portfolio theory (MPT), which portfolio should the investor choose?

I

A company with 20 million shares outstanding paid $36 million in dividends. If the current market value of the company's shares is $36, the current yield is

The current yield formula is annual dividends per share divided by current market price. The dividends per share are $36 million ÷ 20 million shares = $1.80 per share. Current yield is $1.80 ÷ $36.00 = 5%.

When a broker-dealer engages in a customer transaction from its own account, which of the following statements are true?

1. Partners of the broker-dealer are trading in their personal accounts.

2. The broker-dealer is trading from its inventory with customers.

3. The broker-dealer must disclose its capacity as a principal in the transaction.

4. The broker-dealer must disclose its capacity as an agent in the transaction.

II and III

What is most likely to happen to outstanding fixed-income securities when interest rates decline?

Prices go up

By their very nature, pooled investment vehicles offer investors

diversification.

The term used to describe a broker-dealer contacting a margin account client with a demand for additional funds is

maintenance margin

Under the Uniform Securities Act, unless renewed, the registration of which of the following securities professionals expires on December 31?

1. Agents

2. Broker-dealers

3. Investment advisers

4. Investment adviser representatives

I, II, III, and IV

If an investment adviser representative is assigned to an account previously handled by an IAR who has since left the firm, which of the following actions should the person take first?

Verify the account information.

Under the Uniform Securities Act, for what reasons may the Administrator deny an application for registration as an investment adviser?

1. The applicant lacks experience.

2. The applicant was suspended from membership on a Canadian stock exchange.

3. The applicant is also registered as a broker-dealer.

4. The applicant filed an incomplete application.

II and IV

In 1940, Congress passed the Investment Company Act. Among the provisions of this sweeping law was the listing of the classifications of investment companies. Included in that listing would be all of the following except

holding companies.

The Conference Board releases information about the economy on a periodic basis. Included are a number of different indicators. These indicators can be used to predict how the economy as a whole might change. Which of the following would be considered a leading indicator?

Stock prices as measured by a broad index such as the S&P 500

Which of the following is the most suitable investment for the IRAs of a young couple with a combined annual income of $80,000?

Shares of an exchange-traded fund tracking the S&P 500 index

Which of the following regarding a Roth IRA are true?

1. The contributions are nondeductible.

2. One may not contribute to a Roth IRA if concurrently contributing to a traditional IRA.

3. The contributions are deductible.

4. Withdrawals after age 59½ may be tax free.

I and IV

A client is considering the purchase of American depositary receipts (ADRs). She is looking to further diversify her portfolio. Which of the following is not a feature of this type of investment vehicle?

They are not subject to exchange rate, or currency, risk.

Which of the following securities are exempt from registration at the state level?

1. Issue of a savings and loan association authorized to do business in this state

2. General obligation municipal bond

3. Bond issued by a company that has common stock listed on the NYSE American LLC (formerly known as the American Stock Exchange [AMEX])

I, II, and III

The procedure for entering an order to purchase a security for the account of a customer is to complete an order ticket. Which of the following would be found on an order ticket?

Account number, execution price, time of order entry, time of execution or cancellation, and terms and conditions of the order

You are doing an investment plan for a new client, age 55, who plans to retire at age 70. The client is somewhat risk averse and wants to preserve capital while at the same time not falling prey to possible inflation. Which of the following portfolios would probably be most suitable?

60% high-quality bonds; 30% large-cap stocks; 10% cash equivalents

A day order is entered to buy 500 LMN at 24.35. By the close, the firm has 100 shares at 24.25 and 200 at 24.35. If the remainder is unfilled, what is the outcome?

The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close.

Which of the following individuals may not open a joint account?

Parent and a minor

Which of the following persons are included in the definition of an agent under the Uniform Securities Act?

1. An individual who represents First Securities Brokers, Inc., in selling shares of XYZ Corporation, a New York Stock Exchange–listed company

2. An individual who, as part of the job description, represents the City of Chicago in selling its bonds to the public

3. An individual who represents a corporation traded on the New York Stock Exchange in selling securities to the public

4. An individual who is employed by the Federal Reserve Board to sell Treasury bills to retail investors

I and III

A client is in the 28% marginal federal income tax bracket. Which of the following investments would produce the highest after-tax yield for the client?

A public-purpose municipal bond yielding 6%

Potential investment company clients should be advised to investigate a fund by looking at which of the following?

1. Investment policy

2. Number of shares outstanding

3. Custodian bank

4. Portfolio

I and IV`

Which of the following statements regarding advisers who maintain custody over client accounts is not true?

The adviser must arrange for the audit of client accounts by an independent public accountant on a systematic basis at least once a year.

All of the following are advantages of mutual fund investments except

investors retain personal control over the investments in the fund’s portfolio.

After receiving complaint letters from an irate customer, the agent decides against a reply and discards the letters. Under the Uniform Securities Act,

the agent must forward all written complaints to a supervisory person.

Sally Sherman purchased 100 shares of Chocolate Manufacturers Corporation (CMC) for $19 per share on February 12. She received a 10% stock dividend on May 18. She sold all of her CMC at $13 per share in June of the same year. What were her tax results?

$470 short-term loss

All of the following must be specified in a security's state registration statement except

the total amount of the security that will be offered in other states.

Among the advantages of being the holder of secured bond is that if the issuer files for bankruptcy, you

are paid ahead of holders of unsecured debt, as well as equity securities

Your client with $100,000 to invest is looking for maximum current income. Which of the following would offer the highest current return?

$100,000 market value of corporate bonds selling at a premium and yielding 6% to maturity

Which of the following is a discounted cash flow computation?

Net present value

If a technician believed in the importance of volume, which of the following would indicate bullish sentiment?

Prices increase on heavy volume.

An investor purchased stock for $50 per share at the beginning of the year. In December, the investor liquidated the position for $55 per share while also receiving dividends of $2 per share during the year. Assuming an inflation rate of 3%, the investor's real rate of return is closest to:

11%.

An application has been filed with the Administrator of State A for registration as a broker-dealer by Assured Success Investments (ASI), a broker-dealer registered in States B, C, and D. While the application is pending, a lawsuit against ASI is filed in civil court in State B. The effect of this will be

ASI’s application in State A will proceed as normal.

An agent omits certain details about an issue during a sales presentation. This omission would be fraudulent if

the information was material and was necessary to make other statements not misleading.

An agent is assisting a prospective client in opening an account. The individual refuses to provide his net worth and annual income. The agent should

in the absence of company policy to the contrary, open the account but limit transactions to unsolicited orders.

Which of the following investment vehicles is not considered a security under the Uniform Securities Act?

Annuities with a fixed rate of return

An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients

when informed by the investment adviser that the representative's registration is effective.

Under the Uniform Securities Act, the term person would include which of these?

1. A minor who has a valid U.S. passport

2. A political subdivision

3. An unincorporated association

4. An inter vivos trust

II, III, and IV

Which of the following indexes represents the largest portion of the domestic stock markets?

Wilshire 5000

A broker-dealer acting as a principal in a trade would

add a markup to the offering price when selling shares to a client

Where would you be most likely to find an IPS?

Defined benefit plan

Which of the following statements concerning hedge funds are true?

1. Purchasers of hedge funds are generally required to be accredited investors.

2. Short sales by the fund are not allowed.

3. It is not uncommon for there to be a lock-up period that may last for as long one year or even longer.

4. It would be unusual for the fund managers to have an ownership interest in the fund.

I and III

In an efficient market:

any information that could affect a stock's value is quickly reflected in its price

The Conference Board releases information about the economy on a monthly basis. Included are a number of different indicators. Economic indicators can be leading, lagging, or coincidental, which indicates the timing of their changes relative to how the economy as a whole changes. Which of the following is a lagging economic indicator?

Average prime rate

The federal legislation that requires broker-dealers to verify the identity of any person opening an account is

the USA PATRIOT Act of 2001.

Last year, the bond market was profitable and ABC Fund had 70% of its assets in bonds. Next year, the fund's managers expect the equity market to outperform and will adjust the fund's portfolio so that 60% of its assets will be invested in stock. ABC is most likely

an asset allocation fund.

What is the appropriate procedure to follow when a customer fails to sign the form provided by the investment adviser stating that he has received a copy of the investment adviser's brochure?

Proceed with the account, but make a supervisory person aware of this.

Which of the following would be appropriate actions when using a model portfolio for a client?

1. Gather information from the client to establish his risk tolerance, time horizon, and investment expectations.

2. Select a portfolio mix that is appropriate for the client based upon his risk tolerance, time horizon, and investment expectations.

3. Place the client's assets into the model portfolio regardless of his comfort level with your recommendation.

4. Periodically review the portfolio to determine if any changes or modifications are necessary.

I, II, and IV

One of the most important definitions found in the Investment Company Act of 1940 is that of investment company. Included in that definition are all of the following except

REITs.

If an agent, broker-dealer, investment adviser, or investment adviser representative is found to be in violation of the provisions of the Uniform Securities Act, penalties could include which of these?

1. Administrative action

2. Fines

3. Imprisonment

I, II, and III

Which of the following are characteristics of commercial paper?

1. It represents a loan by the holder to the issuer.

2. It is a certificate of ownership in the corporation.

3. It is commonly issued to raise working capital for a corporation.

4. It is junior in preference to convertible preferred stock.

I and III

Which of the following is an example of a passive investment management style?

Exclusive use of index funds

Under provisions of the Investment Advisers Act of 1940, investment advisers that maintain custody of client securities are required to do all of the following except

send an itemized statement to clients at least monthly.

If a client in the 30% marginal income tax bracket can earn an after-tax rate of return of 7% when the estimated inflation rate during the holding period of an investment is 4%, the client's real rate of return is

less than 7%

Profit Partners, LLC (PPL), a federal covered investment adviser, sends correspondence regarding its past performance to prospective retail clients in State A. PPL does not maintain a place of business and is not registered in State A. Because PPL is soliciting for new business there, the Administrator of State A

would be able to bring a claim against PPL if it was discovered that the antifraud provisions of the Uniform Securities Act had been violated.

Transparent Investment Advisers, Inc. (TIA), is registered in three states and has $55 million in assets under management. TIA maintains custody of customer securities. TIA's chief financial officer reports that the net worth of the firm has suddenly fallen to $28,000. This requires TIA to

obtain a surety bond in the amount of $10,000.

The current yield of a callable bond selling at a premium is calculated

as a percentage of its market value.

Which of the following is not defined as a security under the Uniform Securities Act?

A fixed-annuity contract

Under the NASAA Model Rule on financial requirements for investment advisers, investment advisers who have custody of customer funds are usually required to have a net worth in the amount of

$35,000.

A new convertible debt security has a provision that it cannot be called for five years after the issue date. This call protection is most valuable to a recent purchaser of the security if

the market price of the underlying common stock is increasing.

Under the Uniform Securities Act, an agent may not make which of the following statements to a customer?

This security is approved by the Administrator.

Which of the following is not considered a derivative?

Unit investment trust

A man divorces his spouse after 10 years of marriage and remarries. If the man is the sole provider, what part of the worker's Social Security benefits is the new spouse entitled to?

She is entitled to the same Social Security benefits as the ex-spouse.

A client with a sizable estate would probably find it most efficient to pay estate taxes with

proceeds from a life insurance policy.

Which of the following would not be cause for automatic rejection of an investment adviser representative's application?

Lack of experience

The main difference between the current ratio and the quick ratio is that the quick ratio excludes

inventory.

A TIPS bond with a par value of $1,000 has a coupon rate of 6%. During Year 1, the inflation rate was 8%. How does this affect the TIPS bond in Year 2?

The interest payment will be approximately $65.

An investor purchases zero-coupon bonds issued by the U.S. Treasury due to mature in 18 years at $100,000. Which of the following might describe the primary reason for selecting that investment vehicle?

1. The investor is 65 years old and needs the reliability of current income.

2. The investor is 45 years old and has purchased these in an IRA rollover account and wants the assurance of funds for retirement.

3. The investor is 30 years old and has a newborn child and wishes to assure funds for a college education.

4. The investor is 20 years old, has just received an inheritance, and wishes to shelter income for as long as possible.

II and III

Peterson Financial Planning is a small personal financial planning partnership in Missouri that has $10 million in assets under management. As a result of the Dodd-Frank Act, which of the following statements best describes the registration requirement for Peterson Financial Planning?

Peterson Financial Planning is required to register as an adviser with the Administrator of the Missouri Department of Securities.

Under the USA, a sales agent's registration may be suspended by the Administrator for all of the following reasons except

the agent is accused of violations of the antifraud provisions of the USA.

The major risk for highly rated corporate bonds is

interest rate changes

A broker-dealer makes a market in XYZ stock and places large orders for it on the open market either at or slightly above its current price with the aim of stabilizing the price. This unethical practice is best described as

pegging.

Which of the following statements regarding corporate zero-coupon bonds is true?

The discount is in lieu of periodic interest payments.

Plentitude Abundant Returns (PAR) is a broker-dealer registered in a dozen states. The principal office is located in State X. To be in compliance with the Uniform Securities Act, PAR must satisfy the recordkeeping requirements of

the SEC.

Under the ethical conduct provisions of the Uniform Prudent Investors Act, which of the following statements is true regarding an investment adviser's recommendations to clients?

Investment advisers must inquire into the client's financial situation, investment objectives, needs, and goals.

A federal covered investment adviser (IA) feels that some recent industry regulations will limit his ability to provide the returns to clients that both he and they desire. He communicates this to his clients and urges those who are willing to sign an agreement waiving their rights to take any legal action in the event of loss due to his refusal to follow those rules. This means that

clients would still be permitted to sue because there is no way that legal rights can be waived.

Which of the following are prohibited practices?

1. An investment adviser transferred a client's account to a brokerage house because the account went below the firm's minimum size and then informed the client.

2. An investment adviser organized as a partnership did not notify its clients of the departure of a partner who had only a very small interest in the firm.

3. An investment adviser subsidiary of a publicly traded bank holding company failed to inform its clients of the departure of the firm's chairman and major stockholder.

4. An investment adviser firm organized as a general partnership sends prompt notification to all clients after the addition of a new partner.

I and II

Prosperity Financial Investments (PFI), a broker-dealer with its principal office in State A, just applied for registration in State C. Which of the following individuals registered as agents in State A will be automatically registered as agents in State C?

An individual serving as an officer of PFI

In a scheduled premium variable life insurance policy, all of the following are guaranteed except

a minimum cash value

Under the Uniform Securities Act, if sent to two or more persons, a file must be maintained containing a copy of which of the following?

1. Bulletins

2. Newspaper articles

3. Notices

4. Websites

I, II, III, and IV