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Series 65 > Final Exams > Flashcards

Final Exams Flashcards

1
Q

Is an S corp or general partnership required to file articles of corporation?

A

A general partnership does not but an S corp must incorporate with the state

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2
Q

Does an S corp have flow through or pass through taxation?

A

They can choose.

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3
Q

Are excessively large commissions allowed?

A

Only if the order was unsolicited

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4
Q

How long is an agents registration in effect under the USA?

A

Until December 31 of the year granted

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5
Q

Does an s corp have limited liability?

A

Yes

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6
Q

What’s the best indicator of a successful mutual fund?

A

Tenure of the manager

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7
Q

Do a BD agents trades need to be approved?

A

Not necessarily beforehand but supervisor or principal must approve by EOD

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8
Q

What happens when assets remain the same but stockholders equity decreases

A

Total liabilities increase

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9
Q

What measure of risk does modern portfolio theory use?

A

Standard deviation

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10
Q

Fundamental analysis vs technical analysis m

A

Fundamental: Analyzing company’s financial statements

Technical: uses pricing trends and patterns

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11
Q

Are UGMAs UTMAs or 529s considered asset of the minor?

A

Yes for UTMAs and UGMAs

529s are owned by the donor

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12
Q

What would an administrator do if a BD was selling unregistered no exempt securities in non exempt transactions?

A

Require the BD to offer letters of rescission unless it was fraud

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13
Q

How long must provide prospectus from new issue? What about follow on?

A

25 from IPO
40 for follow on

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14
Q

Which calculation removes distortions caused by deposit and withdrawal of capital over time?

A

Time weighted return

Used to compare manager performance

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15
Q

are sell limit orders placed above or below the current market price? What about sell stop limits and sell stops?

A

Sell limit: Above; Would be executed only in a rising market

Sell stop limit: below; activated when trade at or below stop price but executed only if market subsequently goes up

Sell stop: at or below stop price then becomes market order

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16
Q

Are closed end funds load funds? What about open end?

A

Closed: Only if they don’t have underwriting fees, commissions or other offering expenses

Open: only if no front end, contingent deferred sales charge, or 12b-1 that exceeds 0.25%

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17
Q

Who does a hedge fund advisor register with

A

State is <$150M in assets

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18
Q

What is a LEAP?

A

A type of option contact with an expiration date longer than 9 months

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19
Q

Do investment advisory contracts need to be written?

A

Under the USA, yes.

Under the IA Act of 1940, no.

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20
Q

What happens to the spread between YTM and YTC when the price of a discount bond falls?

A

The spread increases and YTC rises

Both YTM and YTC rise, but short term yields always move more than long term which is why YTC rises more

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21
Q

A measure of non systematic risk

A

Alpha

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22
Q

Money market securities

A

Debt instruments with less than one year until maturity

Eg T bills, tax anticipation notes

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23
Q

Leading economic indicators

A

Average manufacturing workweek
Initial unemployment claims
New orders for consumer goods
Vendor performance
Plan and equipment orders
Building permits
Interest rate spreads
Stock prices
Money supply (M2)
Index of consumer expectations

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24
Q

Money rate risk

A

Interest rate risk

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25
Q

What does the writer of an index option do when it’s exercised?

A

Deposit cash equal to the difference between the strike price and value of the index

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26
Q

How long must BDs and IAs maintain records under the USA?

A

3 for BDs
5 for IAs

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27
Q

When can IAs accept discretionary orders? What about BDs?

A

IAs: For 10 days before receiving signed POA

BDs: not until signed POA

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28
Q

Do hedge funds register?

A

No because they qualify for regulation D (private investors) so no prospectus required

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29
Q

What is a clients loss if margin account falls 10% with a 50% exposure?

A

20%

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30
Q

Major benefit of master limited partnership

A

Exchange listing

Note: can only be formed by companies in real estate and natural resources (most are oil and gas)

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31
Q

When is a private placement considered an exempt transaction under the USA?

A

When soliciting to fewer than 10 retail investors in 12 months

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32
Q

Structured products

A

Securities created by financial institutions that customize returns and risks to fit the needs of specific investors

Credit risk because they’re unsecured bonds
Liquidity risk because not exchange traded

Least risk is regulatory

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33
Q

Under the securities act of 1933, a pooled investment fund is considered a federal covered security when it:

A

Registers with the SEC under the IC act of 1940

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34
Q

SPAC

A

Blank check company
Set up to buy other companies as a way to list on exchange

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35
Q

Dollar weighted return is referred to as

A

IRR
Represents the discount rate that will make PV of future cash flows equal the current market price

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36
Q

What form is filed annually with SEC to continue an IAs registration

A

Annual updating amendment

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37
Q

What makes an American style equity option a derivative security?

A

The fact that it’s value is based on the value of another asset

Note: it can only be exercised at any time prior to expiration whereas European can only be exercised on the last trading day prior to expiration

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38
Q

When do options expire

A

Third Friday of the expiration month

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39
Q

Working capital

A

Current assets - current liabilities

40
Q

When can an agent borrow or lend to client

A

Client is Immediate family
Clint is financial institution
Client has a personal or business relationship with the agent it’s sue the brokerage relationship

If the client is another registered agent, they just be with the same BD

41
Q

Who uses registration by coordination?

A

An IPO most commonly

42
Q

Who manages the assets of a testamentary trust?

A

The trustee.

Ie not the donor because they’re dead by the time it’s a trust

43
Q

What is the spread of a market?

A

Difference between highest bid and lowest ask price

44
Q

Dividend discount model

A

Way to estimate share price by dividing future dividing by a discount, typically the company’s cost of equity

Ie
Dividend / discount rate
Same as PV of a perpetuity

45
Q

Where is restricted stock registered?

A

No where. It’s covered under reg D (private placement)

46
Q

Does an accountant have to register if they refer clients to an IAR and receive a referral fee for it?

A

In some states yes but under IA Act, no

May be considered a solicitor

47
Q

In the dividend discount model, what happens to the discount rate and stock price when interest rates rise?

A

Discount rate rises
Stock price estimated falls

48
Q

Can the administrator issue a cease and desist without a hearing?

A

Yes

Cannot issue an injunction or enjoin aka legally block someone from conducting business in the state

49
Q

Do ads have to be filed with admin?

A

Not for exempt securities or exempt transactions (muni bonds, treasuries, registered investment companies)

50
Q

If material changes are made to a brochure, when must a summary of changes be provided to clients?

A

At the year end registration renewal

ADV must be updated promptly within 30 days for material changes, but the summary is at renewal

51
Q

How many people can an ad be sent to before it’s required to be kept?

A

<10

52
Q

UIT

A

Type of investment company
Investors money is pooled and invested in securities

It is not a derivative

53
Q

LEAP

A

Long term equity anticipation securities

Long term call or put options

54
Q

Is a CMO a derivative?

A

Yes

55
Q

According to Reg T, what happens if a client fails to pay for securities by the 5th biz day after a trade?

A

Account will be frozen for 90 days unless FINRA grants an extension

During frozen period, trading can occur but must be paid in advance

56
Q

How is a general partnership formed?

A

By an agreement among partners

No specific state filing necessary

57
Q

SWAP

A

derivative

two parties agree to exchange two different cash flows.

One of the cash flows is fixed and the other will vary based on interest rates, foreign currency prices, or even other securities (e.g., stocks or bonds).

Similar to forward contracts, swaps are typically traded over-the-counter (not on an exchange).

58
Q

If an investment adviser is currently advising a mutual fund, how must it be registered?

A

As a federal covered advisor with the SEC because it’s advising an investment company

59
Q

Registration by qualification

A

used for smaller issuers that are only selling securities to residents of one state (i.e., an intrastate offering).

60
Q

When are performance based fees allowed under NASAA and IA Act of 1940?

A

Generally prohibited.

Exception:
qualified clients that have at least $1.1 million under management OR a net worth >$2.2 million.

Clients who are not U.S. residents

certain employees of the adviser

61
Q

Interest rates had been very high. During the past three years, rates have decreased dramatically. The present yield curve would MOST likely be:

A

Ascending and positive due to rates declining over the past 3 years

62
Q

When access person must submit personal security holdings

A

Within 10 days of becoming an access person and every 12 months thereafter

63
Q

Consent to service of process

A

Used for receiving and processing noncriminal complaints

Required when registrants file for state registration

64
Q

Best measure of managers performance

A

Time weighted return because it eliminates cash flows into the portfolio during the period

65
Q

When is a record of security transactions required for an IA

A

Within 10 days of the quarter excluding direct obligations of the US government

66
Q

Who maintains control over a charitable trusty?

A

The grantor

Can make decisions regarding how the money is spent while still getting a tax break

67
Q

Bankers acceptance

A

Used to facilitate imports and exports

No FDIC insurance

68
Q

Are solicitors for federal covered advisors required to register?

A

No. Advisor must be registered but not the solicitor

69
Q

Who uses a K1?

A

LLCs
Limited partners
s corps

70
Q

When is NAV of an ETF calculated?

A

Close of each trading day

71
Q

An investor who maintains a large portfolio of debt securities anticipates a small change in interest rates. The investor would like to measure the effect that this change would have on the value of her portfolio. Which would BEST provide her with this information?

A

Duration as it is designed to compare the effect of small changes in interest rates on the value of securities with different coupons, maturities, and credit quality.

72
Q

Layering

A

Blending of illicit money with legitimate money

73
Q

The pricing of preferred stock will most closely follow the pricing of:

A

T bonds

74
Q

ERAs

A

are advisers to private funds with less than $150 million in assets under management and advisers to venture capital funds.

75
Q

What price are ETF shares bought and sold at?

A

The best available price on the exchange

NOT
NAV + sales charge, that’s what mutual funds are sold at

76
Q

Can IAR take a loan from sister who is a client?

A

No

77
Q

Who does IA register with if it has an investment company as a client?

A

SEC

78
Q

What type of securities is typically sold with a markup?

A

Fixed income aka bonds

Broker usually charges a markup rather than commission

79
Q

When can an omitting or summary prospectus be used?

A

With sales of investment company securities and variable contracts

80
Q

What is the tax implication When a mutual fund distributes a capital gain?

A

It’s capital gains based on the fund’s holding period, NOT the shareholder’s holding period

81
Q

ADV h e nr and w

A

ADV-E submitted to SEC if adviser has custody of client funds and securities. It is filed by an independent public accountant who has audited the adviser’s records.

ADV-H seeks an exemption for a temporary or continuing hardship.

ADV-NR is filed by a nonresident general partner or nonresident managing agent of a U.S. RIA.

ADV-W seeking a partial or full withdrawal from registration.

82
Q

Tax form for trust

A

1041

83
Q

a private equity fund manager is NOT required to register as an investment adviser if the fund exclusively accepts investments from:

A

Qualified clients:
are individuals with either a net worth of $2.2M+, or AUM of $1.1M+.

This is the same definition that’s used in the rule for charging performance-based fees.

84
Q

agency cross trade

A

when an investment adviser acts as a broker for its client and for another person on the other side of the transaction.

not permitted if the investment adviser recommends the trade to both the buyer and the seller—one side must be unsolicited.

adviser must:
Provide a written disclosure of any potential conflicts

Obtain written, revocable client consent

Send the client a written confirmation which provides the date and details of the trade

At least annually, send each client a summary of the adviser’s agency cross activity

85
Q

Frequency of preferred stock dividend and convertible bond interest

A

Preferred stock pays a dividend to shareholders on a quarterly basis. A convertible bond pays interest on a semiannual basis.

86
Q

Form CRS

A

required to be documented when a new brokerage account is opened

provides information about the nature of a retail investor’s relationship with her broker-dealer or investment adviser in a simple and easy-to-understand format

87
Q

Finders

A

individuals who attempt to find buyers for privately held firms that are selling securities in a private placement. Finders often work with larger investment banks to sell private placements.

88
Q

Fulcrum fee

A

An advisory fee that increases and decreases proportionately with the investment performance of a client’s account, in relation to the investment record of an appropriate index of securities.

89
Q

Supervised person

A

used in SEC regulations related to investment advisers (IAs) and includes the IA’s partners, officers, directors, and employees who provide investment advice.

90
Q

Is a person effecting commodities transactions an agent under USA?

A

No because commodities are not securities

91
Q

Certificate of incumbency vs DPOA

A

certificate of incumbency is a court-issued document that provides the legal authority of a court-appointed guardian to act on behalf of another person. The certificate serves as evidence that the listed person is authorized to act as a fiduciary for another person (the account holder) or any unincorporated entity (i.e., business, club, association, or organization).

durable power of attorney authorizes a person to manage the affairs of an individual who is in good health and remains in force if the individual is declared incompetent or becomes incapacitated.

92
Q

Fund of funds - liquidity and cost compared to MF

A

Illiquid
Higher expenses

93
Q

Flow through

A

Flows through the business to owners eg partnership

Pass through is taxed at business then passed to owners

94
Q

Bypass trust

A

Bypass Trust (or Credit Shelter Trust) is a type of irrevocable trust and is most commonly used to pass assets from parents to children at the time of the second parent’s death. The investment focus must be on the beneficiaries, not the grantor.

95
Q

When should a federal covered adviser (FCA) file an amendment to its registration?

A

Within 90 days after fiscal year end

iThis amendment to the ADV reaffirms eligibility information and updates the responses to any other items for which the information is no longer accurate

96
Q

statute of limitations for criminal violations of the USA

A

5 years

Series 65 (16 decks)

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