Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

My Series 65 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Measure of Risk

A

Standard Deviation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Measure of diversifiable risk

A

Alpha

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Measure of non-diversifiable risk

A

Beta in the Capital Asset Pricing Model

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Facilitates U.S. investment in the stock of foreign corporations. When the foreign securities are deposited in a U.S. bank based in that country, a receipt for those securities is issued and traded in the U.S. as if it were the foreign security itself.

A

American Depositary Receipts (ADRs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Major disadvantage of a C Corporation is that

A

Shareholders (owners) are taxed twice. Must first pay taxes at the corporate level. Shareholders must then pay personal income taxes on any income they receive from the corporation in the form of dividends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Currency risk is particularly ____ for short-term investors

A

Acute (present or experienced to a severe or intense degree)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

The possibility that changes in exchange rates between currencies will undermine the value of foreign investments for U.S. investors

A

Currency Risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

If an investment advisor’s only client is a private fund (hedge fund) that has less than $150M in AUM that has 100 or fewer investors, what is their registration requirement?

A

They are an exempt reporting advisor (ERA) and are not required to register with the SEC, but must notice file with the state Administrator(s) and pay a fee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

A form of asset allocation that is based on the belief that markets are NOT efficient and that market timing can be beneficial. For example, an investor who believes that interest rates are going to rise soon might reduce the number of fixed-income securities in his portfolio

A

Tactical asset allocation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

A person who believes that the markets are _________ _______ is more likely to use a passive approach to investing, such as strategic asset allocation or indexing. Some proponents of the ______ ______ hypothesis do believe that fundamental analysis can be a useful tool in identifying investments that will outperform the market.

A

inherently efficient (the efficient market hypothesis)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When bond prices fall, what will happen to the yield-to-maturity and the yield-to-call?

A

They will both rise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

_____ investments offer tax breaks that mutual funds cannot offer. One of the largest tax breaks is the interest deductions on loans

A

Real estate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

An investment adviser representative has been given a client’s username and password in order to access her brokerage account. The client wants the IAR to have the ability to execute trades and withdraw cash to pay the client’s bills. Does this constitute discretion?

A

Yes, since the IAR is able to withdraw funds and execute trades

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Involves an analysis of a company’s financial statements (i.e. balance sheets and income statements) in order to make investment decisions.

A

Fundamental analysis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Uses pricing trends and patterns to make investment decisions.

A

Technical analysis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Involves projections of future cash flows (e.g. corporate earnings, bond interest payments) and uses the present value formula to discount them back to their present value

A

Discounted cash flow modeling

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Return calculation that eliminate biases caused by the inflow or outflow of investor money. It is often used to compare the performance of money managers.

A

Time-weighted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Return calculation that provides a better idea of how an individual investor has done over time by eliminating the biases caused by superior performance in one year or inferior performance in another.

A

Dollar-weighted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

U.S. govt bonds would not be subject to which risks?

A

Credit risk or currency risk, unless the investor had purchased them with foreign currency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Do passive asset allocation strategies alter a portfolio in anticipation of an economic event?

A

No - active asset allocation strategies do

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Buyers of which option have the right to buy stock at the strike price?

A

Calls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Buyers of which option have the right to sell stock at the strike price?

A

Puts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

An IA may charge a client an investment advisory fee for rendering investment advice while receiving compensation for effecting securities transactions related to such advice

A

Only if disclosed to the client

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Par

A

$1000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are the steps to find what price per share common stock would be trading to be at parity with the bond?

A
  1. Find the conversion ratio
  2. Determine the value at which the stock must be trading to be equal to the current market value of the bond (bond’s value / parity price of the stock)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Price at which both the bond and the aggregate value of the stock are equal

A

Parity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What are the characteristics of growth companies?

A

Low dividend payout ratios, high research and development expenses, and high price-earnings ratios, as well as more volatile stock prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Which of the following is a right that’s provided to owners of preferred stock?

A

The right to receive a dividend if the payment is approved by the board of directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is the main difference between futures contracts and forward contracts?

A

Future contracts may be offset (bought or sold) whereas in a forward contract, both parties involved in the contract must agree before the contract may be bought or sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

The yield for a zero-coupon is based on

A

The purchase price relative to face value - they do not pay interest on a semiannual basis; instead, they’re sold at a discount from their par value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What happens if a put option is exercised?

A

The seller of a put will be required to buy back the underlying stock at an agreed-upon price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

A client’s federal adjusted gross income (AGI) consists of her ______

A

Taxable income
ex: salary, tips, bonuses, dividends, and corporate bond interest
Municipal bond interest is tax-free and not included in a person’s AGI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

If the economy is experiencing rising inflation, this will generally lead to:

A

A decrease in bond prices
Rising inflation will usually lead to the FRB increasing short-term rates. This increase in rates will cause outstanding bond prices to decrease

34
Q

What is a disadvantage of investing in a C Corporation?

A

Shareholders pay tax on income that was already taxed to the company

35
Q

What metric would allow a financial professional to calculate the fair market price of a bond?

A

Discounted cash flow

36
Q

What is a form of systematic risk and cannot be avoided by securities investors?

A

Market risk

37
Q

Explicitly recognizes the need for diversification. Investing 100% of a portfolio in anything is rarely wise

A

Prudent investor standards

38
Q

The major advantage of an S Corporation versus a C Corporation is than an S Corporation

A

May elect to be treated like partnerships for federal tax purposes

39
Q

Which two types of risks are not associated with options and derivatives contracts?

A

Reinvestment risk and purchasing-power risk

40
Q

Is an internet investment advisor subject to registration with the SEC?

A

Yes

41
Q

What investment is not permitted in a 401(k) plan?

A

Real estate

42
Q

What is an example of an exempt transaction under the Securities Act of 1933?

A

Reg. D - also considered a private placement and represents a federal exempt transaction

43
Q

Why is a municipal bond not suitable to be in an individual retirement account (IRA) ?

A

IRAs offer tax-deductible contributions and deferral of taxes on gains, interest, and dividends until the owner takes a withdrawal. Interest on a municipal bond is tax-free , so other bonds would be more suitable

44
Q

When considering investments in various mutual funds, an IA may recommend an emerging markets fund as a means of

A

Diversifying investments in various funds
EM funs invest in companies of countries that are moving out of their economic development phase and into a more growth-oriented stage in their development

45
Q

What non-qualified deferred comp plan can be offered to managers of a govt agency?

A

457

46
Q

How do you calculate the mkt capitalization of a company?

A

Multiply number of outstanding shares by the current mkt price of the shares

47
Q

What is considered a small cap company?

A

If it has the mkt cap between 300M and 2B

48
Q

What life insurance policy is best suited for investors with low income?

A

Term life - they do not accumulate chase value and have the lowest premiums

49
Q

What type of order may a customer use to protect profits or limit losses in current positions?

A

Stop order

50
Q

What does a leverage ratio measure?

A

The amount of additional debt that an issuer can assume

51
Q

What does a liquidity ratio measure?

A

The amount of additional debt that a business can afford to issue

52
Q

What securities are most likely used to create asset-backed securities?

A

Home equity loans, credit card receivables, auto loans, or student loans
Asset backed securities (ABS) are bonds which are backed by a pool of assets. They are similar to collateralized mortgage obligations (CMO), but ABS are secured by a pool of loans that don’t include mortgages.

53
Q

What information is required in order to determine an investment’s internal rate of return (IRR)?

A

The positive and negative cash flows from an investment

54
Q

According to the USA, the Administrator may require federal covered advisers to

A

Give notice or notice file in any state where they transact business with six or more individual retail clients

55
Q

When would a variable annuity be most suitable for a client?

A

When the client wants capital appreciation or growth over a long period

56
Q

What does an inverse ETF do?

A

Moves in the opposite direction of the benchmark or index to which they’re linked, making them considered derivatives

57
Q

What are the differences between exchange-traded funds (ETFs) and exchange-traded notes (ETNs)?

A

ETNs carry credit risk that is tied to the issuer that backs the note and ETFs do not have issuer credit risk
ETNs have a maturity date and ETFs do not have

58
Q

What are the advantages of a limited liability company (LLC) compared to an S Corporation?

A

A simpler managerial structure

59
Q

Can investment advisers market themselves using abbreviations?

A

No

60
Q

What are examples of digital assets?

A

Cryptocurrency, stablecoins, non-fungible tokens (NFTs)
A blockchain is a method of recording ownership of digital assets - not a digital asset

61
Q

What is a characteristic of a Money Purchase Plan?

A

Employers must make mandatory contributions

62
Q

What does not impact the value of a bond?

A

An increase in the company’s dividend payment

63
Q

According to NASAA’s Model Rule on IAR continuing education (CE), how many credit hours of continuing education must an IAR complete each year?

A

Six credit hours related to products and practices and six credit hours related to regulatory and ethics (three of which must specifically cover ethics)

64
Q

In a declining market, the type of order that would potentially contribute to the decline is a

A

Sell stop

65
Q

A corporation’s shareholders must vote for

A

Stock splits

66
Q

What is true regarding investment advisory contracts?

A

Under USA, IA contract must be written
Under IAA of 1940, IA contracts are not required to be written

67
Q

What is not a characteristic of futures contracts?

A

Most of the contract’s terms are set by the buyer and seller
The buyer of a futures contract cannot be forced to take delivery of

68
Q

What’s a benefit of establishing a general partnership compared to establishing an S-corporation?

A

General partnerships don’t require incorporation with the state

69
Q

It is most beneficial to the holder of a call if the price of the underlying security is

A

Rising

70
Q

A stock that is traded on the NYSE has a high P/E ratio, a low dividend payout ratio, and a high level of retained earnings, what type of stock is it?

A

Growth

71
Q

An equity-indexed annuity is suitable for which of the following clients?

A

A person who needs a minimum guaranteed return with the potential for a greater return than CDs offer

72
Q

What is true regarding the causes of inflation?

A

Demand-pull inflation occurs when the demand for money increases and pulls interest rates higher, causing inflation
Cost-push inflation occurs when the cost of financing the national debt increases, causing rising interest rates and inflation

73
Q

If the net present value of an investment is greater than 0

A

The current market value is less than the discounted cash flows

74
Q

What method of crediting an equity indexed annuity’s returns is based on the index value over a specified period?

A

Point-to-point

75
Q

Which of the following is the best explanation of the difference between progressive and regressive taxes?

A

Regressive taxes will result in lower income individuals paying proportionately more in taxes than higher income individuals

76
Q

A federal covered adviser must

A

Register with the SEC and file form ADV

77
Q

What is accurate regarding a sports representative?

A

In certain cases, a sports and entertainment representative who provides advice about investments is considered an investment adviser

78
Q

87 of 140
Your client dies and leaves a sizable investment portfolio. Within two weeks of his death, the executor of his estate presents the proper documentation to you. She has you sell off the decedent’s portfolio, investing the proceeds in money-market instruments in anticipation of the distribution to the heirs of the estate. The value of the holdings declines substantially in the period between his death and their sale. For estate tax purposes, the assets will be valued

A

At the time of death

79
Q

The amount of money an issuer receives in a stock offering in excess of the part value is recorded on the balance sheet as

A

Capital surplus

80
Q

In order for an individual to be eligible for a Health Savings Account (HSA) the individual must be

A

Covered under a high deductible health plan (HDHP)

81
Q

An investor has heard conflicting reports about the success of a company’s latest products. The investor is unsure of the direction in which the stock’s price will move, but wants to take an option position. Which option strategy should be recommended?

A

Buy a call and buy a put on the stock

82
Q
A

My Series 65 (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions