Exam 1 Retake Questions Missed

Question 1

Under which of the following circumstances will an individual be required to register with the Administrator as an investment adviser representative?
She solicits brokerage services
She supervises the accounting department of a registered investment adviser
She holds herself out as an investment adviser representative
She serves on a committee that makes investment decisions for an investment adviser’s managed accounts

Answer 1

She serves on a committee that makes investment decisions for an investment adviser’s managed accounts

Question 2

Typically employees of an investment adviser who solicit advisory services, make investment decisions, or supervise IARs

Answer 2

Investment Adviser rep

Question 3

All the following are characteristics of passive asset allocation strategies, EXCEPT
Low transaction costs
Minimal annual tax liabilities
Rebalancing of a portfolio when risk levels exceed the investor’s preferences
Altering a portfolio in anticipation of an economic event

Answer 3

Altering a portfolio in anticipation of an economic event

Question 4

Nominal Yield x (100% - Tax Rate % )

Answer 4

After-Tax Yield

Question 5

Bond Yield - Inflation Rate

Answer 5

Inflation-Adjusted Return

Question 6

A client contacts an investment adviser representative to discuss the advantages of incorporating. What are the disadvantages of forming a C Corporation?

Answer 6

Double taxation

Question 7

Which of the following is TRUE if the price of a discount bond falls?

Answer 7

The spread between the yield-to-maturity and yield-to-call will increase and the yield-to-call will rise

Question 8

If a bond’s basis declines, the yield-to-maturity will

Answer 8

Also decline, they move in the same direction

Question 9

An individual currently has $100 to invest. She has calculated that the future value of her investment will be either $130 under favorable market conditions or $80 under unfavorable market conditions. Which of the following statements about the investor’s future value projections is TRUE?

If market conditions are unfavorable, the investor will have a $20 loss.
The discount rate must be the same for both the favorable and unfavorable market conditions.
The present value of the investment is $105.
If market conditions are favorable, the investor will have a $20 gain.

Answer 9

If market conditions are unfavorable, the investor will have a $20 loss

Question 10

All of the following statements are TRUE of a 529 plan, EXCEPT:

Withdrawals that are used for educational purposes are not subject to federal taxation.
There are no income limits placed on contributors.
Contribution amounts are unlimited.
A married couple may make a lump-sum contribution of $170,000 without incurring federal gift taxes.

Answer 10

Contribution amounts are unlimited

Question 11

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

Answer 11

The positive and negative cash flows from an investment

Question 12

A corporation’s shareholders must vote for

Answer 12

Stock splits

Question 13

Par / Conversion price

Answer 13

Conversion ratio

Question 14

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

Answer 14

The current market value is less than the discounted cash flows

Question 15

Bonds that are issued by foreign companies pay interest and principal in

Answer 15

the issuer’s currency

Question 16

A broker-dealer that’s registered in State A is underwriting a follow-on offering for a local company whose stock is not listed on an exchange. As required, the broker-dealer is making the final prospectus available electronically to all purchasers. For how long is the broker-dealer required to deliver the prospectus to investors?

Answer 16

40 days

Question 17

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

Answer 17

Reg. D

Question 18

If an IA is registered in many states, including the state in which its principal place of business is located, then what is true concerning the IA’s obligation to maintain a minimum financial requirement?

Answer 18

The IA must satisfy the requirements of only the state in which its principal place of business is located

Question 19

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

Answer 19

A simpler managerial structure

Question 20

An investment adviser’s (IA’s) only client is a 3(c)(1) fund that has $110 million in assets under management (AUM). Which of the following statements regarding the registration requirements of the IA is TRUE?

Answer 20

The investment adviser is an exempt reporting adviser (ERA) and is not required to register with the SEC, but must notice file with the state Administrator(s) and pay a fee.

Question 21

What two types of risk are associated with options and derivatives?

Answer 21

Opportunity risk and market risk

Question 22

An investor has purchased a U.S. government bond for $1,000. The bond is now worth $850. Which TWO of the following risks is a concern to this investor?
Market risk
Credit risk
Currency risk
Opportunity risk

Answer 22

Market risk and opportunity risk

Question 23

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

Answer 23

Capital surplus

Question 24

Under what circumstances may the Administrator of State X issue a cease-and-desist order on behalf of the Administrator of State Y?

Answer 24

Never

Question 25

How does an Administrator determine whether excessive trading has occurred in a customer’s account?

Answer 25

The suitability of solicited trades in the account

Question 26

If a company’s total assets remain the same but stockholders’ equity decreases, which of the following statements is TRUE?

Answer 26

Total liabilities increase

Question 27

An agent of a broker-dealer intends to sell shares of a security, but the transaction does not involve his firm. If he proceeds with the transactions, in which of the following situations will he NOT be accused of selling away?

Answer 27

The agent notifies his firm and awaits approval (if required)

Question 28

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

Answer 28

A decrease in bond prices

Question 29

Which of the following will a syndicator of a blind pool real estate investment trust include in the investment policy statement?

Answer 29

A statement which breaks down the contributions made by limited partners

Question 30

An IAR is discussing investment objectives with one of her clients. The client is convinced that the real estate market is near its bottom and is due to recover in the next 12 to 18 months. Since she has a limited amount to invest ($50,000) and wants an investment that’s diversified and liquid in the event she’s wrong, the IAR may recommend a

Answer 30

Real estate investment trust

Question 31

All of the following will impact the value of a bond, EXCEPT:

Rising interest rates
A decrease in the company’s credit rating
An increase in the company’s dividend payment
A decrease in inflation

Answer 31

An increase in the company’s dividend payment

Question 32

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

Answer 32

Tenure of the manager

Question 33

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?

Answer 33

Growth