Final #2

Question 1

What type of investment companies can adopt a 12b-1 plan?

Answer 1

Mutual funds

Only mutual funds (open-end management companies) have sales loads and 12b-1 distribution fees.

Question 2

Variable annuity contracts are regulated by the SEC as a(n) ______ product in addition to being regulated by the State as a(n) _______ product

Answer 2

SEC as a securities product and the state as an insurance product

Question 3

What does alpha measure?

Answer 3

Alpha measures a stock’s price volatility relative to stock specific (non-market) factors

Question 4

What does beta measure?

Answer 4

Beta measures a stock’s price volatility relative to the market as a whole

Question 5

If a plan manager violates the rules set forth in the IPS (Investment Policy Statement) does he breach his fiduciary obligation?

Answer 5

Yes - the rules set forth in the IPS MUST be followed, they are not just a guideline

Question 6

What are the rules regarding the agent of a BD participating in an internet chat room?

Answer 6

BD agents and IA agents are not prohibited from participating in Internet Chat rooms as long as they limit their communications to “general” statements about investing

Question 7

If a corporation buys the stock of another company as an investment, _____ % of the dividends received are excluded from tax, meaning that ____ % of the dividends received are taxable.

Answer 7

70%, 30%

Note: If the corporate investor owns 20% or more of the stock of the other company, this exclusion increases to 80%

Question 8

A change in business form for an investment adviser would require an amendment of the Form ADV filed with the SEC in what time frame?

Answer 8

Promptly! (SEC)

Question 9

A change in business form for an investment adviser would require an amendment of the Form ADV filed with the NASAA in what time frame?

Answer 9

30 days (NASAA)

Question 10

What are the highest and lowest for quality investment grade ratings for bonds by S and P?

Answer 10

AAA is the highest grade while BBB is the lowest

Question 11

ERISA requirements regarding the investments that are suitable for a retirement account stress:

Answer 11

Safety of principal

Question 12

What 3 things are allowed to happen AFTER a registrations statement is filed?

Answer 12

I. Solicitations of indications of interest
II. Sending a preliminary prospectus
III. Publishing a tombstone announcement

Question 13

How do the payments for variable annuities during the annuity phase, and what are the payments based on?

Answer 13

Periodic payments of varying dollar amounts are made (depending on the investments that are in the variable annuity) but payments are BASED ON a FIXED number of units

Question 14

To find the future value of an investment, the annual investment returns must be:

Answer 14

Compounded

Future value is found by taking the current investment amount and compounding it

Question 15

Who must file annual and semi-annual reports with the SEC under the Act of 1934?

Answer 15

Corporations and investment companies

Municipalities, Gov’t, and Gov’t Agencies are exempt from this

Question 16

Between what departments must Chinese walls be built?

Answer 16

Investment banking and:

• Trading
• Sales
• Research

Trading and:

• Sales
• Research

Question 17

When can the term “investment counsel” be used?

Answer 17

As long as the principal business of the advisory firm is the rendering of investment advice

Question 18

A portfolio with a beta of +1 has what type of risk?

Answer 18

Systematic risk (aka market risk)

Question 19

What is the primary concern when investing in a municipal bond?

Answer 19

Legislative risk - the risk that it may be later taxable based on law changes

Question 20

When can an agent represent that a mutual fund is “no load”?

Answer 20

When the fund does not impose an up-front sales load, a contingent deferred sales charge or annual 12b-1 fees in excess of .25%

Question 21

What are the registration requirements for paid solicitors by an investment adviser?

Answer 21

There is no requirement for the solicitor to register with the SEC; only the investment adviser is registered with the SEC

However, in most States, the solicitor must be registered either as an adviser or as an adviser representative

Question 22

A buy and hold is the most appropriate strategy when investing in:

Answer 22

Mutual funds

Question 23

If a corporation issues new stock at a price above par value, the excess above par is termed:

Answer 23

Surplus capital

Question 24

A married couple with 2 young children, has their assets in a revocable trust. If one spouse dies, how will the assets be handled?

Answer 24

A revocable or “inter vivos” trust is one created during the grantor’s lifetime and that the grantor can change, while he or she is still alive. Property transferred into the trust avoids probate upon death of the grantor - and the property will be managed and distributed according to the terms of the trust

Question 25

What is the primary goal of a Passive Portfolio Management Strategy?

Answer 25

Managing a portfolio to MEET the performance of a benchmark portfolio Actively managed portfolios strive to exceed the benchmark portfolio's performance

Question 26

An agent who has passed his or her 63/66 examination, but whose registration is not yet effective in the State, may sell what?

Answer 26

Fixed annuity securities Since fixed annuities are NOT securities, the agent could sell these - if he or she had a State insurance license

Question 27

A limited partnership is formed as a legal entity by

Answer 27

Filing a certificate of limited partnership in the State

Question 28

True or False: Each individual's ownership interest in a Tenants in Common account is freely transferable to another person

Answer 28

TRUE

Question 29

What dividends are "qualified" (they get preferential 15% tax treatment)?

Answer 29

Qualified: - Div's paid by U.S. Corp's (usually) - Foreign div's if: A.) The corporation is incorporated in a country that has a comprehensive tax treaty with the United States; B.) The corporation is incorporated in a U.S. possession C.) The corporation has its shares listed on an established trading market in the United States

Question 30

What is the Not, Not, May rule?

Answer 30

When a customer wishes to buy securities at a bank location, the sales rep must comply with the "Not-Not-May" Rule both verbally and in writing (brochure) This consists of: 1. Securities are NOT FDIC insured 2. Securities are NOT bank deposits 3. Securities are subject to investment risk and MAY lose value

Question 31

What information is included in a (standardized) commodities futures contract?

Answer 31

I. Acceptable grades of the commodity II. Quantity of the commodity III. Delivery location of the commodity Note that price is never standardized - this is set by he market

Question 32

Per the NASAA, Canadian BDs can contact EXISTING customers who are temporarily residing in the United States without having to register in a State, as long as the client is in the U.S. for less than________ and intends to return to Canada.

Answer 32

6 months (half a year) Note that the Canadian BD cannot contact prospective clients in the U.S - only existing clients can be contacted

Question 33

What is a commonly tested item that is "not considered as giving investment advice"?

Answer 33

A person who charts the price movements of stocks and distributes them to subscribers

Question 34

A person who prepares a list of securities that may be purchased without making specific recommendations is considered to be:

Answer 34

An investment adviser

Question 35

A customer has $10,000 in passive losses from a limited partnership investment. If the customer has $10,000 of passive income for that tax year, the customer may deduct:

Answer 35

$10,000

Question 36

What is the rule regarding the retention of Internet advertising by broker-dealers?

Answer 36

All web pages that have ever been created and displayed must be archived

Question 37

A CPA who acts as a solicitor for an investment adviser, referring clients to that adviser for a fee must be registered with:

Answer 37

The State

Question 38

Buying a future is a _________ sentiment to the market, while selling a future is a _________ sentiment

Answer 38

Buying a future = bullish | Selling a future = bearish

Question 39

What ratio would be used to evaluate a company's ability to pay off its short term debt?

Answer 39

Current Ratio

Question 40

Upon filing a withdrawal of registration with the State, the Administrator can commence a revocation or suspension proceeding for up to:

Answer 40

1 year from the effective date of the withdrawal

Question 41

What type of option position is used to hedge a long stock position?

Answer 41

Long put

Question 42

What is a "bottom up" approach to selecting securities?

Answer 42

This method looks for specific companies that are likely to have exceptional performance, regardless of overall economic conditions

Question 43

What is a "top down" approach to selecting securities?

Answer 43

This method looks at the overall economy to identify sectors that appear to have the best growth potential; once identified, specific investments are made

Question 44

What does "term management tenure" describe?

Answer 44

The length of time that the individual has been managing that mutual fund