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Flashcards in Exam 4 Deck (41)
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1
Q

A municipality would use general obligation bonds to finance all of the following except
A. Addition to an existing school building
B. Construction of a new town hall
C. Construction of an industrial Park
D. Addition of traffic lights to main intersections

A

C.
The proceeds of general obligation bonds are used by municipalities to provide services to the general population including the building and improvement of schools police and fire department structures and general municipal buildings.

Industrial parks would use revenue bonds since business is renting would generate revenue for the bond

2
Q

An investment advisor that has no office in state A would be required to be registered in state A if a representative associated with that firm sells advisory services in-state A to:
A. I mutual fund and three officers of the mutual fund
B. Another investment advisory firm and two individuals
C. A mutual fund and six private individuals of which three are officers of the mutual fund
D. Six immediate family members of the representative offering the advisers services

A

D.
And adviser that only sells it services to other investment advisors or mutual funds are considered to be professionals and not in need of protection is not required to be registered in the state as long as the adviser is not physically located in that state. officers of advisory firms and mutual funds fall under the same professional exemption

3
Q
A customer buys 100 shares of an investment company but is not charged a commission. The customer must have purchased:
A. Exchange traded fund
B. Open end fund
C. Closed-end fund
D. OTC traded fund
A

B
Every mutual fund share is a new issue, new issues are sold at the PO P the public offering price as stated in the prospectus. There are no additional commissions on new issues. The difference between NAV and PO P is the sales charge on each share.

4
Q

Treasury bills are issued for all of the following initial maturities except:

Four weeks eight weeks 13 weeks 26 weeks

A

Eight weeks

They are issued in increments of four weeks which is one month. 13 weeks which is three months. Or 26 weeks which is six months. Or 52 weeks which is 12 months

5
Q

What increments of time are treasury bills issued in?

A

Four weeks 13 weeks 26 weeks and 52 weeks

6
Q

If the market rate of interest is 10%, the net present value of $1000 to be received two years from now is:

Less than $1000
More than $1000
$1000
More or less than $1000 depending on market demand

A

Less than $1000.
1.1x1.1x1000= 826.44

Another way of looking at this is that $826.44 today will be worth $1000 two years from now if it is invested at a 10% rate of return

7
Q

Which statements are true about the recordkeeping requirements for communications sent to potential clients under the provisions of the investment advisors act of 1940.

A

A record of the name and address of each person to whom the communication is sent must be retained

However

A record of the name and address of each person to whom the communication is sent is not required for communications sent to more than 10 persons

For communications sent to a list of individuals, a memorandum describing the list and its source must be retained

8
Q

A broker-dealer and its agents are registered in state a. The agent tells a customer in state a that he is prohibited from making an offer of security in that state because the security is not registered in state a & the security is nonexempt. However, he tells the customer that he can accept an offer to buy that security from the client because then the transaction would be exempt. Which statement is true?

A. There is no violation of uniform security law because the transaction will qualify for an unsolicited customer order exemption.

B. There is a violation of uniform state law because the agent has made an offer to sell an unregistered nonexempt security in that state

C. There is no violation of uniform state law because the broker-dealer is registered in the state

D. There is no violation of uniform state law because the agent is registered in the state

A

The correct answer is B

9
Q

A car dealership located in state a has been experiencing a period of slow sales and wants to increase business. The general manager wants to do the following promotion “buy a new car from us and will give you 100 shares of our parent company’s stock” which of the following is true about this promotion?

A. The promotion constituents and offered to sell securities in the state

B. This promotion does not constitute an offer to buy securities because no payment is being made for the securities

C. This promotion does not constitute an offer to sell securities because car dealerships are only subject to state franchise laws, not state securities laws

D. This promotion is illegal and unethical under state law

A

A
In this example the securities are being given to an inducement to get the customer to buy a car. This is not a gift since the payment made for the car includes a component for the value of the securities.

10
Q

Why are European style options considered to be derivatives?

A. Because they can be traded at any time prior to expiration
B. Because they can only be exercised draining stated period Just prior to expiration.
C. Because their value is determined by the movement in the value of an underlying security
D. Because greater returns can be derived when trading options as compared to trading the reference asset

A

C.
All options both American and European style are derivatives because their price movements are based on the movements of the price of a reference asset

11
Q

Which of the following securities are exempt under the uniform securities act?

A. Savings and loan association stock
B. Municipal industrial revenue bonds
C. Bonds issued by a company listed on the midwest stock exchange

A

All of the above
Exempt securities under the act include securities issued by savings and loans, municipal bonds, including industrial revenue bonds, and the securities of companies listed on stock exchange these fall under the blue-chip exemption

12
Q

Under SEC rules established by NSM IAA an individual that files a registration application will be denied if the applicant has:

Served one year or more in jail

Pleaded no contest to criminal charges

Been named in a civil lawsuit within the past year

Been fined $10,000 or more by a court of law for violations of security statutes

A

Serve one year or more in jail

13
Q

The yield to maturity on a bond is lower than the current yield. This bond is trading

A

At a premium

14
Q

The yield to maturity on a bond is higher than the current yield. This bond is trading

A

At a discount

15
Q

An individual that has made a passive investment has bought into a:

A

Dpp or direct participation program. This is another name for a limited partnership tax shelter investment. In such an investment the customer is a passive investor and has no management role. Management is performed by the general partner. It is all partnership general partnership or a limited liability company each owner is an active participant in the business making day-to-day business decisions

16
Q

Which of the following are likely purchasers of commercial paper.

A. Individuals
B. Insurance companies
C. Trust companies
D. Open end investment companies

A

B C and D

17
Q

The risk adjusted rate of return of an investment is most closely correlated to the investments:

Alpha coefficient
Beta coefficient
Delta coefficient
Gamma coefficient

A

Alpha coefficient
Alpha measures the portion of an investment return arising from stock specific risk.
Beta coefficient is the risk level of its comparison benchmark index.

18
Q

All of the following statements describes Freddie Mac except

Freddie Mac buys conventional mortgages from financial institutions

Freddie Mac is an issue were of mortgage backed pass-through certificates

Freddie Mac is a corporation that is publicly traded

Freddie Mac debt issues are directly guaranteed by the US government

A

D. Freddie Mac is not directly guaranteed by the US government

19
Q

For which of the following contracts does the insurer typically invest the premium in the insurers general account?

Variable life
Universal life
Variable universal life insurance
Whole life insurance

A

Universal life insurance and whole life insurance

20
Q

A customer wishes to buy one share of DreamWorks animation stock, which she intends to frame and give to her son as a present because it includes a color image of Shrek. The stock is trading for $16 per share however the commission for executing the trade will be $100, since the brokerage firm has a minimum ticket charge. Which statement is true?
A. Prior written approval of the customer will be required to buy the share since the transaction is an odd lot
B. Prior to buying the share, the fact that the commission will be unusually high must be disclosed
C. Prior to buying the share, another customer must be located to buy the remaining 99 shares, so that around lot of 100 shares can be traded
D. The trade can be executed without restriction

A

B.

21
Q

Which of the following statements is true regarding the compensation of an unlicensed solicitor for referring a customer to an investment advisor?

A. A referral fee cannot be paid to an unlicensed solicitor
B. A referral fee maybe paid to an unlicensed solicitor only if there is a prior written agreement detailing work to be performed and compensation to be paid
C. A fixed fee maybe paid to an unlicensed solicitor only if the investment advisor is a federal covered advisor

D. The referral fee can be paid as long as the amount is fair and reasonable

A

A

Investment advisors do not earn commissions and the prohibition on Sharon commissions with unlicensed person is not applicable. Investment advisors are permitted to pay referral fees to individuals who solicit business for the advisor, however the state defines the solicitor as an investment advisor representative that must be registered or licensed with the state.

22
Q

A client of an investment advisor who is long-standing investment objective was growth is nearing retirement. With the aid of the investment advisor the client changes her investment objective to preservation of capital and current income. The best asset allocation mix to recommend it to this client is

A

50% common stocks and 50% bonds

23
Q

A market maker as defined under the securities exchange act of 1934

A. Effects securities trades for the account of others on an agency basis
B. Effects securities trades for the account of others on a principal basis
C. Effects trades with others out of his or her own account
D. Effects trades on a discretionary basis for the account of customers

A

C.

24
Q

Net profit margin of a company is gross operating profit minus what?

A

Interest expense and taxes

25
Q

A stock who’s price moves down 5% when the market moves up by 10% has a beta coefficient of

A

-.50%

26
Q

And investment advisor has its principal office in state A. It also has offices in states B C and D. The recordkeeping requirements of states C and D are more stringent than that required by state A. State B has the most strange and recordkeeping rules of them all. Investment advisors required to maintain its records in accordance with the rules of which state

A

State A.
Uniform securities act states that if an investment advisor complies with the provisions of the act as adopted in the state where the advisor has its principal office, then other states cannot impose more stringent recordkeeping requirements or minimum net worth requirements on that investment advisor even if the advisor has offices in those states as well

27
Q

Which business form has a limited life?

A

General partnership.
Any partnership has a limited life, if there is not a fixed life stated in the partnership agreement then the life of the partnership ends with the partnership composition changes.

28
Q

A purchase agreement is effected between two US government securities dealers. The interest charged under this agreement is the

A

Repo rate, paid by the seller of the securities to the buyer.

In a re-purchase agreement between two government dealers, a government securities dealer sells securities to another dealer, with an agreement to buy them back at a later date. The selling dealer obtains cash and for this agrees to pay interest to the buying dealer. The interest rate charged is known as the repo rate

29
Q

Which of the following are not considered to be direct obligations of the US government?
Federal land bank bonds
Banks for cooperative notes
Federal national mortgage Association bonds
Federal home loan bank bonds

A

None of those are considered direct obligations of US government.

Ginne Mae are the only agency issued debts backed by the government. Remember big brother a.k.a. the government will protect little sister! Ginne MAE

30
Q

Which investment offers the greatest protection against purchasing power risk?

Long term US government bonds
Long term zero coupon bonds
Real estate investments
Investment grade preferred stock

A

Real estate investments

Of the choices given real estate offers the best protection against purchasing power risk or the risk of inflation. When there is inflation the prices of real estate assets tend to inflate as well hence they give inflation protection.

31
Q

A customer was retired wants to select an investment that is liquid, marketable, and provides regular income. The best choice would be to recommend

Treasury bills
Treasury notes
Preferred stock
Certificates of deposit

A

Treasury notes
Certificates of deposit or nonnegotiable there are non-marketable so this does not meet the clients needs. Preferred stock as marketable but not as marketable as treasury securities, making treasury securities a better choice. So we are left with either a bill or t note. Treasury notes pay interest semiannually, well treasury bills do not provide a regular income stream, so I treasury note is the better choice

32
Q

Which of the following statements concerning 403B plans are true?
Investments are limited to annuities

If 403B plan can provide only for employee contributions without employer contributions

An employee who Alexs salary deferral to a 403B plan cannot elect salary deferral to another retirement plan

Deferrals to a 401(k) plan can reduce the amount that an employee can defer to a 403B plan

A

B and D

33
Q

For initial registration as an agent in a state all the following are required except

Government issued photo ID

Registration application

Filing fee

Consent to service of process

A

Government issued photo ID

34
Q

Under the uniform securities act the definition of guaranteed means that the security is guaranteed by another party as to

Payment of dividends
Payment of interest
Payment of principal
Any of the above

A

D

35
Q

All of the following will dilute a stockholders equity except
A. Payment of a stock dividend
B. Conversion of convertible preferred stock
C. Exercise of stock options granted to officers
D. Issuance of additional common shares

A

A

36
Q
Which of the following would be considered to be owners of a corporation?
Common shareholders
Preferred  shareholders
Convertible bond holders
Warrant holders
A

A and b

37
Q

Corporate dividend payments can be made in all of the following ways except

Cash or company products
Listed options of that company
Additional common shares of another company
Additional common shares of that company

A

Listed options of that company are not allowed to be a form of dividend payment

38
Q

And investment advisor representative’s friend provides him with a list of 10 prospective clients. The representative agrees to pay his friend a referral fee for each person on the list that opens an account with the advisor. Which statement is true?

A. The arrangement is permitted without restriction
B. The arrangement is permitted only if it is in writing between the investment advisor and the friend
C. The arrangement is permitted only if it is in writing between the investment advisor in the friend and the arrangement is disclosed in writing to any customer opening an account

A

C.

And investment advisor that pays a referral fee to another individual for finding new clients comes in or SEC rule 2064 Dash three covering solicitors. And investment advisor can only pay solicitor if there is a written agreement between the advisor in a solicitor. Investment visor must give the customer is brochure and the solicitors brochure, in which the referral fee arrangement must be disclosed

39
Q

Reports filed by issuers with the SEC under the securities exchange act of 1934 are made available to the public when?

A

Immediately

40
Q

US corporations account for 45% of global corporate well. Investor that has an objective of global investing would:
A. Only invest in corporations based outside of US
B. Invest 45% of assets in US companies and 55% of assets and foreign companies
C. Only invest in corporations based inside the US
D. Spread the investments across both domestic and foreign securities waiting investments based on performance expectations

A

D

41
Q

Which of the following must notify the administrator if an agent of a broker-dealer is terminated
Agent
X employer
Finnra

A

Both a and B