A) hedge the long position.
B) obtain income from the premium.
C) protect against an increase in the market price of XYZ stock.
D) protect against a decrease in the market price of XYZ stock.
Answer: C) protect against an increase in the market price of XYZ stock.
A) Premature style.
B) Flexible style.
C) American style.
D) European style.
Answer: C) American style.
A) protect the premium.
B) fix the purchase price to add stock to his portfolio.
C) seek long-term capital gain.
D) obtain income.
Answer: D) obtain income.
A) buy 1 RIF put.
B) sell 1 RIF call.
C) sell 1 RIF put.
D) buy 1 RIF call.
Answer: D) buy 1 RIF call.
A) Selling a put.
B) Purchasing a put.
C) Purchasing a call.
D) Selling a call.
Answer: A) Selling a put.
A) To complete the other side of a spread.
B) Owning a long call on stock you already own offers a hedge against a market decline.
C) This would generate additional income.
D) To fix the cost of acquiring additional stock to the portfolio.
Answer: D) To fix the cost of acquiring additional stock to the portfolio.
A) the currency used is generally something other than the U.S. dollar.
B) its value is based on some underlying asset.
C) it can only be exercised on the expiration date.
D) intrinsic value does not affect the premium.
Answer: B) its value is based on some underlying asset.
A) REITs.
B) Forwards.
C) Futures.
D) LEAPs.
Answer: A) REITs.
A) swap.
B) hedge fund.
C) separate account.
D) derivative.
Answer: This is why the term is used - the value is derived from some other asset.
liquidity.
creditworthiness of the buyer.
lack of assurance that the delivery price will remain stable.
the location for the delivery may change.
A) I and IV.
B) II and III.
C) I and II.
D) III and IV.
Answer: C) I and II.
A) Sell a call.
B) Buy a call.
C) Buy a put.
D) Sell a put.
Answer: B) Buy a call.
A) Buy an XYZ 35 call.
B) Sell an XYZ 35 call.
C) Buy an XYZ 35 put.
D) Sell an XYZ 35 put.
Answer: A) Buy an XYZ 35 call.
A) maximum protection against loss.
B) income.
C) limited downside protection when long the underlying asset.
D) hedging.
Answer: A) maximum protection against loss.
leverage.
increased income.
unlimited potential gain.
protection against loss.
A) I, III and IV.
B) III and IV.
C) I and II.
D) I, II, III and IV.
Answer: A) I, III and IV.
A) buy a put.
B) buy a call.
C) enter a sell limit order.
D) enter a buy stop order.
Answer: A) buy a put.
A) shorting the same stock.
B) buying puts.
C) writing calls and selling puts.
D) buying calls.
Answer: B) buying puts.
A) buy S&P 500 index calls.
B) sell S&P 500 index calls.
C) sell S&P 500 index puts.
D) buy S&P 500 index puts.
Answer: D) buy S&P 500 index puts.
A) Financial.
B) Purchasing power.
C) Selection.
D) Systematic.
Answer: D) Systematic.
A) Writing 5 puts on the stock.
B) Writing 5 straddles.
C) Buying 5 puts on the stock.
D) Buying 5 calls on the stock.
Answer: C) Buying 5 puts on the stock.
A) Buying calls.
B) Writing naked puts.
C) Buying a put.
D) Writing naked calls.
Answer: D) Writing naked calls.
A) a variable contract.
B) a futures contract.
C) a call option.
D) a real estate investment trust (REIT).
Answer: C) a call option.
A) put option.
B) call option.
C) currency swap.
D) stock index future.
Answer: A) put option.
A) sell a call.
B) sell a put.
C) buy a call.
D) buy a put.
Answer: A) sell a call.
A) Forward contracts.
B) Futures contracts.
C) Options.
D) ETFs.
Answer: A) Forward contracts
A) write five puts on the RIF.
B) exercise his preemptive rights.
C) write five calls on the RIF.
D) buy five calls on the RIF.
Answer: C) write five calls on the RIF.
Buy calls.
Write calls.
Buy puts.
Write puts.
A) II or III.
B) II or IV.
C) I or IV.
D) I or III.
Answer: C) I or IV.
A) Warrant.
B) Unit investment trust.
C) Call option.
D) Futures contract.
Answer: B) Unit investment trust.
Forward contracts.
Futures contracts.
Hedge funds.
REITs
A) I, II, and III.
B) I, II and IV.
C) I and II.
D) I and IV.
Answer: C) I and II.
I. There are a limited number of outstanding shares.
II. They are traded on registered stock exchanges.
III. They trade at prices that are not dependent upon but close to their net asset value.
IV. Investors pay commissions to purchase and liquidate their positions.
A) I and IV.
B) II and III.
C) II and IV.
D) I and III.
Answer: C) II and IV.
They are redeemable securities.
They are priced by supply and demand.
They are designed to track an index.
They try to diversify within a particular industry.
A) I and III.
B) I and IV.
C) II and IV.
D) II and III.
Answer: D) II and III.
A) A share of an ETF represents an entire portfolio, or a specific selection, of securities.
B) Real time quotes are available for ETFs.
C) ETFs have a NAV, calculated at the end of the trading day, that serves as the trading price until the next NAV is calculated.
D) Selling short and trading on margin are available transactions with ETFs.
Answer: C) ETFs have a NAV, calculated at the end of the trading day, that serves as the trading price until the next NAV is calculated.
ETFs can be purchased throughout the trading day.
ETFs use forward pricing, as all mutual funds do.
real-time quotes are available for ETFs.
the NAV calculated at the end of the day, plus a sales charge, will equal the trading price.
A) I and III.
B) I and IV.
C) II and III.
D) II and IV.
Answer: A) I and III.
I. this is a good thing because now, with less money to invest, the fund's adviser is able to be more selective.
II. performance will probably suffer because the fund's adviser will have to sell positions prematurely in order to meet redemption requests.
III. this would be a good time to buy because the supply of shares exceeds the demand.
IV. many of the fund's expenses are relatively fixed so with fewer shares outstanding to share the cost, the expense ratio will probably increase.
A) II and III.
B) I and IV.
C) I and III.
D) II and IV.
Answer: When a fund has net redemptions, it means that less money is coming in than is going out. In order to meet those redemptions, the fund's manager will either have to sell securities that they planned to hold on to, or maintain more assets in cash (which generally will return less than other investments). As the number of outstanding shares is reduced, the fund's fixed expenses are borne by fewer shares leading to an increased expense ratio.
A) Exchange-traded fund.
B) Balanced mutual fund.
C) Variable annuity.
D) Hedge fund.
Answer: A) Exchange-traded fund.
A) Class A shares of a large-cap growth fund.
B) A no-load index mutual fund that mimics the S&P 500.
C) A fund of hedge funds.
D) An exchange traded fund (ETF) that mimics the S&P 500.
Answer: B) A no-load index mutual fund that mimics the S&P 500.
A) so that their ADRs may trade on U.S. stock exchanges.
B) because it is often difficult to liquidate the foreign securities to get their value into the U.S.
C) in order to comply with the Geneva Convention.
D) because of the ease of redemption.
Answer: B) because it is often difficult to liquidate the foreign securities to get their value into the U.S.
A) stay in this fund hoping for a recovery.
B) take advantage of the drop in value by purchasing additional shares at this lower price.
C) switch to a more conservative fund in the same fund family.
D) switch to a money market fund in the same fund family.
Answer: C) switch to a more conservative fund in the same fund family.
A) Within 120 days of the calendar year-end.
B) Within 90 days of the adviser's fiscal year-end.
C) Only when an action is pending against the adviser.
D) Within 90 days of the calendar year-end.
Answer: B
A) charge an annual fee equal to 1% of the first $250,000 in assets under management and 1/2% for all assets above that amount.
B) tell clients that the fee will be 5% of the profits that exceed a stated benchmark, but nothing if the benchmark is not reached.
C) charge $2,500 for developing a financial plan for a client.
D) charge an annual fee equal to 1% of assets under management.
Answer: B
A) A professional providing a market timing service with an annual subscription fee of $995; this service attempts to maximize profits by suggesting entry and exit points for over 100 listed stocks.
B) An investment adviser who has been admitted to the bar in the state in which the firm's principal office is located.
C) A firm whose exclusive business is placing clients' assets into model portfolios.
D) A financial planner offering a wide range of services to his clients, including tax planning, estate planning, insurance planning, and investment advice.
Answer: C
A) The analyst may communicate about the stock to clients and prospective clients only if he has disclosed personal or firm holdings of that security.
B) The analyst may not communicate about the stock to prospective clients but may discuss the stock with current clients.
C) The analyst may communicate about the stock and is not required to disclose any positions he or his firm holds in the stock.
D) The analyst may not communicate about the stock to any other parties.
Answer: A) The analyst may communicate about the stock to clients and prospective clients only if he has disclosed personal or firm holdings of that security.
A) wrap fees generally result in higher costs than separate charges for advice, management, and transactions.
B) wrap account managers will generally outperform index funds.
C) wrap fees always result in lower costs than separate charges for advice, management, and transactions.
D) wrap fees may result in higher costs than separate charges for advice, management, and transactions.
Answer: D
State registration is a requirement for federal registration.
An investment adviser must be registered with the SEC to be registered at the state level.
A) Both I and II.
B) II only.
C) Neither I nor II.
D) I only.
Answer: C) Neither I nor II.
I. to place an advertisement in a newspaper with photos of clients accompanied by statements claiming the adviser helped them meet their financial goals.
II.to advertise past, specific investment recommendations that were or would have been profitable, unless the advertisement fully disclosed all recommendations for at least the past year (including the security recommended, the date, price, and nature of the recommendation—buy, sell, or hold—the price triggering the recommendation, and the most recent price) and included a mandated cautionary legend that past performance is no assurance of future results.
III. to advertise any graph, chart, formula, or other device that consumers can use to determine when to make investment decisions while prominently disclosing the device's limitations and difficulties in its use.
IV. to offer a free subscription to the adviser's quarterly market review once the subscriber has completed a detailed financial profile.
A) I and IV.
B) III and IV.
C) I and II.
D) II and III.
Answer: A) I and IV.
A) on the departure or death of a majority shareholder of an investment advisory corporation, the advisory agreement must be renewed to prevent an unlawful assignment of the account.
B) the adviser, if a partnership, must notify the client of any change in the partnership's membership.
C) the investment adviser's compensation shall not be based on capital gains in client accounts.
D) no assignment of the investment advisory contract may be made without the client's consent.
Answer: A
Wrap fee disclosure documents must be filed with the Administrator.
Nonmaterial changes to wrap fee disclosure documents must be filed with the Administrator within 90 days of fiscal year end.
Amendments must be filed promptly with the Administrator if the disclosure document becomes inaccurate in any material way.
The disclosure document must contain the information required by Appendix 1 of Form ADV Part 2A.
A) I and III.
B) I, III and IV.
C) I only.
D) I, II, III and IV.
Answer: D
A) acceptable, provided the securities are used as collateral for the loan and the loan conforms to the provisions of Regulation T.
B) acceptable, provided the loan is made under the provisions of Regulation T of the Federal Reserve.
C) unethical.
D) acceptable, provided the securities are used as collateral for the loan.
Answer: C) unethical.
A) This provision is prohibited under all circumstances.
B) The client has received written disclosure of this provision and has signed a written acceptance prior to any transaction.
C) The client is a broker/dealer.
D) The client is purchasing government securities only.
Answer: A) This provision is prohibited under all circumstances.
A) Advisers may use the term only if their principal business is acting as an investment adviser and a substantial part of their business consists of providing continuous advice based on a client's individual needs.
B) Advisers may use the term without restriction as long as they are registered.
C) Advisers may use the term only if they are attorneys.
D) The use of the term is prohibited under any circumstances.
Answer: A) Advisers may use the term only if their principal business is acting as an investment adviser and a substantial part of their business consists of providing continuous advice based on a client's individual needs.
A) Proceed with the account, but make a supervisory person aware of this.
B) Proceed with the account; the signature is not required.
C) Don't do anything with the account until the customer's signature acknowledging receipt of the brochure is received.
D) Only unsolicited orders may be accepted until the signed receipt is received.
Answer: A
keep funds deposited in accounts containing only client funds.
be subject to a surprise audit performed at least annually by an independent accountant.
send clients' statements at least once every three months showing balances.
A) II and III.
B) I and II.
C) I, II and III.
D) I and III.
Answer: C) I, II and III.
A) only the services and fees of the program.
B) at least the information required by Appendix 1 of Form ADV Part 2A, but not if another adviser has already furnished such a statement on the program to the client.
C) at least the information required by Appendix 1 of Form ADV Part 2A, even if another adviser has already furnished such a statement on the program to the client.
D) at least the information in Form ADV Part 2A.
Answer: B
A) must register for the first time with the state Administrator.
B) must update his registration with the state Administrator.
C) is not required to take any action.
D) must register with the SEC.
Answer: D
the use of testimonials.
reference only to specific past recommendations.
untrue statements.
A) I, II and III.
B) I only.
C) III only.
D) I and III.
Answer: A) I, II and III.
prohibit assignment of the contract without the client's consent.
contain information on the adviser's performance for at least the most recent 12-month period.
describe the amount of any prepaid fee that will be returned to the client in the event the contract is terminated.
A) I and III.
B) I, II and III.
C) II and III.
D) I and II.
Answer: A
makes advice his principal activity.
makes advice his regular activity.
is compensated directly for advice.
is compensated directly or indirectly for advice.
A) II and III.
B) I and IV.
C) I and III.
D) II and IV.
Answer: D
It represents a loan by the holder to the issuer.
It is a certificate of ownership in the corporation.
It is commonly issued to raise working capital for a corporation.
It is junior in preference to convertible preferred stock.
A) II and III.
B) II and IV.
C) I and III.
D) I and IV.
Answer: C) I and III.
A) limited partnership in rental real estate.
B) U.S. treasury notes.
C) bank insured CDs.
D) NYSE listed common stock.
Answer: B) U.S. treasury notes.
Minimum face value of $100,000.
Maturities rarely extend beyond 360 days.
May be sold on the secondary market.
A) I and III.
B) II and III.
C) I, II and III.
D) I and II.
Answer: C) I, II and III.
A) they usually have maturities of less than 1 year.
B) they are secured obligations of the issuing bank.
C) they are usually issued in denominations of $100,000 to $1 million.
D) they are readily marketable.
Answer: B) they are secured obligations of the issuing bank.
Backed by money market deposits.
Negotiated maturities and yields.
Issued by commercial banks.
Not registered with the SEC.
A) I and II.
B) I and III.
C) III and IV.
D) II and IV.
Answer: D) II and IV.
A) short-term debt.
B) intermediate debt.
C) long-term equity.
D) long-term debt.
Answer: A) short-term debt.
I. Issued in amounts of $100,000 to $1 million.
II. Typically pay interest on a monthly basis.
III. Always mature in 1 to 2 years.
IV. Trade in the secondary market.
A) II and IV.
B) I and IV.
C) I and III.
D) II and III.
Answer: B) I and IV.
A) $25,000.00
B) $50,000.00
C) $100,000.00
D) $10,000.00
Answer: C
A) Treasury notes.
B) Preferred stock in a growth company.
C) Common stock in an electric utility.
D) Treasury STRIPS/zero-coupon bonds.
Answer: Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) are zero-coupon bonds paying no interest. Thus, there is no income to reinvest during the holding period and therefore no reinvestment risk.
A) Treasury bills.
B) jumbo (negotiable) CDs.
C) commercial paper.
D) newly issued Treasury notes.
Answer: D) newly issued Treasury notes.
American depositary receipts.
Commercial paper.
Corporate bonds.
Jumbo (negotiable) certificates of deposit.
A) I and III.
B) I and II.
C) II and IV.
D) III and IV.
Answer: A) I and III.
A) Commercial paper.
B) Treasury bills.
C) Banker's acceptances.
D) Newly issued Treasury notes.
Answer: D) Newly issued Treasury notes.
A) Municipal bonds.
B) Treasury bills.
C) Zero-coupon Treasury bonds.
D) Investment-grade corporate bonds.
Answer: C) Zero-coupon Treasury bonds.
Interest is paid semiannually.
The discount is in lieu of periodic interest payments.
The discount must be accreted and is taxed annually.
The discount must be accreted annually with taxation deferred until maturity.
A) II and III.
B) I and III.
C) I and IV.
D) II and IV.
Answer: A) II and III.
A) Corporate bond fund.
B) AA corporate bond with 7 years to maturity.
C) Zero-coupon bond with 15 years to maturity.
D) Zero-coupon bond with 5 years to maturity.
Answer: C) Zero-coupon bond with 15 years to maturity.
The investor is 65 years old and needs the reliability of current income.
The investor is 45 years old and has purchased these in an IRA rollover account and wants the assurance of funds for retirement.
The investor is 30 years old and has a newborn child and wishes to assure funds for a college education.
The investor is 20 years old, has just received an inheritance, and wishes to shelter income for as long as possible.
A) I and IV.
B) III and IV.
C) II and III.
D) I and II.
Answer: C) II and III.
Zero-coupon bonds are sold at a deep discount from face value.
Zero-coupon bonds pay periodic interest payments.
The owner of a zero-coupon bond receives his return only at maturity.
A) I and III.
B) I and II.
C) II and III.
D) I, II and III.
Answer: A) I and III.
Common stock.
Cumulative preferred stock.
Money market mutual funds.
TIPS.
A) II and III.
B) III and IV.
C) I and IV.
D) I and II.
Answer: C) I and IV.
A) Treasury bills.
B) Treasury notes.
C) Treasury bonds.
D) TIPS.
Answer: A) Treasury bills.
A) $300 is considered a return of principal.
B) $300 is taxed as ordinary income.
C) $300 is taxed as long-term capital gain.
D) The investors cost basis has been reduced to $9,700.
Answer: B) $300 is taxed as ordinary income.
A) the minimum initial investment is $25,000.
B) investors own an undivided interest in a pool of mortgages.
C) GNMAs are considered to be the riskiest of the agency issues.
D) investors receive a monthly check representing both interest and a return of principal.
Answer: C) GNMAs are considered to be the riskiest of the agency issues.
A) semiannually.
B) annually.
C) monthly.
D) quarterly.
Answer: C) monthly.
A) an investment grade corporate bond.
B) a high-yield corporate bond.
C) secured.
D) callable.
Answer: A) an investment grade corporate bond.
A) High-yield corporate bonds.
B) Convertible senior debentures.
C) Municipal revenue bonds.
D) Municipal general obligation bonds.
Answer: D) Municipal general obligation bonds.
A) The interest on municipal bonds is usually not subject to federal income tax.
B) Municipal bonds generally carry lower coupon rates than corporate bonds of the same quality.
C) Municipal bonds are generally considered riskier than corporate bonds.
D) Municipal bonds are bonds issued by governmental units at levels other than the federal.
Answer: C) Municipal bonds are generally considered riskier than corporate bonds.
Common stock.
Cumulative preferred stock.
Money market mutual funds.
TIPS.
A) I and II.
B) II and III.
C) III and IV.
D) I and IV.
Answer: D) I and IV.
A) The securities of the issuing company.
B) The mortgages and real estate of the issuing company.
C) The assets of a company other than the issuing company.
D) The assets of the issuing company.
Answer: D) The assets of the issuing company.
A) Aaa/AAA rated debentures.
B) Junior lien mortgage bonds.
C) Collateral trust certificates.
D) Equipment trust certificates.
Answer: A) Aaa/AAA rated debentures.
A) exchange-listed warrants.
B) corporate AA debentures.
C) common stock.
D) equity options.
Answer: B) corporate AA debentures.
They are secured by a specific pledge of property.
They are a type of general obligation bond.
Generally, their interest is tax-exempt at the federal level.
They are analyzed primarily on the project's ability to generate earnings.
A) I and III.
B) II and IV.
C) III and IV.
D) I and II.
Answer: D) I and II.
They are certificates of indebtedness.
They give the bondholder ownership in the corporation.
They are unsecured bonds issued to finance capital expenditures or to raise working capital.
They are the most senior security a corporation can issue.
A) III and IV.
B) I and III.
C) I and II.
D) II and IV.
Answer: B) I and III.
A) consolidated mortgages.
B) convertible.
C) debentures.
D) participating.
Answer: C) debentures.
A) bonds and similar fixed-rate securities are guaranteed by SIPC.
B) the par value of bonds is generally higher than that of stock.
C) if there is a shortage of cash, dividends are paid before interest.
D) bonds place the issuer under an obligation but stock does not.
Answer: D) bonds place the issuer under an obligation but stock does not.
A) after the preferred stockholders receive their dividends, but before the common stockholders are paid.
B) after the common stockholders are paid, but before the preferred stockholders are paid.
C) at any time determined by the board of directors.
D) before both the preferred and the common stockholders are paid.
Answer: D) before both the preferred and the common stockholders are paid.
Holders of secured debt.
Holders of subordinated debentures.
General creditors.
Preferred stockholders.
A) I, II, III, IV.
B) III, I, II, IV.
C) IV, I, II, III.
D) I, III, II, IV.
Answer: D) I, III, II, IV.
A) JKL Municipal Bond Fund.
B) DEF High Yield Bond Fund.
C) ABC Growth and Income Fund.
D) GHI Index Fund.
Answer: B) DEF High Yield Bond Fund.
common stockholders.
debenture holders.
preferred stockholders.
secured creditors.
A) III, IV, II, I.
B) IV, III, II, I.
C) I, II, III, IV.
D) IV, II, III, I.
Answer: D) IV, II, III, I.
prior claim over common stockholders.
prior claim over preferred stockholders.
prior claim over general creditors.
prior claim over secured creditors.
A) II and IV.
B) III and IV.
C) I and II.
D) I and III.
Answer: C) I and II.
A) preferred stock.
B) corporate zero-coupon bonds.
C) common stock.
D) debentures.
Answer: B) corporate zero-coupon bonds.
A) $17.50.
B) $35.00.
C) $42.66.
D) $21.33.
Answer: The semiannual interest of a TIPS bond is computed on the basis of the inflation-adjusted principal. Because the principal increases with the inflation rate, at the end of the 5-year term, it has grown to $1,219 ($1,000 × 102% ten times). Therefore, the final interest check is for $1,219 × 1.75% (remember it is a semiannual check).
A) 15-year 8% bond trading on an 8.10 basis.
B) 15-year 7% bond trading at par.
C) 15-year zero coupon bond trading on a 7.60 basis.
D) 15-year 8% bond trading on a 7.90 basis.
Answer: C) 15-year zero coupon bond trading on a 7.60 basis.
A) U.S. treasury bonds.
B) gold.
C) commercial real estate.
D) common stock.
Answer: A) U.S. treasury bonds.
A) Public utility stock paying liberal dividends.
B) Treasury bills.
C) Large-cap stock.
D) Growth stock.
Answer: B) Treasury bills.
A) $1,000.
B) $1,200.
C) $1,440.
D) $1,219.
A) the quality of the mortgages.
B) whether there is a real estate "bubble."
C) current tax rates.
D) the average maturities.
Answer: D) the average maturities.
A) Zero-coupon bond.
B) Bank CD.
C) Commercial paper.
D) Treasury Bill.
Answer: B) Bank CD.
A) A simple trust is required to distribute all of its income in the year earned.
B) A complex trust is required to distribute all of its income in the year earned.
C) A simple trust may distribute principal during the year.
D) A complex trust may only distribute principal during the year in which the trust terminates.
Answer: A) A simple trust is required to distribute all of its income in the year earned.
A) educational background.
B) age.
C) annual income.
D) investment experience.
Answer: A) educational background.
A) Distribute part of the income to Floyd.
B) Follow the trust terms, continuing to distribute the income to Alvin and the principal to Floyd upon Alvin's death.
C) Distribute part of the principal to Floyd.
D) Distribute all of the principal to Floyd.
Answer: B) Follow the trust terms, continuing to distribute the income to Alvin and the principal to Floyd upon Alvin's death.
A) The trustee must notify the son each time an income distribution is made to the father.
B) The trustee does not need to keep records of the income distribution to the father.
C) The trustee can withhold income distributions to the father to preserve principal to the son.
D) The trustee is not required to notify the son when an income distribution is made to the father.
Answer: D) The trustee is not required to notify the son when an income distribution is made to the father.
Creditors have the very limited recourse rights to the owners.
They may not be nonresident aliens.
They both are considered stockholders.
Both are taxable as flow-through entities.
A) II and IV.
B) I and IV.
C) I and III.
D) II and III.
Answer: B) I and IV.
An account opened in the name of the XYZ Corporation, organized as a C corporation, by their chief investment officer.
An account opened by a sole proprietor in the name of the company.
An account opened in the name of ABC Corporation, an S corporation by one of its shareholders.
An account opened in the name of the GHI fund, a Regulated investment company, by the fund's portfolio manager.
A) I and IV.
B) III and IV.
C) II and III.
D) I and II.
Answer: C) II and III.
A) C corporation.
B) S corporation.
C) Limited partnership.
D) General partnership.
Answer: C) Limited partnership.
A) a joint tenancy account with right of survivorship.
B) a joint tenancy account with right of survivorship and execute a transfer on death (TOD) registration form.
C) individual accounts in the name of each daughter.
D) a tenants in common account.
Answer: B) a joint tenancy account with right of survivorship and execute a transfer on death (TOD) registration form.
A) The original value plus any appreciation passes to the beneficiaries, but is subject to gift tax.
B) The original value plus any appreciation passes to the beneficiaries and is taxed as ordinary income.
C) No tax is due if the grantor should die during the term of the trust.
D) The original value plus any appreciation is taxed as part of the grantor's estate.
Answer: D) The original value plus any appreciation is taxed as part of the grantor's estate.
A) Charitable lead trust.
B) Complex trust.
C) Simple trust.
D) Charitable remainder trust.
Answer: B) Complex trust.
A) $6,500.
B) $1,500.
C) $4,500.
D) $10,000.
Answer: A) $6,500
A) C corporation.
B) S corporation.
C) general partnership.
D) proprietorship.
Answer: A) C corporation.
A) A limited liability company (LLC).
B) An S corporation.
C) A general partnership.
D) A sole proprietorship.
Answer: C) A general partnership.
S corporation status offers greater opportunity for raising additional capital than do other forms of business structure.
Stockholders of S corporations are taxed on the net profits of the corporation, even if they do not receive taxable dividends.
An S corporation may have no more than 50 shareholders.
An S corporation may have only one class of stock.
A) I and III.
B) III and IV.
C) II and IV.
D) I and II.
Answer: D) II and IV.
150 new investors buy into the corporation during the year.
1 new member is a nonresident alien.
50% of the corporation's income is derived from passive investments in limited partnerships.
The corporation issues several classes of stock.
A) I, II, III and IV.
B) I only.
C) I and II.
D) I, II and III.
Answer: A) I, II, III and IV.
I. expected returns of the recommended strategy and the expected range of these returns.
II. recommended allocations among differing asset classes.
III. strategies used for selecting specific stocks in the equity portion of the portfolio.
IV. disclosure of the fees that the adviser will earn for implementing the recommended strategy.
A) II, III and IV.
B) I, II and III.
C) I only.
D) I and II.
Answer: B) I, II and III.
A) The spouse would own all the shares.
B) One-half of the shares would belong to the spouse, and the remaining half would be distributed to the customer's estate.
C) Ownership of the shares must be determined by probate court.
D) The account would be frozen until the estate was settled.
Answer: A) The spouse would own all the shares.
A) limited lifetime.
B) flow-through tax treatment.
C) unlimited personal liability.
D) more than 100 shareholders.
Answer: B) flow-through tax treatment.
A) To the beneficiaries.
B) Deferred until the termination of the trust.
C) Only to the extent that the actual earnings exceed the amount of the annuity payout.
D) To the grantor.
Answer: D) To the grantor.
General partnership.
Sole proprietorship.
S corporation.
C corporation.
A) III and IV.
B) I and II.
C) I only.
D) II and III.
Answer: B) I and II.
A) the two survivors continue as co-tenants with the decedent's estate.
B) the account must be liquidated and the proceeds split evenly between the two survivors and the decedent's estate.
C) trading is discontinued until the executor names a replacement for the deceased.
D) account is converted to joint tenants with rights of survivorship.
Answer: A) the two survivors continue as co-tenants with the decedent's estate.
A) trustee.
B) nontrustee custodian.
C) investment adviser representative.
D) beneficiary.
Answer: A) trustee.
A) orders may be entered by either party.
B) mail may be directed to the joint owner agreed upon by both parties to the account.
C) in the event of death, the other party assumes full ownership of the account.
D) stock certificates may be delivered in the name of either party.
Answer: D) stock certificates may be delivered in the name of either party.
A) checks may be drawn in the name of either party.
B) orders may be given by either party.
C) mail may be sent to either party (with the permission of each party).
D) in the event of death, the decedent's interest in the account goes to the other party.
Answer: A) checks may be drawn in the name of either party.
A) estate's executor or administrator.
B) investment adviser.
C) general estate creditors.
D) attorney with guardianship over the surviving children.
Answer: A) estate's executor or administrator.
A) Ability to retain and reinvest earnings in a growing business.
B) Avoid the double taxation of dividends.
C) Ability to enjoy corporate tax rates.
D) Enjoy the same legal status of a general partner in a partnership.
Answer: B) Avoid the double taxation of dividends.
A) Double taxation of dividends.
B) Limited liability.
C) Retains and reinvests earnings.
D) Generally not liable for federal income tax.
Answer: D) Generally not liable for federal income tax.
A) an insurance company.
B) traded on major exchanges.
C) a company with tax consequences similar to a partnership.
D) a limited partnership.
Answer: C) a company with tax consequences similar to a partnership.
A) the individual with the highest net worth.
B) any two of the three individuals.
C) all three individuals.
D) the individual granted trading authority.
Answer: C) all three individuals.
A) Two spouses.
B) Three sisters.
C) Business colleagues.
D) Parent and a minor.
Answer: D) Parent and a minor.
Lee and his 13-year-old son, Tom.
Mary and Kelley, two adult college roommates.
Jerry and Mark, friends and partners in business for more than 20 years.
Melinda and her minor nephew, John, for whom she is guardian.
A) I and III.
B) I and IV.
C) II and IV.
D) II and III.
Answer: D) II and III.
A) Buying securities in a joint account at the request of one party only.
B) Selling securities from a corporate account by using limited power of attorney trading authority for the account.
C) Selling securities from a minor's custodial account without the custodian's consent but with the beneficial owner's consent.
D) Buying securities in a cash account with the consent of the customer.
Answer: C) Selling securities from a minor's custodial account without the custodian's consent but with the beneficial owner's consent.
A) It is permitted if the fiduciary shares in the profits or losses.
B) It is permitted if provided for in the underlying documentation.
C) It is not permitted.
D) It is permitted if the fiduciary observes the prudent investor rule.
Answer: B) It is permitted if provided for in the underlying documentation.
A) the person with trading authority for the account.
B) the person whose Social Security number is on the account.
C) all persons who jointly own the account.
D) the person with the greatest capital contribution.
Answer: C) all persons who jointly own the account.
A) A market order.
B) An all or none order.
C) A discretionary order.
D) A limit order.
Answer: D) A limit order.
A) 60
B) 61
C) 60.06
D) 59.95
Answer: C) 60.06
A) a subscriber to the Nasdaq system.
B) a broker/dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market.
C) a broker/dealer who stands ready to buy or sell at least the standard unit of a specific stock traded on a listed exchange.
D) an investment banker who participates in a firm underwriting.
Answer: B) a broker/dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market.
A) Market maker.
B) Floor broker.
C) Arbitrageur.
D) Specialist.
Answer: D) Specialist.
A) premium.
B) yield to maturity.
C) bid price.
D) offer price.
Answer: C) bid price.
A) buy stop order.
B) buy limit order.
C) market order.
D) buy stop limit order.
Answer: D) buy stop limit order.
A buy stop limit.
A buy limit.
A sell stop.
A sell limit.
A) I and III.
B) II and III.
C) II and IV.
D) I and II.
Answer: D) I and II.
A) Buy stop.
B) Sell stop.
C) Buy limit.
D) Sell limit.
Answer: A) Buy stop.
A) A sell limit at 88.
B) A buy stop at 88.
C) A buy limit at 85.
D) A sell stop at 70.
Answer: B) A buy stop at 88.
A) A sell stop.
B) A buy stop.
C) A sell short.
D) A buy limit.
Answer: B) A buy stop.
A) A buy, immediate or cancel.
B) A buy, fill or kill.
C) A buy stop.
D) A buy limit.
Answer: C) A buy stop.
A) protect a short position.
B) offer a security at the market price.
C) give the broker/dealer discretion regarding time and price.
D) protect a long position.
Answer: C) give the broker/dealer discretion regarding time and price.
A) to acquire a long position as a stock breaks through resistance.
B) to protect against loss in a short position.
C) to protect a profit in a long position.
D) to protect a profit in a short position.
Answer: C) to protect a profit in a long position.
A) If the market price goes to or above 25.50.
B) If the market price goes below 25.50.
C) The order need not be triggered, but it must be executed at 25.50.
D) This order cannot be executed.
Answer: A) If the market price goes to or above 25.50.
Which of the following statements about stop orders are TRUE?
A stop order will become a market order once a security trades at a specific price.
A sell stop order is always placed at a price that is below the current market price.
A stop order to buy is always set at a price that is higher than the current market price.
A) I and III.
B) II and III.
C) I, II and III.
D) I and II.
Answer: C) I, II and III.
To protect the profit on a long position.
To prevent loss in a short position.
To buy at a specific price guaranteed by a specialist.
To lock in a price with the specialist.
A) I and III.
B) II and III.
C) II and IV.
D) I and II.
Answer: D) I and II.
A) To cut losses on a long position.
B) To benefit from a rise in the price of the stock.
C) To seek a modest potential reward with limited risk.
D) To benefit from a decline in the price of the stock.
Answer: D) To benefit from a decline in the price of the stock.
A) The customer may reject the incomplete order unless the broker/dealer can guarantee filling the remainder by the end of the day.
B) The customer may reject the incomplete order unless the remainder can be filled within 3 business days.
C) The customer may demand that the firm deliver the remaining shares at 24.35.
D) The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close.
Answer: D) The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close.
In a short sale, an investor sells securities she does not own.
Risks can be minimized by confining short sales to cash accounts rather than margin accounts.
In a short sale, an investor hopes that the price of a security will go down.
A) II and III.
B) I, II and III.
C) I and III.
D) I and II.
Answer: C) I and III.
A) Sell short exempt 100 XYZ at market.
B) Buy 100 XYZ at 76 stop; cancel buy 100 at 82.50 stop GTC.
C) Buy 100 XYZ at market; cancel buy 100 at 82.50 stop GTC.
D) Sell 100 XYZ at market.
Answer: C) Buy 100 XYZ at market; cancel buy 100 at 82.50 stop GTC.
A) limit order.
B) stop order.
C) market order.
D) short order.
Answer: C) market order.
A) highest offer.
B) lowest offer.
C) highest bid.
D) lowest bid.
Answer: C) highest bid.
A) A market not held order allows the floor broker to use his judgment as to price and timing of the transaction.
B) An all-or-none order must be filled in full but not immediately.
C) A fill-or-kill order must be executed immediately and the remainder of the shares not sold or purchased is canceled.
D) An immediate-or-cancel order must be executed immediately and the remainder of the shares left unsold, or not purchased, are canceled.
Answer: C) A fill-or-kill order must be executed immediately and the remainder of the shares not sold or purchased is canceled.
The bid price is the price a dealer is willing to pay to buy a security.
The asked price is the price a dealer is willing to accept to sell a security.
The bid price for a security is higher than the asked price for the security.
A) I and III.
B) II and III.
C) I, II and III.
D) I and II.
Answer: D) I and II.
A) negotiation.
B) the five percent markup policy.
C) an auction.
D) a competitive bid.
Answer: A) negotiation.
A) a marketplace to bring together buyers and sellers of securities.
B) a security in high demand.
C) any person who buys and sells securities for his own account or for the accounts of others.
D) a dealer who holds itself out as being ready at all times to buy or sell shares of a specified security at a quoted price.
Answer: D) a dealer who holds itself out as being ready at all times to buy or sell shares of a specified security at a quoted price.
A) agent whose clients are institutions.
B) person who buys and sells securities for her own account or for the accounts of others.
C) agent for the issuer.
D) dealer who, with respect to a security, holds himself out as being willing to buy and sell that security for his own account on a regular or continuous basis.
Answer: D) dealer who, with respect to a security, holds himself out as being willing to buy and sell that security for his own account on a regular or continuous basis.
A) preferred stocks.
B) new issues.
C) common stock.
D) municipal bonds.
Answer: B) new issues.
A) Any stock can be listed on any exchange.
B) A securities exchange market is an auction market in which prices are established by auction.
C) A securities exchange market is one in which prices are established by negotiations between buyers and sellers.
D) A stock exchange buys and sells stocks itself.
Answer: B) A securities exchange market is an auction market in which prices are established by auction.
A) two-dollar broker.
B) specialist.
C) Nasdaq market maker.
D) trading supervisor.
Answer: B) specialist.
A) trader who makes a market in OTC stocks and ADRs.
B) floor broker on the New York Stock Exchange who only executes trades for other brokers in return for commissions.
C) electronic brokerage concern that executes trades online and through specialized trading order executing services.
D) dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks.
Answer: D) dealer on the New York Stock Exchange who executes orders for other brokers and who also acts as a market maker with the responsibility of keeping an orderly market in designated stocks.
A) arbitrage.
B) a block trade.
C) churning.
D) front running.
Answer: B) a block trade
Partners of the broker/dealer are trading in their personal accounts.
The broker/dealer is trading from its inventory with customers.
The broker/dealer must disclose its capacity as a principal in the transaction.
The broker/dealer must disclose its capacity as agent in the transaction.
A) I and III.
B) I and IV.
C) III and IV.
D) II and III.
Answer: D) II and III.
A) subject to a 10% penalty unless annuitized.
B) subject to the required minimum distribution rules.
C) taxed as ordinary income.
D) taxed as capital gain.
Answer: C) taxed as ordinary income.
A) a product very similar to a mutual fund, but with lower costs and expenses.
B) the insurance company's backing of the annuity' performance.
C) the opportunity to invest in equity securities on a tax-deferred basis.
D) lifetime income guaranteed never to drop below the initial rate.
Answer: C) the opportunity to invest in equity securities on a tax-deferred basis.
A) lower overall expenses than a mutual fund with similar investment objectives.
B) tax deferral on earnings until withdrawn from the account.
C) the choice of a large number different sub-accounts with varying objectives.
D) the ability to transfer funds between sub-accounts without incurring a tax liability under IRS Code section 1035.
Answer: A) lower overall expenses than a mutual fund with similar investment objectives.
A) The principal amount at death is the greater of the total of premium payments or the current market value.
B) Upon death, the beneficiary has a choice of settlement options.
C) If death should occur prior to age 59½, the 10% early withdrawal penalty does not apply.
D) Upon death, the proceeds pass to the beneficiary free of federal income tax.
Answer: A) The principal amount at death is the greater of the total of premium payments or the current market value.
he will not be able to exercise any options to purchase additional insurance as his health has deteriorated to such a severe level.
the new policy will bear the same issue date and age as the original policy.
the face amount must remain the same.
the premium will be rated as his health has taken a marked turn for the worse.
A) II and III.
B) I and IV.
C) I, II, III and IV.
D) II, III and IV.
Answer: A) II and III.
A) the policy owner has the right to change the selection of sub-accounts.
B) premiums are determined based upon age and sex of the insured.
C) once selected, the policy owner may change payment modes.
D) better than anticipated results in the separate account could lead to a reduction in annual premium.
Answer: D) better than anticipated results in the separate account could lead to a reduction in annual premium.
A) Ordinary income tax is due on $21,000.
B) There is a long-term capital gain of $1,000.
C) Ordinary income tax is due on the $1,000. that exceeds the original cost.
D) No tax is due.
Answer: D) No tax is due.
A) The universal life policy will generally outperform the variable life policy during a period of falling interest rates and rising stock prices.
B) There is a greater choice of separate account sub-accounts in the variable life policy.
C) There is a minimum guaranteed return on the universal life while there is no guaranteed return on the variable.
D) There is a minimum guaranteed death benefit in the variable life while no such minimum applies to a universal life policy.
Answer: D) There is a minimum guaranteed death benefit in the variable life while no such minimum applies to a universal life policy.
A) I and IV.
B) II and IV.
C) II and III.
D) I and III.
Answer: C) II and III.
A) 125%
B) 75%
C) 90%
D) 100%
Answer: B
A) 45 days.
B) 12 months.
C) 18 months.
D) 24 months.
Answer: D) 24 months.
A) variable annuity.
B) mutual fund shares.
C) term insurance policy.
D) whole life policy.
Answer: D) whole life policy.
A) Within the first 18 months, the insured may exchange the VLI policy for either a whole life or universal variable policy, issued by the same company, with no additional evidence of insurability.
B) The insured may request that the insurance company exchange the VLI policy for a traditional whole life policy, issued by the same company, within two years. The insurance company retains the right to have medical examinations for underwriting purposes.
C) Federal law requires the insurance company to allow the insured to exchange the VLI policy for a traditional whole life policy, issued by the same company, for two years, with no additional evidence of insurability.
D) The insurance company will allow the insured to exchange the VLI policy for a traditional whole life policy within 45 days from the date of the application or 10 days from policy delivery, whichever is longer.
Answer: C) Federal law requires the insurance company to allow the insured to exchange the VLI policy for a traditional whole life policy, issued by the same company, for two years, with no additional evidence of insurability.
a minimum cash value is guaranteed.
a minimum death benefit is guaranteed.
all sales charges must be addressed in the prospectus.
the money must only be invested in investment grade debt securities.
A) II and III.
B) I and III.
C) I and IV.
D) II and IV.
Answer: A) II and III.
Income earned in the separate account is tax deferred.
Separate account performance below the AIR causes a reduction in cash value.
Fixed contributions are required.
Contract owners have voting rights.
A) III and IV.
B) I and IV.
C) I and II.
D) II and III.
Answer: B) I and IV.
A) Unit values are computed daily and cash values are computed monthly.
B) Unit values are computed monthly and cash values are computed daily.
C) Unit values are computed weekly and cash values are computed monthly.
D) Unit values are computed monthly and cash values are computed weekly.
Answer: A) Unit values are computed daily and cash values are computed monthly.
A) annually.
B) weekly.
C) monthly.
D) semiannually.
Answer: A) annually.
A) There are no guarantees.
B) The death benefit.
C) The cash value.
D) The maturity value.
Answer: B) The death benefit.
A) to 50% of the original face value.
B) to the original face value.
C) to 0.
D) to 25% of the original face value.
Answer: B) to the original face value.
A) exchange life.
B) variable life.
C) installment life.
D) equity life.
Answer: B) variable life.
I. Variable life insurance has a minimum guaranteed death benefit, whereas universal variable life insurance does not.
II. Universal variable life insurance typically provides a higher death benefit than variable life insurance.
III. Variable life insurance provides no inflation protection for the death benefit, whereas universal variable life insurance does.
IV. Variable life insurance requires scheduled premium payments, whereas universal variable life insurance permits flexible premium payments.
A) I and II.
B) II and III.
C) III and IV.
D) I and IV.
Answer: D) I and IV.
A) 9%.
B) 8.5% per premium payment.
C) 9% per premium payment.
D) 8.5% of total premiums over the life of the plan.
Answer: A) 9%.
A) the flexible premium policy because the contract's face amount cannot be less than a predetermined percentage of cash value.
B) the scheduled premium policy because the contract is issued with a minimum guaranteed face amount.
C) the flexible premium policy because earnings of the contract directly affect the face value of the policy and earnings can never be negative.
D) the scheduled premium policy because earnings do not affect the contract's face amount.
Answer: B) the scheduled premium policy because the contract is issued with a minimum guaranteed face amount.
I. Timing and amount of premiums generally are discretionary.
II. The death benefit will generally be higher than that of a comparable whole life policy.
III. The face amount is fixed at the beginning of the contract.
IV. The performance of the separate account directly affects the policy's cash value.
A) I and IV.
B) I and III.
C) II and III.
D) II and IV.
Answer: A) I and IV.
A) whole life insurance with the option of purchasing additional coverage.
B) an aggressive, long-term strategy of investment in small-cap stocks.
C) variable life insurance.
D) term life insurance.
Answer: C) variable life insurance.