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Series 66 Exam Questions And 100% Correct
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Which of the following would NOT be an unethical business practice of a broker -dealer?
- ANSWER Effecting a transaction in a security for a customer for the purpose of acting as agent for both buyer and seller.
Jerry is a successful divorce attorney in your community. He tells you that due to a favor you have done for him relating to one of his cases, he would like to send brokerage business to your firm. However, he wants you to send him duplicate confirmations and statements on all clients he sends to you. What would you do? - ANSWER You may not send duplicate statements unless you obtain written consent from each client
What do theta and gamma measure? - ANSWER The volatility of the intrinsic value and time value of an option's premium.
If a portfolio manger is focused on keeping a clients assigned asset allocation properly balanced over a long period of time, she is using a: - ANSWER Strategic asset allocation strategy
If an agent recommends a leveraged ETF to a client, it should be made clear that: - ANSWER It will not reflect appropriate tracking of the underlying index over extended periods because of the portfolio's daily rebalancing
Because the underlying portfolio of an ETF gets reset at the end of each day, the price moves reflect only a percentage value for one single day. This means that a leveraged ETF does not track the performance of the underlying index over longer periods very well. Remember, buying a leveraged ETF on margin increases leveraging; it doesn't decrease it. Because of this daily resetting feature, leveraged ETFs are not considered suitable long-term investments.
Under the Securities Exchange Act of 1934, which of the following is NOT required to appear on the confirmation for a bond trade? ANSWER Disclosure of the bond's rating
Although a bond's rating does not have to be shown on a confirmation, if a bond is unrated, that fact does have to be disclosed. A bond's price and its yield-to-maturity at the time of trade does have to be disclosed on a confirmation.
From modern portfolio theory (MPT), the expected return of an investment is the: - ANSWER Possible returns on the investment weighted by the likelihood that return will occur
A portfolio has an alpha of 0%, a beta of 1.0, and an actual return of 12%. What would the alpha of the portfolio be if the beta was 0.9 and the actual return was 10.6%? - ANSWER -0.20%
12% x.9 = 10.8 % expected return. 10.8% - 10.6% =. 20 %
semi-strong form efficiency - ANSWER All public information, including historical data, is reflected in securities prices
Net Present Value (NPV)-ANSWER the sum of the present values of expected future cash flows from an investment, minus the cost of that investment
Negative = bad
Positive = good
0=expected return
If a portfolio manager has a diversified portfolio of large-cap stocks, it would use index options to reduce which of the following risks?-ANSWER systematic risk
Which of the following statements is TRUE about the annual renewal of an investment advisor? - ANSWER Form ADV is filed with the SEC within 90 days of a federal covered advisers fiscal year end, or within 90 days of the calendar year end.
Dollar Weighted Return/ money weighted return - ANSWER the internal rate of return on an investment
A broker-dealer is registered in state A and is wholly owned by a publicly traded bank
losses on the stock portfolio.
if net present value of an investment is > 0: - ANSWER The current market value is < the discounted cash flows
Which of the following events would increase a partner's basis in a limited partnership? - ANSWER Assessment
According to the Capital Asset Pricing Model (CAPM), all of the following statements are true, Except: - ANSWER Given a choice of two investments that offer the same return, investors will choose the investment with more variability.
Under the NASAA Recordkeeping Requirements for Investment Adviser Model Rule an IA must maintain a record of the names and addresses of any person to whom it has sent any notice, circular, advertisement, offering, report or publication if the number of persons is: - ANSWER 10 or fewer
An investment adviser shall maintain a record of the names and addresses of all persons to whom it has transmitted any notice, circular, advertisement, offering, report or publication, if such persons are 10 or fewer in number. Therefore, if an IA distributes communication to more than 10 persons, it is not obliged to keep in a record of names and addresses of the persons it was sent to. The belief is that it may be too burdensome for an IA to keep a long list of the names and addresses if the communication is going to more than 10 persons. Remember, any communication that is sent to two or more persons is advertising.
Fundamental analysis involves evaluating: - ANSWER Financial statements,
Which of the following is a disadvantage of a non-qualified deferred compensation plan?
- ANSWER Deferred compensation is not deductible to the employer
A registered investment adviser can only represent insurance companies as clients. If the adviser has its only office in state, a, with whom must it register? - ANSWER With state a under the uniform securities act, but not with the SEC under the investment
advisor act of 1940
Which of the following MAY be included in an investment advisory contract? - ANSWER A statement providing that the IA promises to perform relative to a benchmark, and if that benchmark is not achieved, the IA will forfeit its fee for that year
Which of the following is considered a measure of risk under model modern portfolio theory? - ANSWER Standard deviation
Under modern portfolio theory, an investment's risk is quantifiable by its standard deviation of its return from its expected return. The capital asset pricing model quantifies diversifiable risk as alpha while beta is a measure of non-diversifiable risk.
Up to what condition would not require the rendering of a balance sheet to the one being served by an investment adviser? ANSWER: When the adviser requires prepayment of a $150 initial advisory fee
NASAA's model rules have the filing of a balance sheet by an adviser when the adviser requires the prepayment of fees in excess of $500, six or more months in advance of providing any services. The other instance where the filing would be required is when an investment adviser maintains custody of customer funds and securities. Remember, an IA that has full discretion, i.e., the ability to withdraw funds or check-writing privileges is considered to have custody.
The potential loss for a limited partner in a real estate, limited partnership, is limited to: - ANSWER Her initial investment plus any amounts to which she had committed to pay but had not paid yet
If an investor wants to assess the ability of a publicly, traded firm to pay down its short-term debt, which ratio would be most appropriate? - ANSWER Current ratio
The best measure of short term liquidity is the current ratio which is calculated by dividing current assets by current liabilities. Although debt coverage ratio also measures liquidity it actually includes all debt both short term and long-term.
A brokerage client buys stock worth $40 000 and sells it three years later for $60 000. If his long-term capital gains rate is 10%, what is his after-tax total return? - ANSWER 45%
an investor purchases fixed income securities.
A discounted cash flow calculates the present value of every coupon payment and repayment of a bond's principal as a present value, based on one rate of return. The prevailing rates of return can then be compared to the value of a bond. The summation of each of the discounted cash flows, in addition to the present value of the bond's principal, equates to a fair market value of a bond. This will allow the adviser to compare the value calculated by the discounted cash flow formula to the current market price of the bond and determine if the bond is an attractive investment for a client. ( NASAA's recordkeeping requirements for investment advisors model rule: The books and records to be maintained by the investment advisers should include: Which of the following? - ANSWER A copy of each advertisement, investment letter, and newspaper article that sent to two or more persons.
Doug currently has his portfolio invested in the following mix of stocks and bonds: 60% stocks, 30% bonds, and 10% cash. However, Doug is convinced that the stock market has entered a period of significant correction because he believes the federal reserve board will raise interest rates. Doug is therefore deciding to reallocate his portfolio to 30% stocks, 30% bonds, and 40% cash. Doug's reallocation decision is an example of which of the following types of investing? - ANSWER Tactical asset allocation
This is an example of tactical asset allocation. Tactical L acid allocation involves changing the balance in a portfolio shifting the percentage so one asset class is more or less heavily represented in anticipation of changing market or economic conditions. Strategic acid allocation, on the other hand, assumes efficiency in the markets and that it is impossible to make the market in this fashion.
Which of the following types of trusts is most expensive for a trustee to administer? - ANSWER A trust with multiple young beneficiaries
Which of the following actions will cause an adviser to be subject to the USA? - ANSWER Sell investment management services
Company A has high price-to-book Val ratio and high price to earnings ratio. Company B has a low price to book value ratio and low price to earnings ratio. What does that tell you about each company stock? - ANSWER Stock A is a growth stock and company B is a value stock
What type of insurance policies have level premiums and level death benefits? -
ANSWER Term life and whole life
Which of the following is not defined as an IAR? - ANSWER A person that manages portfolios and assets for its clients
This is a difficult question, but three of the choices listed are obviously considered investment adviser representatives.
Accordingly, one who advises as an employee of an investment adviser, a person who solicits business for an investment adviser, as well as a person supervising other IARs of an investment adviser, all fall within the ambit of being an investment adviser representative. On the other hand, a portfolio manager may be an individual or a business organization. Keep in mind, if the person is a business firm then it is considered an IA not an IAR Which of the following can time-weighted return be used to evaluate? - ANSWER Comparing the performance of portfolio mangers
A father buys stock on July 1 and gives the stock to his son on December 1 of the same year. If the son sells the stock on July 2 of the following year, the son has a: - ANSWER Long term capital gain event
What type of business entity will pass through income and losses to its members on a form K-1? - ANSWER Limited liability company
An advisor was a fiduciary for a client who has just died. What is the first thing that an IAR should do when she meets with the person who has power of attorney for the estate? - ANSWER Identify the fiduciary
How do mutual funds report annual returns? - ANSWER total return
The returns need to be disclosed to the shareholders by the mutual funds, using their total return formula. NAV is the price of mutual fund and not a return measure. The arrhythmic mean is just an average, and beta is a measure of systematic risk of an investment.
The FDA announces that it is extending the trial. For a new drug of a pharmaceutical company. As a consequence, the company stock price falls. That is: - ANSWER
An IAR is supporting an executor of an account where the owner is deceased. Who can take action on the account? - ANSWER The estate fiduciary
The following are considered assets that would be carried on a corporation's balance sheet. Which item below is an asset that would appear on a corporate balance sheet? - ANSWER Sofa owned by the corporation
An investor purchases securities that are offered under Rule 147 offering. After 6 months, he may, - ANSWER Sell the shares to out-of-state customers
A 3C1 fund is an investment adviser's only client and has 110 million in assets under management. Which of the following statements concerning the IA's registration requirement is CORRECT? - ANSWER The investment advisor is an exempt reporting advisor and is not required to register with the SEC, but must notice file with the state administrators, and pay a fee
Tony had three children, Susan, Mark and James.
Susan had a son and daughter, but Susan died in her youth. Mark had a daughter, but he also died before his father Tony. James hasn't had children and has outlived his father Tony. What is the outcome of Tony's will per capita at each generation distribution - ANSWER James gets 1/3 of the estate and one of Tony's three children will get two nights of the estate For a Coverdell ESA, what is the maximum allowable contribution and what is its tax treatment? - ANSWER $2,000 per year and contributions are made on an after-tax basis up until the birthday of the child's 18th
What is one of the advantages of a nonqualified retirement plan compared to a qualified retirement plan? - ANSWER It can be discriminatory.
How is surrender value calculated? - ANSWER Cash value - surrender charges
The investor has $350,000 to invest, but he wants to invest $150,000 in a manner that will follow the business cycle. This type of investing is referred to as: - ANSWER Tactical asset allocation
Investment advisory firm and accounting firm are in same building but otherwise
affiliated.
One of the investment advisor representatives pays cash referral fee to CPA in other office for any of advisor's clients she sends over to the advisor. All of the following statements are true, except: - ANSWER The advisor must give each client that is acquired through the CPA another copy of a separate solicitor disclosure document at the time the client agrees to enter into the advisory relationship. Which of the following business types is the least likely to be affected by an increase in interest rates? - ANSWER Manufacturing
Which of the following free structures is NOT permitted for broker-dealers offering investment advisory services to retail clients? - ANSWER A fee based upon a percentage of the profits of the account
What would most likely happen if an investment representative did not appear at a hearing after being subpoenaed to do so? - ANSWER The representative will be held in contempt of court
Under the uniform securities act, amendments to an investment adviser's form ADV must be filed promptly. On August 31, a registered investment adviser closes one of its branch offices and must therefore file an amendment. What constitutes a prompt filing with the IARD? - ANSWER Filing the notice by September 30 of the current year
Notification of a pending acquisition may be given at the bottom of the -. - ANSWER Balance sheet
The books and records of investment advisors and broker dealers are subject to the following retention requirements: - ANSWER There years for broker- dealer _ five years for an investment adviser
With respect to market risk, an investor cannot - ANSWER Minimize market risk by investing in low-risk, low return investments
What is the term for the process used to find the sum of the present values of projected
plus appreciation or minus depreciation, and divides by the original value. In this case, during the first quarter, the stock paid a one dollar dividend, but its price fell by two dollars. To find the quarterly return, one plus negative two divided by fifty dollars equals two percent to evaluate that return two percent quarterly return is multiplied by four which equals a When is a mutual funds prospectus required to be delivered? - ANSWER When a client is solicited to buy mutual fund shares
A companies price to earnings ratio measures: - ANSWER The value of one dollar of EPS
uniform to minors act a person may do which 2 of the following? - ANSWER Give an unlimited amount of cash give securities
a corporations current assets, current liabilities - ANSWER Working capital
A limited partnership sells an asset for a capital gain in the current year; however, it passes the gain to the partners in the following year. What is the tax effect of the gain -?
- ANSWER As a capital gain in the year it is realized by the partnership
Which of the following is not true regarding the characteristics of a real estate investment trust - ANSWER At least 90% of the income from a rate must be derived derived from investing in real estate property - at least 75% of income from a rate must be distributed to investors each year.
An - ANSWER
