20 Practice Questions
PRACTICE
According to the Uniform Prudent Investor Act, when may a trustee choose not to diversify the assets of the trust?
A. During a prolonged bear market for stocks
B. When choosing not to diversify best meets the needs of the beneficiaries
C. Under no circumstances
D. When the assets are 100% cash
One of your investing clients needs to have $155,000 available for her son’s education in 5 years. Given her time horizon and risk tolerance you determine that the best investment for her will compound at 4.5%. Therefore, the present value of the investment is
A. $100,000 B. $193,158 C. $124,380 D. $148,025
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PRACTICE
Which of the following would raise regulatory concerns with respect to an investment adviser's duty to disclose?
I. an adviser does not deduct advisory fees from advertising performance figures without disclosure
II. an adviser accepts payment of $300 six months in advance without providing an audited balance sheet to the client
III. an adviser publishes returns on a back-tested portfolio without labeling it as such
IV. an adviser uses a published report as a normal course of business in order to guide stock selection for various accounts without disclosure A. I, III
B. II, IV C. II, III
Which of the following would typically interest a value investor?
I. stock trading at its book value II. stock trading below its book value
III. stock trading at a low multiple to earnings IV. stock trading below intrinsic value estimates A. I
B. III
C. I, II, III, IV D. I, II, IV
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PRACTICE
Private placement securities are considered
to be:
A. Federal covered securities
B. Issued under a consent to service of
process letter
C. Unregistered securities
D. Exempt from the antifraud provisions of
the Uniform Securities Act
Which of the following represent true statements concerning disclosure to prospects and clients on the part of an investment adviser?
I. disclosure of regulatory action must be made 48 hours before contract signing or at the time of signing if the client has five days to cancel
II. the adviser must disclose that the firm occasionally purchases securities also recommended to clients
III. actions taken by the SEC, other state regulators, SRO's, or any federal or state court in the past 10 years must be disclosed
IV. whether the adviser is granted discretion must be disclosed
A. I, III, IV B. II only C. I, II, III, IV D. III, IV only
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http://www.law.uc.edu/CCL/InvAdvRls/rule204-3.html
PRACTICE
Which of the following statements is/are true concerning registrations in the investment advisory business?
I. Form ADV is filed by the advisory firm, not the representatives II. Form U-4 is submitted to certain state regulators for each representative of the firm, unless the adviser is federally registered III. Form ADV is used whether registering with the SEC or the states IV. Form U-5 is submitted when a representative of the firm is terminated
A. I, III, IV only B. I only C. I, II, III, IV D. II, III only
In which of the following choices is an agent properly using the word “guarantee” when talking to a customer?
A. If you reinvest dividends and capital gains distributions, you are guaranteed to profit long-term
B. A Treasury bond is guaranteed against default and market loss by the U. S. Treasury
C. This bond issued by XLT is guaranteed by the parent company, General Electric
D. If the stock we’re recommending drops more than 5%, the firm will guarantee you against further loss
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PRACTICE
Which of the following is taxed as ordinary income for the year received?
A. Capital appreciation on sub-accounts within a deferred variable annuity
B. Corporate bond interest received within a Roth IRA
C. Variable annuity payment in excess of cost basis
D. Municipal bond interest received within a Traditional IRA account
Julianne is a college student who earned $1,100
waiting tables last year. She earned $600
modeling for art school classes. If Julianne
also received $1,400 in T-bond interest, she
may contribute how much to her traditional
IRA?
A. $3,100
B. $1,700
C. $1,100
D. $5,000
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PRACTICE
According to the Uniform Securities Act, which of
the following is a non-issuer transaction?
A. A 100-share trade between two investors done
on the NYSE
B. A mutual fund redemption
C. The sale of securities to an employee where no
commission is paid
D. A limited partner buying directly from the
sponsor
Which of the following securities must be
registered under the Securities Act of
1933?
A. Commercial paper maturing in 8 months
B. Bonds issued by a religious organization
C. NYSE-listed common stock
D. Unit Investment Trusts
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PRACTICE
Which of the following does not meet the
definition of a security under the Uniform
Securities Act?
A. Participation in multilevel marketing
arrangements
B. Variable life insurance policies
C. Whole life insurance policies
D. Rights received due to a corporate rights
offering
Which of the following would be considered an issuer transaction?
I. A secondary distribution by officers of a corporation II. A primary offering
III. A market maker purchasing an OTC security for its own account
IV. Buying and selling of listed securities on an exchange A. II only
B. I, II, III, IV C. III only
D. I, II, and IV only
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PRACTICE
According to the Uniform Securities Act, when a
broker-dealer distributes bonds with warrants
attached as a bonus:
A. This constitutes an offer to sell the bonds only
B. This constitutes an offer to sell the bonds and
the underlying stock
C. There is no offer to sell the warrants because
they are not technically securities
D. There is an offer to sell the bonds and the
warrants
Each of the following would permit a security to be
sold in a state without registration EXCEPT:
A. The firm selling the security is excluded from
the definition of a broker-dealer
B. The issue is considered an exempt security
C. The issue is a federal covered security
D. The security is sold in an exempt transaction
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PRACTICE
An investment adviser is registered in State A and State B. A broker-dealer is registered only in State A. The client is a resident of state B. The investment adviser asks the broker-dealer to purchase a nonexempt security, which is registered in state B, for the advisory client. The broker-dealer:
a. Should refuse the order because the broker-dealer is not registered in the state in which the client resides b. Can accept the order as long as this practice does not
occur with any regularity
c. Can accept the order only if the client places the order d. Can accept the order if the broker-dealer has no place
of business in state B
All of the following include an offer or sale
EXCEPT:
A. A gift of assessable stock
B. A stock dividend
C. The sale of a right to buy common stock
D. The delivery of a warrant as a bonus for
buying a bond
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PRACTICE
Which of the following are exempt securities?
I.
Canadian municipal bonds
II.
U.S. Treasury bills
III. Over-the-counter stocks
IV. Securities issued or guaranteed by a federal
savings and loan association
A.
II only
B.
II and IV only
C.
I, II, and IV only
D.
I, II, III, and IV
Which of the following is not true concerning the
registration requirements of securities professionals? A. Broker-dealers with no place of business in a state and
a limited number of non-institutional clients in a state must register.
B. Broker-dealers with no place of business in a state who limit their agents to selling exempt securities in a state need not register.
C. Investment advisers with no place of business in a state and whose only clients are institutional investors in a state need not register.
D. Investment advisers with no place of business in a state and a limited number of non-institutional clients need not register.
