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1) When evaluating an individual's current financial status, liquid net worth would be identified as:    
  (a) Assets that can be easily converted into cash (b) The same as total net worth (c) Assets held in checking, savings and money-market accounts (d) Real property and other tangible assets
Explanation:
Total net worth is defined as all assets minus all liabilities. Liquid net worth is all assets that can be easily converted into cash. Checking, savings and money-market accounts can be easily converted into cash, along with other assets like equities and securities.


Quit Report An Error The correct answer is a. Your answer was correct!
2) Which of the following investment vehicles would be best suited for someone with an aggressive risk tolerance?    
  (a) 'AAA' corporate bonds (b) Money market CDs (c) Small company fund (d) T-Bills No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
An investor with an aggressive risk tolerance is comfortable with the rise and fall of markets and is willing to exchange potentially higher profits with a higher degree of risk. Small company funds, known as small-cap funds, are typically considered riskier because of their size and may often be start-ups.


Quit Report An Error The correct answer is c. Your answer was incorrect!
3) Which of the following would represent the highest degree of interest-rate risk?    
  (a) A five-year CD (b) A savings account (c) a 30-year 5% 'AAA' bond (d) A 30-year 7% 'AA' corporate bond (e) A zero-coupon bond No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
Interest-rate risk will affect both stocks and bonds. Investors who buy bonds run the risk of the bond's market value declining when interest rates rise. Longer maturing bonds tend to be more vulnerable to interest-rate risk; the same is true for bonds paying lower interest rates. Thus, the 30-year 5% 'AAA' bond would be riskier than the 7% 'AA' corporate bond. Whether the bond is rated 'AAA' or 'AA' does not matter in this example. The rating of a bond can help determine business risk, but does not factor in to the interest-rate question.


Quit Report An Error The correct answer is c. Your answer was incorrect!
4) Ronnie has just created her own publishing company and, as the sole owner, she wants to protect her personal assets in a simple business structure. Which of the following would be an appropriate choice?    
  (a) Limited partnership (b) Corporation (c) Limited liability company (d) Sole proprietorship No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
A limited liability company (LLC) will offer Ronnie protection for her personal assets if the company should fail. She is currently operating as a sole proprietor, with no liability protection. Ronnie does not qualify for either a limited partnership or general partnership since both require a minimum of two people. The LLC also has a more simplified business structure than a corporation and is, therefore, easier to administer.


Quit Report An Error The correct answer is c. Your answer was incorrect!
5) Which one of the following client types may NOT be taxed by the IRS based on the personal income tax brackets of the individuals in the group?    
  (a) Partnership (b) C Corporation (c) S Corporation (d) Limited Liability Company No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
C corporations are required to pay taxes on their incomes as a corporate entities; the tax amount is NOT based on the personal tax rates of the individuals who work for the corporation or its shareholders (owners). However, shareholders are required to pay taxes on profits (dividends) at their individual income tax rate. C corporations face a double taxation and this is a key disadvantage to this type of business structure. An S corporation, if certain requirements are met, can choose to be taxed like a partnership or limited liability company. Within these entities, the individuals involved will be taxed at their personal income tax rates rather than on the profits of the entity as a whole.


Quit Report An Error The correct answer is b. Your answer was incorrect!
6) Mrs Struthers consults Felix, her financial advisor, about his best recommendation for preserving the money she has saved for retirement. Which of the following represent suitable investments?    
  (a) Zero Coupon Bonds and Common Stock (b) Hedge Funds and T-Bills (c) Hedge Funds and Common Stock (d) T-Bills and Corporate Bonds
Explanation:
Treasury securities are guaranteed by the federal government and corporate bond holders receive priority over common stockholders in the event of a bankruptcy. These would be the two safest choices for preservation of capital. Hedge funds are high-risk, potentially high-yield investments that aim for growth.


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7) The Addams Family bought a new Victorian mansion next to their current home at 1313 Mockingbird Lane. The children, Pugsley and Wednesday, are grown up and are now having children of their own. Their parents, Gomez and Morticia, want to keep them nearby and would also like to pass the new mansion on to the children. Gomez worries about Pugsley's debt and Morticia worries about taxes. Frank N. Stein, the family's financial advisor recommends a family limited partnership. Which of the following statements is NOT true regarding family limited partnerships?    
  (a) It is difficult for the children's creditors to attach the partnership's assets. (b) It does not require a legitimate business purpose. (c) The children would become the limited partners of their parents. (d) It is used as a means of minimizing estate and gift taxes.
Explanation:
Family limited partnerships are set up in order to minimize estate and gift taxes, but they MUST have a legitimate business purpose other than just to avoid taxes. All of the other choices are true. Additionally, the parents set themselves up as general partners and transfer the property to the partnership. While they must pay taxes on the gift to the children of the limited partnership, that tax rate would be less than if they transferred the assets directly to the children.


Quit Report An Error The correct answer is b. Your answer was incorrect
8) Tiffany's brother, Jamal, is a new investor but believes that the markets are basically efficient and that he doesn't have the knack for or interest in predicting trends. He also believes in saving money on transaction costs and taxes. Jamal's investment style is best described by which of the following:    
  (a) Diversification (b) Buy and hold (c) Tactical asset allocation (d) Indexing No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
A buy-and-hold strategy describes a passive investment approach. This approach assumes that markets are efficient and that it is impossible to time the purchase or sale of securities or to manage the balance of assets in order to take advantage of market movements. Since this is a passive strategy, there are reduced transactions costs and also reduced tax consequences. The downside to a buy-and-hold approach is that over time, the risk and reward of the asset allocation will change and may not be in alignment with the client's original risk tolerance and objectives.


Quit Report An Error The correct answer is b.
9) The formula Pn=P0(1+r)n is used to calculate:    
  (a) Internal rate of return (b) Value of principal (c) Time value of money (d) Future value of money No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
The formula for future value of money projects what an investment will be worth at some given point in the future. The original principal amount(P0), interest rate (r) and the number of years for the interest to compound (Pn) are all important factors in the calculation.


Quit Report An Error The correct answer is d. Your answer was correct!
10) Marty and Gloria Brown are young investors with a retirement portfolio that invests 100% in a large U.S. pharmaceutical company. They hire an investment advisor to be sure they''re on track and he returns with a proposal that allocates the Browns' investment as follows: 60% large cap stocks, 20% mid-cap stocks, 10% international stocks, 5% bonds and 5% cash This is an example of:    
  (a) Tactical Asset Allocation (b) Downsizing (c) Market Capitalization (d) Diversification No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
While a U.S. pharmaceutical company may be a strong investment, the Browns' current investment strategy leaves them open to market risk, regulatory risk, business risk and interest rate risk. Their advisor has recommended diversifying their holdings to reduce the risk across several different types of investments that are aimed to balance the portfolio.


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11) The general investing public is under the opinion that today's new tech stock is going to take off and that its high price/earnings ratio is insignificant. Mary invests with the philosophy that the new tech stock is highly over-valued and that when the stock price is lower and the company begins to show earnings, it may represent a good buy. This is known as:    
  (a) Contrarian investing (b) Tactical asset allocation (c) Efficient frontier (d) Modern Portfolio Theory No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
Mary invests with a contrarian investment strategy, a style that does not follow public opinion and market trends. Contrarian style investing generally places value on solid companies with low P/E ratios.


Quit Report An Error The correct answer is a.
12) Jonathan Marks is a conservative investor and does not appreciate a great deal of risk. He likes socially-conscious companies that value diversity, health and human life. His financial advisor, Allan Reynolds, captures all of this information while conducting an interview to determine a suitable investment strategy for Jonathan''s IRA portfolio. Allan returns in one week with choices for Jonathan to consider. Allan may have missed his mark with at least one of his recommendations. Which of these would be an inappropriate investment, considering Jonathan's personal investment philosophy and risk tolerance?    
  (a) A hedge fund that invests in multicultural businesses (b) A mutual fund consisting of socially conscious companies (c) A corporate bond fund that intentionally contains no tobacco companies (d) An equities fund of organic food manufacturers
Explanation:
Since Jonathan Marks has a low tolerance for risk, he would definitely want to avoid investing in a hedge fund, no matter what type of businesses the fund invests in. Hedge funds come with a very high degree of risk in exchange for a potentially high return. All the other options shown would respect Mr. Marks' philosophical views and would also be appropriate for his retirement plan.


Quit Report An Error The correct answer is a.
13) Which of the following is NOT an example of a passive investment strategy?    
  (a) Buy and Hold (b) Tactical asset allocation (c) Indexing (d) Systematic re-balancing No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
All of the choices except tactical asset allocation describe passive investment strategies. Tactical asset allocation strategy believes that markets are inefficient and that asset allocation can be actively managed, or balanced, based on market trends and economic events for the best return. This is also known as a market timing approach.


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14) Sally's long-time partner, Gene, has just passed away and Sally seeks advice from her trusted financial advisor, Lyn. Which of the following is NOT true regarding estates?    
  (a) Estates include the total assets and liabilities of the deceased, along with all types of property, real and personal, tangible and intangible. (b) Estates are meant to be short term (c) Executors are fiduciaries (d) Without a will, the courts appoint an executor to distribute assets, pay taxes and safeguard the property for the benefit of the estate's heirs.
Explanation:
Without a will, the courts appoint an administrator to pay taxes, distribute assets and oversee the property. If this person has been named in a will, they are known as the executor. All of the other choices are correct with regard to estates.


Quit Report An Error The correct answer is d. Your answer was incorrect!
15) Lucky Lavallee has just opened Casino Lavallee, a small operation in Vermont with 10 slot machines, five blackjack tables and a separate room for poker games. His mother, Helene, has offered to finance part of the business in return for a share of the profits, but she is concerned about risk. Which type of business structure would be the most suitable for Casino Lavallee?    
  (a) Limited Liability Company (b) Estate (c) C Corporation (d) Family Limited Partnership
Explanation:
In a limited liability company (LLC), the owners are not personally liable for a company's debts. LLCs are advantageous from a tax standpoint because the owners are taxed at their personal income tax rate on their share of the profits only. Additionally, LLCs are easy to set up and have more flexible management structures than a corporation. Under a C corporation structure, Helene would not be personally responsible for the company's liabilities. However, the size of this casino does not necessarily warrant the added expense and complication of incorporating. A family limited partnership is generally formed, with  a legitimate business purpose, to minimize estate and gift taxes.


Quit Report An Error The correct answer is a. Your answer was correct!
16) The common stock of BigRich Industries has just suffered a huge loss as a result of poor management and a massive strike; they may need to file Chapter 11 soon. This is an example of which type of risk:    
  (a) Inflation risk (b) Market risk (c) Opportunity risk (d) Interest-rate risk (e) Business risk No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
The common stock of BigRich would be a valuable investment vehicle if the business were successful. When business fails or declines, however, common stock value suffers. Because common stockholders are at the bottom of the priority list in the event of bankruptcy, BigRich stock could become worthless. This defines business risk.


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17) The person who creates a trust is known as:    
  (a) The beneficiary (b) The executor (c) The grantor (d) The designate
grantor
18)
Which of the following would be a suitable investment for someone whose main objective is preservation of capital? (choose all that apply)

I Money market funds
II. Common stocks
III. Municipal bonds
IV. Fixed annuities
V. Corporate bonds
VI. T-bills
   
  (a) I and VI (b) II and IV (c) IV and VI (d) III, V and VI (e) I only
Explanation:
Money-market funds and T-bills would be the most suitable investments for someone whose interest is in preserving capital. They are very conservative and safe investments.


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19) At year-end 2004, the Federal Reserve reported moderate economic growth of 3%, a reduction of the unemployment rate to 3% and an inflation rate that was "well contained at 3%". Under these circumstances, the real interest rate of the 10% corporate bond you own is 7% this year. Which of the following economic factors would factor in to the real interest rate of your bond?    
  (a) Unemployment at 3% (b) Economic growth at 3% (c) Inflation at 3% (d) The Fed Funds rate No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
The real interest rate, also referred to as the inflation-adjusted return, factors the eroding effect of inflation from an investment's return. The formula is: Yield plus or minus inflation rate = real interest rate/inflation-adjusted return. The Fed Funds rate is the market rate that banks charge each other on overnight loans of reserves.


Quit Report An Error The correct answer is c. Your answer was incorrect!
20) A portfolio that contains an optimal mix of assets based on a client's risk tolerance and investment goals is known as:    
  (a) Modern Portfolio Theory (b) Strategic asset allocation (c) An efficient frontier (d) Tactical asset allocation
Explanation:
One assumption made by Modern Portfolio Theory is that a portfolio consisting of various asset classes will reduce or increase risk based on how closely correlated the returns are or, in other words, how diversified the asset classes are. Strategic asset allocation provides the best mix of assets for reaching a client's financial objectives while considering his or her personal tolerance for risk.


Quit Report An Error The correct answer is b.
21) Interest rate risk represents the potential for the market value of a bond to decline if interest rates:    
  (a) Decrease (b) Equal the Consumer Price Index (c) Stay the same (d) Increase
Explanation:
Interest rates and the price of bonds have an inverse relationship. When interest rates fall, the market value of a bond will increase and vice versa. The Consumer Price Index is a measurement of the price of goods and services and is used to monitor inflation.


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22) Which of the following represents the best investment for someone whose objective is growth?    
  (a) Money market funds (b) Common stocks (c) Corporate bonds (d) Long-term CDs
Explanation:
Common stock would be a suitable recommendation for someone whose investment objective is growth. The other options represent investment vehicles that carry less risk and offer preservation of capital.


Quit Report An Error The correct answer is b. Your answer was incorrect!
23)
Which two of the following are factors in determining an investment's total return?

I. Yield
II. Future value of money
III. Growth
IV. Internal rate of return
   
  (a) II and IV (b) I and II (c) I and III (d) IV only No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:


  Quit Report An Error The correct answer is c. Your answer was incorrect!  
Total return of an investment considers any cash flow from interest or dividends (yield) plus or minus any appreciation or depreciation in the value of the investment (growth). For example, an 8% bond is purchased at par $1,000. A year later, the bond is worth $980. In spite of the 8% return in interest, the bond has lost 2% of its value for a total return of 6%. Future value of money is a calculation that determines how much today's investment will be worth at a later date.
24)
Mr and Mrs Rodriguez have amassed a very comfortable income from their import business, which has been formed as a limited liability company (LLC). They seek advice from their financial advisor regarding a new investment that would simultaneously act as a tax shelter, which they hope will allow them to have more money to leave to their heirs. Which two of the following should their advisor consider when making a suitable recommendation to the Rodriguez couple?

I. Tax Situation
II. Heirs
III. Cash Flow
IV. Executor of Estate
V. General Partnership
   
  (a) III and IV (b) II and IV (c) I and V (d) I and III No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
When determining a suitable investment, it is important to understand the client's current financial situation. A profile should be taken of the current income, cash flow, company balance sheet, current tax situation, net worth, amount of liquidity and the investment strategy currently in place. The Rodriguez couple has a specific goal in mind: to shelter their income from income tax. Of the choices listed, cash flow and current tax situation are the only possible correct answers. For this particular goal, the heirs or the executor of the estate are not relevant factors. The Rodriguez's business is a limited liability company (LLC) and not a general partnership, which is structured differently than an LLC.


Quit Report An Error The correct answer is d. Your answer was incorrect!
25) Samantha Peterson felt that she had made a great investment in Zip Wow, a growing company in Kalamazoo. She had purchased 10 of Zip Wow's 11% bonds at 103 and hoped to make a profit before the bonds were called. In 2003, inflation rose from 2% to 3% and Zip Wow's stock dropped to $12 per share. Calculate the inflation-adjusted return on one of Samantha's bonds for 2003.    
  (a) $11.33 (b) 10% (c) $113.30 (d) 8% No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
Inflation-adjusted return shows an investment's true yield by factoring out the eroding effect of inflation from an annual interest rate. It is calculated by a simple formula: Annual interest rate (yield) plus or minus the current inflation rate. Here: 11% - 3% inflation = 8% inflation-adjusted return on the bond.


Quit Report An Error The correct answer is d. Your answer was incorrect!
26) Which of the following would endure the most negative impact based on rising inflation:    
  (a) Blue Chip Stocks (b) 'AAA' Bonds (c) Real Estate (d) Gold
Explanation:
Bonds show a far greater degree of vulnerability during inflationary times than do the other choices, which, historically, have fared well when the cost of goods and services has increased. Bondholders incur rising interest rates, which drive down the value of their investments. Furthermore, the interest paid on bonds also loses purchasing power during times of inflation.


Quit Report An Error The correct answer is b. Your answer was incorrect!
27)
According to Modern Portfolio Theory, expected return is the product of which two factors?

I. A possible return
II. Internal rate of return
III. Basic measure of risk
IV. Likelihood of occurrence
   
  (a) I and II (b) III and IV (c) II and III (d) I and IV No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
The expected return of an investment is the possible return on that investment weighted by the likelihood that the return will occur.


Quit Report An Error The correct answer is d. Your answer was incorrect!
28)  In 2004, inflation has risen to 4%. The Seymour Jones family has owned an 8% callable corporate bond for seven years. Calculate the 2004 real interest rate on this bond.    
  (a) .04% (b) 98% (c) 12% (d) 4% No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
The formula for inflation-adjusted return factors the eroding effect of inflation on an investment's annual yield (8%-4%= 4%). It makes no difference that the bond is callable or that the family has owned the bond for seven years.


Quit Report An Error The correct answer is d. Your answer was incorrect!
29) Trudy would like to invest a portion of her retirement portfolio in a mutual fund that has very low management costs and attempts to mirror the S&P 500. This investment strategy is known as:    
  (a) Market Timing (b) Stock Picking (c) Diversification (d) Indexing
Explanation:
An indexing strategy is a passive investment approach the seeks to mirror the composition of a benchmark index such as the S&P 500. Costs are kept very low because they are only incurred as funds are added to or withdrawn from the portfolio. Management costs of an index mutual fund are kept low because the fund requires very little management and is mostly tracked by computer software.


Quit Report An Error The correct answer is d. Your answer was incorrect!
30) As an advisor makes recommendations for the investments within a trust, who is the most important to consider:    
  (a) The beneficiary (b) The trustee (c) The grantor (d) The executor
Explanation:
The beneficiary's financial objectives should be the primary focus for investments within the trust. The beneficiary's objectives may be quite different from that of the trustee and the investment advisor must develop an investment profile that is suitable.


Quit Report An Error The correct answer is a. Your answer was correct!
31) Ronnie Ann is a 48-year-old marketing executive. She consults Amy, her investment advisor about the possibility of retiring at age 55, based on her current investments and an anticipated inheritance in the next year. Since Ronnie Ann's time horizon to retirement is short (seven years), she tells Amy that she cannot afford to invest new money in speculative, high-risk investments. Which of the following would represent an unsuitable investment for Ronnie Ann''s time horizon?    
  (a) Blue Chip Stocks (b) 'AAA' Bonds (c) Money Market CD (d) Hedge Fund No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
Hedge funds are high-risk investment vehicles that can return a high pay-off; however, this type of investment is very risky and Ronnie Ann specifically expressed concern that her time horizon would not allow for risky new investments. In seven years, Ronnie Ann's money would be very safe in a money market CD, high grade corporate bonds (AAA) or a very closely managed portfolio of blue chip stocks.


Quit Report An Error The correct answer is d. Your answer was incorrect!
32) Tina and Mary are sisters seeking to save enough money to contribute to their eight-year-old nephew's college education. They enlist the assistance of Jayne, their financial advisor, who will get them on track with their goal. Jayne is committed to devising a suitable strategy for Tina and Mary. Which of the following is NOT a factor in developing their profile?    
  (a) Risk Tolerance (b) Time horizon (c) Wrap account fees (d) Tax situation (e) Target financial goal No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
Wrap account programs are designed for those who trade often within their accounts and want to avoid paying commissions on every transaction. Instead, they pay a set fee, usually based on percentage of assets under management. All of the other choices are completely relevant to developing a profile for Mary and Tina's objective.


Quit Report An Error The correct answer is c. Your answer was incorrect!
33) A self-employed individual is an example of which of the following?    
  (a) General Partnership (b) Sole Proprietor (c) Subchapter S (d) Limited Liability Company (e) Executor
Explanation:
Self-employed individuals work for themselves and are considered sole proprietors. A sole proprietor maintains managerial control of his or her business, is entitled to all the profits from the business and is personally responsible for all company debt.


Quit Report An Error The correct answer is b. Your answer was correct!
34) The measure of return for the yield to maturity of a bond is:    
  (a) The internal rate of return (b) Call risk (c) Par x $1,000 (d) Total return
Explanation:
When calculating an investment's future value we use the formula Pn=Po(1+r); to calculate present value, or the investment amount needed today to reach a future financial goal, we use the formula Po=Pn/(1+r)n. It is also helpful, if you have the numbers for Pn or Po,to find "r", the rate of interest on an investment. This calculation is most easily solved by a manual trial-and-error method using an electronic calculator. The resulting figure is known as the internal rate of return (IRR). A trial-and-error manual calculation is now easily solved by most electronic calculators.


Quit Report An Error The correct answer is a. Your answer was correct!
35) Jason Sanborn is a senior-level executive with Beanster Brew, one of the world's largest coffee bean importers. To sweeten his contract, Beanster offered Mr. Sanborn a retirement plan that pays 57% of his salary per year for the rest of his life, beginning at age 65. Which of the following situation does this arrangement describe:    
  (a) An ERISA infraction (b) A qualified retirement plan (c) a profit sharing plan (d) A contribution limit (e) A non-qualified plan
Explanation:
This is an example of a non-qualified retirement plan; it is also evidence of a defined benefit plan.


Quit Report An Error The correct answer is e. Your answer was incorrect!
36) Which of the following types of risk may be diversified?    
  (a) Market Risk and Business Risk (b) Market Risk (c) Business Risk (d) None of the above
Explanation:
A diversified portfolio of securities will greatly reduce risk. However, diversification will not reduce market risk because a general decline in the market will result in a price drop for ALL company securities.


Quit Report An Error The correct answer is c. Your answer was incorrect!
37) Jasper Wrathbone owns a small but profitable pharmaceutical company in New Jersey. His company has a new arthritis pain reliever in the pipeline and is conducting extensive research and clinical trials. The FDA has just announced that all new clinical trials must now include the use of an expensive heart monitor to ensure safety to heart patients. This is an example of which type of risk:    
  (a) Business risk (b) Market risk (c) Health risk (d) Investment risk (e) Regulatory risk
Explanation:
This scenario represents regulatory risk and refers to the investment risk that may result from changes in state or federal laws.


Quit Report An Error The correct answer is e. Your answer was incorrect!
38) Which of the following people would not qualify for a 403(b) retirement plan?    
  (a) A volunteer for a non-profit organization (b) A school teacher (c) A school janitor (d) St. Anthony's Church
Explanation:
403(b) retirement plans allow for tax-deferred retirement savings for tax-exempt, non-profit organizations, such as public school systems and churches. The volunteer is not specified as an employee of either so we'd have to assume this person would not qualify.


Quit Report An Error The correct answer is a. Your answer was incorrect!
39) Jane and Fabbio Salvatore have just discovered that a Fabulous Florence municipal bond will be offered to support a bridge development in Fabbio's hometown in Florence, OH. They want to purchase the bond at $1,000, but end up buying the 10% bond at $1,020. One year later, the Salvatores want to sell and earn a profit when the market value is at $1,000. Calculate the total return of the Fabulous Florence bond.    
  (a) .0196% (b) 9.98% (c) 2% (d) 12% No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
The test will try to confuse you by adding extra details to the questions. It doesn't matter that the Salvatores wanted to buy at $1,000 when, in fact, they bought at $1,020. Furthermore, one year later when the market is at $1,000, their bond has actually depreciated. Only 9.98% could be the answer. The total return will reflect the interest earned (yield) plus or minus any appreciation or depreciation (growth). While the bond earns 10% interest, it has lost nearly 1% of its value and delivers a total return of 9.98%. ($1,020-$1,000 = $20)/$1,020 = .0196%. (10% + (-.0196%) = 9.98%.


Quit Report An Error The correct answer is b. Your answer was incorrect!
40) The executor of an estate is typically identified within which document?    
  (a) Life insurance policy (b) The discretionary order (c) The trust certificate (d) The will No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
An estate's executor is typically identified within the will of the deceased. If no executor has been selected, the state will appoint someone to manage the assets of the estate; this person is known as the administrator.


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41) An 8% bond is purchased at par $1,000. One year later, is has a market value of $980. Calculate the total return on this investment.    
  (a) 6% (b) $972 (c) $988 (d) 20% No questions exist for the exam settings that you set. Click the following link to adjust the exam settings.
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Explanation:
An investment's total return takes into account any additions from interest or dividends earned, plus any appreciation or depreciation in the investment's value. In this example, a $1,000 par value bond has depreciated to $980 or 2% ($1,000-$980 divided by $1,000). While the bond is paying 8% interest, the total return is actually 6% (8% - 2%).


Quit Report An Error The correct answer is a. Your answer was correct!
42) Dollar cost averaging is NOT described by which of the following?    
  (a) Investors must consider their ability to continue funding the account whether prices are high or low. (b) Investors are protected against losses during steady declines. (c) A fixed amount is invested at regular intervals. (d) An investor buys more shares when prices are low and fewer shares when prices are high.
Explanation:
All choices are true about dollar cost averaging, with the exception that investors are NOT protected from losses that come from steadily declining markets. Additionally, investors may sustain a loss at redemption if the total cost of their shares exceeds the current market value.


Quit Report An Error The correct answer is b
43) Stanley Pawlowski is the administrator of his company pension 401(k) plan. He's just hired Dennis Blaze as the investment advisor who will also share in fiduciary responsibility. Under the Employee Retirement Income Security Act (ERISA), which one of the following documents must Stanley and Dennis keep on file?    
  (a) An investment policy statement (b) The plan's performance reports (c) A contract of qualified plan participants (d) An official statement
Explanation:
An investment policy statement describes the plan's investment strategy as well as long-term plan goals, investment philosophy, risk tolerance, time horizons, rate of return expectations and preferred asset classes. An investment advisor is bound by law and fiduciary responsibility to follow this blueprint of the investment plan.


Quit Report An Error The correct answer is a. Your answer was correct!
44) Based on the Employment Retirement Income Security Act (ERISA), a retirement plan may be considered QUALIFIED, if it meets all of the following criteria EXCEPT:    
  (a) Vesting (b) Does not have to be offered to all employees (c) The investment of contributions and determination of benefits (d) Eligibility Requirements
Explanation:
With regard to eligibility, the plan must cover all employees 21 and older who have worked for the employer for at least two years, and at least one year for 401(k) plans. If more than one year is required, the employee must then be vested immediately at 100%. Vesting describes the schedule by which employees gradually receive the portion of monies contributed by the employer. Qualified plans receive a more favorable tax treatment than non-qualified plans and follow strict guidelines set forth by ERISA, which are specific to how the plan assets are invested and distributed. Non-qualified plans do not have to be offered to all employees. Qualified plans must be available to everyone.


Quit Report An Error The correct answer is b. Your answer was incorre
1) StarPoints Inc is listed on Nasdaq and wishes to sell a portion of its new offering in the state of Virginia. Which of the following is true?    
  (a) StarPoints is required to register the portion of the offering to be sold in Virginia. (b) The SEC will register a separate filing in the state of Virginia. (c) The state of Virginia may not require StarPoints to register. (d) The administrator may require the payment of a registration fee in Virginia.
Explanation:
Federal laws take precedence over state laws when it comes to regulating federally covered securities. This includes public offerings, proxy solicitations and disclosures that are required of issuers of nationally traded securities. Since StarPoints trades on a national exchange (Nasdaq), under The Uniform Securities Act, it is not required to register with Virginia or to pay a fee for registration.


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2) Mike is incredibly excited about a stock he wants to sell to his client, Mary Lou. As he takes her through some key pages in the prospectus, he claims, "this company is so solid, it is practically a sure thing!" Is there anything wrong with this statement?    
  (a) Possibly, if his comment has an influence on the client. (b) Yes, it is considered inflated language. (c) No, an agent is allowed to comment on data from the prospectus. (d) Yes, it is illegal to comment on the prospectus at time of sale.
Explanation:
Mike's statement is considered "inflated language" and could be misleading relative to the client's decision to buy the security. Financial representatives should avoid statements that are not balanced with sufficient information about the risks involved.


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3) Under the Uniform Securities Act (USA), which of the following qualifies as an investment advisor?    
  (a) A bank that sells financial advisory services (b) BestPrice Brokers, a sales organization that receives a small fee for investment advice (c) An SEC-registered investment advisor (d) Carl Taylor, who publishes an article on Tactical Asset Allocation
Explanation:
Normally, broker-dealers are excluded from the definition of investment advisor, unless they take a fee for dispensing their advice, which is the case with BestPrice in this example. Banks are excluded from the definition, as is Carl Taylor, who falls under the publishing exclusion and is not providing advice to one person but to an unknown group of potential readers. The SEC-registered advisor is federally registered and, therefore, excluded from state registration.


Quit Report An Error The correct answer is b. Your answer was incorr
4) Frank Osborn is an agent for Skyz Unlimited Ltd. A beloved client, Mrs Loolahy, gave Frank power of attorney to manage the investment activity in her account. Because Skyz Unlimited has custody of Mrs Loolahy's securities, how often will the broker-dealer need to report to her on account transactions?    
  (a) The company sends out itemized reports on a quarterly basis. (b) The company will send her a biannual report of transactions in the account. (c) It is mandated by federal law that she receive weekly updates. (d) Federal law mandates that she receive daily updates.
Explanation:
On a quarterly basis, an investment advisor with custody of client funds must provide an itemized statement of all transactions in the account. The document must also detail all funds and securities within the account.


Quit Report An Error The correct answer is a.
5) Richalot Securities was involved in questionable trading practices and submitted to disciplinary actions in 1993. Which of the following is TRUE regarding disclosure to new clients in 2005?    
  (a) Richalot must disclose the previous disciplinary action to any new client or face a $2,500-per-incident fine. (b) Richalot must disclose the incident because it is material to judging its integrity in matters of advisory services. (c) Richalot must disclose any and all disciplinary actions taken in the last 20 years. (d) Richalot is not obligated to mention the incident because it happened more than 10 years ago.
Explanation:
The Investment Advisor's Act requires that clients receive disclosure on certain points, i.e., any material or legal disciplinary actions that occurred within the preceding 10 years. Because Richalot was disciplined 12 years ago, it is not obligated to disclose. However, if the information were material to an evaluation of the advisor's integrity or ability to meet contractual obligations, full disclosure would be required. Disclosure within self-regulatory proceedings is not required unless the fine were to exceed $2,500.


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) All of the following are representative of soft dollars payment EXCEPT:    
(a) In-house research (b) Computer hardware (c) Third-party research (d) Computer software
Explanation:
Compensation arrangements between investment advisors and broker-dealers may be made in non-cash payments, also known as soft dollars. Such payments may include in-house or third party research as well as computer software. This is permitted provided that disclosures are made on client confirmations and that it can be proved that the advisor is using the information for decision-making on client recommendations. It is not permissible to make non-cash payments in the form of travel expenses, computer hardware, furniture, office space or other overhead expenses.


Quit Report An Error The correct answer is b. Your answer was incorrect
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