HS 328 - Investments || A+ Score Secured.
Which of the following advisors must register with the U.S. Securities and Exchange
Commission (SEC)?
1. An advisor who sells insurance products
2. An advisor who is registered with the state securities regulator
3. An advisor who manages over $100 million in assets
4. An advisor who declines to be regulated by FINRA correct answers 3. An advisor who
manages over $100 million in assets
NOTE:
Advisors with at least $100 million in assets under management must register with the SEC.
Advisors with less than $100 million in assets under management must register with their
respective state regulator.
Jerry would like to purchase shares of a large, established company. He will most likely make his
purchase:
1. in the primary market.
2. from an underwriter.
3. in the secondary market.
4. from the issuing corporation. correct answers Newly issued shares are sold in the primary
market, with the assistance of an underwriter.
The purchase and sale of securities that have already passed through the primary market occurs
in the secondary market.
,A: The shares of a large, established company have likely been through the primary market many
years ago and are currently trading in the secondary market.
A stock market participant that buys shares of stock in a secondary market and holds shares as
part of its inventory is most likely a(n)
A. stock exchange.
B. independent advisor.
C. broker-dealer.
D. self-regulatory organization. correct answers C. Broker dealers serve two functions: to act as
an intermediary in helping clients buy and sell securities and to generate a profit on the trading of
undervalued securities. In their dealer function, broker-dealers can hold inventory when they
believe the shares are undervalued with the intent of selling them at a later date when the price
rises.
All of the following is (are) among the responsibilities of FINRA EXCEPT:
1. educating investors.
2. fostering market transparency.
3. writing and enforcing rules governing the activities of all registered broker-dealer
4. firms and registered brokers in the U.S. writing and enforcing rules governing the activities of
all registered investment advisors. correct answers 4. The SEC and state securities regulators are
responsible for regulation of registered
investment advisors.
Which of the following is most likely classified as a primary market transaction?
1. A mortgage-backed security (MBS) purchased from an institution that originates the mortgage
loans
2. Equity shares purchased on the floor of the New York Stock Exchange
,3. Corporate bond purchased from endowment fund that is liquidating
4. Shares of preferred stock that are purchased from a dealer correct answers A: 1. Primary
market transactions are those in which the financial securities are created, which would include
the creation of an MBS by the originating institution. The equity and preferred shares and the
corporate bond are examples of secondary market transactions.
One of your clients wants to build a portfolio characterized by high liquidity and very low risk.
This client does not mind if the portfolio's returns are low. Given these specifications,
you might recommend a portfolio consisting primarily of which asset class?
A. Money market instruments
B. Municipal bonds
C. Corporate bonds
D. Equities correct answers A: A Money market instruments are the least risky asset class with
the lowest return. Municipal and corporate bonds, as fixed income securities, have a moderate
risk and return profile. Equities tend to offer the highest return as well as highest risk.
All of the following are likely to be classified as investment advisers by the U.S. Securities and
Exchange Commission EXCEPT
1. a financial analyst who issues a report on the performance of value stocks.
2. an analyst who recommends a triple-A-rated bond to a client.
3. a money manager who makes asset allocation assignments for institutional investors.
4. a financial firm that acts as a dealer in investment grade bonds. correct answers The correct
answer is (4).
Broker-dealers are explicitly excluded from being classified as advisers under the legal
framework of the Investment Advisers Act. Individuals or firms that issue reports or offer
investment advice, including asset-allocation decisions, are considered to fit the
definition of an investment adviser.
, Fred bought 100 shares of Apple at $115 per share. One year later, he sold the stock for $152 per
share. During the year, Apple declared and paid dividends of $2 per share. What
was Fred's holding period return?
1. 32%
2. 34%
3. 73%
4. 206% correct answers The correct answer is (B).
(Net proceeds + dividend - interest) ÷ equity invested = HPR
[($152 - $115) + $2] ÷ $115 = 33.91%
Which of the following can be greatly reduced by diversification? 1- Systematic risk
2-Market risk
3-Unsystematic risk
4-Systematic and unsystematic risk correct answers 3 - Unsystematic risk, is reduced by
diversification.
Jerry invested in a mutual fund 5 years ago. His returns were 25%, -5%, 10%, 0%, and 50%,
respectively.
What is the difference between the arithmetic average and
the geometric average return over the 5 years?
1 - 0%
2 - 1.1%
3- 1.3%
4- 1.6% correct answers The correct answer is (D).
Which of the following advisors must register with the U.S. Securities and Exchange
Commission (SEC)?
1. An advisor who sells insurance products
2. An advisor who is registered with the state securities regulator
3. An advisor who manages over $100 million in assets
4. An advisor who declines to be regulated by FINRA correct answers 3. An advisor who
manages over $100 million in assets
NOTE:
Advisors with at least $100 million in assets under management must register with the SEC.
Advisors with less than $100 million in assets under management must register with their
respective state regulator.
Jerry would like to purchase shares of a large, established company. He will most likely make his
purchase:
1. in the primary market.
2. from an underwriter.
3. in the secondary market.
4. from the issuing corporation. correct answers Newly issued shares are sold in the primary
market, with the assistance of an underwriter.
The purchase and sale of securities that have already passed through the primary market occurs
in the secondary market.
,A: The shares of a large, established company have likely been through the primary market many
years ago and are currently trading in the secondary market.
A stock market participant that buys shares of stock in a secondary market and holds shares as
part of its inventory is most likely a(n)
A. stock exchange.
B. independent advisor.
C. broker-dealer.
D. self-regulatory organization. correct answers C. Broker dealers serve two functions: to act as
an intermediary in helping clients buy and sell securities and to generate a profit on the trading of
undervalued securities. In their dealer function, broker-dealers can hold inventory when they
believe the shares are undervalued with the intent of selling them at a later date when the price
rises.
All of the following is (are) among the responsibilities of FINRA EXCEPT:
1. educating investors.
2. fostering market transparency.
3. writing and enforcing rules governing the activities of all registered broker-dealer
4. firms and registered brokers in the U.S. writing and enforcing rules governing the activities of
all registered investment advisors. correct answers 4. The SEC and state securities regulators are
responsible for regulation of registered
investment advisors.
Which of the following is most likely classified as a primary market transaction?
1. A mortgage-backed security (MBS) purchased from an institution that originates the mortgage
loans
2. Equity shares purchased on the floor of the New York Stock Exchange
,3. Corporate bond purchased from endowment fund that is liquidating
4. Shares of preferred stock that are purchased from a dealer correct answers A: 1. Primary
market transactions are those in which the financial securities are created, which would include
the creation of an MBS by the originating institution. The equity and preferred shares and the
corporate bond are examples of secondary market transactions.
One of your clients wants to build a portfolio characterized by high liquidity and very low risk.
This client does not mind if the portfolio's returns are low. Given these specifications,
you might recommend a portfolio consisting primarily of which asset class?
A. Money market instruments
B. Municipal bonds
C. Corporate bonds
D. Equities correct answers A: A Money market instruments are the least risky asset class with
the lowest return. Municipal and corporate bonds, as fixed income securities, have a moderate
risk and return profile. Equities tend to offer the highest return as well as highest risk.
All of the following are likely to be classified as investment advisers by the U.S. Securities and
Exchange Commission EXCEPT
1. a financial analyst who issues a report on the performance of value stocks.
2. an analyst who recommends a triple-A-rated bond to a client.
3. a money manager who makes asset allocation assignments for institutional investors.
4. a financial firm that acts as a dealer in investment grade bonds. correct answers The correct
answer is (4).
Broker-dealers are explicitly excluded from being classified as advisers under the legal
framework of the Investment Advisers Act. Individuals or firms that issue reports or offer
investment advice, including asset-allocation decisions, are considered to fit the
definition of an investment adviser.
, Fred bought 100 shares of Apple at $115 per share. One year later, he sold the stock for $152 per
share. During the year, Apple declared and paid dividends of $2 per share. What
was Fred's holding period return?
1. 32%
2. 34%
3. 73%
4. 206% correct answers The correct answer is (B).
(Net proceeds + dividend - interest) ÷ equity invested = HPR
[($152 - $115) + $2] ÷ $115 = 33.91%
Which of the following can be greatly reduced by diversification? 1- Systematic risk
2-Market risk
3-Unsystematic risk
4-Systematic and unsystematic risk correct answers 3 - Unsystematic risk, is reduced by
diversification.
Jerry invested in a mutual fund 5 years ago. His returns were 25%, -5%, 10%, 0%, and 50%,
respectively.
What is the difference between the arithmetic average and
the geometric average return over the 5 years?
1 - 0%
2 - 1.1%
3- 1.3%
4- 1.6% correct answers The correct answer is (D).
