STC Series 66 Final #1 And 2 Complete Questions And Answers With Verified Solutions

STC Series 66 Final #1 And 2 Complete Questions And Answers With Verified Solutions /. A client purchases an equity-indexed annuity contract that guarantees a 4% return or 80% of the performance of the S&P 500, whichever is greater. The index declines over the course of the next year. What return will your client receive? - Answer-4% An equity-indexed annuity guarantees the contract owner a minimum interest rate or the performance of a stock index such as the S&P 500 Index. If the return on this index is less than the guaranteed rate, the owner receives the guaranteed rate. If the index return is greater than the guarantee, the owner receives the greater return. (62437) /.The investment policy statement of a qualified retirement plan states that no more than 50% of the plan's assets may be invested in stocks. The investment manager places 65% of the plan's assets in stocks in order to take advantage of a bull market and increase the value of the plan's assets. Has the investment manager violated the fiduciary responsibility provisions of ERISA? - Answer-Yes, since the investment manager did not follow the stipulations of the investment policy statement This is an actual court case. The plan's trustees sued the investment manager who was held liable even though the plan's assets increased. (62146) /.All of the following choices are required to be included in a trade blotter, EXCEPT: - Answer-The amount of interest or dividends the investor will receive Broker-dealers and investment advisers are required to keep certain books and records. One of them is a blotter, which is a daily record of all purchases and sales of securities. The trade blotters contain information concerning the transaction such as the account in which the trade was executed, the trade date, the unit value and total value of the transaction, the name and amount of securities, and whom the securities were bought from or sold to. Blotters are also required when a firm receives or delivers securities as well as receives or disburses cash. /.Under the Uniform Securities Act, the statute of limitations for criminal violations of the Act is: - Answer-Five years The statute of limitations for criminal violations under the Act is five years. (62943) /.A small, single-office investment advisory firm has $4 million in assets under management. The firm is located in Texas. According to the Uniform Securities Act, which of the following persons associated with the firm will NOT fall under the definition of an investment adviser representative? - Answer-An in-house accountant who tabulates investment results for client accounts IA representatives are persons who are associated with an IA and make recommendations, manage accounts, solicit or negotiate the sale of IA services, or supervise any persons who engage in these activities. Persons who perform clerical functions (e.g., accountants) are not considered IA representatives. There is no requirement for a person to be an employee or to be solely dedicated to sales to meet the definition of IA representative. /.Under the Securities Exchange Act, a customer confirmation is NOT required to disclose: - Answer-The time of the trade execution The Securities Exchange Act requires broker-dealers to make specific disclosures on customer confirmations. Some of the required information includes the capacity in which the broker-dealer is acting (i.e., agency or principal), the amount of commission received by the broker-dealer for executing an agency trade, and the settlement date of the trade. The time of the trade execution is not required to be disclosed on a customer confirmation; however, it may be provided if the customer makes a specific request. /.Under the Uniform Securities Act, an Administrator may deny registration to an agent because of findings that indicate the agent had been convicted of a felony within the past: - Answer-10 years The Administrator may deny an agent's registration if she finds the individual has been convicted of a felony within the past 10 years. (62109) /.NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that any fee arrangement based on capital gains or portfolio appreciation may only be used if which of the following disclosures is made in writing? - Answer-That the arrangement may cause the adviser to recommend strategies that encourage a client to take greater-than-normal risks As opposed to other fee arrangements, performance-based fees are more likely to encourage an adviser to take greater risks with a client's money in order to generate more fees. While performance-based fees are generally prohibited under the Uniform Securities Act, some state Administrators make exceptions. (67684) /.Susan is a high-ranking official in the Comptroller's Office of Zanzibar Securities. Her title is Executive Vice President. Under the Uniform Securities Act, Susan is: - Answer-Not considered an agent since she is not involved in sales or trading Only personnel engaged in securities transactions are agents. Officers can be considered agents, but it depends on their particular job function. (79474) /.Which of the following securities is NOT considered exempt under the Uniform Securities Act? - Answer-Securities issued by an automobile company Under the Uniform Securities Act, any security issued by Canada or a Canadian Province, or savings and loan association, or any railroad company is considered an exempt security. There is an exemption under the Act for common carriers but an automobile company does not qualify for this exemption. ( /.Value investors would be interested in companies that have - Answer-Low price earnings ratios Value investing is a method of identifying securities that are undervalued based on company fundamentals. Value stocks tend to have low stock prices in relationship to their earnings, a higher dividend yield than their industry peers, and, typically, trade at a price closer to or at a discount to the book value than their competitors. Value investors believe that the most undervalued companies should rebound and outperform the market. This, of course, assumes that the company is financially sound. (63012) /.As an investment adviser, you are required to record and keep a record of every transaction in a security for a client's account within: - Answer-10 days of the end of each quarter, excluding direct obligations of the U.S. government Under both the Investment Advisers Act and the Uniform Securities Act, investment advisers are required to keep a record of every securities transaction within 10 days of the end of the quarter in which the transaction took place. Transactions in direct obligations of the U.S. government are excluded from this requirement. /.What is the benefit of discounting the cash flows of a fixed-income security? - Answer-It compares the price of a bond against the sum of the present values of the bond's future payouts A discounted cash flow evaluates each coupon payment and the repayment of a bond's principal at a present value, based on a rate of return. This makes it possible to evaluate a bond's value against the investor's desired rate of return. The sum of each of the discounted cash flows, plus the present value of the bond's principal, determines the total value of the bond. By comparing this value to the current price of the bond, the adviser will be able to determine if the bond is an attractive investment for a client. /.Based on the past performance of XYZ stock, an investment adviser has determined that there is a 25% chance that in a bull market, XYZ stock will return 20%. In a flat market (50% probability), the return should be 5%. The likelihood of a bear market is 25%, and expected returns would be a loss of 10%. What is the expected return for XYZ stock? - Answer-5% According to modern portfolio theory, the expected return is the sum of the weighted average of an investment's return. To find each weighted return, multiply the return by the likelihood of that return. For XYZ stock, the expected return is as follows. Return Likelihood Weighted Return20%x25%=5%5%x50%=2.5%(10%)x25%=(2.5%) Expected return = 5% (5% + 2.5% - 2.5%) /.Your client is considering purchasing a fund of hedge funds. Which of the following statements concerning this investment is TRUE? - Answer-These securities are not liquid investments A fund of hedge funds is a mutual fund that invests in unregistered, private hedge funds. Although hedge funds are not required to register with the SEC, funds of hedge funds typically do not have this exemption available to them. Since funds of funds are invested in illiquid securities, hedge funds, they do not typically offer investors the opportunity to sell on a daily basis. (Traditional mutual funds offer this feature.) Liquidity means an investor can efficiently sell or convert her investment into cash. /.Which of the following is/are regulated under the Investment Company Act of 1940? Investment companies investing money into other investment companies The firm that serves as a mutual fund's custodian and holds its assets The minimum rate of return required to remain registered as a fund The performance of the investment company - Answer-I and II only The Investment Company Act of 1940 regulates investment companies, their investment advisers, custodian banks, and distributors. The Investment Company Act of 1940 does not regulate performance and it does not require minimum rates of return in order to maintain registration. (32401) /.Which types of investments have historically shown a great deal of exposure to regulatory risk? - Answer-Limited partnerships Regulatory risk is the possibility that changes in the law or regulations can have an adverse impact on the value of investments. Although all kinds of investments can be subject to regulatory risk, limited partnerships have historically been particularly vulnerable. For example, adverse changes in the tax laws in 1986 caused the value of many limited partnerships to drop. (62016) /.A limited partnership would be the least suitable for which of the following investors? - Answer-A widower investing the proceeds of his deceased spouse's life insurance policy, whose main objectives are current income and capital preservation A limited partnership may not be a suitable investment for any of these individuals. The use of insurance proceeds are definitely the least suitable based on his circumstances and investment objectives. (32451) /.If an adviser wanted to determine a company's ability to pay debts that would be maturing in one year, the adviser would be most interested in the: - Answer-Current ratio The current ratio is a comparison of current assets to current liabilities for a one-year period. The acid-test ratio excludes inventories and usually is for a one- to three-month period. (62003) /.Under the Uniform Securities Act, which of the following sales is considered a non-issuer transaction? - Answer-The sale of an outstanding security on the New York Stock Exchange A non-issuer transaction (secondary market trade) involves any purchase or sale of a security whereby the issuer does not directly or indirectly derive a benefit. A stock trade that occurs on the New York Stock Exchange is an example of a non-issuer transaction. All of the other answer choices represent issuer transactions (i.e., the proceeds of the offering are for the issuer's benefit). (32515) 21 of 110 /.Which TWO of the following are considered exempt reporting advisers (ERAs)? Venture capital advisers Private fund advisers with assets under management of less than $150 million Family office advisers Private fund advisers with assets under management exceeding $150 million - Answer-I and II Venture capital advisers and private fund advisers with assets under management of less than $150 million are exempt from registration as an adviser with the SEC and/or state Administrator; however, they must still pay fees and report public information via the IARD/FINRA system. /.Buy and hold and systematic rebalancing are examples of passive approaches to asset allocation, and based on the theory known as: - Answer-Efficient Market Hypothesis Efficient Market Hypothesis (Theory) states that financial markets are efficient and that the prices of securities reflect all known information; therefore, it is impossible to outperform or time the market. Sector rotation is the moving of investments from one industry sector into another in anticipation of a change in the economy. CAPM, Capital Asset Pricing Model, describes the relationship between risk and expected return. Modern Portfolio Theory focuses on diversifying across various asset classes to enhance returns without significantly increasing risk. /.The manager of the XYZ Fund is permitted to move assets between the stock and bond markets, depending on economic conditions. Last year the manager had 70% of the fund's assets invested in stocks while only 30% in bonds. This year she has reversed the ratio. XYZ fund is most likely a(n): - Answer-Asset allocation fund An asset allocation fund permits the manager to change investment strategies and vehicles, based on changing market/economic conditions. /.A variable life insurance contract is appropriate for all of the following clients, EXCEPT: - Answer-A client who needs to meet her short-term savings goals Variable life insurance is unsuitable for a client who needs to meet a short-term savings goal. Instead, variable life insurance is suitable for clients who have a long-term investment need, are willing to assume risk, and want market-based returns. Keep in mind, traditional life insurance policies provide a fixed or guaranteed return. /.During the day, Big Block Traders has taken down 100,000 shares of Vantage Holdings at $6.33, another 200,000 shares at $6.17, and then 327,000 shares at $6.54. When distributing these shares to its discretionary clients, which of the following