STC Series 66 Final Examination #1 and 2 /
2025-2026 Most Recent Version with Well-
Analyzed Questions and Answers / Already
Rated A+
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?
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?
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:
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:
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?
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:
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:
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?
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:
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?
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
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:
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?
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?
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.
2025-2026 Most Recent Version with Well-
Analyzed Questions and Answers / Already
Rated A+
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?
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?
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:
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:
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?
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:
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:
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?
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:
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?
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
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:
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?
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?
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.
