STC Series 66 Greenlight exams || All Solved Correctly.
Securities that are registered through qualification may only be sold: correct answers Once
the registration is declared effective by the Administrator
Securities that are registered through qualification may be sold once the registration is
declared effective by the Administrator. Note that in choice (c), the use of the term approved
is inappropriate. Securities that are deemed effective for sale by an Administrator may not be
described as having been approved by the Administrator.
The difference between a corporation's current assets and its current liabilities is the: correct
answers Working capital
The amount by which a corporation's current assets exceed its current liabilities is referred to
as working capital.
Assuming an expected rate of return, a specific holding period, and a sum to be invested, an
IAR is able to determine an investment's: correct answers Future value
The future value of an investment is based on the present value of the amount invested, using
a discount rate each year, and doing so over a given period of time. The assumption is that the
annual return is reinvested at the same rate, or is compounded over the given time period,
thereby resulting in a future value that exceeds the present value.
Which of the following types of risk is MOST associated with the purchase of a five-year T-
bond? correct answers Interest-rate
Interest-rate risk, which is also referred to as money-rate risk, is essentially the risk that if
interest rates rise, the prices of the debt securities will fall. If an investor needs to liquidate
her debt investment prior to maturity, rising interest rates reduce the value she would receive
if she sold the security in the secondary market. Market risk is primarily associated with
common stock. Since the secondary market for Treasuries is very active, liquidity risk is not a
factor. Although legislative risk (changes in the law) could create diminished value for the
instruments, it is not likely to occur.
Disadvantages of investing in a C Corporation include which of the following choices?
Shareholders are taxed on dividends that they receive.
The corporation is taxed on its income.
Shareholders may not deduct their share of the corporation's losses on their personal tax
returns.
Shareholders are paid last if the corporation liquidates. correct answers I, II, III, and IV
All of the choices are disadvantages of investing in a C Corporation
All the following are characteristics of passive asset allocation strategies, EXCEPT: correct
answers Altering a portfolio in anticipation of an economic event
A passive asset allocation strategy (e.g., buy and hold) is characterized by low transaction
costs and minimal tax consequences. Systematic rebalancing, another passive strategy, alters
the portfolio on a monthly, quarterly, or annual basis to restore an original strategic asset
allocation if market movements have changed it. On the other hand, active (tactical) asset
allocation strategies effect changes to a portfolio's allocation in anticipation of economic
events.
A person has established an IA as a sole proprietorship and works as an IAR out of his home
office. To help promote and manage the IA, he has set up a website which contains personal
,information about his clients. A few weeks after setting up the website, the IAR discovers
that the website has been hacked and his customers' account information has been stolen.
What is the primary regulatory concern? correct answers The IA did not prepare proper
cybersecurity policies, procedures, and measures before launching the website.
Both the SEC and state Administrators require IAs to establish cybersecurity policies in order
to protect their clients. Since the website was hacked, the regulator's primary concern is the
extent of the IA's cybersecurity measures. The regulations don't require websites to be
password protected, despite the fact that many IAs may find them necessary to protect client
information. Also, there's no requirement for an IA to be federally covered before creating a
website. Although websites are considered advertisements and regulators must be notified,
it's unlikely that this is the primary regulatory concern.
A Nasdaq listed company is offering 1,000,000 shares of common stock in State A. The
Administrator in State A may:
Not require registration of the stock in State A.
Require the issuer to perform notice filing.
Require the issuer to pay a fee.
Investigate the underwriter for possible fraud in connection with the offering. correct answers
I and IV only
Securities that are listed on a national exchange (e.g., Nasdaq, NYSE, or AMEX) are referred
to as federal covered securities and, therefore, are not required to be registered at the state
level. Additionally, if the federal covered security is listed on an exchange, the state may not
require the issuer to pay a fee, submit a notice filing, or provide a consent to service of
process. However, the state Administrator may investigate any broker-dealer (including the
underwriter) that participates in the offering for fraud or deceit and file an enforcement action
if it is warranted.
According to the Uniform Securities Act, which of the following activities by an agent of a
broker-dealer is unethical? correct answers Executing orders to sell securities in a client's
individual and joint account based on instructions from the client's spouse.
Unless the client's spouse has been given specific authorization, executing these orders is
unethical. An agent may exercise discretion over the price and/or time of execution, based on
verbal authorization from the client. Agents are allowed to accept unsolicited orders to buy
and sell securities. Agents are not required to send all clients a preliminary prospectus, but
they are required to send a final prospectus to clients who purchase non-exempt securities.
If an agent of a broker-dealer is granted a durable power of attorney over a client's account,
all of the following statements are TRUE, EXCEPT correct answers The client must be an
institution
A durable power of attorney provides the agent with the power to manage the grantor's
financial affairs even if the grantor becomes incapacitated. With this authority (which must
be in written form), the agent of the broker-dealer may make financial decisions on behalf of
the grantor (discretion). A standard power of attorney is terminated if the grantor becomes
incapacitated. (17178)
The factors that assist in determining a client's risk tolerance include:
Income
Age
Personality
Net worth correct answers I, II, III, IV
,A person's risk tolerance is based on income, age, personality type, net worth, as well as any
other relevant details. For instance, family considerations may also influence a person's risk
tolerance.
Which TWO of the following statements are TRUE regarding an investment adviser that
maintains custody of its clients' assets?
The securities must be deposited with a qualified custodian.
The securities must be held in a vault that is maintained by the firm.
A notice must be sent to the clients to indicate the secure location or custodian of the
securities.
Annual statements must be sent to each client of the investment adviser. correct answers I and
III
According to Rule 206(4)-2 of the Investment Advisers Act of 1940, it is a deceptive trade
practice to maintain custody (safekeeping) of client funds and securities unless they are held
by a qualified custodian. When the IA opens an account with a qualified custodian, the client
must be informed of the name and address of the custodian. Clients must be provided with
account statements at least quarterly (NOT annually).
An investor is analyzing two bonds. Bond A has a 5% coupon and matures in three years;
Bond B also has a 5% coupon, but matures in 10 years. If interest rates decline by 1%, what
is to be expected? correct answers Bond B's price will increase more than Bond A's price
As interest rates change, prices of bonds with longer maturities will fluctuate more than
prices of bonds with shorter maturities. When interest rates decline, all bond prices will rise;
however, prices of bonds with longer maturities will increase more than prices of bonds with
shorter maturities. For that reason, the price of Bond B (the 10-year bond) will increase more
than the price of Bond A (the three-year bond).
***DURATION***
A person who invests in a variable annuity is most concerned with the performance of the
insurance company's: correct answers Separate account
The performance of a variable annuity is related to the performance of the insurance
company's separate account. On the other hand, an insurance company's general account
backs the company's fixed annuities and other traditional (guaranteed) insurance products.
Although an investor may be concerned with the overall profitability of the insurance
company, it has no bearing on the performance of the variable annuity's separate account.
Two friends are starting their own business and are trying to decide whether to organize this
new business as an S Corporation or a general partnership. What is a significant advantage of
an S Corporation compared to a general partnership? correct answers Limited liability
(original and wrong answer was favorable tax treatment, which is an advantage of a
partnership, S corp has limited liability due to more shareholders, general partners have
unlimited liability)
If they form a general partnership, both partners are fully liable for the partnership's debts.
(Limited partners are not fully liable; however, the question gives no indication that one of
the partners will be a limited partner.) In an S Corporation, the owners are not fully liable for
the company's debts—they have only limited liability. As for choice (a), both entities receive
favorable federal tax treatment. Since both business entities are pass-through vehicles for tax
purposes, all losses and profits are passed through to the owners.
, Under the Uniform Securities Act, an investment adviser is required to provide a balance
sheet when it files Form ADV Part 2 in all of the following situations, EXCEPT when:
correct answers The investment adviser inadvertently received client securities, but returned
them after two business days.
In choice (c), the investment adviser has three business days to return the securities before
custody is established. Since the adviser returned the securities in two business days, custody
was not established and no balance sheet is required. Under the USA, investment advisers
that require the prepayment of fees of more than $500, six months or more in advance, are
required to include a balance sheet when they file Form ADV Part 2 (choice [a]). In choice
(b), the investment adviser has custody, which also requires the inclusion of a balance sheet
when it files Form ADV Part 2. In choice (d), the investment adviser has authority to execute
transactions in an account that belongs to a client; therefore, the adviser has discretion over
the account and is required to provide a balance sheet when it files Form ADV Part 2.
An investment adviser's sole office is located in State A and its only client is the State A
Triple Tax-Free Municipal Bond Fund. The adviser exercises discretion over the fund's
investments and also performs safekeeping services for the fund. Which of the following
statements is TRUE? correct answers The investment adviser is not required to meet the net
worth requirements or post a bond since it is regulated at the federal level.
Since the investment adviser's only client is an investment company (a mutual fund), it is
considered a federal covered adviser. A federal covered adviser is not required to register at
the state level and is not subject to state requirements (e.g., maintaining a minimum net worth
requirement). Additionally, the Investment Advisers Act of 1940 (which is the appropriate
regulation for federal covered advisers) does not impose minimum net worth requirements.
An investment adviser representative is preparing a financial plan for a client. As part of this
process, he's helping her create a personal balance sheet and income statement. The income
statement should include all of the following items, EXCEPT: correct answers Depreciation
on the primary residence
Any appreciation or depreciation in real estate that the client owns is included on the client's
balance sheet, not her personal income statement. Commissions, bonuses, interest, and
dividends are all sources of income that should be included on the client's income statement.
If an adviser inadvertently receives client funds and/or securities, it can avoid the implication
that it is maintaining custody of the assets by returning them to the sender within: correct
answers Three business days of receiving them
An investment adviser that holds clients' cash and/or securities, even temporarily, puts those
assets at risk of misuse or loss. For an investment adviser to avoid the implication of having
custody after inadvertently receiving client funds or securities, it must return them to the
sender within three business days of receiving them
According to NASAA's Model Rule on Unethical Business Practices of IAs and IARs, all of
the following are prohibited, EXCEPT correct answers Charging the customer a reasonable
advisory fee.
Charging customers a reasonable fee is not prohibited. However, all of the other choices are
considered unethical according to NASAA's model rule.
An investment adviser maintains its home office in State A and is also registered there. State
A has a minimum financial (net worth) requirement of $70,000. The firm intends to open an
office and provide advisory services in State B, which has a minimum financial requirement
Securities that are registered through qualification may only be sold: correct answers Once
the registration is declared effective by the Administrator
Securities that are registered through qualification may be sold once the registration is
declared effective by the Administrator. Note that in choice (c), the use of the term approved
is inappropriate. Securities that are deemed effective for sale by an Administrator may not be
described as having been approved by the Administrator.
The difference between a corporation's current assets and its current liabilities is the: correct
answers Working capital
The amount by which a corporation's current assets exceed its current liabilities is referred to
as working capital.
Assuming an expected rate of return, a specific holding period, and a sum to be invested, an
IAR is able to determine an investment's: correct answers Future value
The future value of an investment is based on the present value of the amount invested, using
a discount rate each year, and doing so over a given period of time. The assumption is that the
annual return is reinvested at the same rate, or is compounded over the given time period,
thereby resulting in a future value that exceeds the present value.
Which of the following types of risk is MOST associated with the purchase of a five-year T-
bond? correct answers Interest-rate
Interest-rate risk, which is also referred to as money-rate risk, is essentially the risk that if
interest rates rise, the prices of the debt securities will fall. If an investor needs to liquidate
her debt investment prior to maturity, rising interest rates reduce the value she would receive
if she sold the security in the secondary market. Market risk is primarily associated with
common stock. Since the secondary market for Treasuries is very active, liquidity risk is not a
factor. Although legislative risk (changes in the law) could create diminished value for the
instruments, it is not likely to occur.
Disadvantages of investing in a C Corporation include which of the following choices?
Shareholders are taxed on dividends that they receive.
The corporation is taxed on its income.
Shareholders may not deduct their share of the corporation's losses on their personal tax
returns.
Shareholders are paid last if the corporation liquidates. correct answers I, II, III, and IV
All of the choices are disadvantages of investing in a C Corporation
All the following are characteristics of passive asset allocation strategies, EXCEPT: correct
answers Altering a portfolio in anticipation of an economic event
A passive asset allocation strategy (e.g., buy and hold) is characterized by low transaction
costs and minimal tax consequences. Systematic rebalancing, another passive strategy, alters
the portfolio on a monthly, quarterly, or annual basis to restore an original strategic asset
allocation if market movements have changed it. On the other hand, active (tactical) asset
allocation strategies effect changes to a portfolio's allocation in anticipation of economic
events.
A person has established an IA as a sole proprietorship and works as an IAR out of his home
office. To help promote and manage the IA, he has set up a website which contains personal
,information about his clients. A few weeks after setting up the website, the IAR discovers
that the website has been hacked and his customers' account information has been stolen.
What is the primary regulatory concern? correct answers The IA did not prepare proper
cybersecurity policies, procedures, and measures before launching the website.
Both the SEC and state Administrators require IAs to establish cybersecurity policies in order
to protect their clients. Since the website was hacked, the regulator's primary concern is the
extent of the IA's cybersecurity measures. The regulations don't require websites to be
password protected, despite the fact that many IAs may find them necessary to protect client
information. Also, there's no requirement for an IA to be federally covered before creating a
website. Although websites are considered advertisements and regulators must be notified,
it's unlikely that this is the primary regulatory concern.
A Nasdaq listed company is offering 1,000,000 shares of common stock in State A. The
Administrator in State A may:
Not require registration of the stock in State A.
Require the issuer to perform notice filing.
Require the issuer to pay a fee.
Investigate the underwriter for possible fraud in connection with the offering. correct answers
I and IV only
Securities that are listed on a national exchange (e.g., Nasdaq, NYSE, or AMEX) are referred
to as federal covered securities and, therefore, are not required to be registered at the state
level. Additionally, if the federal covered security is listed on an exchange, the state may not
require the issuer to pay a fee, submit a notice filing, or provide a consent to service of
process. However, the state Administrator may investigate any broker-dealer (including the
underwriter) that participates in the offering for fraud or deceit and file an enforcement action
if it is warranted.
According to the Uniform Securities Act, which of the following activities by an agent of a
broker-dealer is unethical? correct answers Executing orders to sell securities in a client's
individual and joint account based on instructions from the client's spouse.
Unless the client's spouse has been given specific authorization, executing these orders is
unethical. An agent may exercise discretion over the price and/or time of execution, based on
verbal authorization from the client. Agents are allowed to accept unsolicited orders to buy
and sell securities. Agents are not required to send all clients a preliminary prospectus, but
they are required to send a final prospectus to clients who purchase non-exempt securities.
If an agent of a broker-dealer is granted a durable power of attorney over a client's account,
all of the following statements are TRUE, EXCEPT correct answers The client must be an
institution
A durable power of attorney provides the agent with the power to manage the grantor's
financial affairs even if the grantor becomes incapacitated. With this authority (which must
be in written form), the agent of the broker-dealer may make financial decisions on behalf of
the grantor (discretion). A standard power of attorney is terminated if the grantor becomes
incapacitated. (17178)
The factors that assist in determining a client's risk tolerance include:
Income
Age
Personality
Net worth correct answers I, II, III, IV
,A person's risk tolerance is based on income, age, personality type, net worth, as well as any
other relevant details. For instance, family considerations may also influence a person's risk
tolerance.
Which TWO of the following statements are TRUE regarding an investment adviser that
maintains custody of its clients' assets?
The securities must be deposited with a qualified custodian.
The securities must be held in a vault that is maintained by the firm.
A notice must be sent to the clients to indicate the secure location or custodian of the
securities.
Annual statements must be sent to each client of the investment adviser. correct answers I and
III
According to Rule 206(4)-2 of the Investment Advisers Act of 1940, it is a deceptive trade
practice to maintain custody (safekeeping) of client funds and securities unless they are held
by a qualified custodian. When the IA opens an account with a qualified custodian, the client
must be informed of the name and address of the custodian. Clients must be provided with
account statements at least quarterly (NOT annually).
An investor is analyzing two bonds. Bond A has a 5% coupon and matures in three years;
Bond B also has a 5% coupon, but matures in 10 years. If interest rates decline by 1%, what
is to be expected? correct answers Bond B's price will increase more than Bond A's price
As interest rates change, prices of bonds with longer maturities will fluctuate more than
prices of bonds with shorter maturities. When interest rates decline, all bond prices will rise;
however, prices of bonds with longer maturities will increase more than prices of bonds with
shorter maturities. For that reason, the price of Bond B (the 10-year bond) will increase more
than the price of Bond A (the three-year bond).
***DURATION***
A person who invests in a variable annuity is most concerned with the performance of the
insurance company's: correct answers Separate account
The performance of a variable annuity is related to the performance of the insurance
company's separate account. On the other hand, an insurance company's general account
backs the company's fixed annuities and other traditional (guaranteed) insurance products.
Although an investor may be concerned with the overall profitability of the insurance
company, it has no bearing on the performance of the variable annuity's separate account.
Two friends are starting their own business and are trying to decide whether to organize this
new business as an S Corporation or a general partnership. What is a significant advantage of
an S Corporation compared to a general partnership? correct answers Limited liability
(original and wrong answer was favorable tax treatment, which is an advantage of a
partnership, S corp has limited liability due to more shareholders, general partners have
unlimited liability)
If they form a general partnership, both partners are fully liable for the partnership's debts.
(Limited partners are not fully liable; however, the question gives no indication that one of
the partners will be a limited partner.) In an S Corporation, the owners are not fully liable for
the company's debts—they have only limited liability. As for choice (a), both entities receive
favorable federal tax treatment. Since both business entities are pass-through vehicles for tax
purposes, all losses and profits are passed through to the owners.
, Under the Uniform Securities Act, an investment adviser is required to provide a balance
sheet when it files Form ADV Part 2 in all of the following situations, EXCEPT when:
correct answers The investment adviser inadvertently received client securities, but returned
them after two business days.
In choice (c), the investment adviser has three business days to return the securities before
custody is established. Since the adviser returned the securities in two business days, custody
was not established and no balance sheet is required. Under the USA, investment advisers
that require the prepayment of fees of more than $500, six months or more in advance, are
required to include a balance sheet when they file Form ADV Part 2 (choice [a]). In choice
(b), the investment adviser has custody, which also requires the inclusion of a balance sheet
when it files Form ADV Part 2. In choice (d), the investment adviser has authority to execute
transactions in an account that belongs to a client; therefore, the adviser has discretion over
the account and is required to provide a balance sheet when it files Form ADV Part 2.
An investment adviser's sole office is located in State A and its only client is the State A
Triple Tax-Free Municipal Bond Fund. The adviser exercises discretion over the fund's
investments and also performs safekeeping services for the fund. Which of the following
statements is TRUE? correct answers The investment adviser is not required to meet the net
worth requirements or post a bond since it is regulated at the federal level.
Since the investment adviser's only client is an investment company (a mutual fund), it is
considered a federal covered adviser. A federal covered adviser is not required to register at
the state level and is not subject to state requirements (e.g., maintaining a minimum net worth
requirement). Additionally, the Investment Advisers Act of 1940 (which is the appropriate
regulation for federal covered advisers) does not impose minimum net worth requirements.
An investment adviser representative is preparing a financial plan for a client. As part of this
process, he's helping her create a personal balance sheet and income statement. The income
statement should include all of the following items, EXCEPT: correct answers Depreciation
on the primary residence
Any appreciation or depreciation in real estate that the client owns is included on the client's
balance sheet, not her personal income statement. Commissions, bonuses, interest, and
dividends are all sources of income that should be included on the client's income statement.
If an adviser inadvertently receives client funds and/or securities, it can avoid the implication
that it is maintaining custody of the assets by returning them to the sender within: correct
answers Three business days of receiving them
An investment adviser that holds clients' cash and/or securities, even temporarily, puts those
assets at risk of misuse or loss. For an investment adviser to avoid the implication of having
custody after inadvertently receiving client funds or securities, it must return them to the
sender within three business days of receiving them
According to NASAA's Model Rule on Unethical Business Practices of IAs and IARs, all of
the following are prohibited, EXCEPT correct answers Charging the customer a reasonable
advisory fee.
Charging customers a reasonable fee is not prohibited. However, all of the other choices are
considered unethical according to NASAA's model rule.
An investment adviser maintains its home office in State A and is also registered there. State
A has a minimum financial (net worth) requirement of $70,000. The firm intends to open an
office and provide advisory services in State B, which has a minimum financial requirement
