Question 1
According to the Investment Advisers Act of 1940, when must an access person submit a
transaction report?
A. No later than 10 days after the end of the calendar quarter in which the transaction was
effected
B. Promptly
C. No later than 30 days after the end of each calendar quarter
D. Within 90 days of the end of the adviser's fiscal year
CORRECT ANSWER
C. No later than 30 days after the end of each calendar quarter
Question 2
What is the biggest advantage of investing in a general partnership?
A. Income is only taxed once
B. Each partner has limited liability
C. Each partner shares equally in the partnership's profits
D. It is easy to dissolve or liquidate the partnership
CORRECT ANSWER
A. Income is only taxed once
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,Question 3
When considering the tax consequences of trading securities within a trust, the trustee
should examine:
A. Other taxable income that is generated by the trust
B. The taxable assets of the trustee
C. The taxable assets of the grantor
D. The taxable income of the beneficiary of the trust
CORRECT ANSWER
A. Other taxable income that is generated by the trust
Question 4
An adviser is constructing a bond portfolio for a client whose goals are stable income and
return of principal. The adviser determines that the appropriate benchmark to compare
this portfolio's performance is the Wheyman Intermediate-term Government Bond Index.
Which of the following statements is NOT TRUE regarding this decision?
A. Choosing this index implies that mortgage-backed securities are not a large part of the
portfolio.
B. This portfolio should have low levels of risk to match the benchmark.
C. The client's goals of stable income and return of principal are not guaranteed by the
choice of this benchmark.
D. Any returns of this portfolio that exceed the performance of the benchmark are measured
by the beta of the portfolio.
CORRECT ANSWER
D. Any returns of this portfolio that exceed the performance of the benchmark are
measured by the beta of the portfolio.
2
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,Question 5
Which of the following statements about barbell strategies is NOT TRUE?
A. The strategy consists of purchasing bonds with both short and long maturities, but no
intermediate-term securities are included
B. The short-term bonds will provide for quick cash to purchase new bonds upon maturity
C. A barbell strategy is used to take advantage of potential interest-rate changes
D. Gains from the short-term maturities will offset losses in the long-term maturities
CORRECT ANSWER
D. Gains from the short-term maturities will offset losses in the long-term maturities
Question 6
Which of the following is/are regulated under the Investment Company Act of 1940?
I. Investment companies investing money into other investment companies
II. The firm that serves as a mutual fund's custodian and holds its assets
III. The minimum rate of return required to remain registered as a fund
IV. The performance of the investment company
A. I only
B. I and II only
C. I, II, and III only
D. I, II, III, and IV
CORRECT ANSWER
B. I and II only
3
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, Question 7
Action Advisers creates financial plans for clients. It generally implements these plans
through Packaged Products Producers (PPP), a limited broker-dealer owned by Action. PPP
offers a mix of mutual funds and variable annuities, but does not engage in transactions
involving individual stocks or bonds. What information must be disclosed to Action's
advisory clients?
A. A statement that the implementation of client financial plans may be limited because of
the incomplete product selection available through PPP
B. PPP's monthly net capital position
C. A statement that the plans implemented using only mutual funds and annuities will not
be able to sufficiently offer diversification for most clients
D. A statement that the plan will probably have subpar performance due to the limited
investment choices offered by PPP
CORRECT ANSWER
A. A statement that the implementation of client financial plans may be limited because
of the incomplete product selection available through PPP
Question 8
Sid is an investment adviser. A number of his clients are willing to accept a relatively high
level of risk to achieve potentially high returns. At various times in his career, Sid has
attempted to anticipate market events to generate higher returns for his clients. He has
found that over time, the results were disappointing. Sid is now a firm believer in indexing.
Sid's view of a portfolio's performance over an extended time horizon is an example of:
A. The Random Market Theory
B. Modern Portfolio Theory
C. The Dow Theory
D. The Efficient Market Hypothesis
CORRECT ANSWER
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According to the Investment Advisers Act of 1940, when must an access person submit a
transaction report?
A. No later than 10 days after the end of the calendar quarter in which the transaction was
effected
B. Promptly
C. No later than 30 days after the end of each calendar quarter
D. Within 90 days of the end of the adviser's fiscal year
CORRECT ANSWER
C. No later than 30 days after the end of each calendar quarter
Question 2
What is the biggest advantage of investing in a general partnership?
A. Income is only taxed once
B. Each partner has limited liability
C. Each partner shares equally in the partnership's profits
D. It is easy to dissolve or liquidate the partnership
CORRECT ANSWER
A. Income is only taxed once
1
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,Question 3
When considering the tax consequences of trading securities within a trust, the trustee
should examine:
A. Other taxable income that is generated by the trust
B. The taxable assets of the trustee
C. The taxable assets of the grantor
D. The taxable income of the beneficiary of the trust
CORRECT ANSWER
A. Other taxable income that is generated by the trust
Question 4
An adviser is constructing a bond portfolio for a client whose goals are stable income and
return of principal. The adviser determines that the appropriate benchmark to compare
this portfolio's performance is the Wheyman Intermediate-term Government Bond Index.
Which of the following statements is NOT TRUE regarding this decision?
A. Choosing this index implies that mortgage-backed securities are not a large part of the
portfolio.
B. This portfolio should have low levels of risk to match the benchmark.
C. The client's goals of stable income and return of principal are not guaranteed by the
choice of this benchmark.
D. Any returns of this portfolio that exceed the performance of the benchmark are measured
by the beta of the portfolio.
CORRECT ANSWER
D. Any returns of this portfolio that exceed the performance of the benchmark are
measured by the beta of the portfolio.
2
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,Question 5
Which of the following statements about barbell strategies is NOT TRUE?
A. The strategy consists of purchasing bonds with both short and long maturities, but no
intermediate-term securities are included
B. The short-term bonds will provide for quick cash to purchase new bonds upon maturity
C. A barbell strategy is used to take advantage of potential interest-rate changes
D. Gains from the short-term maturities will offset losses in the long-term maturities
CORRECT ANSWER
D. Gains from the short-term maturities will offset losses in the long-term maturities
Question 6
Which of the following is/are regulated under the Investment Company Act of 1940?
I. Investment companies investing money into other investment companies
II. The firm that serves as a mutual fund's custodian and holds its assets
III. The minimum rate of return required to remain registered as a fund
IV. The performance of the investment company
A. I only
B. I and II only
C. I, II, and III only
D. I, II, III, and IV
CORRECT ANSWER
B. I and II only
3
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, Question 7
Action Advisers creates financial plans for clients. It generally implements these plans
through Packaged Products Producers (PPP), a limited broker-dealer owned by Action. PPP
offers a mix of mutual funds and variable annuities, but does not engage in transactions
involving individual stocks or bonds. What information must be disclosed to Action's
advisory clients?
A. A statement that the implementation of client financial plans may be limited because of
the incomplete product selection available through PPP
B. PPP's monthly net capital position
C. A statement that the plans implemented using only mutual funds and annuities will not
be able to sufficiently offer diversification for most clients
D. A statement that the plan will probably have subpar performance due to the limited
investment choices offered by PPP
CORRECT ANSWER
A. A statement that the implementation of client financial plans may be limited because
of the incomplete product selection available through PPP
Question 8
Sid is an investment adviser. A number of his clients are willing to accept a relatively high
level of risk to achieve potentially high returns. At various times in his career, Sid has
attempted to anticipate market events to generate higher returns for his clients. He has
found that over time, the results were disappointing. Sid is now a firm believer in indexing.
Sid's view of a portfolio's performance over an extended time horizon is an example of:
A. The Random Market Theory
B. Modern Portfolio Theory
C. The Dow Theory
D. The Efficient Market Hypothesis
CORRECT ANSWER
4
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