Series 65: Midterm Exam
The XYZ Corporation's income statement contains the following information:
Total revenue $200,000
Cost of goods sold $60,000
Administrative expenses $30,000
Depreciation $10,000
Miscellaneous expenses $3,000
Taxes paid $5,000
Based on this information, what is XYZ's gross profit?
A. $140,000
B. $100,000
C. $97,000
D. $110,000 - correct answer ✔✔$140k
An investor purchased 300 shares of Amalgamated Auto Parts (AAP) at a price of $60 per share. Shortly
after the purchase, with the price of AAP at $62, the investor sold three AAP 60 call options when the
premium was 6 points. At expiration, AAP stock was trading at $53 per share. The net result to this
investor is
A. a gain of $100.
B. a loss of $100.
C. a gain of $300.
D. a loss of $300. - correct answer ✔✔A loss of $300
,When plotted on a graph, the difference between short- and long-term interest rates typically reflects an
upward-sloping line known as the yield curve. When it is an upward-sloping curve, it is a positive or
normal yield curve. Long-term interest rates are typically higher than short-term rates for a number of
reasons. Among those reasons are all of the following except
A. the increased risk of default over long periods.
B. the time value of money.
C. the increased buying power of money resulting from inflation.
D. the loss of liquidity associated with long-term investments. - correct answer ✔✔The increased buying
power of money resulting from inflation
Which of the following qualifies under the Section 28(e) safe harbor provisions for soft dollar
compensation?
A. Providing access to the broker-dealer's computerized accounting system, allowing the investment
adviser to prepare its financial statements
B. Reimbursement for travel expenses incurred to attend a seminar on the latest compliance trends for
registered investment advisers
C. Clearance and settlement services provided by the broker-dealer
D. Rent-free use of unused space in the broker-dealer's office - correct answer ✔✔Clearance and
settlement services provided by the broker-dealer
An investment adviser that has custody of customer funds and securities discovers that its net worth has
dropped below the required minimum under the rules of the state Administrator. Under NASAA rules,
the adviser must do which of the following?
1. Notify the Administrator by the close of business on the day after discovery
2. File a report of its financial condition with the Administrator no later than the close of business on the
day after notification
3. Cease doing business - correct answer ✔✔Notify the Administrator by the close of business on the
day after the discovery and file a report of its financial condition w/ the Administrator no later than the
close of business on the day after notification
, Under the NASAA Model Custody Rule, an investment adviser (IA) would be permitted to take or have
custody of any securities or funds of any client if
A. customer permission was obtained prior to entering into the contract.
B. the IA maintained adequate net worth or a surety bond.
C. permission was obtained from the Administrator and custody was not prohibited by that state's rules.
D. notification was given to the Administrator that he has or may have custody and custody was not
prohibited by that state's rules. - correct answer ✔✔Notification was given to the Administrator that he
has or may have custody and custody wasn't prohibited by that state's rules
One of your clients sits on the board of directors of a company whose stock trades on the New York
Stock Exchange. Two months ago, the client purchased 500 shares of the stock at $50 per share. Needing
some additional cash for an upcoming vacation, the client has decided to sell this stock when the market
price is $48 per share. You can make this trade as long as it complies with the provisions of
A. Regulation A.
B. Rule 144.
C. Regulation D.
D. Rule 147. - correct answer ✔✔Rule 144
Senescent Retirement Planning (SRP) is registered as a broker-dealer with the SEC and a number of
states. As such, the client relationship summary (Form CRS) must be delivered to each retail investor
before or at the earliest of any of these except
A. entrance into an investment advisory contract with the retail investor.
B. a securities transaction or an investment strategy involving securities described to a retail investor.
C. the opening of a brokerage account for the retail investor.
D. placing an order for the retail investor. - correct answer ✔✔Entrance into an investment advisory
contract w/ the retail investor
An investor is looking at purchasing $10,000 face of bonds. One choice is U.S. Treasury bonds priced at
104.24, and the other choice is AAA-rated corporate bonds priced at 103⅜. How much more will the
Treasuries cost?
The XYZ Corporation's income statement contains the following information:
Total revenue $200,000
Cost of goods sold $60,000
Administrative expenses $30,000
Depreciation $10,000
Miscellaneous expenses $3,000
Taxes paid $5,000
Based on this information, what is XYZ's gross profit?
A. $140,000
B. $100,000
C. $97,000
D. $110,000 - correct answer ✔✔$140k
An investor purchased 300 shares of Amalgamated Auto Parts (AAP) at a price of $60 per share. Shortly
after the purchase, with the price of AAP at $62, the investor sold three AAP 60 call options when the
premium was 6 points. At expiration, AAP stock was trading at $53 per share. The net result to this
investor is
A. a gain of $100.
B. a loss of $100.
C. a gain of $300.
D. a loss of $300. - correct answer ✔✔A loss of $300
,When plotted on a graph, the difference between short- and long-term interest rates typically reflects an
upward-sloping line known as the yield curve. When it is an upward-sloping curve, it is a positive or
normal yield curve. Long-term interest rates are typically higher than short-term rates for a number of
reasons. Among those reasons are all of the following except
A. the increased risk of default over long periods.
B. the time value of money.
C. the increased buying power of money resulting from inflation.
D. the loss of liquidity associated with long-term investments. - correct answer ✔✔The increased buying
power of money resulting from inflation
Which of the following qualifies under the Section 28(e) safe harbor provisions for soft dollar
compensation?
A. Providing access to the broker-dealer's computerized accounting system, allowing the investment
adviser to prepare its financial statements
B. Reimbursement for travel expenses incurred to attend a seminar on the latest compliance trends for
registered investment advisers
C. Clearance and settlement services provided by the broker-dealer
D. Rent-free use of unused space in the broker-dealer's office - correct answer ✔✔Clearance and
settlement services provided by the broker-dealer
An investment adviser that has custody of customer funds and securities discovers that its net worth has
dropped below the required minimum under the rules of the state Administrator. Under NASAA rules,
the adviser must do which of the following?
1. Notify the Administrator by the close of business on the day after discovery
2. File a report of its financial condition with the Administrator no later than the close of business on the
day after notification
3. Cease doing business - correct answer ✔✔Notify the Administrator by the close of business on the
day after the discovery and file a report of its financial condition w/ the Administrator no later than the
close of business on the day after notification
, Under the NASAA Model Custody Rule, an investment adviser (IA) would be permitted to take or have
custody of any securities or funds of any client if
A. customer permission was obtained prior to entering into the contract.
B. the IA maintained adequate net worth or a surety bond.
C. permission was obtained from the Administrator and custody was not prohibited by that state's rules.
D. notification was given to the Administrator that he has or may have custody and custody was not
prohibited by that state's rules. - correct answer ✔✔Notification was given to the Administrator that he
has or may have custody and custody wasn't prohibited by that state's rules
One of your clients sits on the board of directors of a company whose stock trades on the New York
Stock Exchange. Two months ago, the client purchased 500 shares of the stock at $50 per share. Needing
some additional cash for an upcoming vacation, the client has decided to sell this stock when the market
price is $48 per share. You can make this trade as long as it complies with the provisions of
A. Regulation A.
B. Rule 144.
C. Regulation D.
D. Rule 147. - correct answer ✔✔Rule 144
Senescent Retirement Planning (SRP) is registered as a broker-dealer with the SEC and a number of
states. As such, the client relationship summary (Form CRS) must be delivered to each retail investor
before or at the earliest of any of these except
A. entrance into an investment advisory contract with the retail investor.
B. a securities transaction or an investment strategy involving securities described to a retail investor.
C. the opening of a brokerage account for the retail investor.
D. placing an order for the retail investor. - correct answer ✔✔Entrance into an investment advisory
contract w/ the retail investor
An investor is looking at purchasing $10,000 face of bonds. One choice is U.S. Treasury bonds priced at
104.24, and the other choice is AAA-rated corporate bonds priced at 103⅜. How much more will the
Treasuries cost?
