STC SERIES 66 FINAL #1 AND 2
A bond is convertible at $20 and is purchased for $1,100. If the
common stock of the issuer appreciates and is currently selling for
$25 per share, what is the conversion value of the common stock? -
ANSWERS-$1,250
The bond is able to be converted into 50 shares of the issuer's stock
($1,000 ÷ $20 = 50 shares). If the underlying stock is currently
trading at $25, an investor who converts the bond will receive 50
shares that are valued at $25 per share, or $1,250.
The possibility that a company may perform poorly, causing its stock
to decline in value is called: - ANSWERS-Business risk
Business risk is the possibility that a corporation's business will not
do well, causing its stock to drop in value, or even become worthless,
if the company declares bankruptcy.
If an agent of a broker-dealer is advertising on the Internet, which
TWO of the following statements are TRUE?
The agent must disclose the name of her affiliated broker-dealer.
The broker-dealer that creates the advertisement is responsible for
review and approval of the content.
The agent is working outside of the scope granted by the broker-
dealer.
A legend must be included which states that the agent is exempt from
the anti-fraud provisions of applicable state laws - ANSWERS-I and
II
,According to NASAA's interpretive order concerning broker-dealers,
investment advisers, broker-dealer agents, and investment adviser
representatives regarding general dissemination of information, the
name of the broker-dealer or investment adviser that approved the
content as well as the one with whom the agent is affiliated must be
on all Internet-based advertising. In addition, only individuals who are
either properly registered within the potential customer's state or
exempt may follow up and respond to potential leads.
Which of the following is NOT a leveraged investment strategy? -
ANSWERS-Investing in a company with a large amount of debt
outstanding
When a person leverages a portfolio, he acquires a loan in order to
buy more securities. This activity is done in a margin account, which
allows him to magnify his investment results by increasing the
number of shares or bonds that he is able to purchase. Investing in a
company that has issued a great deal of debt, such as a utility
company, is not a leveraged portfolio strategy.
An investment advisory firm has completed extensive research into
the pharmaceutical industry and is in the process of establishing long
positions in several companies. Although many of the stocks are
speculative issues, several of the firm's client accounts are
conservative. According to the Uniform Securities Act, the placement
of such speculative shares in any of the clients' accounts is: -
ANSWERS-Permitted if it is consistent with the clients' objectives
The adviser may only purchase securities that are consistent with
client objectives. The fact that the firm has completed extensive
research does not alter this requirement.
,One of your clients would like to buy 100,000 shares of Smallco
Industries, a thinly traded OTC security. You would like to purchase a
nominal amount of shares ahead of the client for your own account,
since his prior picks have proven to be profitable. Under which of the
following conditions is this action acceptable? - ANSWERS-
Generally, you should never take this action
Taking this action would constitute an ethical violation. The practice
is often referred to as trading ahead of a client. Some practices, even
when disclosed, are still considered unethical and should be avoided.
A broker-dealer located in State A, in business for three years, goes
out of business in July. Some of the principals at the firm start a new
broker-dealer in August of that year. Which of the following
statements is TRUE concerning the broker-dealer's registration fee? -
ANSWERS-The appropriate registration fee must be paid
Every applicant whether an agent, broker-dealer, investment adviser,
or investment adviser representative must pay a registration fee. This
fee is paid when an applicant files the initial application as well as
when the registration expires each year on December 31. If a
registration fee is paid in the middle of the year, the fee is usually not
prorated.
One of your clients has heard that the use of leverage can increase his
portfolio's return. This client normally buys securities that have high
dividend payout ratios and uses the dividends to supplement his
income. He wants to open a margin account and asks you to use his
existing securities as collateral to purchase additional shares of the
same stocks that you have in your portfolio. You should: -
ANSWERS-Not recommend this strategy since buying on margin
may not increase the return received by this client
, A margin account will allow a client to buy more securities by
leveraging or borrowing additional funds. A client is only required to
deposit half of the funds required to execute a transaction and profits
if the stock rises. By purchasing more shares, a client can increase her
profit, but will also be exposed to a larger loss if the stock purchased
declines in value. This client purchased securities primarily for the
dividend income, not for speculation or trading purposes. Therefore,
buying stock on margin would not be suitable in this situation. A
brokerage firm will charge a client interest on the funds the client
borrows when trading on margin. The increased dividend income
from the additional shares in a margin account would not be sufficient
to pay for the interest expense on the borrowed funds.
An advantage of a Coverdell ESA over a 529 plan is: - ANSWERS-
More investment options
The maximum annual contribution to a Coverdell ESA is $2,000;
however, contributions to a 529 plan are substantially higher.
Although there's no annual limit on a 529 plan, contributions that
exceed the annual gift limits may be subject to gift taxes. There are
income limitations that apply to Coverdell ESA contributors, but not
to 529 plan contributors. Qualified distributions from both Coverdell
and 529 plan accounts are tax-free. In a 529 plan, investments are not
self-directed; instead, investors must choose from a list of investments
that are approved by the state in which the plan is created. On the
other hand, Coverdell accounts are self-directed (like IRAs) and are
not limited to investments which have been approved by the state.
An agent recommends that her client exchange her shares in XYZ's
Income Fund for shares in XYZ's Growth Fund. Which of the
following is TRUE of this recommendation? - ANSWERS-Since the
A bond is convertible at $20 and is purchased for $1,100. If the
common stock of the issuer appreciates and is currently selling for
$25 per share, what is the conversion value of the common stock? -
ANSWERS-$1,250
The bond is able to be converted into 50 shares of the issuer's stock
($1,000 ÷ $20 = 50 shares). If the underlying stock is currently
trading at $25, an investor who converts the bond will receive 50
shares that are valued at $25 per share, or $1,250.
The possibility that a company may perform poorly, causing its stock
to decline in value is called: - ANSWERS-Business risk
Business risk is the possibility that a corporation's business will not
do well, causing its stock to drop in value, or even become worthless,
if the company declares bankruptcy.
If an agent of a broker-dealer is advertising on the Internet, which
TWO of the following statements are TRUE?
The agent must disclose the name of her affiliated broker-dealer.
The broker-dealer that creates the advertisement is responsible for
review and approval of the content.
The agent is working outside of the scope granted by the broker-
dealer.
A legend must be included which states that the agent is exempt from
the anti-fraud provisions of applicable state laws - ANSWERS-I and
II
,According to NASAA's interpretive order concerning broker-dealers,
investment advisers, broker-dealer agents, and investment adviser
representatives regarding general dissemination of information, the
name of the broker-dealer or investment adviser that approved the
content as well as the one with whom the agent is affiliated must be
on all Internet-based advertising. In addition, only individuals who are
either properly registered within the potential customer's state or
exempt may follow up and respond to potential leads.
Which of the following is NOT a leveraged investment strategy? -
ANSWERS-Investing in a company with a large amount of debt
outstanding
When a person leverages a portfolio, he acquires a loan in order to
buy more securities. This activity is done in a margin account, which
allows him to magnify his investment results by increasing the
number of shares or bonds that he is able to purchase. Investing in a
company that has issued a great deal of debt, such as a utility
company, is not a leveraged portfolio strategy.
An investment advisory firm has completed extensive research into
the pharmaceutical industry and is in the process of establishing long
positions in several companies. Although many of the stocks are
speculative issues, several of the firm's client accounts are
conservative. According to the Uniform Securities Act, the placement
of such speculative shares in any of the clients' accounts is: -
ANSWERS-Permitted if it is consistent with the clients' objectives
The adviser may only purchase securities that are consistent with
client objectives. The fact that the firm has completed extensive
research does not alter this requirement.
,One of your clients would like to buy 100,000 shares of Smallco
Industries, a thinly traded OTC security. You would like to purchase a
nominal amount of shares ahead of the client for your own account,
since his prior picks have proven to be profitable. Under which of the
following conditions is this action acceptable? - ANSWERS-
Generally, you should never take this action
Taking this action would constitute an ethical violation. The practice
is often referred to as trading ahead of a client. Some practices, even
when disclosed, are still considered unethical and should be avoided.
A broker-dealer located in State A, in business for three years, goes
out of business in July. Some of the principals at the firm start a new
broker-dealer in August of that year. Which of the following
statements is TRUE concerning the broker-dealer's registration fee? -
ANSWERS-The appropriate registration fee must be paid
Every applicant whether an agent, broker-dealer, investment adviser,
or investment adviser representative must pay a registration fee. This
fee is paid when an applicant files the initial application as well as
when the registration expires each year on December 31. If a
registration fee is paid in the middle of the year, the fee is usually not
prorated.
One of your clients has heard that the use of leverage can increase his
portfolio's return. This client normally buys securities that have high
dividend payout ratios and uses the dividends to supplement his
income. He wants to open a margin account and asks you to use his
existing securities as collateral to purchase additional shares of the
same stocks that you have in your portfolio. You should: -
ANSWERS-Not recommend this strategy since buying on margin
may not increase the return received by this client
, A margin account will allow a client to buy more securities by
leveraging or borrowing additional funds. A client is only required to
deposit half of the funds required to execute a transaction and profits
if the stock rises. By purchasing more shares, a client can increase her
profit, but will also be exposed to a larger loss if the stock purchased
declines in value. This client purchased securities primarily for the
dividend income, not for speculation or trading purposes. Therefore,
buying stock on margin would not be suitable in this situation. A
brokerage firm will charge a client interest on the funds the client
borrows when trading on margin. The increased dividend income
from the additional shares in a margin account would not be sufficient
to pay for the interest expense on the borrowed funds.
An advantage of a Coverdell ESA over a 529 plan is: - ANSWERS-
More investment options
The maximum annual contribution to a Coverdell ESA is $2,000;
however, contributions to a 529 plan are substantially higher.
Although there's no annual limit on a 529 plan, contributions that
exceed the annual gift limits may be subject to gift taxes. There are
income limitations that apply to Coverdell ESA contributors, but not
to 529 plan contributors. Qualified distributions from both Coverdell
and 529 plan accounts are tax-free. In a 529 plan, investments are not
self-directed; instead, investors must choose from a list of investments
that are approved by the state in which the plan is created. On the
other hand, Coverdell accounts are self-directed (like IRAs) and are
not limited to investments which have been approved by the state.
An agent recommends that her client exchange her shares in XYZ's
Income Fund for shares in XYZ's Growth Fund. Which of the
following is TRUE of this recommendation? - ANSWERS-Since the
