STC - TEST 6 QUESTIONS AND
ANSWERS
In0a0soft-dollar0arrangement0between0an0adviser0and0a0broker-dealer,0the0broker-
dealer0would0be0permitted0to0pay:
1.0A0percentage0of0the0salaries0of0the0adviser's0internal0research0staff
2.0The0cost0of0a0coach0flight0for0a0portfolio0manager0to0attend0a0conference
3.0The0cost0of0computer0terminals0used0to0deliver0market0data0services
4.0The0cost0of0a0conference0concerning0the0future0of0the0computer0software0industry0-
0ans✔4.0The0cost0of0a0conference0concerning0the0future0of0the0computer0software0ind
ustry
An0adviser0is0permitted0to0use0a0broker-
dealer0to0execute0transactions0in0exchange0for0certain0services.0The0term0is0referred0t
o0as0soft0dollars0and0it0is0defined0as0a0means0of0paying0brokerage0firms0for0their0servi
ces0through0trade0commissions.0The0key0here0is0that0the0services0that0the0adviser0rec
eives0as0part0of0a0soft-dollar0arrangement0must0benefit0its0clients.0The0broker-
dealer0is0permitted0to0pay0for0the0cost0of0the0conference0that0an0adviser0attends0conc
erning0securities0within0an0industry0in0which0the0adviser0will0be0invested.0Travel0costs0
and0any0costs0that0should0be0paid0by0the0adviser0(e.g.,0salaries0of0the0adviser's0intern
al0research0staff)0are0not0covered0under0a0soft-
dollar0arrangement.0Whereas0the0cost0of0the0computer0terminals0could0not0be0paid0for
0with0soft0dollars,0the0cost0of0the0data0services0would0be0covered0by0soft0dollars.
Which0TWO0of0the0following0are0features0of0401(k)0plans?
I.0Mandatory0employee0contributions
II.0Mandatory0employer0contributions
III.0Voluntary0employee0contributions
IV.0Voluntary0employer0contributions
1.0I0and0II
2.0II0and0III
3.0I0and0III
4.0III0and0IV0-0ans✔4.0III0and0IV
In0a0401(k)0plan,0both0employee0and0employer0contributions0are0voluntary.
Which0of0the0following0choices0describes0a0hedge0fund?
,1.0A0registered0investment0company0that0employs0short0selling
2.0A0limited0partnership0whose0primary0objective0is0an0absolute0positive0performance
3.0A0popular0subaccount0investment0option0in0a0variable0annuity
4.0An0investment0trust0formed0to0buy,0develop,0and0manage0real0estate0-
0ans✔2.0A0limited0partnership0whose0primary0objective0is0an0absolute0positive0perform
ance
There0is0no0uniform0definition0of0a0hedge0fund.0However,0most0hedge0funds0are0form
ed0as0limited0liability0companies0or0limited0partnerships,0and0they0typically0seek0absol
ute0investment0performance.0This0means0they0set0a0definite0performance0goal0(such0a
s08%)0instead0of0measuring0their0performance0against0an0index.
Which0of0the0following0items0may0be0a0sign0of0churning0in0an0account?
I.0The0size0of0the0transactions
II.0The0frequency0of0the0transactions
III.0Transactions0that0are0not0beyond0the0client's0financial0resources
IV.0Transactions0that0meet0the0client's0objectives
1.0I0only
2.0I0and0II0only
3.0II0and0III0only
4.0III0and0IV0only0-0ans✔2.0I0and0II0only
Under0NASAA0Model0Rules0regarding0prohibited0conduct0by0IAs0and0IARs,0inducing0tr
ading0in0a0client's0account0that0is0excessive0in0size0or0frequency,0in0view0of0the0financ
ial0resources,0investment0objectives,0and0character0of0the0account,0is0prohibited.
Which0of0the0following0securities0would0likely0have0the0highest0beta0coefficient?
1.0A0zero-coupon,030-year0U.S.0Treasury0bond
2.0A0biotechnology0company's0common0stock
3.0An0electric0utility0company's0common0stock
4.0A0zero-coupon,010-year0U.S.0Treasury0bond0-
0ans✔2.0A0biotechnology0company's0common0stock
Beta0is0a0measurement0of0a0security's0volatility0as0compared0to0an0index0such0as0the0
S&P05000Stock0Index.0A0high0beta0(greater0than0one)0indicates0that0a0company0is0mo
re0volatile0than0the0benchmark0index.0Utilities0and0other0defensive0industry0stocks0ten
d0to0have0low0betas.
In0determining0the0loan0value0of0marginable0securities,0the0agent0should:
1.0Refer0to0ADV0Part02
2.0Use0the020%0Rule0under0the0Uniform0Securities0Act
3.0Use0the0percentage0allowed0by0the0state0Administrator
4.0Multiply0the0market0value0by050%0-0ans✔4.0Multiply0the0market0value0by050%
,The0loan0value0of0most0marginable0securities0is0determined0by0multiplying0the0market0
value0of0the0securities0by0Regulation0T0of0the0Federal0Reserve0Board,0which0is050%.0
There0is0no0provision0in0the0Uniform0Securities0Act0that0discusses0the0margin0require
ment0on0securities.0The0percentage0is0set0forth0by0either0the0FRB0or0by0certain0self-
regulatory0organizations0(SROs)0such0as0the0NYSE0or0FINRA.
Which0of0the0following0is0not0a0security0as0defined0by0the0USA?
1.0A0certificate0of0interest0in0a0profit-sharing0agreement
2.0A0futures0contract0in0precious0metals
3.0A0certificate0of0interest0in0a0mining0title
4.0A0preorganization0certificate0-0ans✔2.0A0futures0contract0in0precious0metals
Futures0and0commodity0contracts0are0not0securities.0However,0the0Uniform0Securities0
Act0includes0some0seemingly0odd0instruments0as0securities,0such0as0interests0in0mini
ng0or0drilling0titles0and0preorganization0certificates.
Which0of0the0following0terms0relates0to0the0graph0of0optimal0portfolios0resulting0from0a
0comparison0of0risk0and0return?
1.0Efficient0frontier
2.0Alpha
3.0Duration
4.0CAPM0-0ans✔1.0Efficient0frontier
According0to0modern0portfolio0theory,0a0graph0of0optimal0portfolios0may0be0created0kn
own0as0an0efficient0frontier.
Susan0is0registered0as0an0investment0adviser0representative0(IAR).0Susan0asks0one0o
f0her0clients0to0write0positive0comments0about0her0firm's0services0and0then0post0them0
on0a0social0media0site.0Is0Susan's0request0considered0a0violation0of0the0communicatio
n0rules?
1.0No,0provided0the0posts0have0been0preapproved0by0a0supervisor0of0the0IA.
2.0Yes,0because0investment0advisers0are0never0permitted0to0post0content0that's0create
d0by0third0parties.
3.0No,0provided0the0content0is0not0misleading0and0appropriate0disclosures0are0made.
4.0Yes,0because0testimonials0are0prohibited0under0the0Investment0Advisers0Act0of0194
0.0-
0ans✔3.0No,0provided0the0content0is0not0misleading0and0appropriate0disclosures0are0
made.
Investment0advisers0that0encourage0or0pay0a0person0to0promote0their0services0are0usi
ng0testimonials.0Traditionally,0testimonials0were0prohibited0under0the0IA0Act0of01940.0
However,0in02020,0the0SEC0updated0its0rules0and0now0permit0IAs0to0use0testimonials.
0Keep0in0mind,0IAs0that0use0testimonials0are0responsible0for0ensuring0that0the0testimo
nials0are0accurate0and0not0materially0misleading.0In0addition,0IAs0need0to0provide0discl
osures0about0the0relationship0between0the0adviser0and0the0person0making0the0testimo
nial.
, What's0the0formula0used0to0calculate0the0price0to0earnings0ratio?
1.0Current0stock0price0divided0by0the0earnings0per0share0two0years0ago
2.0Current0dividend0divided0by0the0current0stock0price
3.0Net0income0minus0preferred0dividends0divided0by0the0number0of0outstanding0share
s0of0common0stock
4.0Current0stock0price0divided0by0the0earnings0per0share0last0year0-
0ans✔4.0Current0stock0price0divided0by0the0earnings0per0share0last0year
The0price0to0earnings0(PE)0ratio0is0typically0calculated0by0taking0the0current0market0pri
ce0of0the0company's0stock0and0dividing0it0by0the0earnings0per0share0(EPS)0from0the0la
st0fiscal0year.0The0current0dividend0by0the0stock0price0is0the0dividend0yield,0which0is0al
so0called0the0current0yield.0Net0income0minus0preferred0dividends0divided0by0the0com
mon0shares0outstanding0is0the0formula0for0earnings0per0share0(EPS).
If0FINRA0issues0an0order0against0a0broker-
dealer,0what0actions0may0be0taken0by0the0Administrator0according0to0the0Uniform0Sec
urities0Act?
1.0The0Administrator0may0suspend0a0registration0if0a0broker-
dealer0is0subject0to0a0FINRA0action
2.0The0Administrator0must0suspend0the0broker-dealer
3.0The0Administrator0may0not0take0action0against0the0firm0since0it0has0not0been0convi
cted
4.0The0Administrator0may0only0take0action0if0a0law0in0its0state0has0been0violated0-
0ans✔1.0The0Administrator0may0suspend0a0registration0if0a0broker-
dealer0is0subject0to0a0FINRA0action
The0Administrator0may0suspend0a0broker-
dealer's0registration0if0it0has0violated0a0law,0is0about0to0violate0a0law,0or0if0the0firm0is0s
ubject0to0a0FINRA0order.0The0Administrator0is0not0required0to0take0action,0but0will0inst
ead0decide0on0the0appropriate0course0on0a0case-by-case0basis.
Under0which0of0the0following0circumstances0is0an0investment0adviser0relieved0of0its0fid
uciary0duty0to0its0customers?
1.0If0its0client0agreement0states0that0it0is0not0acting0as0a0fiduciary
2.0If0granted0an0exemption0by0the0SEC0or0a0state
3.0Under0no0circumstances
4.0When0providing0advice0to0institutional0investors0-0ans✔3.0Under0no0circumstances
An0investment0adviser0may0not0avoid0its0fiduciary0duty0by0inserting0a0hedge0clause0in0
its0contract,0nor0do0regulators0provide0exemptions.0An0RIA0has0a0fiduciary0responsibili
ty0whether0it0is0dealing0with0retail0or0institutional0clients.
An0investor0purchased0a06%0bond0for0$11,0000and0it's0currently0trading0at0$10,000.0T
he0bond0is0earning00%0in0a0money0market0account.0What's0the0bond's0current0return?
1.06.67%
ANSWERS
In0a0soft-dollar0arrangement0between0an0adviser0and0a0broker-dealer,0the0broker-
dealer0would0be0permitted0to0pay:
1.0A0percentage0of0the0salaries0of0the0adviser's0internal0research0staff
2.0The0cost0of0a0coach0flight0for0a0portfolio0manager0to0attend0a0conference
3.0The0cost0of0computer0terminals0used0to0deliver0market0data0services
4.0The0cost0of0a0conference0concerning0the0future0of0the0computer0software0industry0-
0ans✔4.0The0cost0of0a0conference0concerning0the0future0of0the0computer0software0ind
ustry
An0adviser0is0permitted0to0use0a0broker-
dealer0to0execute0transactions0in0exchange0for0certain0services.0The0term0is0referred0t
o0as0soft0dollars0and0it0is0defined0as0a0means0of0paying0brokerage0firms0for0their0servi
ces0through0trade0commissions.0The0key0here0is0that0the0services0that0the0adviser0rec
eives0as0part0of0a0soft-dollar0arrangement0must0benefit0its0clients.0The0broker-
dealer0is0permitted0to0pay0for0the0cost0of0the0conference0that0an0adviser0attends0conc
erning0securities0within0an0industry0in0which0the0adviser0will0be0invested.0Travel0costs0
and0any0costs0that0should0be0paid0by0the0adviser0(e.g.,0salaries0of0the0adviser's0intern
al0research0staff)0are0not0covered0under0a0soft-
dollar0arrangement.0Whereas0the0cost0of0the0computer0terminals0could0not0be0paid0for
0with0soft0dollars,0the0cost0of0the0data0services0would0be0covered0by0soft0dollars.
Which0TWO0of0the0following0are0features0of0401(k)0plans?
I.0Mandatory0employee0contributions
II.0Mandatory0employer0contributions
III.0Voluntary0employee0contributions
IV.0Voluntary0employer0contributions
1.0I0and0II
2.0II0and0III
3.0I0and0III
4.0III0and0IV0-0ans✔4.0III0and0IV
In0a0401(k)0plan,0both0employee0and0employer0contributions0are0voluntary.
Which0of0the0following0choices0describes0a0hedge0fund?
,1.0A0registered0investment0company0that0employs0short0selling
2.0A0limited0partnership0whose0primary0objective0is0an0absolute0positive0performance
3.0A0popular0subaccount0investment0option0in0a0variable0annuity
4.0An0investment0trust0formed0to0buy,0develop,0and0manage0real0estate0-
0ans✔2.0A0limited0partnership0whose0primary0objective0is0an0absolute0positive0perform
ance
There0is0no0uniform0definition0of0a0hedge0fund.0However,0most0hedge0funds0are0form
ed0as0limited0liability0companies0or0limited0partnerships,0and0they0typically0seek0absol
ute0investment0performance.0This0means0they0set0a0definite0performance0goal0(such0a
s08%)0instead0of0measuring0their0performance0against0an0index.
Which0of0the0following0items0may0be0a0sign0of0churning0in0an0account?
I.0The0size0of0the0transactions
II.0The0frequency0of0the0transactions
III.0Transactions0that0are0not0beyond0the0client's0financial0resources
IV.0Transactions0that0meet0the0client's0objectives
1.0I0only
2.0I0and0II0only
3.0II0and0III0only
4.0III0and0IV0only0-0ans✔2.0I0and0II0only
Under0NASAA0Model0Rules0regarding0prohibited0conduct0by0IAs0and0IARs,0inducing0tr
ading0in0a0client's0account0that0is0excessive0in0size0or0frequency,0in0view0of0the0financ
ial0resources,0investment0objectives,0and0character0of0the0account,0is0prohibited.
Which0of0the0following0securities0would0likely0have0the0highest0beta0coefficient?
1.0A0zero-coupon,030-year0U.S.0Treasury0bond
2.0A0biotechnology0company's0common0stock
3.0An0electric0utility0company's0common0stock
4.0A0zero-coupon,010-year0U.S.0Treasury0bond0-
0ans✔2.0A0biotechnology0company's0common0stock
Beta0is0a0measurement0of0a0security's0volatility0as0compared0to0an0index0such0as0the0
S&P05000Stock0Index.0A0high0beta0(greater0than0one)0indicates0that0a0company0is0mo
re0volatile0than0the0benchmark0index.0Utilities0and0other0defensive0industry0stocks0ten
d0to0have0low0betas.
In0determining0the0loan0value0of0marginable0securities,0the0agent0should:
1.0Refer0to0ADV0Part02
2.0Use0the020%0Rule0under0the0Uniform0Securities0Act
3.0Use0the0percentage0allowed0by0the0state0Administrator
4.0Multiply0the0market0value0by050%0-0ans✔4.0Multiply0the0market0value0by050%
,The0loan0value0of0most0marginable0securities0is0determined0by0multiplying0the0market0
value0of0the0securities0by0Regulation0T0of0the0Federal0Reserve0Board,0which0is050%.0
There0is0no0provision0in0the0Uniform0Securities0Act0that0discusses0the0margin0require
ment0on0securities.0The0percentage0is0set0forth0by0either0the0FRB0or0by0certain0self-
regulatory0organizations0(SROs)0such0as0the0NYSE0or0FINRA.
Which0of0the0following0is0not0a0security0as0defined0by0the0USA?
1.0A0certificate0of0interest0in0a0profit-sharing0agreement
2.0A0futures0contract0in0precious0metals
3.0A0certificate0of0interest0in0a0mining0title
4.0A0preorganization0certificate0-0ans✔2.0A0futures0contract0in0precious0metals
Futures0and0commodity0contracts0are0not0securities.0However,0the0Uniform0Securities0
Act0includes0some0seemingly0odd0instruments0as0securities,0such0as0interests0in0mini
ng0or0drilling0titles0and0preorganization0certificates.
Which0of0the0following0terms0relates0to0the0graph0of0optimal0portfolios0resulting0from0a
0comparison0of0risk0and0return?
1.0Efficient0frontier
2.0Alpha
3.0Duration
4.0CAPM0-0ans✔1.0Efficient0frontier
According0to0modern0portfolio0theory,0a0graph0of0optimal0portfolios0may0be0created0kn
own0as0an0efficient0frontier.
Susan0is0registered0as0an0investment0adviser0representative0(IAR).0Susan0asks0one0o
f0her0clients0to0write0positive0comments0about0her0firm's0services0and0then0post0them0
on0a0social0media0site.0Is0Susan's0request0considered0a0violation0of0the0communicatio
n0rules?
1.0No,0provided0the0posts0have0been0preapproved0by0a0supervisor0of0the0IA.
2.0Yes,0because0investment0advisers0are0never0permitted0to0post0content0that's0create
d0by0third0parties.
3.0No,0provided0the0content0is0not0misleading0and0appropriate0disclosures0are0made.
4.0Yes,0because0testimonials0are0prohibited0under0the0Investment0Advisers0Act0of0194
0.0-
0ans✔3.0No,0provided0the0content0is0not0misleading0and0appropriate0disclosures0are0
made.
Investment0advisers0that0encourage0or0pay0a0person0to0promote0their0services0are0usi
ng0testimonials.0Traditionally,0testimonials0were0prohibited0under0the0IA0Act0of01940.0
However,0in02020,0the0SEC0updated0its0rules0and0now0permit0IAs0to0use0testimonials.
0Keep0in0mind,0IAs0that0use0testimonials0are0responsible0for0ensuring0that0the0testimo
nials0are0accurate0and0not0materially0misleading.0In0addition,0IAs0need0to0provide0discl
osures0about0the0relationship0between0the0adviser0and0the0person0making0the0testimo
nial.
, What's0the0formula0used0to0calculate0the0price0to0earnings0ratio?
1.0Current0stock0price0divided0by0the0earnings0per0share0two0years0ago
2.0Current0dividend0divided0by0the0current0stock0price
3.0Net0income0minus0preferred0dividends0divided0by0the0number0of0outstanding0share
s0of0common0stock
4.0Current0stock0price0divided0by0the0earnings0per0share0last0year0-
0ans✔4.0Current0stock0price0divided0by0the0earnings0per0share0last0year
The0price0to0earnings0(PE)0ratio0is0typically0calculated0by0taking0the0current0market0pri
ce0of0the0company's0stock0and0dividing0it0by0the0earnings0per0share0(EPS)0from0the0la
st0fiscal0year.0The0current0dividend0by0the0stock0price0is0the0dividend0yield,0which0is0al
so0called0the0current0yield.0Net0income0minus0preferred0dividends0divided0by0the0com
mon0shares0outstanding0is0the0formula0for0earnings0per0share0(EPS).
If0FINRA0issues0an0order0against0a0broker-
dealer,0what0actions0may0be0taken0by0the0Administrator0according0to0the0Uniform0Sec
urities0Act?
1.0The0Administrator0may0suspend0a0registration0if0a0broker-
dealer0is0subject0to0a0FINRA0action
2.0The0Administrator0must0suspend0the0broker-dealer
3.0The0Administrator0may0not0take0action0against0the0firm0since0it0has0not0been0convi
cted
4.0The0Administrator0may0only0take0action0if0a0law0in0its0state0has0been0violated0-
0ans✔1.0The0Administrator0may0suspend0a0registration0if0a0broker-
dealer0is0subject0to0a0FINRA0action
The0Administrator0may0suspend0a0broker-
dealer's0registration0if0it0has0violated0a0law,0is0about0to0violate0a0law,0or0if0the0firm0is0s
ubject0to0a0FINRA0order.0The0Administrator0is0not0required0to0take0action,0but0will0inst
ead0decide0on0the0appropriate0course0on0a0case-by-case0basis.
Under0which0of0the0following0circumstances0is0an0investment0adviser0relieved0of0its0fid
uciary0duty0to0its0customers?
1.0If0its0client0agreement0states0that0it0is0not0acting0as0a0fiduciary
2.0If0granted0an0exemption0by0the0SEC0or0a0state
3.0Under0no0circumstances
4.0When0providing0advice0to0institutional0investors0-0ans✔3.0Under0no0circumstances
An0investment0adviser0may0not0avoid0its0fiduciary0duty0by0inserting0a0hedge0clause0in0
its0contract,0nor0do0regulators0provide0exemptions.0An0RIA0has0a0fiduciary0responsibili
ty0whether0it0is0dealing0with0retail0or0institutional0clients.
An0investor0purchased0a06%0bond0for0$11,0000and0it's0currently0trading0at0$10,000.0T
he0bond0is0earning00%0in0a0money0market0account.0What's0the0bond's0current0return?
1.06.67%
