Series 65 chapters 1-13 Practice test attempt 48? Score 61. Exam Questions With Verified Answers
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Series 65
Series 65 chapters 1-13 Practice test attempt
48? Score 61. Exam Questions With Verified
Answers
According to NASAA's Statement of Policy on Unethical Business Practices, all of the following
information must be disclosed in an investment advisory contract, EXCEPT: - answerA)
Whether the contr...
Series 65 chapters 1-13 Practice test attempt
48? Score 61. Exam Questions With Verified
Answers
According to NASAA's Statement of Policy on Unethical Business Practices, all of the following
information must be disclosed in an investment advisory contract, EXCEPT: - answer✔A)
Whether the contract grants the adviser discretionary authority over the client's account
B) That the contract may be assigned to another registered investment adviser without the client's
consent
C) The amount of prepaid fees that will be returned if the contract is terminated
D) The method(s) by which the adviser's fees will be calculated
(Answer B)
NASAA's Statement of Policy on Unethical Business Practices provides that the entering into, or
renewal of, an investment advisory contract would need to include disclosure of:
- All fees and services provided
- The term of the contract
- A formula for computing the advisory fee
- The amount of prepaid fees to be returned in the event of an early termination of the contract
- The fact that no assignment of the contract will be made without the consent of the client
- Whether the contract grants discretionary power to the adviser
- The fee for managing equity securities may be higher than for fixed-income securities
Ultimately, advisory contracts cannot be assigned to another investment adviser without the
consent of the client. (16971)
Which of the following statements is FALSE regarding a broker-dealer acting as a market maker
in a stock? - answer✔A) It trades for its own account when buying and selling securities
B) It makes money by charging commissions for executing transactions
C) When making a market, it is acting as a principal
D) It must be prepared to honor the prices it quotes unless it clearly qualifies them
A market maker is a broker-dealer that stands ready to buy or sell a specific stock for its own
inventory (its own account). The price it is willing to pay for the stock is its bid price, while its
ask or offer price represents the price at which it is willing to sell stock (to other dealers). The
difference between the bid and offer prices is the spread, a source of market-maker profits.
As principals in transactions, market makers do not charge commissions. Commissions are
charged when firms act as brokers (agents). However, in transactions with retail customers,
market makers might charge a markup when selling (an increase in price above its offer price)
and a markdown when buying from customers (a decrease below its bid price).
(Answer B)
A 70-year-old retiree is very risk-averse, but needs to generate investment income. She is not
wealthy and is in a low tax bracket. Which of the following investments will BEST meet her
needs? - answer✔A) long-term municipal bond fund
B) A growth mutual fund
C) A certificate of deposit
D) A diversified portfolio of stocks with covered calls written against them
Since the client is risk-averse, needs income, and is concerned about her principal fluctuating,
the best choice is a certificate of deposit. All of the other choices are unsuitable because they are
either too speculative or they are tax-free, which provides her with little benefit since she is in a
low tax bracket.
(Answer C)
A client is invested in a large number of stocks in different industries. If the client is concerned
that they may fall in value, an adviser may recommend a hedging strategy to the client, such as; -
answer✔.A) Selling puts on a large-cap index
B) Buying calls on the Russell 2000 Index
C) Selling calls on the S&P 500 Index
D) Buying puts on the S&P 500 Index
In buying puts on the S&P 500 Index, the client has the right to exercise the option at its strike
price and receive in cash the intrinsic value of the contract. Should the market decline, the puts
would increase in value as they move into the money, thus offsetting losses on the stock
portfolio.
(Answer D)
According to the Investment Advisers Act of 1940, when is an investment adviser required to
provide a balance sheet to its clients? - answer✔A) When the adviser requires the prepayment of
a fee that is greater than $500, six months or more in advance of providing service
B) When the adviser requires the prepayment of a $500 initial advisory fee
C) When the adviser requires the prepayment of a fee that is greater than $1,200, six months or
more in advance of providing service
D) When the adviser has taken custody of the client's funds or securities
Under the provisions of the Investment Advisers Act of 1940, an investment adviser must
provide clients with its balance sheet if it requires the prepayment of a fee in excess of $1,200,
six months or more in advance of the service. For questions regarding the requirement to send a
balance sheet, it is important to identify whether it is referencing state or federal law. At the state
level, a balance sheet is provided for collecting/soliciting a prepaid fee of greater than $500, and
also for maintaining custody or discretionary control of clients' assets. However, at the federal
level, a balance sheet is provided only if the adviser is collecting/soliciting a prepaid fee of
greater than $1,200
(Answer C)
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