STC Series 66 Greenlight Exams Questions And Answers With Real Study Tests Securities that are registered through qualification may only be sold: Once the registration is declared effective by the Administrator Securities that are registered through qualification may be sold once the registration is declared effective by the Administrator. Note that in choice (c), the use of the term approved is inappropriate. Securities that are deemed effective for sale by an A dministrator may not be described as having been approved by the Administrator. The difference between a corporation's current assets and its current liabilities is the: Working capital The amount by which a corporation's current assets exceed its current liabilities is referred to as working capital. Assuming an expected rate of return, a specific holding period, and a sum to be invested, an IAR is able to determine an investment's: Future value The future value of an investment is based on the present value of the amount invested, using a discount rate each year, and doing so over a given period of time. The assumption is that the annual return is reinvested at the same rate, or is compounded ove r the given time period, thereby resulting in a future value that exceeds the present value. Which of the following types of risk is MOST associated with the purchase of a five -year T -bond? Interest -rate Interest -rate risk, which is also referred to as money -rate risk, is essentially the risk that if interest rates rise, the prices of the debt securities will fall. If an investor needs to liquidate her debt investment prior to maturity, rising interest rat es reduce the value she would receive if she sold the security in the secondary market. Market risk is primarily associated with common stock. Since the secondary market for Treasuries is very active, liquidity risk is not a factor. Although legislative ri sk (changes in the law) could create diminished value for the instruments, it is not likely to occur. Disadvantages of investing in a C Corporation include which of the following choices? Shareholders are taxed on dividends that they receive. The corporation is taxed on its income. Shareholders may not deduct their share of the corporation's losses on their personal tax returns. Shareholders are paid last if the corporation liquidates. I, II, III, and IV All of the choices are disadvantages of investing in a C Corporation All the following are characteristics of passive asset allocation strategies, EXCEPT: Altering a portfolio in anticipation of an economic event A passive asset allocation strategy (e.g., buy and hold) is characterized by low transaction costs and minimal tax consequences. Systematic rebalancing, another passive strategy, alters the portfolio on a monthly, quarterly, or annual basis to restore an o riginal strategic asset allocation if market movements have changed it. On the other hand, active (tactical) asset allocation strategies effect changes to a portfolio's allocation in anticipation of economic events. A person has established an IA as a sole proprietorship and works as an IAR out of his home office. To help promote and manage the IA, he has set up a website which contains personal information about his clients. A few weeks after setting up the website, the IAR discovers that the website has been hacked and his customers' account information has been stolen. What is the primary regulatory concern? The IA did not prepare proper cybersecurity policies, procedures, and measures before launching the website. Both the SEC and state Administrators require IAs to establish cybersecurity policies in order to protect their clients. Since the website was hacked, the regulator's primary concern is the extent of the IA's cybersecurity measures. The regulations don't r equire websites to be password protected, despite the fact that many IAs may find them necessary to protect client information. Also, there's no requirement for an IA to be federally covered before creating a website. Although websites are considered adver tisements and regulators must be notified, it's unlikely that this is the primary regulatory concern. A Nasdaq listed company is offering 1,000,000 shares of common stock in State A. The Administrator in State A may: Not require registration of the stock in State A. Require the issuer to perform notice filing. Require the issuer to pay a fee. Investigate the underwriter for possible fraud in connection with the offering. I and IV only Securities that are listed on a national exchange (e.g., Nasdaq, NYSE, or AMEX) are referred to as federal covered securities and, therefore, are not required to be registered at the state level. Additionally, if the federal covered security is listed on a n exchange, the state may not require the issuer to pay a fee, submit a notice filing, or provide a consent to service of process. However, the state Administrator may investigate any broker -dealer (including the underwriter) that participates in the offer ing for fraud or deceit and file an enforcement action if it is warranted. According to the Uniform Securities Act, which of the following activities by an agent of a broker -dealer is unethical? Executing orders to sell securities in a client's individual and joint account based on instructions from the client's spouse. Unless the client's spouse has been given specific authorization, executing these orders is unethical. An agent may exercise discretion over the price and/or time of execution, based on verbal authorization from the client. Agents are allowed to accept uns olicited orders to buy and sell securities. Agents are not required to send all clients a preliminary prospectus, but they are required to send a final prospectus to clients who purchase non -exempt securities. If an agent of a broker -dealer is granted a durable power of attorney over a client's account, all of the following statements are TRUE, EXCEPT The client must be an institution A durable power of attorney provides the agent with the power to manage the grantor's financial affairs even if the grantor becomes incapacitated. With this authority (which must be in written form), the agent of the broker -dealer may make financial decisi ons on behalf of the grantor (discretion). A standard power of attorney is terminated if the grantor becomes incapacitated. (17178) The factors that assist in determining a client's risk tolerance include: Income Age Personality Net worth I, II, III, IV A person's risk tolerance is based on income, age, personality type, net worth, as well as any other relevant details. For instance, family considerations may also influence a person's risk tolerance. Which TWO of the following statements are TRUE regarding an investment adviser that maintains custody of its clients' assets? The securities must be deposited with a qualified custodian. The securities must be held in a vault that is maintained by the firm. A notice must be sent to the clients to indicate the secure location or custodian of the securities. Annual statements must be sent to each client of the investment adviser. I and III According to Rule 206(4) -2 of the Investment Advisers Act of 1940, it is a deceptive trade practice to maintain custody (safekeeping) of client funds and securities unless they are held by a qualified custodian. When the IA opens an account with a qualifie d custodian, the client must be informed of the name and address of the custodian. Clients must be provided with account statements at least quarterly (NOT annually). An investor is analyzing two bonds. Bond A has a 5% coupon and matures in three years; Bond B also has a 5% coupon, but matures in 10 years. If interest rates decline by 1%, what is to be expected? Bond B's price will increase more than Bond A's price As interest rates change, prices of bonds with longer maturities will fluctuate more than prices of bonds with shorter maturities. When interest rates decline, all bond prices will rise; however, prices of bonds with longer maturities will increase more th an prices of bonds with shorter maturities. For that reason, the price of Bond B (the 10-year bond) will increase more than the price of Bond A (the three -year bond). ***DURATION*** A person who invests in a variable annuity is most concerned with the performance of the insurance company's: Separate account The performance of a variable annuity is related to the performance of the insurance company's separate account. On the other hand, an insurance company's general account backs the company's fixed annuities and other traditional (guaranteed) insurance prod ucts. Although an investor may be concerned with the overall profitability of the insurance company, it has no bearing on the performance of the variable annuity's separate account. Two friends are starting their own business and are trying to decide whether to organize this new business as an S Corporation or a general partnership. What is a significant advantage of an S Corporation compared to a general partnership? Limited liability (original and wrong answer was favorable tax treatment, which is an advantage of a partnership, S corp has limited liability due to more shareholders, general partners have unlimited liability) If they form a general partnership, both partners are fully liable for the partnership's debts. (Limited partners are not fully liable; however, the question gives no indication that one of the partners will be a limited partner.) In an S Corporation, the owners are not fully liable for the company's debts —they have only limited liability. As for choice (a), both entities receive favorable federal tax treatment. Since both business entities are pass -through vehicles for tax purposes, all losses and profits are passed through to the owners. Under the Uniform Securities Act, an investment adviser is required to provide a balance sheet when it files Form ADV Part 2 in all of the following situations, EXCEPT when: The investment adviser inadvertently received client securities, but returned them after two business days. In choice (c), the investment adviser has three business days to return the securities before custody is established. Since the adviser returned the securities in two business days, custody was not established and no balance sheet is required. Under the US A, investment advisers that require the prepayment of fees of more than $500, six months or more in advance, are required to include a balance sheet when they file Form ADV Part 2 (choice [a]). In choice (b), the investment adviser has custody, which also requires the inclusion of a balance sheet when it files Form ADV Part 2. In choice (d), the investment adviser has authority to execute transactions in an account that belongs to a client; therefore, the adviser has discretion over the account and is requi red to provide a balance sheet when it files Form ADV Part 2. An investment adviser's sole office is located in State A and its only client is the State A Triple Tax -Free Municipal Bond Fund. The adviser exercises discretion over the fund's investments and also performs safekeeping services for the fund. Which of the following statements is TRUE? The investment adviser is not required to meet the net worth requirements or post a bond since it is regulated at the federal level. Since the investment adviser's only client is an investment company (a mutual fund), it is considered a federal covered adviser. A federal covered adviser is not required to register at the state level and is not subject to state requirements (e.g., mainta ining a minimum net worth requirement). Additionally, the Investment Advisers Act of 1940 (which is the appropriate regulation for federal covered advisers) does not impose minimum net worth requirements.
