Question 1

Which of the following would be an unsuitable recommendation for your 68-year-old client?

Accepted Answer

A) a Treasury Inflation Protected Security (TIPS) 
B) a deferred annuity 
C) an S&P 500 Index mutual fund 
D) a high quality corporate bond fund

Question 2

You have passed the necessary exams (congratulations!) and are applying for registration as a securities agent. It is already the end of September. Therefore, you must pay

Accepted Answer

A) one-fourth of the annual fee required since only one quarter of the year remains. 
B) the full annual fee, and your license will expire on September 30th next year. 
C) the full annual fee, and your license will expire on December 31st next year. 
D) the full annual fee, and your license will expire on December 31st this year.

Question 3

Layered Corporation wants to issue a bond that will have warrants attached. Each warrant gives the holder the right to buy 5 shares of Layered's common stock at a price stipulated on the warrant. In this instance, Layered must file to register which of the following securities with the state?
I. the bonds
II. the warrants
III. the common stock

Accepted Answer

A) I only 
B) I and III only 
C) I and II only 
D) I, II, and III

Question 4

Julia Hasty has recently applied with the Administrator to be a registered investment adviser in the state. Eager to open her new business, she has business cards printed that indicate that she is a "state-registered" investment adviser and visits some local businesses, asking them for permission to put some of her cards in their waiting rooms. Has Julia violated any of the provisions of the Uniform Securities Act by distributing her business cards?

Accepted Answer

A) No. As long as her application has been submitted and is pending acceptance, Julia has not violated any provisions of the Uniform Securities Act. 
B) No. The provisions of the Uniform Securities Act relate to securities, not people. 
C) Yes. Julia is not permitted to advertise as a "state-registered" investment adviser until she receives notification of the acceptance of her application by the state Administrator. 
D) No. Julia has merely put her business cards in waiting rooms. She has not opened her business to clients yet.

Question 5

The 2003 NASAA Model Rule requires that investment advisers that are not federal covered maintain their records for at least

Accepted Answer

A) three years. 
B) five years. 
C) seven years. 
D) Investment advisers must maintain their records for as long as they remain registered with the state.

Question 6

In its prospectus, the YourMoney Mutual Fund provides charts and tables of its average annual return over the past year, three years, five years, and ten years. The fund's return has indeed been phenomenal over this time period, beating the S&P 500 Index by at least 15%. The prospectus states that this is because the fund invests in securities that are riskier and that, therefore, an investor can expect the fund to continue earning a return higher than the S&P 500 Index. Is YourMoney guilty of any security violations?

Accepted Answer

A) No. YourMoney properly revealed to prospective investors the fact that its higher than average returns are the result of its investment in riskier securities. 
B) Yes. There is no way the fund could have beaten the S&P 500 Index by at least 15% over the past ten years. The fund is obviously misstating its returns. 
C) Yes. YourMoney is guilty of fraud in claiming that "an investor can expect the fund to continue earning a return higher than the S&P 500 Index." Past performance is no indication of future performance. 
D) No. Regulations require only that the mutual fund provide charts and tables of its average annual returns, with a statement comparing the fund performance with a relevant market index.YourMoney has done this and more.

Question 7

Sailor is cruising through the Bahamas when he learns that a healthcare company in which he owns stock is being sued by former patients, doctors, nurses, and even the federal government. He doesn't have his broker's number handy, and he doesn't have internet access, so he calls his son and tells him to call the broker and instruct the broker to sell his shares. As a registered agent for his broker, you take the call. Should you execute this transaction?

Accepted Answer

A) Yes. This is a legitimate request from a client, and you are required to follow the client's instructions. 
B) No, not unless you and your broker-dealer have a written document that gives Mr. Sailor's son the power-of-attorney to trade on his account. 
C) Yes, as long as the son presents proper identification that proves his relationship to Mr. Sailor, such as a birth certificate. 
D) Yes, as long as the son is at least 21 years old and not a minor child.

Question 8

Under the 2002 Uniform Securities Act, registration by coordination allows:

Accepted Answer

A) federal covered securities to be registered simultaneously with the SEC and with the states in which the securities will be offered for sale. 
B) securities that do not fall within the category of federal covered securities to be registered simultaneously with the SEC and with the states in which the securities will be offered for sale. 
C) both state-registered and out-of-state investment bankers to participate in the underwriting and registration of a new security issue. 
D) issuers of federal covered securities to submit only a notice filing with the Administrator of states in which the securities will be offered for sale.

Question 9

Nat Smart was employed as an investment adviser representative and sold many of his clients on a municipal bond fund of which he was fond, telling his clients that the returns earned on it were completely free from federal taxation. Unfortunately, he had some unhappy clients when, at the end of the year, they discovered that they had to pay federal tax on the capital gains earned by the fund when it sold some of the bonds it held. Nat was as surprised as they were. Based on these facts, which of the following statements is necessarily true?
I. Because Nat was as surprised as they were, he is guiltless.
II. Nat is subject to civil liability payments.
III. Nat will be subject to the criminal penalties for fraud and may spend time in prison.

Accepted Answer

A) I only 
B) II only 
C) II and III only 
D) III only

Question 10

Which of the following would not fall under the classification of "institutional investor"?

Accepted Answer

A) Prudential Insurance 
B) Chase Bank 
C) Neuring Investment Advisers 
D) Franklin Templeton Mutual Funds

Question 11

Jack is employed by NewCorp, which is engaging in an initial public offering (IPO). Jack will need to register as a sales representative if he:

Accepted Answer

A) engages in transactions with the underwriters of the IPO for the purpose of taking the firm public. 
B) represents NewCorp in any transactions with financial institutions. 
C) participates in the selling of the new stock to individual investors. 
D) Jack will need to register as a sales representative if he performs any one of the above activities.

Question 12

Maddie, a registered agent affiliated with broker-dealer QuikDeals, quit her job on the spur of the moment. Under the guidelines of the Uniform Securities Act (USA), who is responsible for notifying the Administrator?

Accepted Answer

A) QuikDeals has the sole responsibility for notifying the Administrator. Maddie is no longer deemed to be an agent after she terminated her relationship with QuikDeals, so she need do nothing. 
B) Maddie has the sole responsibility for notifying the Administrator. 
C) It depends. If Maddie becomes affiliated with another broker-dealer within thirty days, then she must notify the Administrator of her termination with QuikDeals and her current affiliation with the new firm. Otherwise, only QuikDeals must notify the Administrator. 
D) Both QuikDeals and Maddie are responsible for notifying the Administrator.

Question 13

Which of the following would not be a prohibited activity for a broker-dealer?
I. A broker-dealer tells a client that a municipal revenue bond offered by the city of Boston, Massachusetts is almost risk-free because it is backed by the taxes paid to the city, and the city generates a lot of tax dollars.
II. A broker-dealer sells a client some bonds that the broker-dealer has in its portfolio, after informing the client that it is acting as a seller in the transaction.
III. A broker-dealer purchases some stock that a client is selling for its own portfolio, after informing the client that it is acting as a buyer in the transaction.
IV. A broker-dealer purchases 1,000 shares of Southwest Airlines for a client who calls and asks the broker-dealer to buy some shares of a domestic airline stock at a good price for him and receives written discretionary authority from the client two days later, prior to the settlement date.

Accepted Answer

A) I only 
B) II and III only 
C) I and IV only 
D) II, III and IV only

Question 14

Nancy's Aunt Ethel died, making Nancy executrix of her estate. In going through Aunt Ethel's belongings, Nancy discovered some stock certificates that she learned had been issued by a small New Jersey firm that was still in business. The problem lay in the fact that Nancy's Aunt Ethel had moved from New Jersey to Florida years ago, and the stock is registered only in the state of New Jersey. Nancy herself is a resident of Massachusetts. What does Nancy have to do in order to sell this stock?

Accepted Answer

A) Nancy can sell the stock without a problem as executrix of her aunt's estate. 
B) Nancy will need to contact a securities law firm in Florida to help her register the stock in the state of Florida. 
C) Nancy will need to contact a broker-dealer licensed in the state of New Jersey to help her with the sale of this stock. 
D) Nancy will have to establish a mailing address in New Jersey before she can legally sell this stock.

Question 15

Which of the following statements regarding "registration by qualification" is true?

Accepted Answer

A) Registration by qualification refers to the fact that certain categories of securities are exempt from state registration requirements. 
B) Registration by qualification is the preferred method used by issuers since it requires the least amount of paperwork. 
C) In its simplest form, registration by qualification requires the issuer to supply voluminous amounts of information about both the firm and its directors, officers, and major shareholders. 
D) Registration by qualification refers to the fact that the highest quality bonds, i.e., those with a AAA rating, are exempt from registration with the state.

Question 16

Which of the following scenarios does not meet the definition of "custody" under NASAA Model Rules?

Accepted Answer

A) An investment adviser is mistakenly sent a client's securities, but returns them to the sender within three business days of receipt. 
B) An investment adviser has general power of attorney for a client and is authorized to withdraw client funds or securities that are on deposit with a registered broker-dealer upon the investment adviser's request. 
C) An investment adviser receives a check from a client that is written to a mutual fund and forwards the check to the mutual fund within three business days of receipt. 
D) An investment adviser keeps a client's securities in its safety deposit box.

Question 17

The Uniform Securities Act (USA) is

Accepted Answer

A) a body of laws governing the purchase and sale of securities within a single state. 
B) a set of guidelines for individual states to follow when formulating their own securities' laws. 
C) a group of laws requiring state-issued securities, such as municipal bonds, to be registered with 
D) federal legislation that requires all states to adopt the same registration requirements for all

Question 18

You are a newly licensed agent and are making cold calls to generate business. According to the Telephone Consumer Protection Act of 1991 (TCPA), you may only place your calls between the hours of

Accepted Answer

A) 8 a.m. and 9 p.m., based on your time zone. 
B) 8 a.m. and 9 p.m., based on your prospective customer's time zone. 
C) 8 a.m. and 7 p.m., based on your prospective customer's time zone. 
D) 8 a.m. and 7 p.m., based on the Pacific Time Zone.

Question 19

While on vacation in Colorado, Mr. Moneybags became interested in the stock of a company called SafeAway, which designs and installs customized high-tech security systems in the multimillion dollar mansions located in Colorado's pricier ski resort areas, such as Vail and Aspen. Upon returning to his home in Boston, he calls his broker-dealer with an order to purchase 10,000 shares of the stock, which he learned trades in the over-the-
Counter market. Fast Eddie, a registered agent with his broker-dealer, discovers that SafeAway's stock is registered only in the states of Colorado and Wyoming. Neither Fast Eddie nor his broker-dealer are registered to do business in either of those states. Under these circumstances,

Accepted Answer

A) Fast Eddie cannot effect Mr. Moneybags purchase of SafeAway stock since neither he nor his broker are registered to do business in Colorado or Wyoming, and SafeAway stock is not registered for sale in the state of Massachusetts. 
B) Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is a private placement. 
C) Fast Eddie should contact a broker-dealer that is registered in either Colorado or Wyoming and negotiate a finder's fee for referring Mr. Moneybags to them. 
D) Fast Eddie can execute the trade for Mr. Moneybags since this would be considered an exempt transaction because it is an unsolicited transaction.

Question 20

AllTime Investment Advisers advertises that its phones are manned 24/7, so that a client "doesn't have to lie awake all night worrying about a financial problem." In fact, AllTime does have a answering service that answers calls in the evenings and on the weekends when its offices are closed. The service informs the caller of the firm's business hours, which will be the earliest opportunity the caller will have to talk to an investment adviser representative. Is this a violation of any securities laws?

Accepted Answer

A) No. It's not a violation of any securities laws, but the firm probably won't retain many clients this way. 
B) Yes. The Uniform Securities Act prohibits investment advisers from making deceptive statements in the solicitation of clients as well as in advising clients. 
C) No. The firm's phones are manned 24/7, so it hasn't lied. 
D) It depends. If, before a client signs a contract with the firm, it is made clear that investment adviser representatives are not, in fact, available to him 24/7, then AllTime is in the clear.

Exam 4: Uniform Securities Act USA and State Registration Requirements