Skip to main content

Wiley Series 65 Exam Review 2015 + Test Bank: The Uniform Investment Advisor Law Examination

Wiley Series 65 Exam Review 2015 + Test Bank: The Uniform Investment Advisor Law Examination

The Securities Institute of America, Inc.

ISBN: 978-1-118-85706-9

Oct 2014

492 pages

Select type: Paperback

Product not available for purchase

Description

The go-to guide to acing the Series 65 Exam!

Consisting of 130 multiple-choice questions in the areas of ethics and legal guidelines, investment strategies, investment vehicles, and economics and analysis, the Uniform Investment Adviser Law Examination (Series 65) is designed to qualify candidates as investment adviser representatives.

An indispensable resource for anyone preparing to take this tough three-hour exam, Wiley Series 65 Exam Review 2015 was created by the experts at The Securities Institute of America, Inc. It arms you with what you need to score high and pass the Series 65 Exam on your first try. Designed to let you build and fine-tune your knowledge of all areas covered in the exam and to guarantee that you're prepared mentally and strategically to take the test, it features:

  • Dozens of examples
  • Assorted practice questions for each subject area covered in the exam
  • Priceless test-taking tips and strategies
  • Helpful hints on how to study for the test, manage stress, and stay focused

Wiley Series 65 Exam Review 2015 is your ticket to passing the Uniform Investment Adviser Law Examination—with flying colors!

ABOUT THE SERIES 65 EXAM XXI

ABOUT THIS BOOK XXV

ABOUT THE TEST BANK XXVII

ABOUT THE SECURITIES INSTITUTE OF AMERICA XXIX

CHAPTER 1 EQUITY SECURITIES 1

What Is a Security? 1

Equity = Stock 2

Common Stock 2

Corporate Time Line 2

Values of Common Stock 4

Book Value 4

Par Value 5

Rights of Common Stockholders 5

Preemptive Rights 5

Characteristics of a Rights Offering 6

Determining the Value of a Right Cum Rights 7

Determining the Value of a Right Ex Rights 7

Voting 8

Limited Liability 9

Freely Transferable 9

The Transfer Agent 10

The Registrar 10

CUSIP Numbers 11

Inspection of Books and Records 11

Residual Claim to Assets 11

Why Do People Buy Common Stock? 11

Income 11

What Are the Risks of Owning Common Stock? 12

How Does Someone Become a Stockholder? 12

Preferred Stock 14

Features of All Preferred Stock 14

Types of Preferred Stock 15

Callable Preferred 17

Types of Dividends 17

Dividend Distribution 18

Taxation of Dividends 20

Selling Dividends 20

Dividend Disbursement Process 21

Warrants 21

How Do People Get Warrants? 21

American DepositAry Receipts (ADRs)/American DepositAry Shares (ADSs) 22

Currency Risks 22

Functions of the Custodian Bank Issuing ADRs 23

Real Estate Investment Trusts/REITs 23

Direct Participation Programs and Limited Partnerships 23

Limited Partnerships 24

Tax Reporting for Direct Participation Programs 27

Limited Partnership Analysis 28

Tax Deductions vs. Tax Credits 28

Other Tax Considerations 28

Dissolving a Partnership 29

Pretest 31

CHAPTER 2 CORPORATE AND MUNICIPAL DEBT SECURITIES 35

Corporate Bonds 35

Types of Bond Issuance 36

Bond Pricing 37

Par Value 38

Discount 38

Premium 38

Corporate Bond Pricing 38

Bond Yields 39

Yield to Maturity: Premium Bond 40

Yield to Maturity: Discount Bond 41

Calculating the Yield to Maturity 41

Calculating the Yield to Call 42

Realized Compound Yield Returns 42

Yield Spreads 43

The Real Interest Rate 43

Bond Maturities 43

Series Issue 44

Types of Corporate Bonds 44

Guaranteed Bonds 46

Convertible Bonds 46

Converting Bonds into Common Stock 47

Parity Price 47

Advantages of Issuing Convertible Bonds 48

Disadvantages of Issuing Convertible Bonds 48

Convertible Bonds and Stock Splits 48

The Trust Indenture Act of 1939 49

Bond Indenture 49

Ratings Considerations 49

Exchange Traded Notes (ETNs) 50

Euro and Yankee Bonds 50

Variable Rate Securities 51

Retiring Corporate Bonds 51

Municipal Bonds 53

Types of Municipal Bonds 54

Taxation of Municipal Bonds 58

Tax-Equivalent Yield 58

Purchasing a Municipal Bond Issued in the State in Which the Investor Resides 59

Triple Tax Free 59

Original Issue Discount (OID) and Secondary Market Discounts 59

Amortization of a Municipal Bond’s Premium 60

Bond Swaps 60

Analyzing Municipal Bonds 60

Analyzing General Obligation Bonds 61

Duration 61

Convexity 62

Bond Portfolio Management 62

Pretest 65

CHAPTER 3 GOVERNMENT AND GOVERNMENT AGENCY ISSUES 69

Series EE Bonds 69

Series HH Bonds 70

Treasury Bills, Notes, and Bonds 70

Purchasing Treasury Bills 70

Treasury Notes 71

Treasury Bonds 71

Treasury Bond and Note Pricing 71

Treasury STRIPs 72

Treasury Receipts 72

Treasury Inflation Protected Securities (TIPS) 73

Agency Issues 74

Government National Mortgage Association (GNMA) 74

Federal National Mortgage Association (FNM) 75

Federal Home Loan Mortgage Corporation (FHLMC) 75

Federal Farm Credit System 76

Collateralized Mortgage Obligation (CMO) 76

CMOs and Interest Rates 76

Types of CMOs 77

Pretest 79

CHAPTER 4 INVESTMENT COMPANIES 81

Investment Company Philosophy 81

Types of Investment Companies 82

Open End vs. Closed End 83

Diversified vs. Nondiversified 84

Investment Company Registration 85

Registration Requirements 85

Investment Company Components 87

Mutual Fund Distribution 89

Selling Group Member 89

Distribution of No-Load Mutual Fund Shares 90

Distribution of Mutual Fund Shares 90

Mutual Fund Prospectus 90

Characteristics of Open-End Mutual Fund Shares 91

Mutual Fund Investment Objectives 92

Other Types of Funds 94

Bond Funds 94

Valuing Mutual Fund Shares 96

Sales Charges 97

Other Types of Sales Charges 99

Calculating a Mutual Fund’s Sales Charge Percentage 99

Finding the Public Offering Price 100

Sales Charge Reductions 100

Breakpoint Schedule 101

Letter of Intent 101

Breakpoint Sales 102

Rights of Accumulation 102

Automatic Reinvestment of Distributions 103

Other Mutual Fund Features 103

Dollar Cost Averaging 104

Mutual FUnds Voting Rights 106

Mutual Fund Yields 107

Portfolio Turnover 107

Pretest 109

CHAPTER 5 VARIABLE ANNUITIES AND RETIREMENT PLANS 113

Annuities 113

Bonus Annuity 115

Equity-Indexed Annuity 116

Annuity Purchase Options 117

Accumulation Units 118

Annuity Units 118

Annuity Payout Options 119

Factors Affecting the Size of the Annuity Payment 120

The Assumed Interest Rate (AIR) 120

Taxation 121

Types of Withdrawals 121

Annuitizing the Contract 121

Sales Charges 122

Investment Management Fees 122

Variable Annuity vs. Mutual Fund 122

Retirement Plans 122

Individual Plans 123

Individual Retirement Accounts (IRAs) 123

Corporate Plans 131

Types of Plans 132

Rolling Over a Pension Plan 134

Employee Stock Options 134

Employee Retirement Income Security Act of 1974 (ERISA) 135

ERISA 404C SAFE HARBOR 136

Life Insurance 137

Pretest 141

CHAPTER 6 FUNDAMENTAL AND TECHNICAL ANALYSIS 145

Fundamental Analysis 145

Balance Sheet 146

Capitalization 148

Changes in the Balance Sheet 148

The Income Statement 152

Industry Fundamentals 154

Top Down and Bottom Up Analysis 154

Dividend Valuation Models 155

Technical Analysis 155

Market Theories and Indicators 159

Efficient Market Theory 160

Statistical Analysis 161

Market Capitalization 162

Pretest 163

CHAPTER 7 ECONOMIC FUNDAMENTALS 165

Gross Domestic Product 165

Recession 167

Depression 167

Economic Indicators 167

Schools of Economic Thought 169

Economic Policy 170

Tools of the Federal Reserve Board 170

Reserve Requirement 170

Changing the Discount Rate 171

Federal Open Market Committee 171

Money Supply 172

Disintermediation 172

Moral Suasion 173

Fiscal Policy 173

International Monetary Considerations 175

Pretest 177

CHAPTER 8 RECOMMENDATIONS, PROFESSIONAL CONDUCT, AND TAXATION 181

Professional Conduct by Investment Advisers 182

The Uniform Prudent Investors Act of 1994 182

Fair Dealings with Clients 183

Recommending Mutual Funds 187

Periodic Payment Plans 187

Disclosure of Client Information 188

Borrowing and Lending Money 188

Developing the Client Profi le 188

Types of Advisory Clients 189

Investment Objectives 194

Capital Asset Pricing Model (CAPM) 196

Risk vs. Reward 196

Alpha 198

Beta 198

Expected Return 199

Time Value of Money 200

Weighted Returns 202

Modern Portfolio Theory 204

Predicting Portfolio Income 204

Tax Structure 206

Investment Taxation 207

Calculating Gains and Losses 207

Cost Base of Multiple Purchases 208

Deducting Capital Losses 209

Wash Sales 209

Taxation of Interest Income 209

Inherited and Gifted Securities 210

Donating Securities to Charity 210

Trusts 211

Gift Taxes 212

Estate Taxes 213

Withholding Tax 213

Corporate Dividend Exclusion 214

Alternative Minimum Tax (AMT) 214

Taxes on Foreign Securities 214

Pretest 215

CHAPTER 9 SECURITIES INDUSTRY RULES AND REGULATIONS 219

The Securities Act of 1933 219

The Prospectus 220

The Final Prospectus 220

SEC Disclaimer 221

Misrepresentations 221

The Securities Exchange Act of 1934 221

The Securities Exchange Commission (SEC) 222

Extension of Credit 223

Public Utilities Holding Company Act of 1935 223

Financial Industry Regulatory Authority (FINRA) 223

The Trust Indenture Act of 1939 224

Investment Advisers Act of 1940 224

Investment Company Act of 1940 224

FINRA Member Communications with the Public 225

FINRA Rule 2210 Communications with the Public 226

Corporate Websites 228

Blind Recruiting Ads 229

Generic Advertising 229

Tombstone Ads 229

Testimonials 230

Free Services 231

Misleading Communications 231

Securities Investor Protection Corporation Act of 1970 (SIPC) 231

Net Capital Requirement 232

Customer Coverage 232

Fidelity Bond 233

The Securities Acts Amendments of 1975 233

The Insider Trading and Securities Fraud Enforcement Act of 1988 233

Firewall 234

The Telephone Consumer Protection Act of 1991 234

Exemption from the Telephone Consumer Protection Act of 1991 235

National Securities Market Improvement Act of 1996 235

The Uniform Securities Act 236

Currency Transactions 236

The Patriot Act 237

Pretest 239

CHAPTER 10 TRADING SECURITIES 243

Types of Orders 243

The Exchanges 247

Priority of Exchange Orders 247

The Role of the Specialist/DMM 247

The Specialist/DMM Acting as a Principal 248

The Specialist/DMM Acting as an Agent 248

Crossing Stock 250

Do Not Reduce (DNR) 251

Adjustments for Stock Splits 251

Stopping Stock 252

Commission House Broker 253

Two-Dollar Broker 253

Registered Traders 253

Super Display Book (SDBK) 253

Short Sales 254

Regulation of Short Sales/Regulation SHO 254

Rule 200 Defi nitions and Order Marking 254

Rule 203 Security Borrowing and Delivery Requirements 255

Over the Counter/Nasdaq 256

Market Makers 257

Nasdaq Subscription Levels 257

Nasdaq Quotes 258

Nominal Nasdaq Quotes 259

Nasdaq Execution Systems 259

Nasdaq Market Center Execution System (NMCES) 259

Nasdaq Opening Cross 260

Non-Nasdaq OTCBB 260

Pink Sheets 260

Third Market 260

Fourth Market 261

Broker vs. Dealer 261

FINRA 5% Markup Policy 262

Markups/Markdowns when Acting as a Principal 262

Riskless Principal Transactions 263

Proceeds Transactions 264

Arbitrage 264

Pretest 265

CHAPTER 11 OPTIONS 269

Option Classification 269

Option Classes 270

Option Series 270

Bullish vs. Bearish 270

Possible Outcomes for an Option 271

Characteristics of All Options 272

Managing an Option Position 272

Buying Calls 273

Maximum Gain Long Calls 273

Maximum Loss Long Calls 273

Determining the Breakeven for Long Calls 274

Selling Calls 274

Buying Puts 276

Selling Puts 277

Option Premiums 279

In-the-Money Options 279

At-the-Money Options 279

Out-of-the-Money Options 280

Intrinsic Value and Time Value 280

Using Options as a Hedge 281

Long Stock Long Puts/Married Puts 281

Long Stock Short Calls/Covered Calls 283

Short Stock Long Calls 285

Short Stock Short Puts 288

Futures and Forwards 291

Correlation 291

Pretest 293

CHAPTER 12 DEFINITION OF TERMS 297

Security 297

Person 299

Broker Dealer 300

Agent 301

Issuer 301

Nonissuer 302

Investment Adviser 302

Pension Consultants 302

Form ADV 303

Investment Adviser Representative 304

Solicitor 304

Access Person 304

Institutional Investor 304

Accredited Investor 305

Qualified Purchaser 305

Private Investment Company 306

Offer/Offer to Sell/Offer to Buy 306

Sale/Sell 306

Guarantee/Guaranteed 306

Contumacy 307

Federally Covered Exemption 307

Power of attorney 307

Negotiable Certificate of Deposit 308

Pretest 309

CHAPTER 13 REGISTRATION OF BROKER DEALERS, INVESTMENT ADVISERS, AND AGENTS 315

Registration of Broker Dealers and Agents 315

Changes in an Agent’s Employment 319

Mergers and Acquisitions of Firms 319

Renewing Registrations 319

Canadian Firms and Agents 320

Investment Adviser Registration 320

Advertising and Sales Literature 324

Brochure Delivery 325

The Role of the Investment Adviser 325

Additional Compensation for an Investment Adviser 325

Agency Cross Transactions 326

Disclosures by an Investment Adviser 326

Investment Adviser Contracts 328

Additional Roles of Investment Advisers 328

Private Investment Companies/Hedge Funds 328

Fulcrum Fees 329

Wrap Accounts 329

Soft Dollars 329

Pretest 333

CHAPTER 14 SECURITIES REGISTRATION, EXEMPT SECURITIES, AND EXEMPT TRANSACTIONS 339

Exempt Securities 339

Securities Registration 340

Exempt Securities/Federally Covered Exemption 343

Exempt Transactions 344

Private Placements/Regulation D Off erings 344

Transactions with Financial Institutions 345

Transactions with Fiduciaries 345

Transactions with Underwriters 345

Unsolicited Orders 346

Transactions in Mortgage-Backed Securities 346

Pledges 346

Offers to Existing Securities Holders 346

Preorganization Certificates 346

Isolated Nonissuer Transactions 347

Nonissuer Transactions 347

Pretest 349

CHAPTER 15 STATE SECURITIES ADMINISTRATOR: THE UNIFORM SECURITIES ACT 353

Actions by the State Securities Administrator 353

Cancelation of a Registration 354

Withdrawal of a Registration 355

Actions Against an Issuer of Securities 355

Rule Changes 355

Administrative Orders 355

Interpretive Opinions 356

Administrative Records 357

Investigations 357

Civil and Criminal Penalties 358

Jurisdiction of the State Securities Administrator 358

Administrator’s Jurisdiction over Securities Transactions 359

Right of Rescission 361

Statute of Limitations 362

Pretest 363

ANSWER KEYS 369

GLOSSARY OF EXAM TERMS 383

INDEX 449