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Wiley Series 65 Securities Licensing Exam Review 2019 + Test Bank: The Uniform Investment Adviser Law Examination

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Wiley Series 65 Securities Licensing Exam Review 2019 + Test Bank: The Uniform Investment Adviser Law Examination

Wiley

ISBN: 978-1-119-55387-8 December 2018 512 Pages

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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 2019 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 2019 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? 13

Preferred Stock 14

Features of All Preferred Stock 14

Types of Preferred Stock 16

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 23

Functions of the Custodian Bank Issuing ADRs 23

Real Estate Investment Trusts/REITs 23

Non-Traded REITs 24

Direct Participation Programs and Limited Partnerships 24

Limited Partnerships 25

Tax Reporting for Direct Participation Programs 28

Limited Partnership Analysis 28

Tax Deductions vs. Tax Credits 29

Other Tax Considerations 29

Dissolving a Partnership 30

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

Bond Ladder 63

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 Infl ation 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 92

Mutual Fund Investment Objectives 93

Other Types of Funds 94

Bond Funds 94

Alternative Funds 96

Valuing Mutual Fund Shares 97

Sales Charges 98

Other Types of Sales Charges 100

12B-1 Fees 101

Recommending Mutual Funds 101

Calculating a Mutual Fund’s Sales Charge Percentage 102

Finding the Public Offering Price 103

Sales Charge Reductions 103

Breakpoint Schedule 104

Letter of Intent 104

Breakpoint Sales 105

Rights of Accumulation 105

Automatic Reinvestment of Distributions 106

Other Mutual Fund Features 106

Dollar Cost Averaging 107

Mutual Funds Voting Rights 109

Mutual Fund Yields 110

Portfolio Turnover 110

Pretest 111

CHAPTER 5 VARIABLE ANNUITIES AND RETIREMENT PLANS 115

Annuities 115

Bonus Annuity 117

Equity-Indexed Annuity 118

Recommending Variable Annuities 119

Annuity Purchase Options 120

Accumulation Units 121

Annuity Units 121

Annuity Payout Options 122

Factors Affecting the Size of the Annuity Payment 123

The Assumed Interest Rate (AIR) 123

Taxation 124

Types of Withdrawals 124

Annuitizing the Contract 125

Sales Charges 125

Investment Management Fees 125

Variable Annuity vs. Mutual Fund 125

Retirement Plans 126

Individual Plans 126

Individual Retirement Accounts (IRAs) 126

Corporate Plans 135

Types of Plans 136

Rolling Over a Pension Plan 138

Employee Stock Options 138

Employee Retirement Income Security Act of 1974 (ERISA) 138

ERISA 404C Safe Harbor 140

The Department of Labor Fiduciary Rules 141

Life Insurance 141

Tax Implications of Life Insurance 143

Health Savings Accounts 144

ABLE Accounts 145

Pretest 147

CHAPTER 6 FUNDAMENTAL AND TECHNICAL ANALYSIS 151

Fundamental Analysis 151

Balance Sheet 152

Capitalization 154

Changes in the Balance Sheet 154

The Income Statement 158

Industry Fundamentals 160

Top-Down and Bottom-Up Analysis 160

Dividend Valuation Models 161

Technical Analysis 161

Market Theories and Indicators 165

Contents xi

Efficient Market Theory 166

Statistical Analysis 167

Market Capitalization 168

Pretest 169

CHAPTER 7 ECONOMIC FUNDAMENTALS 171

Gross Domestic Product 171

Recession 173

Depression 173

Economic Indicators 173

Schools of Economic Thought 175

Economic Policy 176

Tools of the Federal Reserve Board 176

Interest Rates 176

Reserve Requirement 178

Changing the Discount Rate 178

Federal Open Market Committee 178

Money Supply 179

Disintermediation 180

Moral Suasion 180

Fiscal Policy 180

International Monetary Considerations 182

London Interbank Offered Rate / LIBOR 182

Yield Curve Analysis 183

Pretest 185

CHAPTER 8 RECOMMENDATIONS, PROFESSIONAL CONDUCT, AND TAXATION 189

Professional Conduct by Investment Advisers 190

The Uniform Prudent Investors Act of 1994 190

Fair Dealings with Clients 191

Recommending Mutual Funds 195

Periodic Payment Plans 195

Disclosure of Client Information 196

Borrowing and Lending Money 196

Developing the Client Profile 196

Types of Advisory Clients 197

Investment Objectives 202

Capital Asset Pricing Model (CAPM) 204

Risk vs. Reward 205

Alpha 207

Beta 207

Expected Return 208

Time Value of Money 209

Weighted Returns 211

Modern Portfolio Theory 213

Predicting Portfolio Income 214

Tax Structure 216

Investment Taxation 216

Calculating Gains and Losses 216

Cost Base of Multiple Purchases 217

Deducting Capital Losses 218

Wash Sales 218

Taxation of Interest Income 219

Inherited and Gifted Securities 219

Donating Securities to Charity 219

Trusts 220

Gift Taxes 222

Estate Taxes 222

Withholding Tax 223

Corporate Dividend Exclusion 223

Alternative Minimum Tax (AMT) 223

Taxes on Foreign Securities 223

Pretest 225

CHAPTER 9 SECURITIES INDUSTRY RULES AND REGULATIONS 229

The Securities Act of 1933 229

The Prospectus 230

The Final Prospectus 230

SEC Disclaimer 231

Misrepresentations 231

The Securities Exchange Act of 1934 232

The Securities Exchange Commission (SEC) 232

Extension of Credit 233

Public Utilities Holding Company Act of 1935 233

Financial Industry Regulatory Authority (FINRA) 233

The Trust Indenture Act of 1939 234

Investment Advisers Act of 1940 234

Investment Company Act of 1940 235

FINRA Member Communications with the Public 235

FINRA Rule 2210 Communications with the Public 236

Corporate Websites 238

Blind Recruiting Ads 239

Generic Advertising 239

Tombstone Ads 240

Testimonials 240

Free Services 241

Misleading Communications 242

Securities Investor Protection Corporation Act of 1970 (SIPC) 242

Net Capital Requirement 242

Customer Coverage 243

Fidelity Bond 243

The Securities Acts Amendments of 1975 244

The Insider Trading and Securities Fraud Enforcement Act of 1988 244

Firewall 245

The Telephone Consumer Protection Act of 1991 245

Exemption from the Telephone Consumer Protection Act of 1991 246

National Securities Market Improvement Act of 1996 246

The Uniform Securities Act 247

Currency Transactions 247

The Patriot Act 248

Regulation S-P 249

Identity Theft 250

FINRA Rules on Financial Exploitation of Seniors 250

Pretest 253

CHAPTER 10 TRADING SECURITIES 257

Types of Orders 257

The Exchanges 261

Priority of Exchange Orders 261

The Role of the designated market MAKER (DMM) 261

The DMM Acting as a Principal 262

The DMM Acting as an Agent 262

Crossing Stock 264

Do Not Reduce (DNR) 265

Adjustments for Stock Splits 265

Stopping Stock 266

Commission House Broker 267

Two-Dollar Broker 267

Registered Traders 267

Super Display Book (SDBK) 267

Short Sales 268

Regulation of Short Sales/Regulation SHO 268

Rule 200 Definitions and Order Marking 268

Rule 203 Security Borrowing and Delivery Requirements 269

Over the Counter/Nasdaq 270

Market Makers 271

Nasdaq Subscription Levels 271

Nasdaq Quotes 272

Nominal Nasdaq Quotes 273

Nasdaq Execution Systems 273

Nasdaq Market Center Execution System (NMCES) 273

Nasdaq Opening Cross 274

Non-Nasdaq OTCBB 274

Pink OTC 274

Third Market 274

Fourth Market 275

Broker vs. Dealer 275

FINRA 5% Markup Policy 276

Markups/Markdowns When Acting as a Principal 276

Riskless Principal Transactions 277

Proceeds Transactions 278

Arbitrage 278

Pretest 279

CHAPTER 11 OPTIONS 283

Option Classification 283

Option Classes 284

Option Series 284

Bullish vs. Bearish 284

Possible Outcomes for an Option 285

Characteristics of All Options 286

Managing an Option Position 286

Buying Calls 287

Maximum Gain Long Calls 287

Maximum Loss Long Calls 287

Determining the Breakeven for Long Calls 288

Selling Calls 288

Buying Puts 290

Selling Puts 291

Option Premiums 293

In-the-Money Options 293

At-the-Money Options 293

Out-of-the-Money Options 294

Intrinsic Value and Time Value 294

Using Options as a Hedge 295

Long Stock Long Puts/Married Puts 295

Long Stock Short Calls/Covered Calls 297

Short Stock Long Calls 299

Short Stock Short Puts 302

Futures and Forwards 305

Correlation 305

Pretest 307

CHAPTER 12 DEFINITION OF TERMS 311

Security 311

Person 313

Broker Dealer 314

Agent 315

Issuer 315

Nonissuer 316

Investment Adviser 316

Pension Consultants 316

Investment Counsel 317

Form ADV 317

Investment Adviser Registration Database IARD 319

Investment Adviser Representative 319

Solicitor 320

Access Person 320

Institutional Investor 320

Accredited Investor 321

Qualified Purchaser 321

Private Investment Company 321

Offer/Offer to Sell/Offer to Buy 322

Sale/Sell 322

Guarantee/Guaranteed 322

Contumacy 322

Federally Covered Exemption 323

Power of Attorney 323

Escheatment 323

Negotiable Certificate of Deposit 324

Pretest 325

CHAPTER 13 REGISTRATION OF BROKER DEALERS, INVESTMENT ADVISERS, AND AGENTS 331

Registration of Broker Dealers and Agents 331

Changes in an Agent’s Employment 336

Mergers and Acquisitions of Firms 336

Renewing Registrations 336

Canadian Firms and Agents 336

Investment Adviser Registration 337

Advertising and Sales Literature 341

Brochure Delivery 342

The Role of the Investment Adviser 343

Additional Compensation for an Investment Adviser 343

Agency Cross Transactions 344

Disclosures by an Investment Adviser 344

Investment Adviser Contracts 347

Additional Roles of Investment Advisers 347

Private Investment Companies/Hedge Funds 348

Fulcrum Fees 348

Wrap Accounts 348

Soft Dollars 348

Pretest 351

CHAPTER 14 SECURITIES REGISTRATION, EXEMPT SECURITIES, AND EXEMPT TRANSACTIONS 357

Exempt Securities 357

Securities Registration 358

Exempt Securities/Federally Covered Exemption 361

Exempt Transactions 362

Private Placements/Regulation D Offerings 362

Rule 144 363

Rule 147 Intrastate Offering 364

Transactions with Financial Institutions 364

Transactions with Fiduciaries 365

Transactions with Underwriters 365

Unsolicited Orders 365

Transactions in Mortgage-Backed Securities 365

Pledges 366

Offers to Existing Securities Holders 366

Preorganization Certificates 366

Isolated Nonissuer Transactions 366

Nonissuer Transactions 367

Pretest 369

CHAPTER 15 STATE SECURITIES ADMINISTRATOR: THE UNIFORM SECURITIES ACT 373

North America Securities Administrators Association 373

Actions by the State Securities Administrator 374

Cancellation of a Registration 375

Withdrawal of a Registration 375

Actions against an Issuer of Securities 375

Rule Changes 376

Administrative Orders 376

Interpretive Opinions 377

Administrative Records 377

Investigations 378

Civil and Criminal Penalties 378

Jurisdiction of the State Securities Administrator 379

Administrator’s Jurisdiction over Securities Transactions 380

Radio, Television, and Newspaper Distribution 382

Right of Rescission 382

Statute of Limitations 383

Pretest 385

ANSWER KEYS 391

GLOSSARY OF EXAM TERMS 405

INDEX 471