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Question 1 of 10
1. Question
Which of the following statement is false?
I. Political risk describes the risk that the regulatory environment will negatively impact an industry.
II. Business risk describes the risk that a busines will record a loss instead of a profit.
III. Liquidity risk is the risk that an investor will be completely able to liquidate or receive cash for the investment in a timely manner.
IV. Regulatory risk describes the risk that ensues from political upheaval or instability and unrest in a country.Correct
– Business risk describes the risk that a business will have worse-than-expected profits or that it will record a loss instead of a profit.
– Regulatory risk describes the risk that the regulatory environment will negatively impact an industry. Stricter gun control laws are an example of regulatory risk to the firearms industry.
– Political risk differs from regulatory risk in that it describes the risk that ensues from political upheaval or instability and unrest in a country. An example of this is an oil company being nationalized after a political revolution.
– Liquidity risk is the risk that an investor will not be able to liquidate or receive cash for the investment in a timely manner.Incorrect
– Business risk describes the risk that a business will have worse-than-expected profits or that it will record a loss instead of a profit.
– Regulatory risk describes the risk that the regulatory environment will negatively impact an industry. Stricter gun control laws are an example of regulatory risk to the firearms industry.
– Political risk differs from regulatory risk in that it describes the risk that ensues from political upheaval or instability and unrest in a country. An example of this is an oil company being nationalized after a political revolution.
– Liquidity risk is the risk that an investor will not be able to liquidate or receive cash for the investment in a timely manner. -
Question 2 of 10
2. Question
The following are examples of valuation ratios except:
I. Price to interest ratio
II. Price to earnings ratio
III. Price to book ratio
IV. Price to equity ratioCorrect
Valuation ratios help investors analyze a company’s performance in various areas by providing a snapshot glimpse of related data compared to each other. While one valuation ratio is helpful, by itself, it does not provide a clear enough picture to warrant purchasing a security. Examples are:
The price-to-earnings, and The price-to-book ratioIncorrect
Valuation ratios help investors analyze a company’s performance in various areas by providing a snapshot glimpse of related data compared to each other. While one valuation ratio is helpful, by itself, it does not provide a clear enough picture to warrant purchasing a security. Examples are:
The price-to-earnings, and The price-to-book ratio -
Question 3 of 10
3. Question
Regarding the P/E ratio, which of the following is true?
I. P/E ratio = overall market value/earnings per share
II. A higher P/E may indicate that investors predict larger earnings in the future than a company with a lower P/E.
III. P/E ratio = overall market value/overall earnings
IV. P/E ratio = market value per share/earnings per shareCorrect
The price-to-earnings, or P/E, ratio helps the investor compare a security’s market value (price per share) to the company’s earnings per share. It is calculated as market value per share/earnings per share. A higher P/E may indicate that investors predict larger earnings in the future than a company with a lower P/E.
Incorrect
The price-to-earnings, or P/E, ratio helps the investor compare a security’s market value (price per share) to the company’s earnings per share. It is calculated as market value per share/earnings per share. A higher P/E may indicate that investors predict larger earnings in the future than a company with a lower P/E.
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Question 4 of 10
4. Question
Regarding price to book ratio, identify the incorrect statement(s).
I. It helps the investor compare a security’s market value to the company’s earnings per share.
II. The ratio is a conservative look at the value of the company versus how much the investor is paying per share.
III. It helps investors compare a company’s market value (price per share) to its book value.
IV. It helps investors compare a company’s value based on its assets versus liabilities listed on the balance sheet.Correct
The price-to-book ratio helps investors compare a company’s market value (price per share) to its book value, or a company’s value based on its assets versus liabilities listed on the balance sheet. This ratio is a conservative look at the value of the company versus how much the investor is paying per share. It is calculated as price per share/shareholders’ equity per share.
Incorrect
The price-to-book ratio helps investors compare a company’s market value (price per share) to its book value, or a company’s value based on its assets versus liabilities listed on the balance sheet. This ratio is a conservative look at the value of the company versus how much the investor is paying per share. It is calculated as price per share/shareholders’ equity per share.
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Question 5 of 10
5. Question
The following are false about the Uniform Securities Act except:
I. It is a legislative attempt to bring uniformity to state securities laws that are widely varied.
II. It outlines civil and criminal liabilities for abuse of the uniform laws.
III. It does not provide for consumer investor protection.
IV. It is overseen by a provost.Correct
The Uniform Securities Act is a legislative attempt to bring uniformity to state securities laws that are widely varied, also known as blue-sky laws. The Uniform Securities Act, or USA, outlines civil and criminal liabilities for abuse of the uniform laws. Each state’s securities laws are overseen by an administrator. The blue-sky laws not only bring uniformity to multiple states’ laws but also provides for consumer investor protection.
Incorrect
The Uniform Securities Act is a legislative attempt to bring uniformity to state securities laws that are widely varied, also known as blue-sky laws. The Uniform Securities Act, or USA, outlines civil and criminal liabilities for abuse of the uniform laws. Each state’s securities laws are overseen by an administrator. The blue-sky laws not only bring uniformity to multiple states’ laws but also provides for consumer investor protection.
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Question 6 of 10
6. Question
Regarding the Investment Advisers Act of 1940, which of the following is true?
I. It was passed to reduce fraud perpetrated upon investors.
II. Investment advisers are required to register with the Securities and Exchange Commission.
III. It is a sequel of the reforms brought about by the stock market crash of 1929.
IV. The Uniform Securities Act provided a legal definition for investment advisers.Correct
The Investment Advisers Act of 1940 provided a legal definition for the investment advisor designation and required advisors to register with the Securities and Exchange Commission (SEC). The stock market crash of 1929 brought sweeping reform to the securities industry. The Investment Advisers Act of 1940 was passed to reduce fraud perpetrated upon investors.
Incorrect
The Investment Advisers Act of 1940 provided a legal definition for the investment advisor designation and required advisors to register with the Securities and Exchange Commission (SEC). The stock market crash of 1929 brought sweeping reform to the securities industry. The Investment Advisers Act of 1940 was passed to reduce fraud perpetrated upon investors.
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Question 7 of 10
7. Question
Which of the following does not define an investment adviser?
I. An investment advisor is a person (legal or natural) who provides investment advice, reports, or analyses with respect to securities.
II. An investment advisor is a person who provides advice or analyses on securities and does not receive compensation directly for these services.
III. An investment advisor is a financial institution primarily involved with providing advice and analyses with regards to securities.
IV. An investment advisor is a person who is in the business of providing advice or analyses, and receives compensation, directly or indirectly, for these services.Correct
The Investment Advisers Act of 1940 provided a legal definition for the investment advisor designation and required advisors to register with the Securities and Exchange Commission (SEC). According to the act, an investment advisor is a person (legal or natural) who “provides investment advice, reports, or analyses with respect to securities, is in the business of providing advice or analyses, and receives compensation, directly or indirectly, for these services”.
Incorrect
The Investment Advisers Act of 1940 provided a legal definition for the investment advisor designation and required advisors to register with the Securities and Exchange Commission (SEC). According to the act, an investment advisor is a person (legal or natural) who “provides investment advice, reports, or analyses with respect to securities, is in the business of providing advice or analyses, and receives compensation, directly or indirectly, for these services”.
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Question 8 of 10
8. Question
What are the principal goals of the investment advisers act of 1940?
I. To provide for monitoring the enforcement of laws guiding trading of securities.
II. To provide for the regulation of individuals and corporations in the business of distributing investment advice.
III. To institute the standard of ethics for the industry.
IV. To augment the provisions of the Uniform Securities Act.Correct
The principal goals of the Investment Advisers Act of 1940 were to provide for the regulation of individuals and corporations in the business of distributing investment advice and to institute the standard of ethics for the industry.
Incorrect
The principal goals of the Investment Advisers Act of 1940 were to provide for the regulation of individuals and corporations in the business of distributing investment advice and to institute the standard of ethics for the industry.
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Question 9 of 10
9. Question
Which of the following records should be kept after registration of an investment advisor?
I. A journal of transactions of cash in and disbursement out
II. Copies of all advertisements
III. Any powers of attorney held by the investment advisor
IV. Written contractsCorrect
Following the registration of an investment advisor, the Securities Exchange Commission requires that detailed records be kept, including a journal of transactions of cash in and disbursement out; ledgers detailing any expense, liability, reserve, asset, capital, or income accounts; documentation of orders placed by the advisor and any modifications thereto; financial records, bills and statements, original copies of written communication, and records of accounts with discretionary designations; any powers of attorney held by the investment advisor; written contracts; copies of all advertisements; and records of securities transactions in which the investment advisor has some amount of ownership.
Incorrect
Following the registration of an investment advisor, the Securities Exchange Commission requires that detailed records be kept, including a journal of transactions of cash in and disbursement out; ledgers detailing any expense, liability, reserve, asset, capital, or income accounts; documentation of orders placed by the advisor and any modifications thereto; financial records, bills and statements, original copies of written communication, and records of accounts with discretionary designations; any powers of attorney held by the investment advisor; written contracts; copies of all advertisements; and records of securities transactions in which the investment advisor has some amount of ownership.
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Question 10 of 10
10. Question
Which of the following statements is true about the registration records of an investment advisor?
I. The records must be maintained in a secure location for three years.
II. All records must be digitized and stored on the memory of a computer as soon as available.
III. The records should be accessible to the public.
IV. The records should be readily available should the administrator choose to audit them.Correct
Following the registration of an investment advisor, the Securities Exchange Commission requires that detailed records be kept. These records must be maintained in a secure location for five years. After the first two years, the oldest three years may be digitized and stored on the memory of a computer. The records should not be accessible to the public but should be readily available should the administrator choose to audit them.
Incorrect
Following the registration of an investment advisor, the Securities Exchange Commission requires that detailed records be kept. These records must be maintained in a secure location for five years. After the first two years, the oldest three years may be digitized and stored on the memory of a computer. The records should not be accessible to the public but should be readily available should the administrator choose to audit them.