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Question 1 of 10
1. Question
Which of the following statements is false about equity securities?
I. They are commonly referred to as shares.
II. They are sold as stocks of a company.
III. They can be sold as individual shares of an investor.
IV. Investors determine the value of the shares in a bid/ask manner.Correct
Equity securities, most commonly referred to as stocks, are sold as individual shares of a company. Each share represents a certain percentage of ownership in a company. They are issued by the company and sold at an initial offering and on the secondary market thereafter, wherein investors determine the value of the shares in a bid/ask manner.
Incorrect
Equity securities, most commonly referred to as stocks, are sold as individual shares of a company. Each share represents a certain percentage of ownership in a company. They are issued by the company and sold at an initial offering and on the secondary market thereafter, wherein investors determine the value of the shares in a bid/ask manner.
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Question 2 of 10
2. Question
Which of the following statement is true about interest income from municipal bonds?
I. U.S territories are triple tax free regarding municipal bonds.
II. Investors need not pay any taxes on interest income from municipal bonds.
III. Interest income on municipal bonds is remitted in Washington D. C.
IV. General obligation bonds are not tax exempt.Correct
Investors need not pay any taxes on interest income from municipal bonds, although they may have to pay state or local taxes, depending on their laws. U.S. territories (including American Samoa, Guam, Puerto Rico, and the Virgin Islands) and federal districts (Washington, D.C.) are triple tax-free regarding municipal bonds. Bondholders don’t have any federal, state, or local taxes to pay on interest. Most states, but not all, are triple tax-free regarding municipal bonds for investors purchasing bonds issued within their own state.
Incorrect
Investors need not pay any taxes on interest income from municipal bonds, although they may have to pay state or local taxes, depending on their laws. U.S. territories (including American Samoa, Guam, Puerto Rico, and the Virgin Islands) and federal districts (Washington, D.C.) are triple tax-free regarding municipal bonds. Bondholders don’t have any federal, state, or local taxes to pay on interest. Most states, but not all, are triple tax-free regarding municipal bonds for investors purchasing bonds issued within their own state.
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Question 3 of 10
3. Question
Which of the following is true about municipal bonds?
I. Gains from investments on municipal bonds are doubled with double-capitalized bond
II. Most municipal bonds are tax-exempt
III. Discounts on municipal bonds purchased in the secondary market are not accreted
IV. Taxable municipal bonds are issued if the purpose of the bond revenue has a clear public benefitCorrect
Gains from investments on municipal bonds are ordinarily not taxed. Taxable municipal bonds can be issued if the purpose of the bond revenue has no clear public benefit, but most municipal bonds are tax-exempt. This means not only that coupon payments are not taxed, but also that gains from original issue discount (OID) bonds are tax-exempt as well. Accretion on the discount of municipal OID bonds is treated as tax-exempt interest income. Discounts on municipal bonds purchased in the secondary market are not even accreted.
Incorrect
Gains from investments on municipal bonds are ordinarily not taxed. Taxable municipal bonds can be issued if the purpose of the bond revenue has no clear public benefit, but most municipal bonds are tax-exempt. This means not only that coupon payments are not taxed, but also that gains from original issue discount (OID) bonds are tax-exempt as well. Accretion on the discount of municipal OID bonds is treated as tax-exempt interest income. Discounts on municipal bonds purchased in the secondary market are not even accreted.
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Question 4 of 10
4. Question
To calculate the discounted cash flow of a bond:
I. the investor should apply the net present value formula to all expected cash flows from the bond.
II. the rate of inflation should be used as the discount rate.
III. the present value should be overlooked.
IV. the total input should be used as predictable total output.Correct
Discounted cash flow as related to fixed income securities is a function of present value calculations. To calculate the discounted cash flow of a bond, the investor should apply the net present value formula to all expected cash flows from the bond (i.e., fixed interest payments) using the rate of inflation as the discount rate.
Incorrect
Discounted cash flow as related to fixed income securities is a function of present value calculations. To calculate the discounted cash flow of a bond, the investor should apply the net present value formula to all expected cash flows from the bond (i.e., fixed interest payments) using the rate of inflation as the discount rate.
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Question 5 of 10
5. Question
Which of the following is tax-exempt?
I. Gains from original issue discount bonds.
II. Capital gains from sales of bonds.
III. Gains from general obligation municipal bonds.
IV. Gains from double-barrelled municipal bonds.Correct
Gains from investments on municipal bonds are ordinarily not taxed. Taxable municipal bonds can be issued if the purpose of the bond revenue has no clear public benefit, but most municipal bonds are tax-exempt. This means not only that coupon payments are not taxed, but also that gains from original issue discount (OID) bonds are tax-exempt as well.
Despite all the tax exemptions for interest income on municipal bonds, capital gains from the sales of bonds is still taxable.Incorrect
Gains from investments on municipal bonds are ordinarily not taxed. Taxable municipal bonds can be issued if the purpose of the bond revenue has no clear public benefit, but most municipal bonds are tax-exempt. This means not only that coupon payments are not taxed, but also that gains from original issue discount (OID) bonds are tax-exempt as well.
Despite all the tax exemptions for interest income on municipal bonds, capital gains from the sales of bonds is still taxable. -
Question 6 of 10
6. Question
Which of the following statements is true regarding Expected Rates of Returns?
Correct
Expected rates of return are not based upon empirical data, as are historical returns or actual rates of return.
Incorrect
Expected rates of return are not based upon empirical data, as are historical returns or actual rates of return.
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Question 7 of 10
7. Question
Which of the following statements is true?
Correct
A bond paying a high coupon that is purchased at a high premium may actually yield less than a bond that sells at a discount but pays a lower coupon.
Incorrect
A bond paying a high coupon that is purchased at a high premium may actually yield less than a bond that sells at a discount but pays a lower coupon.
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Question 8 of 10
8. Question
Which of the following is false about the investment advisers act of 1940?
Correct
The Investment Advisers Act of 1940 was passed to reduce fraud perpetrated upon investors.
Incorrect
The Investment Advisers Act of 1940 was passed to reduce fraud perpetrated upon investors.
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Question 9 of 10
9. Question
The following are true about Consent of Service except:
Correct
Applicants must make an application to the state administrator, supply a consent to service of process, which allows clients to file legal complaints, pay any fees associated with filing for application, post any bonds that may be made mandatory by the administrator, and pass any tests or examinations as required.
Incorrect
Applicants must make an application to the state administrator, supply a consent to service of process, which allows clients to file legal complaints, pay any fees associated with filing for application, post any bonds that may be made mandatory by the administrator, and pass any tests or examinations as required.
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Question 10 of 10
10. Question
The records of an investment advisor submitted must be maintained in a secure location for a certain number of years. Which of the following statements is true?
Correct
After the first two years, the oldest three years may be digitized and stored on the memory of a computer.
Incorrect
After the first two years, the oldest three years may be digitized and stored on the memory of a computer.