Wiley series 65 exam review 2016 test bank the uniform investment advisor law examination

Wiley series 65 exam review 2016 test bank the uniform investment advisor law examination Wiley series 65 exam review 2016 test bank the uniform investment advisor law examination Wiley series 65 exam review 2016 test bank the uniform investment advisor law examination Wiley series 65 exam review 2016 test bank the uniform investment advisor law examination Wiley series 65 exam review 2016 test bank the uniform investment advisor law examination Wiley series 65 exam review 2016 test bank the uniform investment advisor law examination

WILEY SERIES 65 EXAM REVIEW 2016

Wiley Series 3 Exam Review 2016 + Test Bank: National Commodities Futures Examination

Wiley Series 4 Exam Review 2016 + Test Bank: The Registered Options Principal Examination

Wiley Series 6 Exam Review 2016 + Test Bank: The Investment Company and Variable Contracts Products Representative Examination

Wiley Series 7 Exam Review 2016 + Test Bank: The General Securities Representative Examination

Wiley Series 9 Exam Review 2016 + Test Bank: The General Securities Sales Supervisor Examination—Option Module

Wiley Series 10 Exam Review 2016 + Test Bank: The General Securities Sales Supervisor Examination—General Module

Wiley Series 24 Exam Review 2016 + Test Bank: The General Securities Principal Examination

Wiley Series 26 Exam Review 2016 + Test Bank: The Investment Company and Variable Contracts Products Principal Examination

Wiley Series 55 Exam Review 2016 + Test Bank: The Equity Trader

WILEY SERIES 65 EXAM REVIEW 2016

The Uniform Investment Adviser Law Examination

The Securities Institute of America, Inc.

Copyright © 2016 by The Securities Institute of America, Inc All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Previous editions published by The Securities Institute of America, Inc

Published simultaneously in Canada.

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ABOUT THE SERIES 65 EXAM xxi

Voting 8

Income 11

Pretest 31

Municipal Bonds 53

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

Duration 61Convexity 62

CMOs and Interest Rates 76

Pretest 79

CHAPTER 4

Automatic Reinvestment of Distributions 105

Taxation 124

Employee Retirement Income Security Act of 1974 (ERISA) 139

Reserve Requirement 176

Disintermediation 178

Pretest 183

CHAPTER 8

Alpha 205Beta 205

Predicting Portfolio Income 212

Investment Taxation 214

Trusts 218

Estate Taxes 220

Pretest 223

CHAPTER 9

Misrepresentations 229

Investment Advisers Act of 1940 232

Firewall 243

The Specialist/DMM Acting as an Agent 258

Nasdaq Quotes 268

Arbitrage 274Pretest 275

Correlation 301Pretest 303

CHAPTER 12

Security 307Person 309

Broker Dealer 310Agent 311Issuer 311Nonissuer 312

Sale/Sell 317Guarantee/Guaranteed 318Contumacy 318

Advertising and Sales Literature 337

Nonissuer Transactions 363Pretest 365

CHAPTER 15

STATE SECURITIES ADMINISTRATOR: THE UNIFORM SECURITIES ACT 369

Jurisdiction of the State Securities Administrator 375

Congratulations! You are on your way to becoming licensed as an investment adviser in all states that require the Series 65 license The Series 65 exam will

be presented in a 130-question multiple-choice format Each candidate will have three hours to complete the exam A score of 72% or higher is required

to pass

The Series 65 is as much a knowledge test as it is a reading test The ers and instructors at The Securities Institute have developed the Series 65 textbook, exam prep software, and videos to ensure that you have the knowl-edge required to pass the test, and to make sure that you are confident in the application of the knowledge during the exam The writers and instructors

writ-at The Securities Institute are subject-mwrit-atter experts as well as Series 65 test experts We understand how the test is written and our proven test-taking techniques can dramatically improve your results

TAKING THE SERIES 65 EXAM

The Series 65 exam is presented in multiple-choice format on a touch-screen computer known as the PROCTOR system No computer skills are required and candidates will find that the test screen works in the same way as an ordi-nary ATM machine Each test is made up of 130 questions that are randomly chosen from a test bank of several thousand questions The test has a time limit of three hours and is designed to provide enough time for all candidates

to complete the exam Each Series 65 exam will have 10 additional questions that do not count toward the final score The Series 65 exam comprises ques-tions that focus on the following areas:

Ethics and legal guidelines 40 questions 31%

Investment strategies 40 questions 31%

Investment vehicles 31 questions 24%

Economics and analysis 19 questions 14%

TOTAL 130 Questions 100%

HOW TO PREPARE FOR THE SERIES 65 EXAM?

For most candidates the combination of reading the textbook, watching the videos, and using the exam prep software is enough to successfully complete the exam It is recommended that the individual spend at least 40 hours pre-paring for the exam by reading the textbook, underlining key points, watch-ing the video class, and by taking as many practice questions as possible We recommend that a student schedule his or her exam no more than one week after completing the Series 65 exam prep

Test-Taking Tips

□Read the full question before answering

□ Identify what the question is asking

□ Identify key words and phrases

□ Watch out for hedge clauses, for example, except and not.

□ Eliminate wrong roman numeral answers

□ Identify synonymous terms

□ Be wary of changing answers

WHY DO I NEED TO TAKE THE SERIES 65 EXAM?

In order to conduct fee-based securities business, most states require that

an agent successfully complete the Series 65 exam Passing the Series 65 exam will allow an agent to receive asset-based management and other advisory fees The Series 65 is often taken in addition to obtaining a Series

6, 7, or 62 registration, which allow an agent to receive transaction-based compensation

WHAT SCORE IS NEEDED TO PASS THE EXAM?

A score of 72% or higher is needed to pass the Series 65 exam

ARE THERE ANY PREREQUISITES

FOR THE SERIES 65 EXAM?

A candidate is not required to have any other professional qualifications prior

to taking the Series 65 exam

HOW DO I SCHEDULE AN EXAM?

Ask your firm’s principal to schedule the exam for you, or for a list of test centers in your area You may be self-sponsored to take the exam You must fill out and submit form U10 prior to making an appointment The Series 65 exam may be taken any day that the exam center is open

WHAT MUST I TAKE TO THE EXAM CENTER?

A picture ID is required All other materials will be provided, including a calculator and scratch paper

HOW SOON WILL I RECEIVE THE RESULTS OF THE EXAM?

The exam will be graded as soon as you answer your final question and hit the Submit for Grading button It will take only a few minutes to get your results Your grade will appear on the computer screen and you will be given

a paper copy from the exam center

If you do not pass the test, you will need to wait 30 days before taking

it again If you do not pass on the second try, you’ll need to wait another

30 days After that, you are required to wait 6 months to take the test again

The writers and instructors at The Securities Institute have developed the Series 65 textbook, exam prep software, and videos to ensure that you have the knowledge required to pass the test, and to make sure that you are confi-dent in the application of that knowledge during the exam The writers and instructors at The Securities Institute are subject matter experts as well as Series 65 test experts We understand how the test is written and our proven test-taking techniques can dramatically improve your results.

Each chapter includes notes, tips, examples, and case studies with key information, hints for taking the exam, and additional insight into the top-ics Each chapter ends with a practice test, to ensure you have mastered the concepts before moving on to the next topic

This book is accompanied by a test bank of more than 350 questions to further reinforce the concepts and information presented here The access card in the back of this book includes the URL and PIN code you can use to access the test bank This test bank provides a small sample of the questions and features that are contained in the full version of the Series 65 exam prep software.

If you have not purchased the full version of the exam prep software with this book, we highly recommend it to ensure that you have mastered the knowledge required for your Series 65 exam To purchase the exam prep software for this exam, visit The Securities Institute of America online at www.SecuritiesCE.com or call 877-218-1776

Institute of America

The Securities Institute of America, Inc helps thousands of securities and insurance professionals build successful careers in the financial services industry every year

Our securities training options include:

• On-site training classes

• Private tutoring

• Classroom training

• Interactive online video training classes

• State-of-the-art exam-preparation software

• Printed textbooks

• Real-time tracking and reporting for managers and training directorsYou can choose a securities training solution that matches your skill level, learning style, and schedule Regardless of the format you choose, you can

be sure that our securities training courses are relevant, tested, and designed

to help you succeed It is the experience of our instructors and the quality of our materials that make our courses requested by name at some of the largest financial services firms in the world

To contact The Securities Institute of America, visit us on the Web at www.SecuritiesCE.com or call 877-218-1776

as the benefits and risks associated with their ownership, but first we must define exactly what meets the definition of a security.

Types of Securities Types of Nonsecurities

Common stock Whole life insurance Preferred stock Term life insurance

Mutual funds Retirement plans

(Continued)

Types of Securities Types of Nonsecurities

Variable annuities Fixed annuities Variable life insurance Prospectus

Rights Warrants ETFs/ETNs Real estate investment trusts CMOs

EQUITY = STOCK

The term equity is synonymous with the term stock Throughout your ration for this exam and on the exam itself, you will find many terms that are used interchangeably Equity or stock creates an ownership relationship with the issuing company Once an investor has purchased stock in a corporation, they become an owner of that corporation The corporation sells off pieces of itself to investors in the form of shares in an effort to raise working capital Equity is perpetual, meaning there is no maturity date for the shares and the investor may own the shares until they decide to sell them Most corporations use the sale of equity as their main source of business capital

prepa-COMMON STOCK

There are thousands of companies whose stock trades publicly and who have used the sale of equity as a source of raising business capital All publicly traded companies must issue common stock before they may issue any other type of equity security There are two types of equity securities: common stock and preferred stock While all publicly traded companies must have sold or issued common stock, not all companies may want to issue or sell preferred stock Let’s take a look at the creation of a company and how common stock is created

CORPORATE TIME LINE

The following is a representation of the steps that corporations must take in order to sell their common stock to the public, as well as what may happen

to that stock once it has been sold to the public

AUTHORIZED STOCK

Authorized stock is the maximum number of shares that a company may sell

to the investing public in an effort to raise cash to meet the organization’s goals The number of authorized shares is arbitrarily determined and is set at the time of incorporation A corporation may sell all or part of its authorized stock If the corporation wants to sell more shares than it’s authorized to sell, the shareholders must approve an increase in the number of authorized shares

ISSUED STOCK

Issued stock is stock that has been authorized for sale and that has actually been sold to the investing public The total number of authorized shares typi-cally exceeds the total number of issued shares so that the corporation may sell additional shares in the future to meet its needs Once shares have been sold to the investing public, they will always be counted as issued shares, regardless of their ownership or subsequent repurchase by the corporation It’s important to note that the total number of issued shares may never exceed the total number of authorized shares

Additional authorized shares may be issued in the future for any of the following reasons:

• Pay a stock dividend

• Expand current operations

• Exchange common shares for convertible preferred or convertible bonds

• To satisfy obligations under employee stock options or purchase plans

OUTSTANDING STOCK

Outstanding stock is stock that has been sold or issued to the investing public and that actually remains in the hands of the investing public

EXAMPLE: XYZ corporation has 10,000,000 shares authorized and has sold 5,000,000

shares to the public during its initial public offering In this case, there would

be 5,000,000 shares of stock issued and 5,000,000 shares outstanding

TREASURY STOCK

Treasury stock is stock that has been sold to the investing public, which has subsequently been repurchased by the corporation The corporation may elect

to reissue the shares or it may retire the shares that it holds in treasury stock Treasury stock does not receive dividends, nor does it vote.

A corporation may elect to repurchase its own shares for any of the lowing reasons:

fol-• To maintain control of the company

• To increase earnings per share

• To fund employee stock purchase plans

• To use shares to pay for a merger or acquisition

To determine the amount of treasury stock, use the following formula:

Issued stock – outstanding stock = treasury stock

EXAMPLE If, in the case of XYZ, the company decides to repurchase 3,000,000 of its

own shares then XYZ would have 5,000,000 shares issued, 2,000,000 shares, and 3,000,000 shares of treasury stock

It’s important to note that once the shares have been issued, they will always be counted as issued shares The only thing that changes is the number

of outstanding shares and the number of treasury shares

VALUES OF COMMON STOCK

A common stock’s market value is determined by supply and demand and may or may not have any real relationship to what the shares are actually worth The market value of common stock is affected by the current and future expectations for the company

BOOK VALUE

A corporation’s book value is the theoretical liquidation value of the pany The book value is found by taking all of the company’s tangible assets and subtracting all of its liabilities This will give you the total book value

com-To determine the book values per share, divide the total book value by the total number of outstanding common shares

PAR VALUE

Par value, in a discussion regarding common stock, is only important if you are an accountant looking at the balance sheet An accountant uses the par value as a way to credit the money received by the corporation from the initial sale of the stock to the balance sheet For investors, it has no relationship to any measure of value, which may otherwise be employed

RIGHTS OF COMMON STOCKHOLDERS

As an owner of common stock, investors are owners of the corporation As such, investors have certain rights that are granted to all common stock holders

PREEMPTIVE RIGHTS

As a stockholder, an investor has the right to maintain their percentage est in the company This is known as a preemptive right Should the company wish to sell additional shares to raise new capital, they must first offer the new shares to existing shareholders If the existing shareholders decide not

inter-to purchase the new shares, then the shares may be offered inter-to the general public When a corporation decides to conduct a rights offering, the board of directors must approve the issuance of the additional shares If the number

of shares that are to be issued under the rights offering would cause the total number of outstanding shares to exceed the total number of authorized shares, then shareholder approval will be required Existing shareholders will have

to approve an increase in the number of authorized shares before the rights offering can proceed

TEST FOCUS!

Number of Existing Shares Number of New Shares Total Shares After Offering

10,000 10% ownership

10,000 10% of offering

20,000 10% ownership

In this example, the company has 100,000 shares of stock outstanding and

an investor has purchased 10,000 of those original shares As a result, they own 10% of the corporation The company wishing to sell 100,000 new shares to raise new capital must first offer 10% of the new shares to the current investor (10,000 shares) before the shares may be offered to the general public So if the investor decides to purchase the additional shares,

as is the case in the example, the investor will have maintained his or her 10% interest in the company

A shareholder’s preemptive right is ensured through a rights offering The existing shareholders will have the right to purchase the new shares

at a discount to the current market value for up to 45 days This is known

as the subscription price Once the subscription price is set, it remains con­stant for the 45 days, while the price of the stock is moving up and down

in the market place

There are three possible outcomes for a right They are:

1 Exercised: The investor decides to purchase the additional shares and

sends in the money, along with the rights to receive the additional shares

2 Sold: The rights have value and if the investor does not want to purchase

the additional shares, they may be sold to another investor who would like to purchase the shares

3 Expire: The rights will expire when no one wants to purchase the stock

This will only occur when the market price of the share has fallen below the subscription price of the right and the 45 days has elapsed

CHARACTERISTICS OF A RIGHTS OFFERING

Once a rights offering has been declared, the company’s common stock will trade with the rights attached The stock in this situation is said to be trading cum rights The company’s stock, which is the subject of the rights offering, will trade cum rights between the declaration date and the ex date After the

ex date, the stock will trade without the rights attached or will trade ex rights The value of the common stock will be adjusted down by the value of the right

on the ex-rights date During a rights offering, each share will be issued one right The subscription price and the number of rights required to purchase one additional share will be detailed in the terms of the offering on the rights certificate During a rights offering, the issuer will retain an investment bank

to act as a standby underwriter and the investment bank will stand by, ready

to purchase any shares that are not purchased by the rights holders

DETERMINING THE VALUE OF A RIGHT CUM RIGHTS

In order to determine the value of one right before the ex-rights date, you must use the cum-rights formula Subtract the subscription price of the right from the market price of the stock Once the discount (if any) has been determined, divide the discount by the number of rights required to purchase one share plus one This will determine the value of one right

EXAMPLE XYZ has 10,000,000 shares of common stock outstanding and is issuing

5,000,000 additional common shares through a rights offering XYZ is trading

in the marketplace at $51 per share and the rights have a subscription price

of $48 per share Keep in mind that the stock price reflects the value of the right that is still attached to the stock

The value of a right is determined as follows:

Stock price

− Subscription price The number of rights required to purchase one share + 1

DETERMINING THE VALUE OF A RIGHT EX RIGHTS

In order to determine the value of one right after the ex-rights date, subtract the subscription price of the right from the market price of the stock Once the discount (if any) has been determined, divide the discount by the num-ber of rights required to purchase one share This will determine the value

of one right The price of the stock on the ex-rights date is adjusted down by the value of the right to reflect the fact that purchasers of the stock will no longer receive the rights.

EXAMPLE XYZ has 10,000,000 shares of common stock outstanding and is issuing

5,000,000 additional common shares through a rights offering XYZ is ing in the marketplace at $50 per share and the rights have a subscription price of $48 per share The value of a right is determined as follows:

trad-Stock price

− Subscription price The number of rights required to purchase one share

VOTING

As a common stockholder, you have the right to vote on the major issues facing the corporation You are a part owner of the company and, as a result, you have a right to say how the company is run The biggest emphasis is placed

on the election of the board of directors

Common stockholders may also vote on:

• Issuance of bonds or additional common shares

• Stock splits

• Mergers and acquisitions

• Major changes in corporate policy

METHODS OF VOTING

There are two methods by which the voting process may be conducted: tory and cumulative A stockholder may cast one vote for each share of stock