Green Light 1 Exam Questions and Answers
An investor in California owns a 6%, 20-year corporate bond. The investor is in the 35% federal tax bracket and 10% state tax bracket. What is the investor's after-tax yield on this bond?
a.9.2%
b.6%
c.3.9%
d.3.3% - Answer-d.3.3%
The interest on c...
An investor in California owns a 6%, 20-year corporate bond. The investor is in the 35%
federal tax bracket and 10% state tax bracket. What is the investor's after-tax yield on
this bond?
a.9.2%
b.6%
c.3.9%
d.3.3% - Answer-d.3.3%
The interest on corporate bonds is taxed at both the federal and state level. To
determine the investor's yield after paying taxes, multiply the coupon by 100% less the
combined tax brackets. 6% x (100% - 45%) = 3.3%.
Lewis and Clark Financial Planners is registered in the state of Nebraska as an
investment adviser. The company provides financial planning, analysis, research,
portfolio management, and custodial services to its advisory clients. Bill Lewis conducts
and supervises insurance sales and is registered to sell insurance and securities. Bill's
business card states he is Senior Vice President, Financial Planning. Which of the
following statements is TRUE about his business card?
a.It is proper because he is registered in both securities and insurance, and works for a
financial planner
b.It is proper because he is able to sell both insurance and securities products
c.It is misleading because he is in the sales department and not in the financial planning
department
d.It is misleading because he has not indicated his qualifications as a financial planner -
Answer-c.It is misleading because he is in the sales department and not in the financial
planning department
The Uniform Securities Act states that the use of the term financial planner by a person
engaged only in product sales may constitute a deceptive sales practice
The investment adviser of the ABC Fund usually invests a high percentage of the fund's
assets in growth stocks. He has now turned bearish on the market. Which TWO of the
following strategies would be employed based on the IA's bias?
I. Buy puts on his growth stocks
II. Buy calls on his growth stocks
III. Raise cash levels in the portfolio
IV. Reduce cash levels in the portfolio
,a. I and III
b. II and III
c. II and IV
d. III and IV - Answer-a. I and III
Which of the following fee structures is NOT permitted for broker-dealers that offer
investment advisory services to retail customers?
a. Commissions for each trade and a separate fee for each research report sent to the
customer
b. A fee based on a percentage of the profits of the account
c. An initial set-up fee, a fee based on the assets under management, and commissions
for each trade
d. Commissions and service charges - Answer-b. A fee based on a percentage of the
profits of the account
Securities that are registered through qualification may be sold only:
a. Upon effective SEC registration
b. Once declared effective by the Administrator
c. The day after being approved by the Administrator
d. Upon completion of the 20-day cooling-off period - Answer-b. Once declared effective
by the Administrator
Which of the following designations are acceptable on a business card?
I. RIA for an investment advisory firm registered with the SEC
II. RIA for an investment advisory firm registered with a state Administrator
III. IAR for an investment adviser representative who has passed the appropriate
qualifying exam
a. I and II only
b. II and III only
c. I, II, and III
d. None of the above - Answer-d. None of the above
A registered investment adviser provides safekeeping of securities as part of its client
services. Which of the following statements are TRUE regarding the safekeeping
services provided by the firm?
I. The securities may be held in a vault maintained by the firm.
II. The securities must be deposited with a qualified custodian.
III. A notice must be sent to the clients indicating the secure location or custodian of the
securities.
IV. Annual statements must be sent to each client of the investment adviser.
a. I and II only
b. II and III only
c. I, II, and III only
d. II, III, and IV only - Answer-b. II and III only
, According to Rule 206(4)-2 of the Investment Advisers Act, it is a deceptive trade
practice to have custody of client cash and securities unless a qualified custodian
maintains those funds and securities. When an account is opened with a qualified
custodian, the client must be informed of the name and address of the custodian.
Account statements must be sent at least quarterly.
Which of the following factors would be the most important when attempting to diversify
a stock portfolio?
a. Correlation
b. Asset allocation
c. Beta
d. Delta - Answer-a. Correlation
Correlation is the measure of how a security's price moves in relation to other securities.
The greatest diversification benefit is found when a security is negatively correlated.
Yesterday Cedric, an investment advisory client of Ralph, brought in a common stock
certificate for 100 shares of Scottish Wool Company. Cedric inherited the shares from a
relative and would like Ralph to have someone appraise the security. If Ralph still has
the certificate in his possession today, which of the following statements is TRUE?
a. The investment advisory firm is deemed to have custody
b. Ralph must return the certificate to the customer by the end of the day
c. If Ralph returns the certificate within three business days of receiving it, the firm is not
considered to have custody
d. If the value of the securities is less than $10,000, the firm is not considered to have
custody - Answer-a. The investment advisory firm is deemed to have custody
The custody rule (in the Investment Advisers Act) states that custody includes the
possession of client funds or securities, unless the firm receives the securities
inadvertently and the securities are returned to the sender promptly (within three
business days of receiving them). In this case, Ralph's acceptance of the securities was
not inadvertent. The firm has custody
An investment adviser representative advises a client in a low income tax bracket to
purchase municipal securities. Which of the following statements best describes this
action?
a. The advice by the representative is unethical
b. Advice concerning tax-free securities is excluded from the provisions of the
Investment Advisers Act of 1940
c. The action constitutes fraud
d. The Administrator has no jurisdiction over municipal securities unless the securities
are out-of-state bonds - Answer-a. The advice by the representative is unethical
The action taken by the representative is unethical rather than fraudulent. Municipal
securities provide federally exempt interest income. This is advantageous to individuals
in higher tax brackets. Recommending the security to an individual in a lower tax
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