WILEY FINRA SERIES 65 Exam Review+TEST BANK The Uniform Investment Advisor Law Exam 513 PAGES

[WILEY FINRA SERIES]VAN BLARCOM, JEFF -Wiley Series 65 Exam Review 2016 + TEST BANK The Uniform Investment Advisor Law Exam (TEST BANK) WILEY SERIES 65 EXAM REVIEW 2016 The Uniform Investment Adviser Law Examination + Test Bank The Securities Institute of America, Inc. By Wiley 513 PAGES ISBN 9781119112396 (Paperback) ISBN 9781119138846 (ePDF) ISBN 9781119138822 (ePub) WILEY SERIES 65 EXAM REVIEW 2016 WILEY FINRA SERIES This series includes the following titles: 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 Examination Wiley Series 62 Exam Review 2016 + Test Bank: The Corporate Securities Representative Examination Wiley Series 63 Exam Review 2016 + Test Bank: The Uniform Securities State Law Examination Wiley Series 65 Exam Review 2016 + Test Bank: The Uniform Investment Adviser Law Examination Wiley Series 66 Exam Review 2016 + Test Bank: The Uniform Combined State Law Examination Wiley Series 99 Exam Review 2016 + Test Bank: The Operations Professional Examination For more on this series, visit the website at www.wileysecuritieslicensing.com. WILEY SERIES 65 EXAM REVIEW 2016 The Uniform Investment Adviser Law Examination The Securities Institute of America, Inc. Cover Design: Wiley Cover Image: © iStockphoto.com / LuisB 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. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. 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ISBN 9781119112396 (Paperback) ISBN 9781119138846 (ePDF) ISBN 9781119138822 (ePub) Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 Contents 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 vi Contents 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 Direct Participation Programs and Limited Partnerships 24 Limited Partnerships 24 Tax Reporting for Direct Participation Programs 28 Limited Partnership Analysis 28 Tax Deductions vs. Tax Credits 28 Other Tax Considerations 29 Dissolving a Partnership 29 Pretest 31 Contents vii 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 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 Inflation 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 viii Contents 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 91 Mutual Fund Investment Objectives 92 Other Types of Funds 94 Bond Funds 94 Alternative Funds 96 Valuing Mutual Fund Shares 96 Sales Charges 98 Other Types of Sales Charges 100 Recommending Mutual Funds 100 Calculating a Mutual Fund’s Sales Charge Percentage 101 Finding the Public Offering Price 102 Sales Charge Reductions 102 Breakpoint Schedule 103 Letter of Intent 103 Breakpoint Sales 104 Rights of Accumulation 104 Contents ix Automatic Reinvestment of Distributions 105 Other Mutual Fund Features 105 Dollar Cost Averaging 106 Mutual Funds Voting Rights 108 Mutual Fund Yields 109 Portfolio Turnover 109 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 x Contents Employee Retirement Income Security Act of 1974 (ERISA) 139 Erisa 404C Safe Harbor 140 Life Insurance 141 Tax Implications of Life Insurance 143 Pretest 145 CHAPTER 6 FUNDAMENTAL AND TECHNICAL ANALYSIS 149 Fundamental Analysis 149 Balance Sheet 150 Capitalization 152 Changes in the Balance Sheet 152 The Income Statement 156 Industry Fundamentals 158 Top-Down and Bottom-Up Analysis 158 Dividend Valuation Models 159 Technical Analysis 159 Market Theories and Indicators 163 Efficient Market Theory 164 Statistical Analysis 165 Market Capitalization 166 Pretest 167 CHAPTER 7 ECONOMIC FUNDAMENTALS 169 Gross Domestic Product 169 Recession 171 Depression 171 Economic Indicators 171 Schools of Economic Thought 173 Economic Policy 174 Tools of the Federal Reserve Board 174 Interest Rates 174 Contents xi Reserve Requirement 176 Changing the Discount Rate 176 Federal Open Market Committee 176 Money Supply 177 Disintermediation 178 Moral Suasion 178 Fiscal Policy 178 International Monetary Considerations 180 London Interbank Offered Rate / Libor 180 Yield Curve Analysis 181 Pretest 183 CHAPTER 8 RECOMMENDATIONS, PROFESSIONAL CONDUCT, AND TAXATION 187 Professional Conduct by Investment Advisers 188 The Uniform Prudent Investors Act of 1994 188 Fair Dealings with Clients 189 Recommending Mutual Funds 193 Periodic Payment Plans 193 Disclosure of Client Information 194 Borrowing and Lending Money 194 Developing the Client Profile 194 Types of Advisory Clients 195 Investment Objectives 200 Capital Asset Pricing Model (CAPM) 202 Risk vs. Reward 203 Alpha 205 Beta 205 Expected Return 206 Time Value of Money 207 Weighted Returns 209 Modern Portfolio Theory 211 xii Contents Predicting Portfolio Income 212 Tax Structure 214 Investment Taxation 214 Calculating Gains and Losses 214 Cost Base of Multiple Purchases 215 Deducting Capital Losses 216 Wash Sales 216 Taxation of Interest Income 217 Inherited and Gifted Securities 217...

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