All Exam Questions got wrong

Question 1

institutional investors

Answer 1

Institutional investors are typically large entities that pool their money to purchase securities. Institutional investors include banks, insurance companies, pension plans, endowments, and hedge funds. Some accredited investors may also be institutional investors, but not all

FINRA defines institutional investors as:
 Banks, savings and loans, insurance companies, registered investment companies, and registered investment advisers
 Government entities and their subdivisions
 Employee benefit plans, such as 403(b) and 457 plans, and other qualified plans with at least 100 participants
 Broker-dealers and their registered representatives
 Individuals or entities with total assets of at least $50 million
 Persons acting solely on behalf of these institutional investors

Question 2

accredited individuals

Answer 2

Under Regulation D, the definition of an accredited includes individuals who meet either one of the following two criteria:

Have a net worth of at least $1 million (excluding their primary residence) or,
Have gross annual income of at least $200,000 (or $300,000 combined with a spouse) for each of the past two years, with the anticipation that this level of income will continue.

Question 3

In a limited partnership, a general partner’s minimum participation in profits and losses is: ___ %

Answer 3

According to tax law, a general partner must have at least a 1% participation in profits and losses for a business to maintain limited partnership status.

Question 4

The payout on a variable annuity is based on a:

Answer 4

Fixed number of annuity units with a fluctuating value per unit

Question 5

If mutual fund has a breakpoint at $100,000, which of the following purchases is a breakpoint sale?
A   An unsolicited purchase at $99,000
B An unsolicited purchase at $101,000
C   A solicited purchase at $99,000
D A solicited purchase at $101,000

Answer 5

A solicited purchase at $99,000
A breakpoint sale occurs when an RR solicits or recommends a purchase just below a breakpoint level. Although unsolicited purchases just below a breakpoint level are permitted, a registered representative should explain to a customer the other methods by which sales charges may be reduced (e.g., letter of intent).

Question 6

A change in which of the following choices does NOT require the broker-dealer to send a notice to the customer?
A Investment objectives
B   Net worth
C Name
D Address

Answer 6

Net worth

Question 7

A person pleaded guilty to a charge of counterfeiting and bribery five years ago. He has now been released from prison and is applying for an investment banking position with your firm. Which of the following statements is TRUE regarding his eligibility for current employment in the securities industry?
A If the offenses are not related to securities, the criminal record is of no significance
B He is subject to statutory disqualification and is not currently eligible to be hired
C Pleading guilty does not constitute a conviction, so Harry is eligible for employment
D The branch manager may use her judgment to determine the applicant’s status

Answer 7

B He is subject to statutory disqualification and is not currently eligible to be hired

Anyone who has been convicted of a misdemeanor related to securities, or any felony during the last 10 years, is subject to statutory disqualification. A guilty plea is the equivalent of a conviction. Thus, Harry would not be allowed to reenter the securities industry until another 5 years have elapsed.

Question 8

An employee at your firm is scheduled to meet for dinner with an employee of another firm to discuss a joint business venture. Your firm's employee is unable to attend and agrees to pay for dinner without attending. This would be considered:
A gift
B A legitimate business expense
C Compensation
D Normal business practice

Answer 8

A gift

Since your firm’s employee did not attend the event, the dinner is considered a gift and subject to FINRA’s $100 gift limitation.

Question 9

Which of the following statements is NOT TRUE concerning the opening an account for a new client?
A The RR may NOT open the account using a P.O. box as an address.
B The RR may send mail to a P.O. box.
C The client must sign the new account form.
D The RR must make an effort to obtain the client’s tax ID number, such as a Social Security number.

Answer 9

The client must sign the new account form.

The untrue statement is that the client must sign the new account form. Although many firms have internal rules which require the customer’s signature, FINRA doesn’t require it. Each of the other statements are true.

Question 10

Which of the following is not subject to the Investment Company Act of 1940?
A   Hedge funds
B   Inverse ETFs
C   Mutual funds
0   DLeveraged ETFs

Answer 10

Hedge fund
Hedge funds are exempt from the Investment Company Act of 1940. On the other hand, mutual funds and ETFs are subject to the Act.

Question 11

In a 529 plan, can an individual be both the donor and the beneficiary?
A Yes, if the person is of legal age.
B Yes, if the withdrawals will be used for graduate school.
C Yes, if the person has retired.
D Under no circumstances.

Answer 11

A person of legal age can contribute and also be the beneficiary of a 529 plan. The funds can be withdrawn tax-free for qualifying education expenses.

Question 12

An IRA that allows for non-deductible contributions, limits the amount able to be contributed to the lesser of 100% of earned income or $6,000 per year, and allows for qualified distributions to be taken tax-free after age of 59 1/2 is a/an:
A   SEP-IRA
B   Traditional IRA
C   Education IRA
D   Roth IRA

Answer 12

Roth IRA
The only IRA that allows for tax-free distributions after the age of 59 1/2 is a Roth IRA. The maximum contribution to an Coverdell Education IRA is $2,000 per year, whereas $6,000 is the maximum annual contribution to either a Roth IRA or traditional IRA.

Question 13

non-deductible contributions mean

Answer 13

after tax

Question 14

deductible contribution mean

Answer 14

before tax

Question 15

Funds collected from 12b-1 fees cannot be used to pay for which of the following fund expenses?
A Sales concessions paid to registered representatives
B Printing the fund’s prospectus
C Commissions paid for executing trades in the fund’s portfolio
D Costs associated with creating the fund’s website

Answer 15

Commissions paid for executing trades in the fund’s portfolio

For mutual funds, 12b-1 fees are charged to cover the costs of distributing the shares. This includes sales concessions that are paid to registered representatives (also referred to as trailers), printing the fund’s prospectus, and expenses related to creating the fund’s website. However, 12b-1 fees are not used to cover the cost of executing trades in the fund’s portfolio. (17534)

Question 16

Which of the following investors typically are entitled to vote?
A Common stockholders only
B Common and preferred stockholders only
C All stockholders and convertible bondholders
D All stockholders and senior debt holders

Answer 16

Common stockholders only

While both common and preferred stockholders are considered owners of the company, typically only the common stockholders may vote. Bondholders do not typically have voting rights.

Question 17

ABC Brokerage, a broker-dealer, purchases 600 shares of stock from a market maker to fill a customer's buy order. ABC has acted as a:
A   Dealer
B   Designated market maker
C   Agent
D  Underwriter

Answer 17

C) Agent

When a broker-dealer buys a security from a market maker (dealer) on behalf of its customer, it is acting as a broker (agent).The client is charged a commission on the transaction. If the firm bought the security for its own account, or sold the security to a client from its inventory, it is acting as a dealer (principal). The client in this case is charged a markup or markdown.

Question 18

balance of trade

Answer 18

it is a statistics that tracks all money coming in verus going out of the economy. So, it counts both imports vs. exports and investments and other financial transactions.
If more money is coming in that going ot, we have a surplus.

Question 19

Foreigners are paying off loans to Americans banks

how does this affect balance of trade??

Answer 19

since money in coming in then it would lead to a balance of payments surplus for US

Question 20

Which of the following choices helps the U.S. balance of payments?
A U.S. corporations building plants abroad
B Lending money to foreigners at high interest rates
C U.S. investment in foreign securities
D Foreign investment in the U.S.

Answer 20

Foreign investments in the U.S. will direct money into the country, helping the U.S. balance of payments.

Question 21

An individual wants a real estate investment that offers tax benefits and provides the ability to share directly in the earnings of the business. Which of the following BEST meets those objectives?
A   ETN
B   REIT
C   ETF
D   DPP

Answer 21

DPP

Direct participation programs (DPPs) can be businesses that invest directly in real estate programs. Investors in these programs are considered owners of the business. These owners benefit from various tax benefits (tax deductions and credits) and also from the ability to share directly in the revenues. REITs invest in real estate properties and/or debt, but deductions and revenues don’t flow through the trust. ETNs and ETFs are products that trade like debt or equity investments.

Question 22

May a brokerage firm place a temporary hold on a securities transaction?
A Yes, for the account of any investor.
B Yes, for the account of a senior investor.
C No, since this is beyond the scope of SRO rules.
D Yes, if the customer has a margin account.

Answer 22

No, since this is beyond the scope of SRO rules.
FINRA rules permit a brokerage firm to put a temporary hold on the disbursements or transfers of funds and securities, but not on securities transactions. The temporary hold only applies to the account of a specified adult. A specified adult is a person who is age 65 or older or a person who is age 18 or older and who the firm reasonably believes has a mental or physical impairment that renders her unable to protect her own interests.

Question 23

An uncle would like to invest for his nephew's college education. Which of the following factors is a benefit of a 529 plan?
A   Uniformity of state taxation
B   Pretax contributions
C   Change of beneficiaries allowed
D   No limits on contributions

Answer 23

The owner of a 529 plan may change beneficiaries. Contributions are made on an after-tax basis, and are based on state rules, which vary from state to state. Contributions are limited, and vary by state.

Question 24

Which of the following is NOT a characteristic of preferred stock?
A It has a fixed dividend
B The board of directors must declare the dividends
C It has a dividend that is not guaranteed
D It carries voting rights

Answer 24

It carries voting rights

The board of directors must declare dividends for both common and preferred stock. Neither common nor preferred stockholders are guaranteed a dividend. Preferred stock normally has a fixed dividend. Preferred stock does not have voting rights, only common shares may vote.

Question 25

Which of the following statements describes the greatest risk associated with mortgage-backed securities?
A Borrowers might default on their mortgage payments
B The market for mortgage-backed securities is illiquid
C The market price of the bonds might fall due to a rating downgrade
D Falling interest rates might accelerate early repayment of principal

Answer 25

Falling interest rates might accelerate early repayment of principal

Question 26

A project financed through revenue bonds is experiencing difficulty in that revenues are not sufficient to meet debt service payments. If, through legislative approval, the state pays interest and principal in a timely manner, the issue is MOST LIKELY:
A   Double-barreled bonds
B   Moral obligation bonds
C   Bond anticipation notes
D   Limited tax bonds

Answer 26

B Moral obligation bonds

Question 27

Moral obligation bonds

Answer 27

Moral obligation bonds are municipal revenue bonds that are payable by the state if revenues from the project do not satisfy debt service payments. However, in order for the state to service the debt, approval of the state legislature is required.

Question 28

Double-barreled

Answer 28

Double-barreled bonds are issued as revenue bonds that are additionally backed by the general obligation of the full faith and credit of the issuing municipality.

Question 29

If a bond is selling at a premium and is callable at a premium, the yield would be calculated based on:
A   The yield-to-worst
B   The current yield
C   The type of bond
D   The nominal yield

Answer 29

A The yield-to-worst

If a bond is selling at a premium and callable at a premium, the yield may be calculated to the final maturity or to the call date, whichever is less. Industry rules require broker-dealers to quote the lower estimate of the yield-to-call or the yield-to-maturity. In each case, the investor would receive a quote based on the most conservative scenario, which is referred to as the yield-to-worst. For a bond that is selling at a premium and is callable at par, the yield is calculated to the call date. The yield-to-call measures the yield that would be earned if the bonds were called at the call price, rather than being held to the maturity date. If a bond is selling at a discount and callable at par, it is quoted on a yield-to-maturity basis.

Question 30

If a bond is selling at a discount and callable at par, it is quoted on

Answer 30

a yield-to-maturity basis.

Question 31

A reverse repurchase agreement is sometimes referred to as:
A    Federal funds
B    Arbitrage
C    A matched sale
D   A treasury sale

Answer 31

C A matched sale

A reverse repurchase agreement is also referred to as a matched sale and is created when the Federal Open Market Committee (FOMC) sells securities to dealers with the intention of buying the securities back at a future date. This activity has the short-term effect of absorbing (removing) funds from the money supply. Federal funds or fed funds are the monies that are borrowed overnight on a bank-to-bank basis.

Question 32

Three-month and six-month Treasury bills are auctioned by the Federal Reserve Board:
A   Daily
B   Weekly
C   Monthly
D   Annually

Answer 32

Weekly

Question 33

When selling a security for a customer, all of the following items MUST be included on the sell order ticket, EXCEPT:
A The number of shares or par value
B The location of the security
C The customer’s Social Security number
D If the account is discretionary, whether discretion was exercised

Answer 33

C The customer’s Social Security number

An sell order ticket doesn’t include the customer’s Social Security number. An order ticket must include the customer’s account number, the number of shares or par value (for a bond), a description of the security, limitations (e.g., limit, stop), and whether it is a buy or sell order. If it’s a sell order, the location of the security (long or short) must be indicated. For discretionary accounts, the ticket must indicate whether discretion was exercised.

Question 34

A limited partner would be in jeopardy of losing her limited liability if the partner:
A Received a portion of the project’s income and deductions
B Assisted in the decision of which properties to acquire
C Insisted on examining the partnership’s financial records
D Made a loan to the partnership

Answer 34

B Assisted in the decision of which properties to acquire

Limited partners have the right to receive their portion of income and losses, examine books and records, and make loans to the partnership. If they get involved in the management of the program, such as deciding which properties to acquire, they could be considered general partners and lose their limited liability.

Question 35

Within a brokerage firm, a registered representative solicits customers to purchase securities, another person works in the firm's cashier's department as a clerk, a managing director supervises the research department, and a consultant has been brought in to work on an accounting project. Which of these persons is NOT required to be fingerprinted?
A    The registered representative
B    The clerk
C   The consultant
D   The managing director

Answer 35

C The consultant

Fingerprints are required of any securities industry person who is engaged in the sale, recommendations, or transactions of securities, or any person who regularly has access to the keeping, handling, or processing of securities, monies, or the original books and records relating to securities or monies. In addition, any person who has direct supervisory responsibility over any persons who are engaged in these activities is required to comply with these regulations. The consultant is neither engaged in the sale or handling of securities nor responsible for the firm’s books and records and is therefore not required to be fingerprinted.

Question 36

what gets finger printed

Answer 36

Fingerprints are required of any securities industry person who

1 is engaged in the sale, recommendations, or transactions of securities

2 or any person who regularly has access to the keeping, handling, or processing of securities, monies, or the original books and records relating to securities or monies.

3 In addition, any person who has direct supervisory responsibility over any persons who are engaged in these activities is required to comply with these regulations.

Question 37

Increasing the yield on a portfolio is a benefit of doing what to an option? writing, not purchasing, call options.

Answer 37

Increasing the yield on a portfolio is a benefit of writing, not purchasing, call options.

Question 38

mutual fund’s operating expense includes

Answer 38

The operating expenses include management fees (which is usually the largest expense) and the fee paid to the fund’s custodian.

Question 39

mutual fund’s expense ratio

Answer 39

(operating expenses divided by total net assets)

Question 40

mutual fund’s Total net assets are

Answer 40

Total net assets are the fund’s assets minus liabilities.

Question 41

what’s not considered in mutual fund’s

Answer 41

sales charges

Question 42

The relative of an 85-year-old account holder contacts the registered representative of the account and requests that funds be transferred to her account which is also held at the same firm. If the RR suspects financial exploitation, which of the following is the BEST course of action?
A Process the transaction since both accounts are held at the same firm.
B Attempt to resolve the matter with the customer prior to placing a temporary hold.
C Immediately place a temporary hold on the account.
D Contact the attorney for the 85-year-old account holder.

Answer 42

Attempt to resolve the matter with the customer prior to placing a temporary hold.

According to FINRA, if an RR suspects financial exploitation of a senior investor, he should first attempt to resolve the matter prior to placing a temporary hold on the account. The fact that both accounts are held at the same firm is irrelevant.

Question 43

For the buyer of an option, the premium paid is considered the:
A   Leveraged price
 B  Maximum risk
C   Maximum reward
D   Breakeven point

Answer 43

Maximum risk

For the buyer of an option, the premium paid represents the maximum loss (risk). On the other hand, for the seller of an option, the premium received represents the maximum gain.

Question 44

May a brokerage firm place a temporary hold on the transfer of securities?
A Yes, for the account of any investor.
B Yes, for the account of a senior investor.
C No, since this is beyond the scope of SRO rules.
D Yes, if the customer has a margin account.

Answer 44

Yes, for the account of a senior investor.

FINRA rules permit a brokerage firm to put a temporary hold on the disbursements or transfers of funds and securities, but not on securities transactions. The temporary hold only applies to the account of a specified adult. A specified adult is a person who is age 65 or older or a person who is age 18 or older and who the firm reasonably believes has a mental or physical impairment that renders her unable to protect her own interests.

Question 45

Regarding communications, which of the following statements is TRUE concerning the responsibilities of a principal of a broker-dealer?
A A principal must approve retail communications prior to use.
B A principal must approve all institutional communications prior to use.
C A principal must approve all correspondence prior to use.
D A principal must approve all retail communications and correspondence prior to use.

Answer 45

A principal must approve retail communications prior to use.

A principal must approve retail communications prior to use. However, institutional communications and correspondence are subject to review and supervision by a principal, but not pre-approval.

Question 46

A brokerage firm will generally distribute which of the following to employees of the firm?
A The restricted list
B The watch list
C A list of the mutual funds it recommends to customers
D A list of the stocks in which it makes a market

Answer 46

Restricted and watch lists include securities that employees are either restricted or prohibited from trading, or issues that are subject to closer scrutiny by the brokerage firm. The restrictions or limitations associated with the lists apply to employee transactions and to solicited transactions with customers. The restricted list must be distributed to employees; however, the content of the watch list is generally known only to selected members of the legal and compliance departments.

Question 47

A brokerage firm creates an in-house, non-cash incentive program. This is permitted if it’s tied to the RR’s sale of which of the following products?

A All securities products that are sold by the RR
B Equity securities that are sold by the RR
C Mutual fund shares that are sold by the RR
D Only the securities that are created by the RR’s employing firm

Answer 47

A All securities products that are sold by the RR

A broker-dealer is permitted to create its own internal sales programs that offer non-cash incentives, such as merchandise and vacation trips. However, FINRA places some restrictions on these arrangements. One of the restrictions requires that non-cash incentive programs be based on an RR’s total production for all securities products sold, rather than being based on the sale of any specific products. The products may be created by a different broker-dealer, such as a mutual fund sponsor.

Question 48

Which of the following is a reduction in the rate of inflation?
A   Inflation
B   Deflation
C   Disinflation
D   Expansion

Answer 48

C Disinflation

Disinflation is considered a slowing down in the increase in the level of prices. A significant decline in the general level of prices is referred to as deflation. On the other hand, inflation is an increase in the level of prices. Expansion is the phase of the business cycle during which inflation is a characteristic.

Question 49

All of the following are features of a Roth IRA, EXCEPT:
A Contributions may be deductible
B Qualified withdrawals at retirement are tax-free
C The maximum annual contribution is the lesser of $6,000 or 100% of earned income
D A five-year holding period must be satisfied for a distribution to be qualified

Answer 49

A Roth IRA is a non-deductible type of IRA that offers various benefits to individuals who are preparing for retirement. If a distribution is considered qualified, it is tax-free. A qualified distribution must satisfy a five-year holding period and must be made:

after age 59 1/2
upon death or disability, or
for the purchase of a first home 

The maximum annual contribution is the lesser of $6,000 or 100% of earned income for both Roth and traditional IRAs.

Question 50

Which characteristic is shared by both fixed and variable annuities?
A   Tax-deferral of earnings
B   Tax-deductible contributions
C   A variable rate of return
D   A fixed rate of return

Answer 50

Both fixed and variable annuities provide for the tax-deferral of earnings (i.e., investors are not required to pay taxes on income or gains until they withdraw from the annuity). Unless an annuity is specifically identified as qualified, it doesn’t allow for tax-deductible (pre-tax) contributions. Fixed annuities offer a fixed rate of return, while variable annuities offer a variable (i.e., non-guaranteed) rate of return.

Question 51

Which of the following activities is NOT performed by a transfer agent?
A Handling lost, destroyed, or stolen certificates
B Acting as proxy agent
C Maintaining the issuer’s ownership register for each issuance of securities
D Acting as the company’s paying agent for interest payments on bonds and for cash or stock dividends on equities

Answer 51

C Maintaining the issuer’s ownership register for each issuance of securities

The transfer agent is responsible for the issuance and cancellation of certificates to reflect changes in ownership, acting as the company’s paying agent for interest payments on bonds and for cash or stock dividends on equities, acting as proxy agent (sending voting materials) and mailing agent (mailing the company’s financial reports to shareholders), as well as handling lost, destroyed, or stolen certificates. However, maintaining the issuer’s ownership register for each issuance of securities is the role of the registrar.

Question 52

An Operations Professional is notified by a registered representative (RR) that he has received a written complaint from a customer. The RR informs the Operations Professional that the issue is now rectified and no further action is required. What is the MOST appropriate action for the Operations Professional to take?
A Consider the complaint resolved
B Consider the complaint resolved but notify the principal of the complaint
C Notify the principal of the complaint
D Call the customer to see if the dispute has been resolved

Answer 52

Notify the principal of the complaint

Registered representatives are not permitted to take action on complaints. The complaint should be forwarded immediately to the principal/supervisor to determine what, if any, action should be taken.