All Q's Flashcards
1
Q
Joanne is a 50-year-old woman who just left the job she had held for 20 years. She has a substantial amount accumulated in her 401(k), which she is rolling over into an IRA. She is planning to use this money to retire in 12 to 15 years. Which of the following investments would be the most appropriate for her? A) A bonus variable annuity B) A fixed annuity C) A stock fund D) A municipal bond fund
A
C) A stock fund
2
Q
A customer asks an RR for a recommendation as to how to invest a $150,000 inheritance. The customer would like to use the funds to start a new business within the next year. Which of the following would be the LEAST suitable recommendation for this customer? A) Taxable money-market funds B) Tax-exempt money-market funds C) Short-term U.S. government funds D) Balanced funds
A
D) Balanced funds
3
Q
Which of the following choices is information that does not need to be included in the written supervisory procedures (WSP) manual? A) Titles B) Residential address and phone number C) Registration status D) Supervisory responsibilities
A
B) Residential address and phone number
4
Q
A prime brokerage account would MOST likely be established for a(n):
A
Hedge Fund
5
Q
Which of the following communications would most likely contain the legend "This material must be preceded by or accompanied by a prospectus"? A) Tombstone ad B) Omitting prospectus ad C) Generic advertising D) Supplemental sales literature
A
D) Supplemental sales literature
6
Q
When stock is inherited what is its cost basis?
A
The cost basis of an inherited security is the market value at the time of inheritance
7
Q
Math Industries is seeking to maximize shareholder value by spinning off its Algebra Analytics Division. If this action is undertaken, Math Industries’ current shareholders would own stock in:
A
both companies with no immediate tax consequences.
8
Q
A corporation is in the 21% tax bracket. Which of the following choices provides the best return if the corporation wants to invest some of its surplus cash?
A) A preferred stock paying a 7.50% dividend
B) A corporate bond yielding 8%
C) A common stock yielding 6%
D) A municipal bond yielding 6%
A
A) A preferred stock paying a 7.50% dividend
9
Q
Which of the following retirement plans need not set standards for vesting, eligibility, and funding? A) Keogh plans B) Corporate pension plans C) Deferred compensation plans D) Profit-sharing plans
A
C) Deferred compensation plans
10
Q
Performance information, such as the fund’s total return for the past one-, five-, and ten-year periods, may be included in:
A
omitting prospectus ads and supplemental sales
11
Q
An employee wants to invest funds into a 401(k) that is sponsored by his employer. Assuming the employee waits until he reaches the age of 60 to begin taking distributions from the plan, what is the tax treatment of these funds?
A
100% is taxable since the plan has a zero cost basis
12
Q
Which of the following factors is the most important to consider when deciding to recommend a municipal bond unit investment trust to a client? A) Age B) Tax bracket C) Ability to tolerate risk D) Amount in retirement accounts
A
B) Tax bracket
13
Q
A Form 4 must be filed:
A
within two days of the date on which a director buys or sells securities
14
Q
Retirement plans never generate:
A
capital gains or losses
15
Q
If you become an insider you must file _____ with the SEC within 10 days.
A
Form 3
16
Q
If you are an insider you must file ______ to report purchases and sales within two business days.
A
Form 4
17
Q
Employee Retirement Income Security Act of 1974 determines:
A
eligibility and vesting schedules for qualified retirement plans.
18
Q
Scripts used during a public appearance are considered:
A
retail communications
19
Q
An electronic sent to 40 _____ need not to be filed with FINRA.
A
institutional investors
20
Q
An organization hired to compare different mutual funds is a:
A
ranking entity
21
Q
Bond fund volatility rating is:
A
an independent third party’s measurement of the NAV’s sensitivity to changes in economic and market conditions.
22
Q
A _____ may include hypothetical illustrations of rates of returns but must remind the customer past performances are not guaranteed.
A
variable product communication
23
Q
A corporation can deduct up to ___% of the dividends it receives from stock when owning more than 20% of the issue.
A
65%
24
Q
Zero-coupon bonds are not subject to:
A
reinvestment risk
25
Unsecured corporate debt typically used to pay short-term liabilities is known as:
commercial paper
26
A provision that voids a bond or loan when the borrower sets aside cash or bonds sufficient to pay debt service.
Defeasance
27
If a bond is trading flat, this means that it trades:
without accrued interest.
28
If callable at par, a bond that's selling at a discount will be quoted on a:
yield-to-maturity basis
29
A bond selling at a premium will be quoted on a:
yield-to-call basis
30
A prefunded bond will be quoted on a:
yield-to-call basis
31
What ensures that the debt will be retired in an orderly fashion and enhances the safety and liquidity of the issue?
Sinking Fund
32
As market rates increase, investors will not be able to obtain higher yields by purchasing new bonds.
Interest rate risk
33
Ensures that the debt will be retired in an orderly fashion and enhances the safety and liquidity of the issue
Prime brokerage
34
Written or electronic communication about equities, including information for a client to make an investment decision.
Research Reports
35
Regulation S-P:
protects non-public information of customers
36
During periods of stable interest rates, _____ preferred stock tends to be the most volatile.
convertible
37
If a company anticipates high earnings, its _____ preferred stock will be the most suitable.
participating
38
The accrual date for bonds that are purchased before the first interest payment is the:
dated date
39
Credit has been improved and the issue is considered defeased for the issuer, the bond has been:
prerefunded
40
A clause in a revenue bond agreement that permits the issuer to use the same collateral for multiple bonds.
open-end indenture
41
A(n) _____ indenture allows additional bonds to be issued and backed by the same collateral.
open-end indenture
42
A municipal dealer would violate MSRB rules if it gave a quote that is:
nominal and not specified as such
43
A corporation announced in an ad in The Wall Street Journal that it intends to call for the redemption of all its outstanding 7.25% callable bonds at 103 1/4 plus accrued interest. The market price of the bonds was 102 3/4 at the time of the announcement. Which of the following alternatives is MOST advantageous to an existing bondholder?
A) Redeem the bonds
B) Sell the bonds at the current market price
C) Do nothing and hope for a takeover bid from another company
D) Hold the bonds to maturity and continue to earn interest
A) Redeem the bonds
44
An investor had purchased a municipal bond at a discount which is currently selling at a premium. This is an example of:
appreciation
45
A reverse convertible security would be MOST suitable for an investor who:
desires higher yield and is anticipating the value of the underlying asset will remain stable
46
Dealer A offers bonds on a firm basis to Dealer B with a recall. What does this mean?
I. Dealer B has the right to buy the bonds before anyone else
II. The price of the bonds has been set
III. A time to sell the bonds has been set
IV. A recall time has been established
I, II, III, IV
47
Which of the following securities is NOT suitable for an investor with $80,000 who will need the funds in three months to purchase a house?
A) A 13-week Treasury bill
B) An auction rate preferred stock that resets its rate every three months
C) A three-month CD that is yielding 20 basis points above the prime rate
D) A money-market fund
B) An auction rate preferred stock that resets its rate every three months
48
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Which of the following municipal securities are MOST likely to be backed by ad valorem taxes?
A) Special assessment bonds
B) State general obligation bonds
C) Certificates of participation
D) School district bonds
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D) School district bonds
49
An investor is expecting a sharp decline in interest rates in the near future. To capitalize on this situation, the investor should buy:
discount bonds with long maturities.
(Long-term bond prices are more volatile than short-term bond prices. Discount bond prices are more volatile than premium bond prices. If the investor expects interest rates (yields) to decline, she is anticipating rising bond prices. The bonds that will rise (fluctuate) the most are long-term, discount bonds.)
50
In January, an investor receives a bonus from her employer. She will need to have access to the funds in April. An RR should NOT recommend which of the following municipal securities?
A) A variable rate demand obligation (VRDO)
B) An auction rate security (ARS)
C) A tax anticipation note (TAN)
D) A bond anticipation note (BAN)
B) An auction rate security (ARS)
51
When analyzing a mutual fund's expenses, an analyst does NOT consider:
The sales load charged to buy fund shares
52
Which of the following statements is NOT TRUE about exchange-traded notes (ETNs)?
A) ETNs generally pay a fixed coupon rate
B) ETNs may be sold at any time in the secondary markets or held until maturity
C) ETNs carry issuer risk that is tied to the creditworthiness of the financial institution backing the note
D) If the issuer's financial condition deteriorates, it could negatively impact the value of the ETN, regardless of how its underlying index performs
A) ETNs generally pay a fixed coupon rate
53
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A registered representative has a 33-year-old client with a stable income with no foreseeable need to access money. The client is looking for a long-term investment that will offer a guaranteed rate of return, that can also share in the performance of the stock market, and offers some form of death benefit. Which of the following investments is MOST suitable for this client?
A) A fixed annuity
B) An equity-indexed annuity
C) A variable annuity
D) A variable life insurance policy
```
B) An equity-indexed annuity
54
The payout from a variable annuity contract is:
dependent on the investment returns that are earned by the annuitant
55
Which of the following factors is NOT used in determining the value of an annuity unit?
A) The assumed interest rate
B) The value of the separate account
C) Income distributions from securities held in the separate account that are reinvested
D) Capital gain distributions from securities held in the separate account that are reinvested
A) The assumed interest rate
56
An investor purchased a fixed annuity twenty years ago from a top-rated insurance company. The investor is now considering whether to annuitize on a straight life basis, or to take a lump-sum settlement and invest it elsewhere. If economists are now forecasting an extended period of significant inflation, what is the greatest risk facing the investor if she chooses to annuitize?
Purchasing power risk
57
All of the following actions create a conflict of interest for a general partner, EXCEPT if the general partner:
A) Accepting a payment not to compete with the program
B) Holding partnership monies in his personal bank account
C) Selling property that he owns to the partnership
D) Lending money to the partnership at prevailing interest rates
D) Lending money to the partnership at prevailing interest rates
58
An individual wants to buy an interest in an oil and gas limited partnership that has the LEAST amount of risk. The MOST suitable recommendation would be a(n):
Income program
59
A limited partner has contributed capital to a direct participation program. Two years later, he extends a loan. The limited partner is considered:
a limited partner for the capital contribution and a creditor for the loan
60
How long does a client have to convert a variable life contract into a whole life policy?
Up to 2 years
61
The most significant factor affecting the net asset value of a mutual fund on a day-to-day basis is:
the market value of the portfolio
62
A customer makes an initial $3,000 contribution into a variable annuity with his application, but decides five days later that he does not want the investment. The client surrenders the annuity. Under FINRA rules, the member firm must:
Return any commissions it earned to the insurance company within seven business days
63
When buying listed put options compared to selling the underlying stock short, which of the following choices is NOT an advantage?
A) Buying a put requires a smaller capital commitment
B) Buying a put has a smaller dollar loss potential than selling the stock short
C) The put has a time value beyond any intrinsic value that gradually dissipates
D) Buying a put is not subject to Regulation SHO
C) The put has a time value beyond any intrinsic value that gradually dissipates
64
What is a client's maximum loss if he is short KNP stock and short a KNP put?
Unlimited since the stock price can theoretically rise infinitely.
65
_____ funds often use higher degrees of leverage than _____ funds.
Hedge; mutual
66
A registered representative (RR) has changed broker-dealers. The RR is in the process of implementing the Automated Customer Account Transfer Service (ACATS) for all of the clients he has done business with over the past five years. The previous employer may NOT take which of the following actions?
A) Attempt to convince the clients to remain with the firm
B) Refuse to transfer positions in proprietary mutual funds
C) Accept an order from a client to liquidate her entire account
D) Execute the balance of a partially executed GTC order in a validated account
D) Execute the balance of a partially executed GTC order in a validated account
67
VIX options use a _____ style and settle in _____.
European; cash
68
If the OCC examines position limits on STC, what contracts are added on the bearish side of the market?
STC long puts and STC short calls
69
Speculating on market movement or hedging a portfolio represent:
index options
70
When reading a research report on an automobile company, a registered representative's use of fundamental analysis determines that the stock is a good investment. When attempting to determine the best time to execute orders to buy the stock, the registered representative could refer to:
A chart showing a recent history of the market price of the stock
71
Paul and Mary Smith have discussed various portfolio allocations with their adviser Chuck. He has considered the Smiths' risk tolerance and expected return in order to recommend an efficient portfolio, that is, one in which the portfolio offers the:
Highest expected return for the lowest level of risk
72
A corporation has $7,000,000 in income after paying preferred dividends of $500,000. The company has 1,000,000 shares of common stock outstanding. The market price of the stock is $56. What is the price-earnings ratio?
8 times
(7,000,000/1,000,000) = $7
$56 / $7 = 8
73
A customer sells securities at $35 that she previously purchased at $29. The confirmation for the sale includes:
The sales proceeds of $35
74
What effect will the declaration of a cash dividend have on a company's balance sheet?
Dividends payable will increase and the retained earnings figure is reduced
75
The Bond Buyer contains a 20-Bond Index and an 11-Bond Index. The bonds included in the 11-Bond Index have an average rating of:
AA+
76
A company is considering listing its common stock on an exchange. Place the following trading venues in order from LEAST to MOST stringent listing requirements.
I. NYSE
II. Nasdaq Capital Market
III. Nasdaq Global Market
IV. Nasdaq Global Select Market
II. Nasdaq Capital Market (LEAST)
III. Nasdaq Global Market
I. NYSE
IV. Nasdaq Global Select Market (MOST)
77
A market maker is quoting a stock as follows: Bid 23.50, Offer 23.70. This means that the market maker will:
buy shares at 23.50 and sell shares at 23.70
78
A written customer complaint received by a member firm must be:
Initialed by a principal
79
In a margin account a premium needs to be paid:
in full
80
A customer owns 2,000 shares of TBDR. She expects a decline in the market and instructs her registered representative to sell 1,500 shares of the stock. The order ticket would be marked:
Sell Long
81
A client with no long position in PMXE instructs her broker to sell 2,500 shares of PMXE since she is anticipating a decline in the stock. The order ticket will be marked:
Sell Short
82
An Operations Professional is notified that the broker-dealer is revising the manner by which it charges interest on the margin account's debit balance. Customers must be notified of this revision:
30 calendar days prior to change
83
Delivery of securities to a customer's delivery versus payment (DVP) account should be made promptly, but no later than:
35 days after the trade date
84
Bid/asked quotations for listed stocks reported by national exchanges and OTC third market makers can be found on the:
Consolidated Quotation System
85
An Operations Professional working in the margin department will determine the minimum equity required in a customer's account:
At the close of the market
86
A company is planning to conduct an IPO and has decided to list its stock on Nasdaq. If the company currently has nine directors on its board, but only four of them are independent, the company must appoint a minimum of:
Two new independent directors
87
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A customer is interested in opening a margin account with a broker-dealer. Which of the following documents is NOT required to be completed?
A) A new account form
B) A loan consent agreement
C) A margin customer agreement
D) A hypothecation agreement
```
B) A loan consent agreement
88
A customer, without giving written authorization, may permit a registered representative to exercise his judgment as to:
the price and timing to enter the order
89
Priority, precedence, and parity rules of bids and offers dictate trading activity on the:
New York Stock Exchange
90
A head and shoulders bottom formation indicate the reversal of a:
bearish trend
91
What is the principal tax benefit for investing as a limited partner in an exploratory oil and gas drilling program?
Intangible drilling costs
92
The Legal List is for:
fiduciaries
93
A customer enters a sell stop-limit order for 100 shares at 18.50. The last round-lot sale that took place before the order was entered was 18.88. Round-lot sales that took place after the order was entered were at 18.60, 18.25, 18.38, 18.50, and 18.63. The execution price is:
18.50
94
According to the Customer Identification Program, broker-dealers are required to verify each customer's identity:
within a reasonable time.
95
One of the major differences between an open-end and closed-end investment company is:
the types of securities that each may issue.
96
Open-end companies, or mutual funds, may issue:
only common stock.
97
Closed-end companies may issue:
common stock, preferred stock, or bonds.
98
Which method of calculating taxes on an investment typically offers an investor the lowest amount of tax on a capital gain when shares of stock are sold?
Specific Identification
99
An investment company that diversifies its portfolio among different investment classes based on computer modeling techniques and forecasts of changes in the economy is called a(n):
asset allocation fund
100
A member firm's response to a customer complaint may be:
in either written or oral form.
101
An investor purchasing a reverse convertible security would be MOST interested in:
high current income
102
A member firm is required to send duplicate account statements to FINRA:
if the customer is an employee of FINRA
103
A business development company invests in:
private small and medium-size companies.
104
A pension fund manager wants to protect the fund's diversified stock portfolio against a market downturn. To best meet this objective, he should write:
Index options
105
A client created an opening purchase by buying a LEAP and held the position for 15 months before closing it out, the resulting gain or loss would be:
long-term
106
A client creates an opening sale in a LEAP and closes out the position 15 months later by buying back the option. The tax consequence is a:
short-term gain or loss
107
The _____ is responsible for certifying that a broker-dealer has compliance and supervisory procedures in place.
chief executive officer
108
Lunar Properties, Inc. announced that it will buy back stock next month. This means that Lunar Properties will be:
reducing the outstanding common stock
109
The writer pays the in-the-money amount if a _____ option is exercised.
yield-based call
110
The additional bonds covenant for a revenue bond is found normally in the:
bond indenture
111
A branch office has recently hired a group of RRs from another member firm. Some of the clients have mutual funds and annuities that are proprietary products of the carrying firm. If the client chooses to liquidate these assets, who has the responsibility to notify the clients of any surrender fees?
The carrying broker
112
Customers who want to transfer their securities account from one broker-dealer to another fill out a form provided by the:
receiving broker-dealer
113
A Swiss company that is expecting payment from a customer in U.S. dollars is concerned that the dollar will decline in value. To hedge against a decline in the U.S. dollar, the Swiss company should:
Buy Swiss franc calls
114
Two types of stock that may contain a stock legend are:
control and restricted stock
115
An investor's objective is long-term growth that keeps pace with inflation without excessive volatility. The type of mutual fund that would best meet this objective is a(n):
conservative growth fund
116
A customer has sold stock, but he has failed to complete the transaction by delivering the securities. The latest date on which the broker-dealer may buy in the securities is:
ten business days from the settlement date
117
An investor who is seeking a speculative investment in a portfolio of distressed companies and is interested in liquidity would be suitable for:
a business development company (BDC)
118
An investor who is seeking a high fixed dividend for a period of time followed by a floating rate dividend would be suitable for:
Series K preferred stock
119
The Russell Index is a benchmark for:
small-cap stocks
120
A customer wishes to close out a short option position by liquidating the option. The registered representative should mark the order ticket:
closing purchase
121
A block of bonds is offered firm by Dealer A to Dealer B for one hour with a five-minute recall. Dealer A calls Dealer B and says, fill or kill. Dealer B:
has five minutes to take the bonds
122
The breakeven point for a short seller who writes a put is the:
market price of the short sale plus the premium
123
The number of a client's annuity units never changes concerning:
the number of a client's annuity units never changes
124
Upon the death of the insured, the proceeds of a variable life policy:
pass to the beneficiary free from federal income tax.
125
A corporation's long-term debt would most likely be called when interest rates:
fall below the bond's nominal yield.
126
Before a broker-dealer may offer a portfolio margin program to its clients, the firm must obtain approval from:
FINRA
127
Concerning periodic payment variable annuities, the number of a client's _____ units never changes.
annuity
128
Securities that are secured by mortgages, car loans, and credit card receivables are called:
asset backed securities
129
An investor who sells a July 50 put and buys a July 60 put on the same stock is establishing a:
bear spread
130
An exercise limit is the maximum number of options contracts that a customer may exercise in a five-consecutive-business-day period for each:
underlying stock on each side of the market
131
If a mutual fund changes or adds a portfolio manager, the greatest effect would be on the fund's:
Alpha
132
Considered to represent the value that a portfolio manager adds or subtracts from a fund portfolio's return.
Alpha
133
To be considered a regulated investment company, a mutual fund must:
distribute a minimum amount of its net investment income to shareholders.
134
A broker-dealer that is an MSRB member firm sells bonds to one of its customers. If the broker-dealer is a member of the syndicate, the firm is entitled to the:
total takedown
135
Your client owns a portfolio of blue-chip equity securities and would like to increase the overall rate of return through the use of options. The most conservative strategy to achieve this objective is to:
write covered calls
136
Before accepting a delivery versus payment (DVP) order from a customer, a broker-dealer must:
obtain the name of the customer's agent from the customer.
137
U.S. savings bonds, which include EE, HH, and I bonds are:
nonnegotiable
138
If a municipal bond is selling at a premium and is callable at par, how is the yield calculated?
To the call date
139
The major provisions of ERISA provide protection for:
private sector employees against improper investments by their employer
140
If a company declares a cash dividend, shareholders' equity:
decreases
141
The breadth of the market is indicated best by the:
advance-decline figures
142
Position obligates the investor to sell shares if the option is exercised.
Short a call
143
An individual wants to buy an interest in an oil and gas limited partnership that has the LEAST amount of risk. The MOST suitable recommendation would be a(n):
Income program
