Exam 6 Wrong Answers

Question 1

An announcement in the newspaper states that the MI money supply has declined. This means that

Answer 1

Demand deposits, NOW accounts, and money in circulation have decreased

Question 2

Commercial paper2

Answer 2

Is generally issued at a discount

Can be traded

Question 3

What is the meaning of the term “strike,” price as used in an options contract?

Answer 3

The strike price is the value at which the option can be exercised throughout the option period

Question 4

Any person for whom the member carries an account, or who has an account with any registered investment company for which the member serves as principal underwriter, and who is not an institutional investor is a(n)

Answer 4

Existing retail customer

Question 5

According to the Trust Indenture Act of 1939, a trust indenture is required

Answer 5

On corporate bonds

Question 6

Bond premium amortization 2

Answer 6

Reduces the investor’s cost basis

Reduces YTM and YTC

Question 7

The current quote for 3-month Treasury bills is 0.50-0.45. You notice that the current quote is higher than the previous new issue of 3-month T-Bills. What does this tell you?

Answer 7

T-Bill discounts have increased

Question 8

A registered representative wants to increase his sales and decides to increase his option business. He sends a letter to all of his customers discussing covered call writing, but he makes no specific recommendations. When must the OCC Disclosure Statement be delivered?

Answer 8

At or prior to the time the client receives the letter

Question 9

What is the maximum front end sales charge for a mutual fund?

Answer 9

8 1/2% of the public offering price

Question 10

Which of the following is correct with regard to the withdrawal of funds from a tax qualified retirement plan?

Answer 10

Contributions can be deducted from that year’s taxable income

Question 11

A customer writes an XYZ May 70 call for 1 and purchases an XYZ May 60 call for 4. At what market price is every dollar of gain on the 60 call offset by a dollar of loss on the 70 call?

Answer 11

70

Question 12

An investor wants to purchase ABC stock, which is currently trading at $38 per share, because he believes it has excellent long term appreciation potential. Near term however, he expects the stock to decline in price due to general market weakness. If he wants to purchase the stock below it’s current market value and generate additional income, he could

Answer 12

Write a put at $35

Question 13

An 8.5% CMO yielding 9.55% does not have which of the following risks?

Answer 13

Refinance

Question 14

The Act that requires financial institutions to develop, implement and monitor procedures that prevent its registered representatives and associated persons from misusing non public information is the

Answer 14

Securities and Exchange Act of 1934

Question 15

A rising put/call ratio

Answer 15

Is bearish

Question 16

Shares of stock that have actually been sold to the public are known as

Answer 16

Issued stock

Question 17

If the Federal Reserve Board through the FOMC (Federal Open Market Committee) lowers the discount rate, which of the following will decline?2

Answer 17

T-bill discount rate

Federal Funds rate

Question 18

Which of the following would be least suitable for a very wealthy investor seeking tax relief?

Answer 18

IDR

Question 19

Which of the following is correct regarding a qualified profit sharing plan?

Answer 19

The plan must be nondiscriminatory

Question 20

Which of the following needs voter approval?

Answer 20

GO

Question 21

A program established under the PATRIOT Act to prevent the funding of terrorism and money laundering is

Answer 21

CIP

Question 22

The writer of a call option opens with a premium of 8 and closes his option position at 1/4. What is the loss or gain?

Answer 22

$775 gain

Question 23

Which of the following large block transactions appears on the exchange tape prior to execution on the exchange floor?

Answer 23

Special offer

Question 24

A broker receives a buy and a sell order on the same security from two customers. Which must he do to execute the orders?

Answer 24

Agency cross

Question 25

Sell ABC short 29 stop 20.50. The ticker tape shows: 19, 20, 21, 20.50, 20.25. At what price was the trade executed?

Answer 25

21

Question 26

Depreciation is a write off available to investors in all of the following except

Answer 26

Real estate investment trusts

Question 27

A customer purchased 200 shares of XYZ 2 years ago at $40. The current market price is $50. If the customer gifts these shares to his daughter today, which statements describe the tax consequences?

Answer 27

The daughter will have a tax liability if she sells the shares at the current market price

Question 28

The term “double-barreled” is used to refer to which of the following?

Answer 28

Certain municipal bonds where a taxing authority guarantees debt service payments in the event that pledged revenues are insufficient

Question 29

Failure to promptly pay a fine or other monetary sanction imposed as a result of proceedings under the Code of Procedure may result in

Answer 29

Summary suspension or expulsion of a member notice in writing

Question 30

Sell a 15 put for 2. What is the maximum loss?

Answer 30

$1,300

Question 31

The function of a prospectus in association with a variable contract is to

Answer 31

Provide the consumer with complete information in order to make an informed decision

Question 32

For stock dividends, which of the following dates is not chosen by the board of directors?

Answer 32

Ex-dividend date

Question 33

Which of the following is not AAA-rated?

Answer 33

STRIPs

Question 34

Which of the following is a suitability concern regarding a fund of funds?

Answer 34

High expense ratio

Question 35

Special procedures must be followed by a municipal bond dealer when opening an account for which of the following?

Answer 35

Principal of another firm

Question 36

General obligation bonds issued by states are not secured by what form of taxes?

Answer 36

Property taxes