Exam 9 Wrong Answers

Question 1

An employer wants to begin a pension plan for its employees but does not want the obligation of annual contributions because of wide cash flow swings due to growth and plans for expansion. Which plan allows flexibility and still provides immediate vesting on contributions?

Answer 1

Simplified employee pension plan

Question 2

Which of the following trades freely on an exchange or OTC?

Answer 2

Master limited partnership

Question 3

Prior to writing an option in a newly opened account, which of the following must be completed and delivered?2

Answer 3

Margin agreement

Options disclosure

Question 4

Which of the following is designed to prevent fraud in the issue of securities?

Answer 4

The Securities Act of 1933

Question 5

When interest rates are fluctuating,

Answer 5

Short term rates move more sharply

Question 6

Under MSRB rules, which of the following is not considered advertising?

Answer 6

Official statements

Question 7

All of the following are advantages of an ACRS system except

Answer 7

Component depreciation

Question 8

A $200 million new issue is being underwritten by a syndicate. A tombstone ad has been placed in the Wall Street Journal listing the manager of the syndicate and the syndicate’s members. The placing of the ad was required by the

Answer 8

None of the above

Question 9

The FINRA bylaw category which defines the proper methods for handling securities violations and complaints is the

Answer 9

Code of Procedure

Question 10

Which investment would be most appropriate for an individual who is 40 years old and has a moderate risk tolerance level?

Answer 10

S&P index fund

Question 11

A customer writes 10 ABC April 40 puts at $4.75 when the market price of ABC is $42. What is the maximum possible gain for the investor?

Answer 11

$4,750

Question 12

A 50 year old individual needs $20,000 for his child’s education, and wishes to withdraw the necessary funds from his traditional IRA. Which of the following statements is true concerning taxation on the withdrawal?

Answer 12

The entire amount will be taxed as ordinary income

Question 13

Which of the following would be quoted on a bond confirmation when an investor purchases a bond that has been advance refunded?

Answer 13

Yield to call

Question 14

Prepaid tuition plans allow the purchase of units or credits at participating colleges or universities. Which of the following statements is true?

Answer 14

Future tuition can be secured at current prices

Question 15

The federal funds rate has been increasing consistently over the last several months. This would indicate which of the following?

Answer 15

Banks are having trouble meeting reserve requirements

Question 16

A customer owns XYZ stock in her cash account, but has no funds available to trade. Nonetheless, she buys ABC stock on Monday. On Thursday, she sells XYZ stock to cover the purchase she made on Monday. This violation is called

Answer 16

Cash liquidation

Question 17

The yield curves for high grade and low grade bonds are both positive and are moving further apart. An investment in which of the following would be most consistent with the economic expectations reflected in this relationship?

Answer 17

Government bonds

Question 18

Which of the following trade with accrued interest?

Answer 18

Certificates of deposit

Question 19

The provision in the indenture of a municipal revenue bond that would be invoked in the case of condemnation of the building constituting the primary revenue source is the

Answer 19

Catastrophe call provision

Question 20

The term “person associated with an investment advisor” means any of the following persons except

Answer 20

Persons associated with an investment advisor whose functions are clerical or ministerial in nature

Question 21

Smith Co is a member of an eastern municipal underwriting syndicate. Smith is committed to sell 25% of the issue, or 50,000 bonds. Smith sells 62,000 bonds and at the end of the offering there are 8,000 unsold bonds. Smith

Answer 21

Owns 2,000 of the unsold bonds

Question 22

Which of the following correctly describes a bond’s interest accrual period?

Answer 22

The last payment date up to but not including settlement date

Question 23

If the yield curve is inverted,2

Answer 23

Short term yields are higher than long term yields

Investors are lengthening maturities in their portfolios

Question 24

A corporation has a $4 million profit. The corporation is in the 34% tax bracket. What is post dilutive EPS? Common stock: 1,000,000 shares ($10 par) = $10,000,000; 5% preferred: 50,000 shares (100 par) = 5,000,000; 7% debentures 5,000 bonds ($1,000 par convertible at $10) = $5,000,000

Answer 24

$1.59

Question 25

Credit analysis of an airport authority revenue bond would include all of the following except

Answer 25

Overlapping debt

Question 26

In opening an options account, all of the following must be completed except

Answer 26

Receiving a signed options agreement from the customer

Question 27

Long 1,000 shares at 20, short 1,000 shares at 10. What is the minimum maintenance on these positions?

Answer 27

$10,000

Question 28

A customer margin account has market value of $10,000, debit balance of $8,000 and SMA of $1,000. The margin call can be met with

Answer 28

$500 cash

Question 29

A subscription for a limited partnership is deemed to be accepted when

Answer 29

The general partner signs the subscription

Question 30

Which of the following municipal bonds would not be tax exempt?

Answer 30

New Orleans Convention Center bonds

Question 31

Once a shelf registration is filed by the issuer, for how long may the issuer delay selling all or part of the new issue?

Answer 31

2 years

Question 32

XYZ Corporation’s income statement renders the following information: Income from operations: $2,000,000 Preferred Dividends from other corporations: 100,000 XYZ Corporation has taxable income of

Answer 32

$2,050,000

Question 33

An investor is long 1 July 50 put. After writing 1 July 45 put, this position is a 2

Answer 33

Debit spread Vertical spread

Question 34

On Nov 10, there was an opening sale of 100 shares of XYZ at 25. On Dec 9 the shares were purchased at 30. On Jan 3, the shares were sold again for 30. What is the result?

Answer 34

$500 loss is deferred

Question 35

All of the following statements regarding 1035 exchange rules are true except

Answer 35

A whole life insurance policy can be exchanged for term insurance policy

Question 36

A stock dividend affects which of the following?2

Answer 36

Shareholder’s equity Net worth

Question 37

A customer with a short equity put option is assigned an exercise notice by his firm. How should he handle this?

Answer 37

He must accept the exercise notice and buy the underlying stock

Question 38

Yield curve analysis is useful to an investor purchasing debt securities for which of the following reasons?2

Answer 38

Allows the comparison of rates of return as maturities are extended Is useful in determining the market expectations for interest rates

Question 39

Unless instructed to the contrary, the Options Clearing Corporation (OCC) will automatically exercise all options that are

Answer 39

At least $0.01 in the money

Question 40

Which of the following is the least likely recommendation an RR would make to a customer in a margin account?

Answer 40

Purchasing a municipal bond

Question 41

Which of the following is not true regarding DCA?

Answer 41

It is not available to large investors

Question 42

In order to comply with FinCEN’s anti money laundering initiative, brokers/dealers are required to

Answer 42

Designated an AML compliance officer

Question 43

When a municipal securities broker/dealer disciplines an associated person, this incident must be reported to the appropriate SRO

Answer 43

If the fine exceeds $2,500

Question 44

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

Answer 44

Refinance