Extra Q's

Question 1

A customer purchased a 5% bond yielding 6%. A year before the bond matures, new bonds are being issued at 4%, and the customer sells the 5% bond. The customer probably did which two of the following?

I. Bought it at a discount.
II. Bought it at a premium.
III. Sold it at a discount.
IV. Sold it at a premium.

Answer 1

I. Bought it at a discount.
and
IV. Sold it at a premium.

Question 2

A customer buys 2 ABC Feb 20 puts at 2 when ABC is trading at 19. If the contracts are closed at 4 when ABC is trading at 17 the customer has a gain/loss of:

Answer 2

$400 gain

Customer bought 2 contracts at $200 each. Then the security dropped 2 points making each contract worth $400 each. $800 - $400 = $400 gain

Question 3

When a registered representative recommends a municipal bond purchase to a customer, which of the following is LEAST likely to be considered for suitability?
A) Customer’s state of residence
B) The intended use of funds raised by the issue
C) Bond’s rating
D) Customer’s tax bracket

Answer 3

B) The intended use of funds raised by the issue

Question 4

Which of the following positions does the potential loss equal the premium?
A) Covered puts
B) Uncovered puts
C) Covered calls
D) Long Calls

Answer 4

D) Long Calls

Question 5

A customer writes 1 XYZ Jul 70 call at 5 when XYZ is trading at 72. If the stock subsequently rises to 76 and the contract is exercised, the customer has:

Answer 5

A loss of $100

(76-70) = 6
5-6 = -1

Question 6

Which of the following investments is the most liquid?
A) Foreign stock funds
B) Money market funds
C) Common stock
D) Variable annuities

Answer 6

B) Money market funds

Question 7

Which of the following are funded by general tax receipts?
A) Tax anticipation notes (TANs)
B) Revenue anticipation notes (RANs)
C) Hospital revenue bonds
D) Bond anticipation notes (BANs)

Answer 7

A) Tax anticipation notes (TANs)

Question 8

A municipal bond, issued with a covenant that states, “if revenue collections are not sufficient to meet debt service requirements, the issue will be backed by the full faith and credit of the municipality,” is known as a:

Answer 8

double-barreled bond

Question 9

In a proceeds transaction for a customer where the proceeds from the liquidation of one stock are used to purchase another stock, the 5% markup policy is computed on the basis of:

Answer 9

a combination of both the buy side and the sell side.

Question 10

All of the following are call buyers’ objectives EXCEPT:
A) speculating for profit on the rise in price of stock.
B) hedging a long stock position against falling prices.
C) delaying a decision to buy stock.
D) diversifying holdings.

Answer 10

B) hedging a long stock position against falling prices.

Question 11

A bond would be considered speculative below which of the following Standard and Poor's ratings?
A) A
B) BB
C) BBB
D) B

Answer 11

B) BBB is the lowest investment-grade rating assigned by S and P. Any rating below is considered speculative.

Question 12

An associate of a broker dealer engaged in municipal securities representative activities, other than retail sales.

Answer 12

Municipal Finance Professional (MFP)

Question 13

An order to sell at 38.65 stop limit is entered before the opening. The subsequent trades are 38.85, 38.50, and 38.35. The sell stop limit order:

Answer 13

has not yet been executed.

Question 14

According to the Investment Company Act of 1940, a diversified mutual fund may hold, at most, what percentage of a corporation’s voting securities?

Answer 14

10%

Question 15

Which of the following would be the least considered factor in determining if a particular type of options trading is suitable for a customer?
A) Understanding the strategy being employed
B) Ability to meet margin calls
C) Willingness to assume risk
D) Understanding maximum gain or loss potential

Answer 15

B) Ability to meet margin calls

Question 16

A customer owns 1,000 shares of ABC corporation. Which of the following actions on the part of ABC would dilute her equity?
A) Payment of a 10% stock dividend
B) 2-1 stock split
C) Registered secondary offering of shares
D) Registered primary offering of shares

Answer 16

D) Registered primary offering of shares

Question 17

Which of the following are a direct obligation of the U.S government?
A) Fannie Maes
B) Treasury Receipts
C) Government bond mutual funds
D) Ginnie Maes

Answer 17

D) Ginnie Maes

Question 18

Limited partners have the right to do all of the following EXCEPT:
A) choose the assets for the partnership
B) vote to remove the general partner
C) inspect and copy partnership records
D) sue the general partner for damages if he acts outside his authority

Answer 18

A) choose the assets for the partnership

Question 19

Issued by large domestic commercial banks to facilitate US investors who want to trade in foreign securities.

Answer 19

ADRs

Question 20

Which of the following orders on the order book will NOT be filled if the stock rises?
A) Sell limit
B) Buy stop limit
C) Buy stop
D) Sell stop

Answer 20

D) Sell stop

Question 21

John is the annuitant in a variable plan, and Susan is the beneficiary. Upon John’s death during the accumulation period, Sue takes a lump-sum payment. What is her total tax liability?

Answer 21

The proceeds minus John’s cost basis taxed at ordinary income at Sue’s tax rate.

Question 22

If an American exporter will be paid 25 million Japanese yen when her goods arrive in 45 days, her best hedge is to:

Answer 22

buy yen puts

the exporter does not want to see the value of the yen fall

Question 23

Which of the following has unlimited risk if it is the only position in an account?
A) Short put
B) Long put
C) Short call
D) Long call

Answer 23

C) Short call

Question 24

When is a sales charge deducted from purchases of mutual fund shares made under a letter of intent?

Answer 24

When each purchase is made.

Question 25

A significant increase in which of the following types of orders may cause a bull market to accelerate?
A) Sell stops
B) Short sales
C) Buy stopes
D) Buy limits

Answer 25

C) Buy stops

Question 26

Joan owns 100 shares of XYZ, which is currently trading at $57 per share. She wishes to liquidate the position when she can receive $6,000 from the trade. Which of the following orders is the BEST choice to fulfill Joan’s intentions?

Answer 26

Sell limit at 60

Question 27

Broker-dealers must provide a privacy notice to every consumer:

Answer 27

before disclosing nonpublic, personal information

Question 28

If a limited partnership must liquidate, the distribution of assets is first made to the:

Answer 28

secured creditors

Question 29

Regulation T is set by:

Answer 29

the Federal Reserve Board

Question 30

When illicit funds have entered the banking system undetected and appear to be legitimate, the funds are referred to as:

Answer 30

integrated

Question 31

A person who is employed by a brokerage firm and buys and sells securities for the firm’s account is considered a(n):

Answer 31

trader

Question 32

According to FINRA rules, an e-mail complaint must be maintained for:

Answer 32

four years

Question 33

If an issuer’s convertible bonds are converted by bondholders, what is the effect on the issuer’s outstanding common stock?

Answer 33

It will increase the number of outstanding shares.

Question 34

Certain circumstances or factors that may have a negative impact on at the operations or profitability of a specific company is referred to as:

Answer 34

Business risk

Question 35

New laws having a negative impact on an investment’s value is referred to as:

Answer 35

Legislative risk

Question 36

An FDA announcement denying approval of a new drug is an example of:

Answer 36

regulatory risk

Question 37

If a client redeems his mutual fund shares, the fund company must send the payment within:

Answer 37

7 days

Question 38

A municipality borrowing for a short-term period to finance a capital project would issue:

Answer 38

Bond anticipation notes