Final 1 Flashcards
All of the following statements about traditional IRAs are TRUE EXCEPT:
[A] Individuals earning income are eligible to contribute
[B] Withdrawals are generally permitted beginning at age 59 1/2 without penalty
[C] Tax free rollovers from a qualified plan to an IRA must be completed within 60 days
[D] An individual may contribute securities into his/her IRA account
[D] An individual may contribute securities into his/her IRA account
One of your clients wants to free up some capital and decides to sell a municipal bond out of their portfolio. The bond last paid interest a couple of months ago and will not pay interest again for a few months. In this situation, who pays the accrued interest at the time of settlement?
[A] The buyer of the bond pays the accrued interest.
[B] The seller of the bond pays the accrued interest.
[C] The agent will pay the accrued interest.
[D] The issuer will pay the accrued interest.
[A] The buyer of the bond pays the accrued interest.
A customer puts in an immediate or cancel order to buy 100 ABC Sept 50 calls. At the same time that the order reaches the floor, a market order also arrives to sell 50 ABC Sept 50 calls. There are no other sell orders on the book. What will happen?
[A] The entire 100 call order will go into the book.
[B] The entire 100 call order will be cancelled.
[C] 50 of the calls will be filled and the remainder will be cancelled.
[D] 50 of the calls will be filled and the remainder will go into the book.
[C] 50 of the calls will be filled and the remainder will be cancelled.
A client sells a stock short in their portfolio. The client plans to cover the short sale but prior to covering, calls to ask the RR how to achieve long-term status for capital gains purposes on the short sale. How should the RR respond?
[A] The RR should inform the client that short sales do not qualify for long-term capital gains treatment, regardless of how long the position was short in the client’s account.
[B] The RR should inform the client that short sales only qualify for long-term capital gains treatment when the purpose of the short sale was to hedge a long position.
[C] The RR should inform the client that short sales only qualify for long-term capital gains treatment when the client is short the stock for over 6 months.
[D] The RR should inform the client that short sales only qualify for long-term capital gains treatment when the client is short the stock for over one year.
[A] The RR should inform the client that short sales do not qualify for long-term capital gains treatment, regardless of how long the position was short in the client’s account.
A client wishes to roll over a qualified IRA into another qualified IRA. This can normally be performed on a tax-free basis without penalty, as long as a minimum of how many days have passed since the client’s last rollover of the same type?
[A] A minimum of 18 months must have passed since the last similar rollover.
[B] A minimum of 12 months must have passed since the last similar rollover.
[C] A minimum of 6 months must have passed since the last similar rollover.
[D] A minimum of 60 days must have passed since the last similar rollover
[B] A minimum of 12 months must have passed since the last similar rollover.
An investor buys 100 shares of ABC stock for $35 a share and simultaneously buys 1 ABC Sept 40 put @ 5. The breakeven price for the stock at the expiration of the put is:
[A] $5
[B] $30
[C] $35
[D] $40
[D] $40
Treasury STRIPS have all of the following characteristics EXCEPT:
[A] They are sold at a discount
[B] Their price is volatile
[C] They lock in a rate for a predetermined period
[D] The accrued interest is taxable at maturity
[D] The accrued interest is taxable at maturity
LMN Incorporated is listed on the American Stock Exchange. Jane sits on the board of directors for LMN and wishes to buy some LMN stock. She executes a trade on the floor of the AMEX and purchases the shares. How do the provisions of Rule 144 apply to this scenario?
[A] Jane is only permitted to sell the stock if she holds it for a minimum of 3 years.
[B] Jane must keep the stock indefinitely and is not permitted to sell.
[C] Jane is permitted to sell the stock purchased on AMEX immediately, but certain restrictions may apply.
[D] Jane is permitted to sell the stock purchased on AMEX immediately and there are no restrictions with regards to the sale.
[C] Jane is permitted to sell the stock purchased on AMEX immediately, but certain restrictions may apply.
An existing client in her late 20s comes to the RR’s office with her boyfriend. The couple are not married but they want to open a JTWROS (Joint Tenants with Rights of Survivorship) account. They state that they would like to invest in very speculative, small-capitalization mutual fund comprised of international companies. Under these circumstances, the RR should
[A] refuse to open the account due to the high level of risk associated with the investment and the fact that JTWROS accounts are normally established by married couples.
[B] start acquiring all of the information needed to open the account, but also discourage the couple from establishing this type of account, since normally JTWROS accounts are established by married couples.
[C] refuse to open the account due to the high level of risk, and sit down with the couple to explain the risks associated with the investment and why the RR refuses to open the account.
[D] start acquiring all of the information needed to open the account, but also sit down with the couple prior to purchasing mutual fund shares and discuss the risks associated with the investment and the couple’s risk tolerance.
[D] start acquiring all of the information needed to open the account, but also sit down with the couple prior to purchasing mutual fund shares and discuss the risks associated with the investment and the couple’s risk tolerance.
All of the following statements are FALSE with regards to FHLMC Securities (Federal Home Loan Mortgage Corporation) EXCEPT:
[A] FHLMC Securities are often referred to as Sallie Maes.
[B] FHLMC Securities provide tax-free interest to investors.
[C] FHLMC Securities are fully guaranteed by the U.S. Government.
[D] FHLMC Securities are only issued in book-entry form.
[D] FHLMC Securities are only issued in book-entry form.
What is the typical make-up of a balance sheet?
[A] The overall values of outstanding bonds plus outstanding stocks is equal to the total assets of the company. (Bonds + Stocks = Total Assets)
[B] The total liabilities plus the company’s net worth equals the total assets of the company. (Liabilities + Net Worth = Total Assets)
[C] The capitalization less its liabilities set equal to the assets of the company. (Capitalization - Liabilities = Assets)
[D] The current liabilities added to the fixed liabilities of the company set equal to the assets of the company. (Fixed Liabilities + Current Liabilities = Assets)
[B] The total liabilities plus the company’s net worth equals the total assets of the company. (Liabilities + Net Worth = Total Assets)
A customer is investing for his child’s education. He is seeking reasonable income and growth of capital. His investment objective is best described as seeking which of the following?
[A] Capital gains only
[B] Speculative profits
[C] Maximum current income
[D] Total return (growth plus income)
[D] Total return (growth plus income)
Which of the following BEST describes the money received by a corporation during an issue of equity securities that exceeds the face value of the securities being sold?
[A] This would refer to the capital that the corporation must keep on hand.
[B] This would refer to the capital that the corporation must use in relation to the intended use of funds specified with the sale of the new issue.
[C] This would refer to the paid-in capital of the corporation.
[D] This would refer to returns earned on funds invested in various securities in the corporation’s portfolio.
[C] This would refer to the paid-in capital of the corporation.
When looking at Shareholders Equity on a Corporate Balance Sheet we find both “Common Stock” and “Paid in Capital or Surplus” - generally “Common Stock” reflects the par value received when the common stock was sold to the public. Any excess over par that was received when the common stock was sold is carried as “Paid in Capital or Surplus”.
Chapter 19 Section 3
If an investor anticipates a decline in interest rates over the next 15 years, the investor would be best suited by a portfolio consisting of
[A] tax anticipation notes and bonds with variable interest rates.
[B] tax anticipation notes and non-callable 15-year bonds.
[C] non-callable 15-year bonds and 30-year bonds, putable in 15 years.
[D] 30-year bonds that are putable in 15 years, as well as bonds with variable interest rates.
[C] non-callable 15-year bonds and 30-year bonds, putable in 15 years.
Which of the following is a characteristic of Treasury Bills?
[A] T-Bills normally will trade at a premium to par.
[B] For taxation purposes, proceeds received upon maturity that are greater than the price paid are considered capital gains.
[C] T-Bills are medium-term securities.
[D] Interest rates are not “stated” on T-Bills.
[D] Interest rates are not “stated” on T-Bills.
A municipal bond has a provision for redeeming a certain number of bonds at par in ten semi-annual installments. This type of call feature is best described as:
[A] An installment call
[B] An optional call
[C] A sinking call
[D] A catastrophic call
[C] A sinking call
Which type of distribution from a corporate pension plan is eligible for rollover to an IRA or another corporate plan that accepts rollovers with no additional stipulations?
[A] After-tax employee contributions
[B] Minimum distributions after age 72
[C] A series of payments made over a 10 year period
[D] Payments representing employer contributions
[D] Payments representing employer contributions
Under IRS codes, minimum distributions and any payment made as a series of payments over a 10-year period or more must be treated as normal distributions for tax purposes and may not be rolled over. After-tax employee contributions require separate accounting and would be treated differently than a straight, direct rollover. The best answer here would be the payments that represent employer contributions, which can be directly rolled over to another corporate plan or to a Traditional IRA without issue.
12.1
A registered representative suggests and then implements a strategy in a client’s portfolio. This strategy involves the RR coming up with certain determinations in relation to an appropriate distribution of investments in the client’s account and the maintenance of this mix of investments over time. Which of the following most accurately describes the strategy that has been implemented?
[A] The RR is using only a technical analysis approach to allocation.
[B] The RR is using capital asset pricing model to determine allocation.
[C] The RR is using a form of asset allocation for the client.
[D] The RR is using a strategy purely focused on diversification for the client.
[C] The RR is using a form of asset allocation for the client.
Which of the following funds would be the least suitable for a retiree in need of a steady stream of income?
[A] A bond fund
[B] A sector fund
[C] A balanced fund
[D] A growth and income fund
[B] A sector fund
Mr. Smith has been watching ABC common stock for several years and feels that ABC will remain neutral or stable for the next year. Based on this assumption, which of the following options positions would allow Mr. Smith to realize the MOST in terms of profits?
[A] Buying a call
[B] Buying a put
[C] Putting on a long straddle
[D] Putting on a short straddle
[D] Putting on a short straddle
Excise taxes on cigarettes, alcohol, and gasoline secure certain securities issued by a municipality. Which of the following is the MOST appropriate statement regarding this type of municipal issue?
[A] These would be BABs (Build America Bonds).
[B] These would be Special or Additional Assessment Bonds.
[C] These would be Special Tax Bonds.
[D] These would be Tax or Bond Anticipation Notes.
[C] These would be Special Tax Bonds.
A client has a stock that is currently valued at $40 per share. The quarterly dividend of this stock is $0.10 per share. What is the current yield of this stock?
[A] The current yield cannot be determined with the information provided.
[B] The current yield is 0.25%.
[C] The current yield is 1%.
[D] The current yield is 10%.
[C] The current yield is 1%.
The secondary market price of a municipal bond would be least likely affected by which of the following?
[A] Changes in tax law
[B] Market conditions
[C] An upgrade in the credit rating of the issuer
[D] The election of new municipal leaders
[D] The election of new municipal leaders
What determines the tax liability to an individual who surrenders their holding of a variable annuity that is labeled as “non-qualified”?
[A] Tax liability is determined by subtracting the amount which was invested in the annuity from the net proceeds upon surrender.
[B] Tax liability is determined by the capital gains that an investor accumulates in the separate account.
[C] Tax liability is determined by income which is accumulated in the separate account.
[D] Tax liability is determined by the holding period of securities in the separate account.
[A] Tax liability is determined by subtracting the amount which was invested in the annuity from the net proceeds upon surrender.
Transactions in which of the following would be subject to the FINRA 5% Mark-Up Policy?
[A] Outstanding securities that are not exempt and are sold OTC.
[B] A registered secondary offering of shares
[C] Open-end investment company share sales
[D] A primary offering of securities
[A] Outstanding securities that are not exempt and are sold OTC.
One of your clients is an experienced options trader. The client has recently established a trend of buying calls on a broad-based index. Why would this investor be performing these trades?
[A] This would indicate that the investor has a bearish sentiment toward the overall market.
[B] This would indicate that the investor has a bullish sentiment toward the overall market.
[C] This would indicate that the investor feels that interest rates are going to be going up substantially.
[D] This would indicate that the investor feels that interest rates are going to be going down substantially.
[B] This would indicate that the investor has a bullish sentiment toward the overall market.
A customer is long 100 shares of XYZ at $60 per share. He then sells 1 XYZ April 60 call at 3. The margin requirement on this transaction is:
[A] $0.00
[B] $250
[C] $1,500
[D] $1,800
[A] $0.00
One of your clients regularly trades options. The customer feels that QRS is going to remain relatively stable or have a slight downturn and he decides to sell 1 QRS May 55 call for $2.50 when QRS is at $54.50. About a month later, the customer receives an exercise notice when QRS is trading at $60.75 per share. In terms of the exercise, what price will the client report for tax purposes in relation to the price at which the stock is sold to the buyer of the call?
[A] $52.50 per share
[B] $54.50 per share
[C] $57.00 per share
[D] $57.50 per share
[D] $57.50 per share
Subscription warrants are usually issued as part of:
[A] A common stock offering to obtain a higher par value
[B] A preferred stock offering to obtain a lower par value
[C] A debenture offering to obtain a lower interest rate
[D] A convertible bond to obtain a higher interest rate
[C] A debenture offering to obtain a lower interest rate
In a leveraged buyout, the acquiring company borrows funds:
[A] using its own assets as security for the loan
[B] using the target company’s assets as security for the loan
[C] using unsecured loans
[D] using unsecured and subordinated loans
[B] using the target company’s assets as security for the loan
A leveraged buyout is a takeover of a company using borrowed funds. Most often, the target company’s assets are used as security for the loans taken out by the acquiring company, which repays the loan out of cash flow from the acquired company.
2.3
Exchange Traded Notes provide which of the following to investors?
[A] Protection of the investors principal that was invested
[B] Allows investors access to market sectors that would ordinarily be unsuitable
[C] An equity position in the index
[D] Shares which represent ownership in the issuing bank
[B] Allows investors access to market sectors that would ordinarily be unsuitable
One of your customers owns 20 XYZ 6% debentures in their portfolio. The XYZ debentures are convertible with a conversion price of $25. The market value of the bonds is 105, and the common stock is currently trading at $29.50 per share. In this situation, what is the best advice you can give to your customer?
[A] The sale of the debentures at their current market value would be best for the client.
[B] The conversion of the debentures into common and the subsequent sale of the common at its current market price would be best for the client.
[C] The tender of the debentures back to XYZ would be best for the client.
[D] The tender of the debentures back to XYZ in exchange for non-convertible bonds of equal value would be best for the client.
[B] The conversion of the debentures into common and the subsequent sale of the common at its current market price would be best for the client.
When filing the registration statement with the SEC on an IPO the issuer can also include any securities it intends to issue in upcoming three year period. When this is done the registration of the shares that can be issued in the upcoming three years would be called a [A] Pending distribution [B] Shelf registration [C] preliminary registration [D] private placement
[B] Shelf registration
When securities are registered with the SEC for distribution in the upcoming three year period it is called a Shelf Registration.
6.1
One of your clients is an options trader. In looking over the financials and news for Company X, this client feels that Company X common stock will not fluctuate much in price over the next several months. Which options position listed below will provide the MOST PROFIT for this client with this consideration in mind?
[A] Putting on a bullish call spread
[B] Putting on a short straddle
[C] Buying a put option
[D] Buying a call option
[B] Putting on a short straddle
A sell order is entered by an agent at a firm with additional instructions. The instructions indicate that the order is to be executed at the opening. This order is not received in a timely fashion by the floor broker, and it cannot be executed at the opening. If this is the case, how is this order handled?
[A] The order will then become a market order
[B] The order will be cancelled
[C] The order is then entered as a limit order with the opening price as the limit.
[D] The order will be executed at the earliest time possible as a market order.
[B] The order will be cancelled
When an order is entered to executed at the “opening”, and if it does not reach the floor broker in time for it to be executed at the opening the order will be canceled and the firm and RR will be informed that the order was not executed.
7.2a
All of the following positions have unlimited loss potential EXCEPT
[A] short stock-short put.
[B] short straddle.
[C] uncovered call.
[D] uncovered put.
[D] uncovered put.
Which of the following bids would be considered stabilizing bids placed by a managing underwriter during a public offering of securities?
[A] Bids at the public offering price
[B] Bids above the public offering price but within 5% of the previous bid
[C] Bids above the public offering price but within 2% of the previous bid
[D] Concurrent bids-one at the current public offering price and one slightly above that price
[A] Bids at the public offering price
Stabilization in a new issue underwriting is the intervention in the market (permitted by the SEC under Regulation M) by the managing underwriter’s firm to keep the market price from falling during the offering period. The managing underwriter is permitted to place a bid to buy at or below the public offering price only. Concurrent bids are not permitted.
5.3
How often is interest paid on a U.S. Treasury Receipt?
[A] It is paid when the security comes due at maturity.
[B] It is paid on an annual basis.
[C] It is paid on a semi-annual basis.
[D] It is paid on a quarterly basis or four times annually.
[A] It is paid when the security comes due at maturity.
U.S. Treasury Receipts are also known as Zero Coupon Treasury Bonds. These securities function in a similar capacity to zero-coupon bonds. They are issued at a discount and pay all interest at maturity. They do not have coupon payments.
13.4
A self-employed middle-aged woman contributes annually to a Traditional IRA. She is unmarried, has two grown children, and has established a trust naming her two children as sole beneficiaries. The woman puts her assets in the trust and names the trust as beneficiary of the Traditional IRA. If she should die, what would happen to her IRA?
[A] IRA assets would be divided evenly between her two children.
[B] IRA assets would be included in the trust and established distributions from the trust to her children would be taxable as ordinary income.
[C] IRA assets would be included in the trust, and her children would be allowed to rollover the distributions into their own IRAs on a tax-free basis.
[D] The IRA would become the property of the Estate and would not be distributed to her children.
[B] IRA assets would be included in the trust and established distributions from the trust to her children would be taxable as ordinary income.
Which of the following would NOT be considered a “bullish” options strategy?
[A] An investor establishes a short straddle.
[B] An investor buys a call.
[C] An investor establishes a call spread at a net debit.
[D] An investor sells a put.
[A] An investor establishes a short straddle.
In a margin account that is restricted, a customer decides to sell stock valued at $8,000, and buy $6,000 worth of another stock on the same day. How much cash would this customer be allowed to withdraw from the account? [A] 0 [B] $1,000 [C] $2,000 [D] $6,000
[B] $1,000
Of the following, which offers the MOST accurate description of a municipal bond that is considered “double-barreled”?
[A] These bonds are backed by the unlimited taxing power of a municipality along with the ability of State-level appropriations in the event of default.
[B] These bonds are backed by project revenues and receive additional backing in the form of the moral obligation of the State in which the municipality is located.
[C] These bonds are backed by income received from securities held in a municipality’s portfolio, as well as a gross revenue pledge.
[D] These bonds are backed by specific revenues from a project along with the municipality’s general obligation pledge.
[D] These bonds are backed by specific revenues from a project along with the municipality’s general obligation pledge.
Which of the following is allowed by SEC Rule 144A?
[A] Rule 144A allows foreign corporations to buy registered securities.
[B] Rule 144A allows qualified institutional buyers to buy registered securities.
[C] Rule 144A allows qualified institutional buyers to buy unregistered securities.
[D] Rule 144A allows affiliates of the issuer to purchase registered securities.
[C] Rule 144A allows qualified institutional buyers to buy unregistered securities.
Which of the following transactions conducted by a member firm for its customers must abide by the FINRA 5% Markup Policy?
[A] Primary offerings of securities
[B] Mutual fund shares
[C] Secondary Offerings of securities
[D] Riskless transactions
[D] Riskless transactions
The FINRA 5% Markup Policy is a guideline for spreads in dealer transactions and commissions in brokerage transactions, including purchasing OTC securities from a client and riskless transactions. It does not apply to any transaction were the public offering price is pre-determined and requires delivery of a prospectus to buyers (e.g., new issues, secondary offerings & mutual fund shares.)
10.8
Equity is a term which can be used in the context of all of the following except:
[A] common stock
[B] margin accounts
[C] preferred stock
[D] debenture
[D] debenture
One of your new clients with little investing experience is trying to figure out their capital gains and losses for the year. They had capital gains of $6,000 for the year, but had capital losses totaling $10,000 as well. What can the client do in this situation?
[A] The client can deduct the total amount of capital losses, $10,000, from their income and carry a percentage of that forward to the following year as a capital loss.
[B] The client may make a deduction of $10,000 from gross income only.
[C] The client can offset the gains with the losses for a total deduction of $4,000.
[D] The client can deduct $3,000 from gross income and carry $1,000 forward as a capital loss.
[D] The client can deduct $3,000 from gross income and carry $1,000 forward as a capital loss.
An RR has identified four investment options for a customer, who is a senior. Which investment option would be considered the most appropriate?
[A] U.S. Government bonds
[B] Deferred variable annuity
[C] U.S. savings bonds
[D] Zero-coupon bonds offered at a deep discount
[A] U.S. Government bonds
Which of the following would be the best choice if a client has $30,000 to invest but needs monthly income?
[A] An aggressive growth fund
[B] Blue chip stocks
[C] A sector fund
[D] A money market fund
[D] A money market fund
A customer’s margin account appears as follows:
$100,000 MV Long
$ 40,000 DB
$ 60,000 EQ
The securities in this customer’s account INCREASE in value by $25,000, and the debit balance is decreased by $5,000. After these changes, what is the buying power in the account?
[A] $27,500
[B] $35,000
[C] $55,000
[D] $90,000
[C] $55,000
An investor purchases the following bonds, all at a premium above par value:
XYZ 5% non-callable bonds maturing in 15 years
XYZ 5.10% non-callable bonds maturing in 20 years
XYZ 5.25% non-callable bonds maturing in 25 years
Several months after these bonds are purchased, the going rates on bonds have moved an average of 20 basis points. Of this investor’s purchases, which will show the largest adjustment in terms of price because of the change in the going rate?
[A] The bonds are all trading in the secondary bond market and will all be affected equally.
[B] The 25-year bonds will be affected the most.
[C] The 15-year bonds will be affected the most.
[D] The bonds are all trading in the secondary bond market and have fixed coupons, so their prices will not be affected by fluctuations in new bond rates.
[B] The 25-year bonds will be affected the most.
Assume an investor sells short 100 shares of ABC and while the investor has the short stock position, ABC pays a dividend. The investor:
[A] Owes the dividend to the lender of the stock.
[B] Will Receive the dividend from the lender of the stock.
[C] Will not be involved in the dividend situation in any way.
[D] Will receive the dividend from the company and also from the lender of the stock.
[A] Owes the dividend to the lender of the stock.
The negotiated underwriting of municipal securities usually involves all of the following EXCEPT:
[A] a bid form
[B] a legal opinion
[C] an underwriters agreement
[D] a bond purchase contract
[A] a bid form
The bid form is used in a competitive bid underwriting rather than a negotiated underwriting. General obligation (G.O.) bonds are usually awarded by competitive bid. Revenue bonds are usually negotiated.
15.3
All of the following accounts should be handled in a conservative manner with conservative investments in accordance with state laws and regulations EXCEPT FOR
[A] the account of a third party estate
[B] the account of a trust
[C] the account of an investment club
[D] the account of a minor handled under UGMA/UTMA guidelines
[C] the account of an investment club
