Final 3

Question 1

You are analyzing your company in order to ensure that the retirement plans of its employees best benefit both the employees and the company. You notice that two of your executives are currently 57 and 60 years old. Which of the following offers best fulfills your concerns about the benefits working for both employee and employer?

[A] Offering the two executives a deferred compensation plan that is non-qualified.
[B] Offering the two executives a 403(b) plan.
[C] Offering the two executives a defined benefit plan.
[D] Offering the two executives a tax-sheltered annuity.

Answer 1

[C] Offering the two executives a defined benefit plan.

Question 2

A client of yours wants to put additional funds into his retirement account. He has an annual income of $400,000 and two children to support. He is considered a qualified plan participant. The best type of retirement account for this individual is

[A] a Coverdell Education Savings Account.
[B] a Roth IRA.
[C] a Rollover IRA.
[D] a Traditional IRA.

Answer 2

[D] a Traditional IRA.

In this situation, since the individual wishes to put additional funds away for retirement, the best answer of those given would be the Traditional IRA.
A - Coverdell - For educational expenses.
B - Roth IRA - Income of $400,000 exceeds the maximum income limit for a Roth, and therefore they cannot contribute.
C - Rollover IRA - The individual doesn’t want to roll over his qualified plan, he wants to put additional funds into a retirement account.
D - Traditional IRA - Allows an employed participant to make contributions of up to $6,000 annually (2021) (even if the participant has a qualified plan). If the client has a large income, they are still permitted to make a contribution of up to $6,000 (2021), but that amount will not be tax-deductible. These contribution amounts are unchanged from 2020.

Question 3

The intent of ERISA (Employee Retirement Income Security Act) is to protect the funds within an employee retirement fund from which of the following?

[A] ERISA is designed to protect retirement funds from poor management by investment advisory firms and investment adviser representatives.
[B] ERISA is designed to protect retirement funds from fraudulent activity which may take place at an executing broker-dealer’s place of business.
[C] ERISA is designed to protect retirement funds from poor management by an employer who handles the company retirement policy.
[D] ERISA is designed to protect retirement funds from predatory taxation policies of the federal government.

Answer 3

[C] ERISA is designed to protect retirement funds from poor management by an employer who handles the company retirement policy.

Question 4

One of your clients comes in for a consultation and is excited that his wife recently gave birth to their first child. They want to send their child to private school and hope to see the child go to college as well. The investor asks for the best option for their situation and tells you that they can afford to contribute about $1,000-2,000 per year. He was hoping for low set-up costs and some investment flexibility when it comes to the various funds available. He also wants to avoid taxes related to the account in terms of earnings and withdrawals. Which of the following would be the best recommendation for your client?

[A] A Coverdell Education Savings Account
[B] An UGMA/UTMA account in the child’s name
[C] A Balanced Mutual Fund
[D] A trust, set up in the child’s name

Answer 4

[A] A Coverdell Education Savings Account

Question 5

Thomas is 58 and has run into a financial bind and is considering taking money out of his Traditional IRA to take care of his problem. He will be charged a 10% penalty if he uses those funds for which of the following?

[A] To pay for his family’s medical insurance premiums
[B] Disability due to an auto accident he was in 6 months ago
[C] College education costs for his children
[D] To pay off the mortgage on his first home

Answer 5

[D] To pay off the mortgage on his first home

Question 6

Which of the following is NOT required in order to open an options account?

[A] The RR must inquire about the investment objectives of the customer.
[B] The RR must gather and keep record of customer financial background information and provide an Option Disclosure Document (ODD).
[C] The RR must provide an written explanation of why he believes the account is suitable.
[D] The customer must sign a document agreeing not to violate position limit and exercise limit rules.

Answer 6

The RR must provide an written explanation of why he believes the account is suitable.

Question 7

If an investor buys a call option contract on the S&P 500 Index, what will the investor receive when exercising the call?

[A] 100 shares of the S&P 500 ETF at the strike price listed on the contract
[B] The market price of the index at the close of trading on the day of exercise, in cash
[C] The difference between the strike price on the contract and the market price of the index at the close of trading on the day of exercise, in cash
[D] Proportionate shares of S&P 500 stocks to the value of the contract

Answer 7

[C] The difference between the strike price on the contract and the market price of the index at the close of trading on the day of exercise, in cash

Question 8

Which of the following is considered an affiliate, but bears no financial obligation when it comes to the primary offering of securities through a syndicate?

[A] The managing underwriter
[B] The selling syndicate members
[C] The selling group members
[D] Outside broker-dealers

Answer 8

[C] The selling group members

The syndicate is comprised of the managing underwriter who puts together a selling syndicate. Selling syndicate members have a financial commitment to the offering. As a further means of distribution, selling group members are brought in. Selling group members may be allocated a portion of the offering to sell, but bear no financial responsibility. Outside broker-dealers are not affiliated with the syndicate, but may request some of the offering for their clients.

Question 9

Zero coupon bonds are frequently used to:

[A] amortize the cost of the bond
[B] provide a steady stream of dividend income
[C] provide a steady stream of interest income
[D] accumulate capital to fund a particular investment goal

Answer 9

[D] accumulate capital to fund a particular investment goal

Question 10

Which of the following statements about call features found on securities such as preferred stock or bonds is CORRECT?

[A] Call features should not be a consideration as they do not impact the security’s return.
[B] Call features are required on all long-term bonds.
[C] Call features are beneficial to the issuer of the securities.
[D] Call features are beneficial to the investor purchasing the securities.

Answer 10

[C] Call features are beneficial to the issuer of the securities.

Question 11

When is it permissible for a non-registered individual to receive commissions?

[A] Only if the individual’s supervising principal approves of the payment
[B] Commissions paid to the non-registered person must represent no more than 10% of the total commissions paid.
[C] The non-registered person can receive commissions only for accounts that he or she introduced to the RR.
[D] Only if there is an employment contract in place which allows for commission payments to be made to the non-registered spouse of a registered representative

Answer 11

[D] Only if there is an employment contract in place which allows for commission payments to be made to the non-registered spouse of a registered representative

Question 12

When is payment typically due on the regular-way purchase of a round lot of T-Notes?

[A] Payment is typically due on the 4th business day.
[B] Payment is typically due on the 3rd business day.
[C] Payment is typically due on the following business day.
[D] Payment is typically due on the day of the trade.

Answer 12

[C] Payment is typically due on the following business day.

Question 13

An investment that consists of a managed portfolio of property established to earn profits for its shareholders would be best described by which of the following?
[A] This description best applies to CMOs (Collateralized Mortgage Obligations).
[B] This description best applies to Real Estate Direct Participation Programs.
[C] This description best applies to REITs (Real Estate Investment Trusts).
[D] This description best applies to debt issued by the Federal Farm Banks.

Answer 13

[C] This description best applies to REITs (Real Estate Investment Trusts).

Question 14

A mutual fund’s purchase price is determined by the

[A] net asset value at the previous day’s close
[B] net asset value calculated at the close after the order is received
[C] price that reflects the current supply-demand for the security
[D] intraday net asset value

Answer 14

[B] net asset value calculated at the close after the order is received

Question 15

A 90-day frozen period where restrictions are placed on trading activity would apply to an individual account when the

[A] owner receives a margin call on a long margin account and meets the call.
[B] margin account has entered “restriction” where equity drops below 50%.
[C] owner purchases and sells stock in a cash account and never deposits adequate funds to cover the initial purchase.
[D] purchase of equity options takes place in a cash account.

Answer 15

[C] owner purchases and sells stock in a cash account and never deposits adequate funds to cover the initial purchase.

Question 16

An investor at the firm insists on buying a stock in order to receive the dividend, despite being advised against this by their registered representative. The stock’s record date is Monday, October 23rd. Assuming a regular-way settlement, the latest that this investor could buy the stock and still receive the dividend is

[A] Wednesday, October 18th.
[B] Thursday, October 19th.
[C] Friday, October 20th.
[D] Saturday, October 21st.

Answer 16

[B] Thursday, October 19th.

In order to receive the dividend, the investor would have to buy the stock prior to the ex-date in order to receive the dividend. The ex-date in this scenario is Friday, October 20th, which is one business day prior to the record date. Therefore, the investor would need to purchase this stock on or prior to Thursday, October 19th, in order to receive the dividend.

Question 17

The Fed would use which of the following tactics to attempt to LOWER inflation?

[A] The discount rate would be increased.
[B] The requirements on margin accounts would be lowered.
[C] The Fed would buy government securities through open market operations.
[D] The reserve requirements on banks would be reduced.

Answer 17

[A] The discount rate would be increased.

In order to LOWER inflation, the Fed must take money out of the system. The following would achieve this:
Increase the discount rate (not decrease it).
Increase margin requirements (not lower them).
Sell government securities (not buy them).
Increase the reserve requirements (not lower them).

Question 18

Of the following, which is a possible cause of the yield curve becoming inverted?

[A] Due to favorable trends in interest rates, corporations are taking advantage by borrowing on a long-term basis.
[B] Since short-term rates are low, there is an increased demand with regards to long-term debt.
[C] Projections in manufacturing are showing a higher demand for goods, which has led manufacturing firms to borrow on a long-term basis to finance expansion.
[D] Due to an economic slowdown, manufacturing firms have been unable to sell current inventories, leading to increased short-term borrowing to finance inventory carrying costs.

Answer 18

[D] Due to an economic slowdown, manufacturing firms have been unable to sell current inventories, leading to increased short-term borrowing to finance inventory carrying costs.

An increase in demand for short-term borrowing will lead to increased rates in the short-term debt market (e.g., it will cost more to borrow short-term if everyone wishes to borrow short-term). This will lead to an inversion of the yield curve as short-term rates increase relative to long-term rates. Each of the other alternatives shows an increase in demand for long-term debt.

Question 19

An investor who trades a closed-end fund would receive which of the following prices?

[A] The current market price
[B] The price is based on the closing market price of the day
[C] The current NAV of the shares
[D] The value of the NAV from the previous trading day

Answer 19

[A] The current market price

Question 20

Minor declines over at least two consecutive quarters in which of the options below would be considered a recession?
[A]	DJIA - Dow Jones Industrial Average
[B]	NASDAQ 100
[C]	Gross Domestic Product
[D]	Cost of Living Index

Answer 20

[C] Gross Domestic Product

Question 21

A client is currently filling out the paperwork for a new margin account with your firm. The client calls you and asks you about the purpose of the Loan Consent Agreement. What is the MOST appropriate description of this document?

[A] The agreement provides the RR with the authority to make trades in the account which fall in line with the account’s investment objectives without first consulting the client.
[B] The agreement provides the firm with the authority to sell a customer out of a position and liquidate the necessary amount of securities needed to meet margin and maintenance calls when the customer fails to meet such calls.
[C] The agreement provides the firm with the authority to lend margined securities from the customer’s account to other firms and customers for purposes such as short sales.
[D] The agreement provides the RR with the authority to put the margined securities in the customer’s account up as collateral for loans from banks.

Answer 21

[C] The agreement provides the firm with the authority to lend margined securities from the customer’s account to other firms and customers for purposes such as short sales.

Question 22

The primary function of SIPC (Securities Investor Protection Corporation) is to protect investors

[A] from identity theft and fraudulent transactions in their accounts
[B] in the event that their broker-dealer fails, providing compensation for losses on cash and securities up to SIPC limitations
[C] from negligence on the part of a SIPC member when handling transactions in customer accounts.
[D] from the mismanagement of executives who run the member firms where the customers maintain their accounts

Answer 22

[B] in the event that their broker-dealer fails, providing compensation for losses on cash and securities up to SIPC limitations

Question 23

Once a registration statement has been filed with the SEC and it becomes effective, which of the following statements by an issuer would be ACCEPTABLE?

[A] “The issue has now been approved by the SEC.”
[B] “The SEC has verified the accuracy of statements filed with them about the issue.”
[C] “The SEC provides an objective review of the quality of the investment.”
[D] “The SEC has completed its review and no additional information is required from the issuer at this time.”

Answer 23

[D] “The SEC has completed its review and no additional information is required from the issuer at this time.”

The SEC does not approve or disapprove of any issue and does not pass on the accuracy or adequacy of statements filed with them. They review the issue in an attempt to determine that full and fair disclosure has been made but take responsibility for nothing.

Question 24

A signed “options agreement” must be obtained from a new options customer:

[A] Before the first options order
[B] Within 15 days after the account has been approved for options transactions
[C] No later than the settlement date of the first options trade in the account
[D] Not later than 30 days after the settlement date of the first options trade in the account

Answer 24

[B] Within 15 days after the account has been approved for options transactions

Question 25

All of the following statements on the secondary market of Brokered CDs are INCORRECT EXCEPT:

[A] An interest penalty is added to the par value of the Brokered CD when it is returned to the investor.
[B] On settlement date, accrued interest is added to the market value of the Brokered CD and the seller receives both.
[C] No interest is added to the par value when the Brokered CD is returned to the seller.
[D] On settlement date, the accrued interest penalty is subtracted from the market value of the Brokered CD and then paid to the seller.

Answer 25

[B] On settlement date, accrued interest is added to the market value of the Brokered CD and the seller receives both.

When Brokered CDs are sold in the secondary market, they trade at the market value of the brokered CD plus accrued interest. This is paid to the seller by the buyer on settlement date.

Question 26

A customer at the firm purchases a corporate bond that is both callable and convertible. The customer wants to know when the transaction will settle. Assuming the trade settles under normal circumstances, what should the customer be told?

[A] The trade will settle regular way on the business day following trade date.
[B] The trade will settle regular way, two business days following the trade date.
[C] The trade will settle under Reg T rules, four business days following the trade date.
[D] The trade will settle under Reg T rules, five business days following the trade date.

Answer 26

[B] The trade will settle regular way, two business days following the trade date.

Question 27

Mrs. Smith set up a Uniform Gifts to Minors Account for her daughter and the custodial account has done very well this past year. The profits and earnings on this account would be reportable on which person’s tax return?

[A] Mrs. Smith’s
[B] Mrs. Smith’s daughter
[C] Mr. Smith
[D] Mr. and Mrs. Smith’s joint tax return

Answer 27

[B] Mrs. Smith’s daughter

Question 28

Which of the following activities by registered representatives conducted outside of their normal scope of activities at the member firm does NOT require written notice.

[A] A Yoga instructor
[B] A passive limited partner in a real estate limited partnership
[C] A general partner in a privately-owned restaurant
[D] A part-time realtor

Answer 28

[B] A passive limited partner in a real estate limited partnership

Passive income activities do not have to be reported to the employing member firm. All of the other activities involve active participation in an outside business activity which would require notice from the member firm.

Question 29

When a call option is exercised the

[A] buyer of the call will deliver 100 shares of the underlying stock at the market price.
[B] seller of the call will deliver 100 shares of the underlying stock at the strike price.
[C] buyer of the call will deliver 100 shares of the underlying stock at the strike price.
[D] seller of the call will deliver 100 shares of the underlying stock at the market price.

Answer 29

[B] seller of the call will deliver 100 shares of the underlying stock at the strike price.

Question 30

A person who has a Series 6 license would be allowed to say which of the following to a potential client?

[A] “Now that I am registered with FINRA, I can sell mutual funds in your state.”
[B] “The S6 registration allows me to sell only securities that have been approved by the SEC.”
[C] “As a registered representative I am required to disclose all material facts about the mutual funds that I offer.”
[D] “My registration allows me to recommend some basic option strategies.”

Answer 30

[C] “As a registered representative I am required to disclose all material facts about the mutual funds that I offer.”

The S6 registration satisfies FINRA requirements; the individual now has to register as an agent in each state. The SEC does not approve any security. Lastly, the S6 registration does not approve an individual to sell options.

Question 31

In which of the following scenarios would it be UNACCEPTABLE for a FINRA member firm to hold a customer’s mail?

[A] The customer is leaving the United States on business and the trip will be shorter than 3 months.
[B] The customer provides a written request to the member firm to forward mail to a previously unknown address.
[C] The customer asks the member firm to hold his mail until further notice from the customer.
[D] The customer notifies the member firm that he will be on vacation for over a month.

Answer 31

[C] The customer asks the member firm to hold his mail until further notice from the customer.

Question 32

An individual owner of a brokerage account may

[A] be 17 years old.
[B] designate another individual to perform actions in the account on his behalf.
[C] not open a joint account also at the same member firm.
[D] assume that upon his death, ownership of the account will automatically be transferred to a surviving parent.

Answer 32

[B] designate another individual to perform actions in the account on his behalf.

Question 33

A customer’s only account at a broker-dealer is an established margin account. The customer wishes to participate in the distribution of a new issue of common stock coming to market in the next few days. Which of the following is true regarding this situation? The customer must be told that

[A] he will be required to open a cash account in order to participate in the new issue.
[B] new issue purchases are not allowed in a margin account.
[C] he can purchase the new issue shares in his margin account but would be required to pay for the purchase in full since it is an IPO.
[D] new issues require a margin deposit of 75%.

Answer 33

[C] he can purchase the new issue shares in his margin account but would be required to pay for the purchase in full since it is an IPO.

Question 34

Which of the following is NOT a point of focus of the Securities Exchange Act of 1934?

[A] The registration and offering of new issues
[B] The extension of credit for the purchase of securities
[C] Required disclosures on publicly-traded securities
[D] The secondary market for securities

Answer 34

[A] The registration and offering of new issues

Question 35

The public offering price of a bond is $1,000 and the bond has a coupon of 5%. If interest rates remain unchanged, what could you expect regarding the price of the bond?

[A] The bond would remain at par value.
[B] The bond would trade at a premium.
[C] The bond would trade at a discount.
[D] The bond price would be depreciated.

Answer 35

[A] The bond would remain at par value.

Bonds that trade for $1,000 are said to trade at “par.” Bonds that trade for a price above $1,000 are said to trade at a premium. Bonds that trade below $1,000 are said to trade at a discount. Depreciation refers to an accounting practice for physical assets, such as equipment.

Question 36

Which of the following BEST describes a market maker who acts in a “dealer” or “principal” capacity?

[A] A designated market maker working trades of buyers and sellers, typically on the floor of an exchange.
[B] A broker-dealer firm that trades into and out of their own inventory, typically in the Over-the-Counter (OTC) market.
[C] Issuers, who work with underwriters in the sale of their own securities in order to generate capital for business operations.
[D] Advisory firms who provide advice related to securities for fees.

Answer 36

[B] A broker-dealer firm that trades into and out of their own inventory, typically in the Over-the-Counter (OTC) market.

Broker-dealers who trade into and out of their own account are working in a principal or dealer capacity. Market makers are often broker-dealers who are working in that dealer or principal capacity in the OTC market. The listed market is where a designated market maker maintains an orderly market. Issuers are the companies that are trying to generate capital and would not fit into the definition of a market maker as they sell in the primary market, while market makers work in the secondary market. Advisory firms also would not be considered market makers unless they were trading into and out of their own inventory, which is not specified.

Question 37

The value of accumulation units in a variable annuity contract is directly related to the value of which of the following?

[A] The Consumer Price Index
[B] The Dow Jones Industrial Average
[C] The securities in the general account of the insurance company
[D] The securities in the separate account of the insurance company

Answer 37

[D] The securities in the separate account of the insurance company

Question 38

A quote for a security trading in the secondary market typically contains all of the following, EXCEPT:

[A] A bid price
[B] An ask price
[C] The size of the market
[D] Average daily trading volume

Answer 38

[D] Average daily trading volume

A quote for a security typically contains the bid price, the ask price, and the size of the market (the number of shares available for sale and for purchase). Average daily trading volume would not be found on a quote.

Question 39

A customer wishes to sell a stock just after the stock pays a dividend with a record date of Friday, October 20th. Assuming a regular-way settlement, the earliest that the customer could sell the stock and still receive the dividend is

[A] Monday, October 16th.
[B] Tuesday, October 17th.
[C] Wednesday, October 18th.
[D] Thursday, October 19th.

Answer 39

[D] Thursday, October 19th.

The Buyer must trade BEFORE the ex-date in order to get the dividend. (On or after the Ex-date the buyer would not get the dividend). The Seller must trade ON or After the Ex-date in order to get the dividend.

Question 40

A mutual fund’s net asset value has increased from $22.00 to $23.50 over the last few months. The cause for the increase would be due to

[A] an appreciation in the value of the portfolio
[B] the fund manager deciding to increase the number of shares it issues
[C] an increasing demand for the fund
[D] the decision by the fund manager to reduce the fund’s expense ratio

Answer 40

[A] an appreciation in the value of the portfolio

Question 41

When discounting a draft between a US company and a foreign exporter to expedite foreign trade, they would be discounting which of the following?

[A] A Treasury Bill
[B] A Banker’s Acceptance
[C] A Certificate of Deposit
[D] A Letter of Credit

Answer 41

[B] A Banker’s Acceptance

Question 42

A registered representative at your firm has a client who is on the board of directors of QRS Corporation. The client calls in and in passing, mentions that QRS will not come close to meeting their earnings projections for the coming period. The release of earnings figures for QRS does not take place until late in the following week. Which of the following is the APPROPRIATE action to take in this scenario?

[A] The RR should log into their personal account and sell as much of QRS short as possible in anticipation of the bad news.
[B] The RR should enter short sale orders for the client in QRS in anticipation of the bad news.
[C] The RR should make a call to the firm’s compliance department to inform them of the disclosure and ensure all precautions are taken related to the matter and the RR should not discuss the call with other RRs or other clients.
[D] The RR should immediately call the firm’s research department to confirm the numbers and once confirmed, should broadcast this information to all reps within the firm.

Answer 42

[C] The RR should make a call to the firm’s compliance department to inform them of the disclosure and ensure all precautions are taken related to the matter and the RR should not discuss the call with other RRs or other clients.

Question 43

A customer buys $20,000 of securities in his cash account. On the settlement date, he tells the RR he cannot pay. He says to sell out the purchase. Which of the following is correct?

[A] If the proceeds of the sale exceed the cost, there is no penalty.
[B] Under Regulation T, the account must be frozen for 90 days.
[C] This is a violation of the 1934 Act anti-fraud rules.
[D] The SEC considers the account undesirable and the account must be closed.

Answer 43

[B] Under Regulation T, the account must be frozen for 90 days.

Question 44

One of your customers holds a position in DEF common. The customer calls and informs you that they want to sell 250 shares of DEF at $30. The current bid on DEF is $22, so you, the RR, enter a GTC order to sell 250 shares at $30. After sitting on the GTC order for a month, the customer sees that the bid on DEF has gone up to $26. The customer calls you up and tells you to sell at the BEST available price. What should you do?

[A] You should reduce the execution price on the GTC order to $26.50 and wait.
[B] You should reduce the execution price on the GTC order to $26.00.
[C] You should enter a new order to sell at the market after cancelling the previous GTC order.
[D] You should enter a sell order at the market and leave the GTC order alone.

Answer 44

[C] You should enter a new order to sell at the market after cancelling the previous GTC order.

In this situation, the registered rep should cancel the GTC order that is outstanding still at $30 per share and enter a market order which will achieve the best current price for the customer. Entering another GTC order, or adjusting a previous order does not fulfill the customer’s wishes to sell at the best price. In the time that it takes to enter such an order, the price could go down from $26.

Question 45

An investor is nearing retirement. Historically, the investor has purchased shares of equity funds, including growth funds, with the objective of capital appreciation in their retirement portfolio. Now, the investor is seeking to transition that objective to income generation for retirement purposes. The investor can avoid additional sales load, because the investor keeps their assets under the same family of funds. Which of the following allows this investor to avoid an additional sales load at this time?

[A] A Letter of Intent
[B] Rights of Accumulation
[C] An Exchange or Switching Privilege
[D] A Contingent Deferred Sales Load

Answer 45

[C] An Exchange or Switching Privilege

Question 46

An investor writes a May 50 put @ 6 in February and the put is exercised on May 7. Eight weeks later the investor sells the stock @ $52 a share. The investor’s profit or loss is?

[A] An $800 capital loss
[B] An $800 capital gain
[C] A $200 capital loss
[D] A $200 capital gain

Answer 46

[B] An $800 capital gain

Question 47

What is the current yield on a corporate bond trading at 103 with a 7% coupon?

[A] 6.3%
[B] 6.5%
[C] 6.8%
[D] 7.0%

Answer 47

[C] 6.8%

70/103=6.79

Question 48

Which of the following is NOT true of the Securities Exchange Act of 1934?

[A] It provided for regulation of credit in the securities industry.
[B] It addressed regulation of exchanges.
[C] It created the Securities and Exchange Commission (SEC).
[D] It provided for the regulation of the new issues market.

Answer 48

[D] It provided for the regulation of the new issues market.

Question 49

Under the FINRA rules, among the factors that should be considered when determining whether a broker-dealer has used “reasonable diligence” in finding the best market and execution for a customer’s order are all of the following EXCEPT:

[A] The size and type of the order
[B] Whether order execution is manual or automated
[C] The number of markets checked
[D] The accessibility to price quotations

Answer 49

[B] Whether order execution is manual or automated

The FINRA rule on Best Execution (Rule 5310) requires member firms “ to use reasonable diligence in finding the best market and execution for customer orders.” The rule lists five factors that should be considered in determining whether “reasonable diligence” has been made including choices A, C and D., as well as the character of the market for the security and the terms and conditions of the order. The rule assumes that the order execution will be automated and makes no allowance for manual orders.

Question 50

Information pertaining to the suitability of various investments and investment strategies is required by an RR at what point in time?

[A] Before beginning a telemarketing campaign
[B] Within 10 calendar days of the account opening
[C] After providing the prospect with sales literature
[D] At the time the prospective client becomes a customer

Answer 50

[D] At the time the prospective client becomes a customer

Question 51

A regular-way settlement on US Government Treasury Bonds purchased in the secondary market is

[A] same day as trade day.
[B] trade day plus one business day.
[C] trade day plus two business days.
[D] trade day plus three business days.

Answer 51

[B] trade day plus one business day.

Question 52

FINRA rules on discretionary accounts require which of the following?

[A] A record of the customer agreeing to arbitrate all disputes between the customer and the member firm
[B] An attestation that the customer will abide by FINRA rules
[C] A record indicating the date that the written discretionary authority was granted by the customer
[D] Evidence that the customer has read and understood the SIPC coverage limits

Answer 52

[C] A record indicating the date that the written discretionary authority was granted by the customer

Question 53

When an RR is opening an account for a new mutual fund customer which of the following is NOT necessary?

[A] Estate value and overall net worth
[B] Social security number
[C] Whether the customer is employed by another FINRA member firm
[D] The name and address of the customer’s employer

Answer 53

[A] Estate value and overall net worth

Question 54

The shares of a growth fund fluctuate in value based on the

[A] changing values of the securities in the portfolio.
[B] Dow Jones Industrial Average.
[C] market as a whole.
[D] current interest rates.

Answer 54

[A] changing values of the securities in the portfolio.

Question 55

A registered representative offers to share in all of the gains and losses in a customer’s account in order to give her confidence in his recommendations. Under the FINRA rules, the RR

[A] is forbidden from such sharing under all circumstances
[B] is permitted only if the RR has had a prior financial relationship with the customer
[C] must obtain prior approval from FINRA
[D] must obtain the prior written approval of his firm

Answer 55

[D] must obtain the prior written approval of his firm

Question 56

Which of the following activities by an RR requires registration as an Investment Adviser Representative?

[A] Advising a customer about various financial planning tools
[B] Advising a customer about tax and insurance matters
[C] Printing “Certified Financial Planner (CFP)” on the RR’s business cards
[D] Recommending a stock to a customer based on an asset allocation model

Answer 56

[D] Recommending a stock to a customer based on an asset allocation model

An Investment Adviser Representative (IAR) is a state registration category. The Uniform Securities Act, a model state securities statute, requires registration as an IAR if the agent of the IA firm makes recommendations about any securities.

Question 57

Economic analysts have found that over the past six months, there has been an overall decline in the following: - GDP (Gross Domestic Product) - Equity Prices - Employment Statistics - Business Activity Which of the following terms is most often used to describe this scenario?

[A] This would be labelled an economic recession.
[B] This would be labelled an economic depression.
[C] This would be labelled a period of high inflation.
[D] This would be lablelled a period of high deflation.

Answer 57

[A] This would be labelled an economic recession.

Question 58

Reg T settlement of common stock is trade date plus

[A] 2 calendar days.
[B] 2 business days.
[C] 4 business days.
[D] 4 calendar days.

Answer 58

[C] 4 business days.

Question 59

Retail Communications identified as advertising and/or sales literature must be approved by which of the following before it can be distributed?

[A] One of the firm’s sales supervisors
[B] A registered representative with at least 3 years of sales experience
[C] The firm’s chief compliance officer
[D] A registered principal

Answer 59

[D] A registered principal

Question 60

A corporation has a pre-emptive rights clause which requires that rights be offered to existing shareholders prior to the issuance of new shares. This corporation decides to issue new securities and a rights offering takes place. Once existing shareholders have these rights in hand, which of the following is something that they are NOT permitted to do with them?

[A] Holders of rights are permitted to gift the rights to another investor.
[B] Holders of rights are permitted to bring the rights back to the issuing corporation and redeem the rights for cash.
[C] Holders of rights are permitted to sell the rights in the secondary market.
[D] Holders of rights are permitted to exercise their rights and purchase shares of the new issue.

Answer 60

[B] Holders of rights are permitted to bring the rights back to the issuing corporation and redeem the rights for cash.

Question 61

ABC Company declared a fifty cent ($0.50) per share dividend on August 15th to shareholders of record Friday, September 15th. On which two of the following days can an ABC Company stockholder sell his shares and still receive his fifty cent ($0.50) per share dividend?

I. Monday, September 11th for regular way settlement.
II. Thursday, September 14th for regular way settlement.
III. Friday, September 15th for cash settlement.
IV. Monday, September 18th for cash settlement.

[A] I and III
[B] II and IV
[C] I and IV
[D] II and III

Answer 61

[B] II and IV

Ex-date for regular way settlement is 1 business day prior to record date - or II Sept 14th.

Ex-date for cash settlement is the business day after records - or IV Sept 18th.

Question 62

When considering a possible investment in a Roth IRA, which of the following would NOT be an advantage?

[A] Until the funds are withdrawn during retirement, all contributions and earnings are tax-deferred.
[B] Contributions to the account can continue to be made after the account owner reaches age 72.
[C] Qualified distributions of principal and earnings are tax-free when they are withdrawn.
[D] If individuals are actively enrolled in an employer’s retirement plan, this fact alone does not place restriction on the eligibility of the individual to contribute to a Roth IRA.

Answer 62

[A] Until the funds are withdrawn during retirement, all contributions and earnings are tax-deferred.

Question 63

Which of the following regulations govern distributions of new issues?

[A] Securities Act of 1933
[B] Securities Act of 1934
[C] Maloney Act of 1938
[D] Trust Indenture Act of 1939

Answer 63

[A] Securities Act of 1933

Question 64

U.S. Treasury securities regular way settlement is:

[A] same day as trade date
[B] the next business day after trade date
[C] five business days after trade date
[D] seven business days after trade date

Answer 64

[B] the next business day after trade date

Question 65

An Over-The-Counter (OTC) security is

[A] any security that is available for purchase without a recommendation from an agent or investment adviser representative.
[B] a security that is traded on the floor of an exchange, typically available from a designated market maker functioning in a broker capacity.
[C] a security that is traded off of the floor of an exchange, typically available from a market maker functioning in a dealer capacity.
[D] any security that is being sold to the public for the first time in an initial public offering (IPO).

Answer 65

[C] a security that is traded off of the floor of an exchange, typically available from a market maker functioning in a dealer capacity.

Question 66

An RR who is also involved in outside business activities which have been approved by their firm is sued for fraud with regard to the outside business activity. Which of the following actions should be taken by the branch manager of the RR’s firm?

[A] No action is required since this involves an outside business activity.
[B] This situation must reported to the firm by the branch manager.
[C] This situation must reported by the branch manager if the lawsuit involves a claim for damages in the amount of $10,000 or more.
[D] Await a subpoena from the party filing the lawsuit.

Answer 66

[B] This situation must reported to the firm by the branch manager.

Question 67

On Tuesday, February 11th, one of your clients calls in and is curious about a stock that they purchased the previous business day of Monday, February 10th. The stock was purchased regular way and the client wants to know when the transaction will settle. What is the anticipated settlement date for this trade?

[A] The stock will settle T+4, so settlement should be expected no later than Friday, February 14th.
[B] The stock will settle T+2, so settlement should be expected no later than Wednesday, February 12th.
[C] The stock will settle T+1, so settlement should take place no later than the end of the business day on which the client called, Tuesday, February 11th.
[D] The stock should have settled same day, on Monday, February 10th.

Answer 67

[B] The stock will settle T+2, so settlement should be expected no later than Wednesday, February 12th.

Question 68

Zoltan Zippers Co. has 5,000,000 shares outstanding. It completes a 3/1 stock split and then declares a 10% stock dividend. How many shares will be outstanding after the stock dividend is completed?

[A] 15,000,000
[B] 13,500,000
[C] 16,500,000
[D] 11,500,000

Answer 68

[C] 16,500,000

Question 69

When converting accumulation units to annuity units when annuitizing a variable annuity contract, all of the following would be considered EXCEPT the

[A] annuitant’s age
[B] annuitant’s gender
[C] assumed interest rate
[D] beneficiary’s choice of payout options

Answer 69

[D] beneficiary’s choice of payout options

The choice of payout options is made by the annuitant, not the beneficiary. The annuitant’s age and gender are important in calculating the number of years in the annuitant’s life expectancy. The assumed interest rate is important in estimating the rate of return that the insurance company can expect to earn during the life expectancy of the annuitant.

Question 70

Mutual funds must send financial reports to their shareholders at least

[A] with each trade confirmation which contains a link to the reports
[B] Upon request by the customer
[C] Semi-annually
[D] Annually

Answer 70

[C] Semi-annually

Question 71

Which of the following options strategies would be considered “bullish”?

[A] Selling uncovered put options
[B] Selling uncovered call options
[C] Buying put options
[D] Selling covered call options

Answer 71

[A] Selling uncovered put options

Question 72

Common stockholders can take which of the following actions with regard to the corporation’s business activities?

[A] Vote on a stock split
[B] Inspect the minutes from a Board of Directors meeting
[C] Vote on a cash dividend
[D] Approve expansion plans into another market

Answer 72

[A] Vote on a stock split

Question 73

Which of the following BEST describes a call feature?

[A] This is a feature of a bond that allows the bond to be converted to common stock at the option of the issuer.
[B] A feature that allows the issuer of a bond to redeem the bond ahead of the final maturity date, typically including a premium above face value of the bond and most commonly used when interest rates have decreased.
[C] This is a feature of a bond that allows the bond’s coupon rate to be adjusted upward or downward in relation to interest rates in the current market.
[D] A feature that forces the issuer to redeem a bond ahead of schedule at the option of the bondholder.

Answer 73

[B] A feature that allows the issuer of a bond to redeem the bond ahead of the final maturity date, typically including a premium above face value of the bond and most commonly used when interest rates have decreased.

Question 74

When a division or subsidiary of a corporation becomes an independent company as part of a divestiture, it’s called a(n):

[A] recapitalization
[B] spin-off
[C] acquisition
[D] leverage buyout

Answer 74

[B] spin-off

Question 75

All of the following are requirements for a cash account for the purchase of listed options EXCEPT:

[A] A new account report form.
[B] An option account agreement.
[C] A hypothecation agreement.
[D] The authorization of a Registered Option Principal.

Answer 75

[C] A hypothecation agreement.

Question 76

All of the following are considered to be benefits of investing in a municipal bond unit investment trust EXCEPT:

[A] diversification
[B] tax free interest income
[C] redeemable units
[D] active investment management

Answer 76

[D] active investment management

A municipal bond unit investment trust is not managed. It is supervised. As bonds in the portfolio mature, the proceeds are paid out to investors. They are not reinvested. Therefore, no buy-sell-hold decisions are needed to be made by an investment manager. Eventually, all the bonds mature or are sold and the proceeds are distributed to investors. The UIT is then terminated.

Question 77

A client is reviewing sales literature on investing in a variable annuity given to her by her investment adviser rep. He states that some of the benefits include tax-deferred earnings, guaranteed minimum death benefit, guaranteed cash value and professional management of funds. Has the IAR made any misleading statements?

[A] There are no guaranteed cash values.
[B] There are no minimum death benefits offered in a variable annuity.
[C] The funds that investors select are not professionally managed.
[D] It is inaccurate to state that earnings are tax deferred because they are subject to a 1% tax assessment each year.

Answer 77

[A] There are no guaranteed cash values.

Question 78

All of the following would be considered “sales literature” under FINRA rules EXCEPT

[A] brochures made available at the branch office reception area.
[B] a research report sent to customers regarding investing in certain industries.
[C] reprints of materials that were prepared independently.
[D] an email sent to 10 retail investors in the past 30 days about the member firm’s retirement account products.

Answer 78

[D] an email sent to 10 retail investors in the past 30 days about the member firm’s retirement account products.

Question 79

If a broker-dealer becomes bankrupt, the trustee appointed by SIPC will

[A] secure temporary financing for the broker-dealer with the Federal Reserve.
[B] freeze the assets of the broker-dealer and recover damages in bankruptcy court.
[C] liquidate the assets of the broker-dealer in an orderly fashion and notify customers on how they can file their claims.
[D] hire an investment banker to seek a suitable merger partner with the failing broker-dealer.

Answer 79

[C] liquidate the assets of the broker-dealer in an orderly fashion and notify customers on how they can file their claims.

Question 80

Corporation X announces an offering of subscription rights. Which of the following statements is NOT true?

[A] New common stock can be purchased by a rights holder below the offering price.
[B] New common stock can be purchased by a rights holder before the public is able to buy.
[C] Existing shareholders will receive rights offerings as a privilege.
[D] The holder of a right can purchase the stock for two or more years.

Answer 80

[D] The holder of a right can purchase the stock for two or more years.

Question 81

The main purpose of the Securities Exchange Act of 1934 is to regulate

[A] the sale of new issues, prospectuses, and disclosures
[B] the distribution and sale of investment companies
[C] the issuance of Treasury securities to the public
[D] broker-dealers and markets on which securities trade

Answer 81

[D] broker-dealers and markets on which securities trade

Question 82

The terms “bid” and “ask” are used to indicate

[A] last sale information
[B] initial public offering price
[C] quotations on securities in the secondary market
[D] the range within which securities are trading for that day

Answer 82

[C] quotations on securities in the secondary market

Quotations will typically contain the bid price and ask price for a security trading in the secondary market. Last sale information applies to the price at which the last trade took place. During an initial public offering, there is a fixed offering price for primary shares. Bid and ask do not apply to the range of trading for a day.

Question 83

A customer sells 1 WL September 100 call for 10 and buys 100 shares of WL stock at 105.

If the customer is assigned an exercise notice when the price of the stock is 110, the profit or loss per share would be?

[A] $5 loss
[B] $5 profit
[C] $10 loss
[D] $10 profit

Answer 83

[B] $5 profit

Question 84

A customer holds a corporate bond with a coupon rate of 5.75%. This bond will pay how much interest on an annual basis?

[A] $5.75
[B] $57.50
[C] $575.00
[D] Annual coupon payments will depend on the market price at which the bond was purchased

Answer 84

[B] $57.50

Question 85

Open-end investment companies do not list on national exchanges because they

[A] qualify for listing on the OTC market only
[B] are continuously being offered as new issues by the fund
[C] require 100% shareholder approval
[D] are wholly owned and traded by the underwriter

Answer 85

[B] are continuously being offered as new issues by the fund