Kaplan Checkpoint Exams Flashcards
A customer asks for your advice regarding a deferred compensation plan at work. You should state that
Deferred compensation plans may be somewhat risky because the employee covered by the plan becomes a general creditor if the business fails
One concern that FINRA has with fee based accounts is that they might lead to
Reverse churning
Under ERISA, all of the following retirement plans must set standards for vesting, eligibility and funding except
Deferred compensation plans
One of the major concerns of the regulatory bodies is the growing problem of senior exploitation. To combat this issue, at the time of an account opening, whether margin or cash, a member firm must disclose in writing that the member or an associated person is
Authorized to contact the trusted contact person provided on the new account form by the customer and to disclose information about the customer’s account in addressing possible exploitation
Greater Growth Capital (GGC), a FINRA member firm, has just acquired by Better Retirement Outcomes (BRO), a much larger FINRA member. If GGC would like to effect a bulk transfer of its customer accounts using a negative consent procedure, FINRA rules
Prohibit GGC from charging a fee to any existing GGC customers who decide to transfer their accounts to a different firm
Certain investments are available only to those who meet the SEC’s definition of an accredited investor. Which of the following qualify?
An individual with net worth in excess of $1 million, exclusive of the equity in a primary residence
There are certain securities offerings that are limited to those who meet the definition of accredited investor. The SEC requires that the issuer shall take reasonable steps to verify that purchasers of securities sold in those offerings are accredited investors. One way in which this may be accomplished for natural persons is obtaining a written confirmation from certain persons or entities that such person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months and has determined that such purchaser is an accredited investor. Confirmation of which of the following would not meet the SEC’s requirements?
An investment adviser registered and in good standing under the laws of the state of its principal office
KAPCO Manufacturing Corporation declares a 5 for 1 stock split on its outstanding shares of $20 par value common stock. This split will cause
The par value of the shares to change to $4 per share
A corporation is having a rights offering. The terms of the offering equine six rights plus $60 to purchase one share. With the stock’s current market price at $74 per share, the theoretical value of one right before the ex rights date is
$2.00
For tax reporting purposes, qualified dividends are considered to be what type of income?
Portfolio
XYZ Widgets is a publicly traded corporation, Upon the death of one of the founders of the company, a donation of 100,000 shares of XYZ stock is made by the executor of the deceased’s estate. This would now be considered
Treasury stock
Which of the following is not a right conferred upon ownership of common stock?
Limited liability
Which of the following would be considered an equity security?
Preemptive rights
In general, commercial paper, a popular money market instrument, has a maturity not exceeding
270 days
When a corporation issues a debt security, the terms of the loan are expressed in a document known as the bond’s deed of trust. The deed of trust is sometimes referred to as
The indenture
Which of the following is an example of sovereign debt?
US treasury bonds
It would be most unusual to see which of the following issued at a discount?
Jumbo CD
Moody’s Investment Grade (MIG) ratings are applied to
Municipal notes
Which of the following debt securities would be most likely to offer a conversion feature into common stock
A debenture
The GHI Transportation Company has run into decreased sales and is forced into bankruptcy liquidation. Which of the following would have the most junior claim?
Holders of GHI commercial paper
ABC Company has issued $20,000,000 of convertible bonds with a coupon of 5% and a current market value of 120. The conversion price is $40. If all the bonds are converted, how many additional shares of common stock will ABC have outstanding?
500,000
Which of the following municipal bonds may be paid by a state’s legislative apportionment of funds to service the debt?
Moral obligation
The interest on which of the following municipal securities may be considered preference income for alternative minimum tax purposes?
Private purpose bonds
All of the following terms are associated with general obligation (GO) bonds except
Protective covenants
Who has the final responsibility for debt service on an industrial revenue bond?
The corporation leading the facility
A legal opinion issued for a municipal bond covers which of the following?2
Tax status of the municipal debt
Constitutionality and legality of the municipal debt
Which of the following statements regarding revenue bonds issued by a state or municipality is true?
Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve
Voter approval may be required for new bond issues for construction of which of the following?
State prisons
Public high schools
An investor receiving a quote of 102 for a municipal security is probably interested in
A term bond
Your customer, a small business owner, likes investments that are short term, relatively safe from credit risk and liquid. He’s heard that higher rates of return can be realized from auction rate securities than the rates he is currently getting on the Treasury bills in his portfolio. He asks you to explain them to him. Which of the following would you note as being reasons why they are not suitable for him?2
Auction rate securities are intended as long term investments
If the auction fails, holders of ARSs may not have immediate access to their funds
Which of the following types of municipal bonds is subject to statutory debt limits?
General obligation (GO) bonds
When creating a diversified municipal bond portfolio, all of the following should be considered except
The denomination of the bonds included in the portfolio
One respect in which TIPS bonds differ from all other US Treasury securities issued at par is that they
Subject the investor to phantom income
Your client lives in a state with personal income tax. To minimize that tax liability, it would probably be best for this client to purchase
US Treasury bonds
An investor has unexpectedly received $30,000 from an old debt he had written off. This money will come in handy for a business venture planned for three years from now. Meanwhile, he would like to generate some income on the money with as little risk and as little expense as possible. Which of the following recommendations is likely to be the most suitable for this customer?
Class C shares of the ABC Investment Grade Bond Fund
The performance of the XYZ Growth Fund has been in the top 1% of all funds in its category for the past 1-, 5-, and 10-year periods. Which of the following would be the biggest risk factor to an investor investing in this fund?
The manager’s tenure is 6 months
FINRA Rule 2330, which deals with members’ responsibilities regarding variable annuities applies under which of the following circumstances?2
The initial purchase of a deferred variable annuity
The initial sub account allocations
One of your customers purchased a fixed premium variable life insurance policy five years ago. The face value of the policy is $2 million and the current cash value is $107,237. The customer calls you and asks about taking a policy loan. Although the exact details are in the prospectus, you know that the minimum amount that could be borrowed is
$80,427.75 (75% of cash value)
Which of the following must be registered as investment companies under the Investment Company Act of 1940?2
Closed end investment companies
Separate accounts of insurance companies offering variable products
A technology fund manager concerned about a downturn in the value of his portfolio would hedge by
Buying narrow based index puts
If an investor establishes a call spread, and buys the lower exercise price and sells the higher exercise price at a net debit, he anticipates that
The spread will widen
Your client’s position is long 100 MNO purchased at 90. Which of the following strategies will limit the customer’s loss to $700?
Long one MNO 90 call at 4, long one MNO 90 put at 3
Which of the following would establish a covered put?
Short stock at 40, short put at 35
An investor purchases 100 shares of JKL common stock at a price of $42 per share on April 22, 2018. On June 27, 2019, JKL’s market price is $51 and the investor liquidates the position. Which of the following transactions made on October 17, 2018, would have an effect on the investor’s tax treatment of this gain?
Buying a Feb 45 JKL put
In the trading of options, there are a number of different multiple option strategies. An investor has the following position:
Buy one RIF Apr 120 call
Buy one RIF Jul 130 put
Which strategy is the investor using?
Long combination
An investor buys two ABC Nov 50 calls, three ABC Dec 45 calls and one ABC Jan 50 call. The best way to describe the portfolio is that it consists of
Six options of the same class
A customer establishes the following positions:
Buy 100 ABC at 28
Buy 1 ABC Dec 25 put at 2
What is the break even point?
30
Your customer is interested in buying call options on CDL common stock. The client asks you, “Who issues CDL options?”
The proper response is
The Options Clearing Corporation.
When opening an options trading account, a broker dealer is required by FINRA to
Make sure the options agreement is signed and returned to the firm within 15 days of the account being approved
In a volatile market, which of the following options strategies carries the most risk?
Short straddle
All of the following option contracts are in the money when XYZ is 54 except
Short XYZ 50 put
The certificate of limited partnership contains which of the following?2
The amount of time the partnership expects to exist
All conditions of dissolution
An investor in an oil and gas limited partnership program is subject to the economic consequences of all the following except
Non recourse loans
An investor acquires limited partner status in a direct participation program when
He and the general partner have both signed the subscription agreement
Which of the following statements regarding limited partnerships are true?2
The maximum commission in selling partnership offerings is 10%
Commissions taken are not deducted from the original investment to determine beginning cost basis
There are many different types of asset backed securities, but the common theme uniting all of them is
They are supported by a contractual obligation to pay
Compared to US government agency backed CMOS, CDOs have
Less prepayment risk
Which of the following mortgage backed securities would provide investors with the most predictable maturity date?
PACs
A client interested in the returns offered by CMOS asks you which type has the lowest prepayment risk. What should you say?
PACs
The Bond Buyer compiles several indexes of municipal bonds. Which of the following is limited to bonds with the highest ratings?
The 11 Bond Index
An investor is long 500 shares of DEFG common stock, short 200 shares of DEFG common stock, and short 300 shares of DEFG 5% preferred stock. A tender offer for DEFG common shares is announced. Under SEC rules, this investor is permitted to tender
300 shares
Under SEC rules, which of the following events requires a broker dealer to furnish an updated account statement to a customer?
Change of the customer’s name or address
Under SEC Rule 10b-10, customer confirmations must be sent at or before
Completion of a transaction
Which of the following events requires a member firm to provide a client with a specific FINRA-designed educational communication?
The firm directly or through a registered representative, individually contacts a former customer of the registered representative to transfer assets to the firm.
A member firm’s client has issued instructions for the assets held in an account at another member to be transferred to this account. The member firm has received the proper ACATS validation from the carrying firm. Therefore it is expected that the transfer will be completed within
Two additional business days
A customer has the following accounts:
Market value: long account $35,000, short account $40,000
Balance: long account (DR) $23,000; short account (CR) $60,000
SMA: long account $3,000
Regulation T: 50%
What is the combined minimum maintenance requirement for the long and short margin positions?
$20,750
On the order book, all of the following orders are reduced on the ex date for a cash dividend except
Buy stop
When the inside market (best bid and best offer) for XYZ stock was 17.30-17.60, a market maker bought 100 shares from a customer at 16.90. At the time of the trade, the market maker’s market was 17.25-17.70. What was the amount of the markdown?
$0.40 ($17.30-$16.90)
A customer opens a new margin account, and the first trade is the short sale of 100 shares of ABC, at a price of $18 per share. What is the required margin deposit?
$2,000
All of the following statements regarding the short sale of a listed security are true except
The buyer must be advised that he is purchasing borrowed shares
To meet a Fed call, a customer must deposit which of the following?2
100% of the call in cash
200% of the call in marginable securities
If a contract calls for a delivery between member broker dealers of 500 shares of stock, all of the following certificate combinations would be a good delivery conforming with the FINRA Uniform Practice Code except
10 certificates for 30 shares each and 4 certificates for 50 shares each
Maintaining a fair and orderly market in the NYSE trading floor is the responsibility of
The designated market maker
An arbitration case dealing with a dispute between a customer and a member firm in the amount of $72,000 will be heard by
One arbitrator, unless both parties agree to three
FINRA Rule 4530 states that each member shall promptly report to FINRA, but in any event not later than 30 calendar days after the member knows or should have known of the existence of any of the following, otherwise than when the member or associated person of the member
Is the subject of an adjudication of bankruptcy by any domestic, military, or foreign court
Arbitration and mediation are two services provided by FINRA to settle disputes between members. Regarding these services, which of the following statements are not true?2
Mediation is mandatory; arbitration is not
If arbitration is unsuccessful, the dispute moves on to mediation
A registered representative of a FINRA member firm has been found guilty of a trade practice violation. If desired, the Code of Procedure requires the individual to file an appeal within
25 days after receiving the decision
For each violation of FINRA or MSRB rules, FINRA may impose which of the following sanctions?3
Fines
Censure
Expulsion
Which of the following is sued to report a bankruptcy filing of a registered representative of a FINRA member firm?
DRP
If a prospectus for a variable life insurance product contains hypothetical projections of returns
The maximum return permitted is 12%, and there must be an illustration showing a 0% return as well
A generic ad for an investment company placed by a broker dealer would contain
The name of the broker dealer, but not the name of the investment company
A FINRA member firm send a promotional piece to 23 individuals over a three day period. Ten of these individuals are current customers of the firm. The other 13 are prospects whose names came from a commercially available mailing list service. Under the FINRA rule on communications with the public, this promotional piece would be considered
Correspondence
Under the rules on communication with the public, EV ire of which of the following by a principal may take place either before or after distribution?
Correspondence to 25 or fewer retail investors within any 30 calendar day period
A municipal bond underwriter looking in the Bond Buyer would recognize the percentage of new issues sold versus new issues offered for sale the prior week as
The acceptance or placement ratio
A Western account underwriting of $100 million in municipal bonds is established. A member firm agrees to underwrite 10% of the issue and sells out it’s entire allotment of $10 million. However, some of the other firms participating in the underwriting are unable to sell their full allocation, and $15 million of the bonds remain unsold. What is the financial obligation of the underwriting firm who sold their entire allotment?
$0 (because western not eastern)
If the State of Texas has solicited bids for a proposed municipal bond offering, the underwriters for that offering would be the syndicate that would
Sell the issue at the lowest net interest cost to the State of Texas
A member of the board of directors of the Able Baker Charlie Company (ABCC) took her director’s fees and purchased 200 shares of ABCC on the Nasdaq Stock Market at $20 per share. If she wished to sell these shares, compliance with Rule 144 would entail
Meeting neither the size limit nor the time limit
Your firm is bidding on a new general obligation bond issue. As the issuer weighs and evaluated the competitive bids, what factor will be most important in deciding who will be awarded the winning bid?
Net interest cost
Each of the following trades occurs in the secondary market except
A corporate bond syndicate selling née issues to the public
Which of the following is contained in an official notice of sale?
Amount of good faith deposit required with the bid
Which of the following is associated with a process whereby a municipal issuer first appoints and then works with the underwriters who will be establishing the interest rate and offering price for a new municipal bond issue?
Negotiated underwriting
The Jefferson County Water Works revenue bond is being underwritten by a syndicate led by ABC Securities, INC. The bond has serial maturities going out up to 25 years with a ballon at 30. The coupons range from 3.2% to 4.1%, and the bonds are offered at par. The terms of the syndicate call for a total takedown of 3/4 of a point with a selling concession of 1/2 point. A syndicate member who sells 500 of the bonds will earn
$3,750 (500 bonds x .75%)
If your client wished to purchase a preferred stock that would offer him the highest likelihood of assured income, plus the opportunity to take part in the growth of the company’s common stock, which of these features might he consider?2
Convertible
Cumulative
Which of the following is an issuer of federal agency securities?
The Tennessee Valley Authority
Investors who are subject to AMT must have which of the following preference items added to adjusted gross income to calculate their tax liability?
Interest on a private purpose municipal bond
A customer has invested a total of $10,000 in a non qualified deferred annuity through a payroll deduction plan offered by the school system where she works. The annuity contract is currently valued at $16,000 and she plans to retire. On what amount will the customer be taxed if she chooses a lump sum withdrawal?
$6,000
All of the following option strategies could be effectively used in a bear market except
A short straddle
Each of the following is a defined contribution plan except
A stock option plan
Trade confirmations must show yield to call on which of the following bonds?
5 1/2%, 5% basis, maturing 2038
All of the following would be reasons for an employee to choose a non qualified plan over a qualified plan except?
The non qualified plan provides an immediate income tax deduction for the employer
A quote of 2.20 bid 2.18 ask would most likely be a quote on
A T bill
Interest received from which of the following federal agency securities is exempt from all state and local taxation?
Farm Credit System bonds
If an investor purchased a municipal bond in the secondary market, which of the following would not be a factor in calculating the total dollar amount paid for the bond?
The scale
A customer just opened a new account at your firm and gave her lawyer limited power of attorney (POA). Which of the following statements is true?
The POA ceases upon the death of either party
Which of the following statements about warrants is not true?
Warrants may not be traded in the secondary market
Fee-based accounts would tend to be most suitable for investors who follow
An active approach to investing
