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Series 7 > Kaplan Checkpoint Exams > Flashcards

Kaplan Checkpoint Exams Flashcards

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Series 7 Top-off Exam flashcards
1
Q

A customer asks for your advice regarding a deferred compensation plan at work. You should state that

A

Deferred compensation plans may be somewhat risky because the employee covered by the plan becomes a general creditor if the business fails

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2
Q

One concern that FINRA has with fee based accounts is that they might lead to

A

Reverse churning

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3
Q

Under ERISA, all of the following retirement plans must set standards for vesting, eligibility and funding except

A

Deferred compensation plans

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4
Q

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

A

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

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5
Q

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

A

Prohibit GGC from charging a fee to any existing GGC customers who decide to transfer their accounts to a different firm

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6
Q

Certain investments are available only to those who meet the SEC’s definition of an accredited investor. Which of the following qualify?

A

An individual with net worth in excess of $1 million, exclusive of the equity in a primary residence

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7
Q

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?

A

An investment adviser registered and in good standing under the laws of the state of its principal office

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8
Q

KAPCO Manufacturing Corporation declares a 5 for 1 stock split on its outstanding shares of $20 par value common stock. This split will cause

A

The par value of the shares to change to $4 per share

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9
Q

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

A

$2.00

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10
Q

For tax reporting purposes, qualified dividends are considered to be what type of income?

A

Portfolio

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11
Q

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

A

Treasury stock

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12
Q

Which of the following is not a right conferred upon ownership of common stock?

A

Limited liability

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13
Q

Which of the following would be considered an equity security?

A

Preemptive rights

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14
Q

In general, commercial paper, a popular money market instrument, has a maturity not exceeding

A

270 days

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15
Q

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

A

The indenture

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16
Q

Which of the following is an example of sovereign debt?

A

US treasury bonds

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17
Q

It would be most unusual to see which of the following issued at a discount?

A

Jumbo CD

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18
Q

Moody’s Investment Grade (MIG) ratings are applied to

A

Municipal notes

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19
Q

Which of the following debt securities would be most likely to offer a conversion feature into common stock

A

A debenture

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20
Q

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?

A

Holders of GHI commercial paper

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21
Q

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?

A

500,000

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22
Q

Which of the following municipal bonds may be paid by a state’s legislative apportionment of funds to service the debt?

A

Moral obligation

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23
Q

The interest on which of the following municipal securities may be considered preference income for alternative minimum tax purposes?

A

Private purpose bonds

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24
Q

All of the following terms are associated with general obligation (GO) bonds except

A

Protective covenants

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25
Q

Who has the final responsibility for debt service on an industrial revenue bond?

A

The corporation leading the facility

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26
Q

A legal opinion issued for a municipal bond covers which of the following?2

A

Tax status of the municipal debt

Constitutionality and legality of the municipal debt

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27
Q

Which of the following statements regarding revenue bonds issued by a state or municipality is true?

A

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

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28
Q

Voter approval may be required for new bond issues for construction of which of the following?

A

State prisons

Public high schools

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29
Q

An investor receiving a quote of 102 for a municipal security is probably interested in

A

A term bond

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30
Q

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

A

Auction rate securities are intended as long term investments

If the auction fails, holders of ARSs may not have immediate access to their funds

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31
Q

Which of the following types of municipal bonds is subject to statutory debt limits?

A

General obligation (GO) bonds

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32
Q

When creating a diversified municipal bond portfolio, all of the following should be considered except

A

The denomination of the bonds included in the portfolio

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33
Q

One respect in which TIPS bonds differ from all other US Treasury securities issued at par is that they

A

Subject the investor to phantom income

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34
Q

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

A

US Treasury bonds

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35
Q

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?

A

Class C shares of the ABC Investment Grade Bond Fund

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36
Q

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?

A

The manager’s tenure is 6 months

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37
Q

FINRA Rule 2330, which deals with members’ responsibilities regarding variable annuities applies under which of the following circumstances?2

A

The initial purchase of a deferred variable annuity

The initial sub account allocations

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38
Q

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

A

$80,427.75 (75% of cash value)

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39
Q

Which of the following must be registered as investment companies under the Investment Company Act of 1940?2

A

Closed end investment companies

Separate accounts of insurance companies offering variable products

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40
Q

A technology fund manager concerned about a downturn in the value of his portfolio would hedge by

A

Buying narrow based index puts

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41
Q

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

A

The spread will widen

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42
Q

Your client’s position is long 100 MNO purchased at 90. Which of the following strategies will limit the customer’s loss to $700?

A

Long one MNO 90 call at 4, long one MNO 90 put at 3

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43
Q

Which of the following would establish a covered put?

A

Short stock at 40, short put at 35

44
Q

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?

A

Buying a Feb 45 JKL put

45
Q

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?

A

Long combination

46
Q

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

A

Six options of the same class

47
Q

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?

A

30

48
Q

Your customer is interested in buying call options on CDL common stock. The client asks you, “Who issues CDL options?”
The proper response is

A

The Options Clearing Corporation.

49
Q

When opening an options trading account, a broker dealer is required by FINRA to

A

Make sure the options agreement is signed and returned to the firm within 15 days of the account being approved

50
Q

In a volatile market, which of the following options strategies carries the most risk?

A

Short straddle

51
Q

All of the following option contracts are in the money when XYZ is 54 except

A

Short XYZ 50 put

52
Q

The certificate of limited partnership contains which of the following?2

A

The amount of time the partnership expects to exist

All conditions of dissolution

53
Q

An investor in an oil and gas limited partnership program is subject to the economic consequences of all the following except

A

Non recourse loans

54
Q

An investor acquires limited partner status in a direct participation program when

A

He and the general partner have both signed the subscription agreement

55
Q

Which of the following statements regarding limited partnerships are true?2

A

The maximum commission in selling partnership offerings is 10%

Commissions taken are not deducted from the original investment to determine beginning cost basis

56
Q

There are many different types of asset backed securities, but the common theme uniting all of them is

A

They are supported by a contractual obligation to pay

57
Q

Compared to US government agency backed CMOS, CDOs have

A

Less prepayment risk

58
Q

Which of the following mortgage backed securities would provide investors with the most predictable maturity date?

A

PACs

59
Q

A client interested in the returns offered by CMOS asks you which type has the lowest prepayment risk. What should you say?

A

PACs

60
Q

The Bond Buyer compiles several indexes of municipal bonds. Which of the following is limited to bonds with the highest ratings?

A

The 11 Bond Index

61
Q

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

A

300 shares

62
Q

Under SEC rules, which of the following events requires a broker dealer to furnish an updated account statement to a customer?

A

Change of the customer’s name or address

63
Q

Under SEC Rule 10b-10, customer confirmations must be sent at or before

A

Completion of a transaction

64
Q

Which of the following events requires a member firm to provide a client with a specific FINRA-designed educational communication?

A

The firm directly or through a registered representative, individually contacts a former customer of the registered representative to transfer assets to the firm.

65
Q

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

A

Two additional business days

66
Q

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?

A

$20,750

67
Q

On the order book, all of the following orders are reduced on the ex date for a cash dividend except

A

Buy stop

68
Q

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?

A

$0.40 ($17.30-$16.90)

69
Q

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?

A

$2,000

70
Q

All of the following statements regarding the short sale of a listed security are true except

A

The buyer must be advised that he is purchasing borrowed shares

71
Q

To meet a Fed call, a customer must deposit which of the following?2

A

100% of the call in cash

200% of the call in marginable securities

72
Q

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

A

10 certificates for 30 shares each and 4 certificates for 50 shares each

73
Q

Maintaining a fair and orderly market in the NYSE trading floor is the responsibility of

A

The designated market maker

74
Q

An arbitration case dealing with a dispute between a customer and a member firm in the amount of $72,000 will be heard by

A

One arbitrator, unless both parties agree to three

75
Q

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

A

Is the subject of an adjudication of bankruptcy by any domestic, military, or foreign court

76
Q

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

A

Mediation is mandatory; arbitration is not

If arbitration is unsuccessful, the dispute moves on to mediation

77
Q

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

A

25 days after receiving the decision

78
Q

For each violation of FINRA or MSRB rules, FINRA may impose which of the following sanctions?3

A

Fines
Censure
Expulsion

79
Q

Which of the following is sued to report a bankruptcy filing of a registered representative of a FINRA member firm?

A

DRP

80
Q

If a prospectus for a variable life insurance product contains hypothetical projections of returns

A

The maximum return permitted is 12%, and there must be an illustration showing a 0% return as well

81
Q

A generic ad for an investment company placed by a broker dealer would contain

A

The name of the broker dealer, but not the name of the investment company

82
Q

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

A

Correspondence

83
Q

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?

A

Correspondence to 25 or fewer retail investors within any 30 calendar day period

84
Q

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

A

The acceptance or placement ratio

85
Q

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?

A

$0 (because western not eastern)

86
Q

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

A

Sell the issue at the lowest net interest cost to the State of Texas

87
Q

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

A

Meeting neither the size limit nor the time limit

88
Q

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?

A

Net interest cost

89
Q

Each of the following trades occurs in the secondary market except

A

A corporate bond syndicate selling née issues to the public

90
Q

Which of the following is contained in an official notice of sale?

A

Amount of good faith deposit required with the bid

91
Q

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?

A

Negotiated underwriting

92
Q

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

A

$3,750 (500 bonds x .75%)

93
Q

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

A

Convertible

Cumulative

94
Q

Which of the following is an issuer of federal agency securities?

A

The Tennessee Valley Authority

95
Q

Investors who are subject to AMT must have which of the following preference items added to adjusted gross income to calculate their tax liability?

A

Interest on a private purpose municipal bond

96
Q

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?

A

$6,000

97
Q

All of the following option strategies could be effectively used in a bear market except

A

A short straddle

98
Q

Each of the following is a defined contribution plan except

A

A stock option plan

99
Q

Trade confirmations must show yield to call on which of the following bonds?

A

5 1/2%, 5% basis, maturing 2038

100
Q

All of the following would be reasons for an employee to choose a non qualified plan over a qualified plan except?

A

The non qualified plan provides an immediate income tax deduction for the employer

101
Q

A quote of 2.20 bid 2.18 ask would most likely be a quote on

A

A T bill

102
Q

Interest received from which of the following federal agency securities is exempt from all state and local taxation?

A

Farm Credit System bonds

103
Q

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?

A

The scale

104
Q

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?

A

The POA ceases upon the death of either party

105
Q

Which of the following statements about warrants is not true?

A

Warrants may not be traded in the secondary market

106
Q

Fee-based accounts would tend to be most suitable for investors who follow

A

An active approach to investing

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