Kaplan QBank Questions Flashcards
The prospectus of the ABC Fund contains the phrase “will have at least one-quarter of common stock investments in the field of business machines.” The ABC Fund is:
A) a growth and income fund.
B) a diversified fund.
C) a specialized fund.
D) a balanced fund.
The correct answer was: a specialized fund.
A fund that, as part of its investment policy, makes a commitment to invest 25% or more of its assets into a particular economic or geographical sector is a specialized fund. A balanced fund invests in a balance of bonds and common and preferred stocks. A diversified fund does not invest more than 5% of the fund’s assets in any one issuer. A growth and income fund may invest in many industries, seeking both dividends and capital gains.
After a company splits its stock 2 for 1, an investor who owns 100 shares receives:
A) notice that the investor’s 100-share certificate now represents 200 shares.
B) notice to send in the current certificate to be replaced by a new certificate for 200 shares.
C) another certificate for 200 shares.
D) another certificate for 100 shares.
The correct answer was: another certificate for 100 shares.
After a 2 for 1 split, the transfer agent will send the investor another certificate for 100 shares. The investor is not required to return the existing stock certificate.
Which of the following is NOT true of the Interbank market?
A) It deals in currencies.
B) It is susceptible to central bank intervention.
C) It is unregulated.
D) It is based in London.
The correct answer was: It is based in London.
The interbank market deals primarily in currencies and is unregulated. It is an over-the-counter market whose participants are major currency dealers, such as banks. Central banks, such as the Federal Reserve, use the market to try to influence exchange rates.
If the Swiss franc is trading at .69, and a customer buys 1 Sep SF 70 put and writes 1 Sep SF 65 put, this position is a:
A) diagonal spread.
B) bull spread.
C) calendar spread.
D) bear spread.
The correct answer was: bear spread.
The 70 put is dominant because it will have a higher premium than the 65 put. Buying puts is bearish; this is a debit put spread.
A fundamental analyst would be interested in all of the following EXCEPT:
A) innovations within the automotive industry.
B) corporate annual reports.
C) daily trading volumes on the NYSE.
D) statistics of the U.S. Department of Commerce on disposable income.
The correct answer was: daily trading volumes on the NYSE.
Trading volume interests the technical analyst, who looks at fluctuations in the market, not at fundamental economic values.
The real value of property within the city limits is $100 million. The city uses a 50% assessment rate. A 10 mill tax rate will provide tax revenues of:
A) $1 million.
B) 50000.
C) 5000.
D) 500000.
The correct answer was: 500000.
1 mill = $.001. 10 mills = .01 (10 X .001). $100 million × 50% assessment rate = $50 million. $50,000,000 X .01 = $500,000.
All open orders must be confirmed to the order book:
A) every 6 months after the order has been entered.
B) April 1 and October 1.
C) the last business days of April and October.
D) once a year on the anniversary of the order.
The correct answer was: the last business days of April and October.
All open orders must be confirmed the last business day of April and the last business day of October.
Your customer has a Coverdell Education Savings Account for each of four preteen daughters. What is the maximum amount of pretax contributions that he can make to each ESA?
A) 500.
B) 8000.
C) 2000.
D) 0.
The correct answer was: 0.
Pretax contributions cannot be made to Coverdell ESAs. The customer is allowed to make a $2,000 after-tax contribution annually for each student until their 18th birthday.
Which of the following statements regarding U.S. government agency obligations are TRUE?
They are direct obligations of the U.S. government.
They generally have higher yields than direct U.S. obligations.
The Federal National Mortgage Association (FNMA) is a publicly traded corporation.
Securities issued by the Government National Mortgage Association (GNMA) trade on the NYSE floor.
A) I and II.
B) I and III.
C) II and III.
D) II and IV.
The correct answer was: II and III.
U.S. government agency debt is an obligation of the issuing agency. This obligation causes agency debt to trade at slightly higher yields that reflect this greater risk. FNMA securities and GNMA pass-through certificates trade OTC. GNMA is the only agency whose securities are direct U.S. government obligations.
If two brothers open a joint account tenants in common, at year’s end, the member firm carrying the account will send Form 1099 to:
A) either of the brothers.
B) the brother with the largest percentage interest in the account.
C) the brother whose Social Security number is on the account.
D) both of the brothers.
The correct answer was: the brother whose Social Security number is on the account.
All accounts, joint or otherwise, have a primary Social Security number. The holder of this number receives the year-end statement (Form 1099).
Which of the following mutual fund portfolio allocations would probably be most suitable for a 40-year-old professional who states that he is an aggressive investor?
A) 50% corporate bonds, 50% municipal bonds.
B) 5% small-cap stocks, 5% international stocks, 90% large-cap stocks.
C) 50% small-cap stocks, 50% U.S. government securities.
D) 50% small-cap stocks, 25% international stocks and 25% large-cap stocks.
The correct answer was: 50% small-cap stocks, 25% international stocks and 25% large-cap stocks.
A portfolio of small-cap stocks as well as one with international stock is generally considered to be one with the higher risk levels associated with an aggressive investor. Comparatively, the remaining choices would be too conservative for an aggressive investor.
A registered representative explaining variable annuities to a customer would be CORRECT in stating that:
a variable annuity guarantees an earnings rate of return.
a variable annuity does not guarantee an earnings rate of return.
a variable annuity guarantees payments for life.
a variable annuity does not guarantee payments for life.
A) I and III.
B) II and III.
C) I and IV.
D) II and IV.
The correct answer was: II and III.
A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. However, it does guarantee payments for life (mortality).
A due diligence meeting occurs between:
A) the FINRA member firm and FINRA’s Corporate Finance Department to discuss the fairness of the underwriting spread on a pending public offering.
B) the issuing corporation and the underwriters to review and reexamine the full details of the pending underwriting and negotiate final terms to be included in the formal underwriting contract.
C) All of these.
D) the underwriter and the SEC before the issuance of a final prospectus to insert the public offering price and make any last minute changes at the SEC’s request.
The correct answer was: the issuing corporation and the underwriters to review and reexamine the full details of the pending underwriting and negotiate final terms to be included in the formal underwriting contract.
A due diligence meeting is held between the issuer and the underwriter before the effective date and is one of the final meetings held before the sale of the security so that each party may review all aspects of the issue.
A respected analyst reports that last week’s T-bill rate at 6% is lower than the rate for the preceding week and lower than the average for the past month. Which of the following is TRUE?
A) The general level of interest rates is increasing.
B) Prices are descending.
C) Investors are paying less for T-bills.
D) Investors are paying more for T-bills.
The correct answer was: Investors are paying more for T-bills.
When the rate is lower, the price has gone up; this means investors are paying more as interest rates are going down.
All of the following statements regarding a qualified pension plan are true EXCEPT
A) it must cover all of its eligible employees
B) growth in the account is tax-free
C) it requires advance approval from the IRS
D) it must comply with nondiscrimination rules
The correct answer was: growth in the account is tax-free
Growth in qualified pension plans, as well as other qualified plans, is tax deferred, not tax-free. All growth is taxable at the time of distribution.
Which economic theory states that a reduced tax rate will result in a healthy economy that will in turn generate more taxes?
A) The Demand Side Economic Theory.
B) The Supply Side Economic Theory.
C) The Monetarist Economic Theory.
D) The Keynesian Economic Theory.
The correct answer was: The Supply Side Economic Theory.
The Supply Side Economic Theory (Reaganomics) is that reduced tax rates will result in a healthier economy, which will generate more taxes to compensate for the reduced rates.
An investor has an established margin account with a short market value of $8,000 and a credit balance of $13,000, with Regulation T at 50%. A maintenance call would be triggered if the short market value increased above:
A) 8000.
B) 9000.
C) 13000.
D) 10000.
The correct answer was: 10000.
To find short market value at maintenance, divide the credit balance of $13,000 by 1.3 ($10,000).
Two customers in their twenties, married only a few years, should select which investment for their IRAs?
A) Growth-oriented mutual funds.
B) High-tech funds.
C) Oil and gas exploration limited partnerships.
D) High yield bond funds.
The correct answer was: Growth-oriented mutual funds.
A growth mutual fund may be appropriate for a young couple’s IRA account; all other selections incur high risk that is not appropriate for a retirement account.
A customer buys a new issue municipal bond at a discount. If held to maturity, the amount of the discount is:
A) accreted and is not taxed.
B) accreted and taxed as ordinary income.
C) taxed as a long-term capital gain.
D) taxed as a short-term capital gain.
The correct answer was: accreted and is not taxed.
Original issue discounts are accreted, which allows for a step-up in cost basis. Accretion on original issue discount municipal bonds is not taxed.
New issues of municipal bonds are exempt from each of the following EXCEPT:
A) Securities Exchange Act of 1934 antifraud provisions.
B) U.S.A. state registration requirements.
C) Securities Act of 1933 registration requirements.
D) Securities and Futures Authority (SFA) requirements.
The correct answer was: Securities Exchange Act of 1934 antifraud provisions.
Municipal securities are exempt from federal and state registration. However, no security is exempt from the antifraud provisions of federal securities law, including the 1934 Act. The Securities and Futures Authority is a UK regulator and has no application in the United States.
At a social gathering, an officer of a publicly traded company confides to his neighbor, a registered representative, that his company will announce a major acquisition in the coming week. Which of the following statements regarding the SEC’s insider trading rules is TRUE?
A) Neither the officer nor the registered representative is in violation.
B) The registered representative is in violation.
C) The officer is in violation.
D) Both the officer and the registered representative are in violation.
The correct answer was: Neither the officer nor the registered representative is in violation.
Simply giving someone material, nonpublic information (while imprudent) is not a violation. However, if the information is used to trade for profit or to avoid a loss, both the tipper and the tippee would have violated the law.
GC, Inc., is proposing an additional public offering of common stock. It conducts a rights offering to its current shareholders at $55 per share, plus 5 rights. If the market price of GCI is $70 after the ex-rights date passes, what is the value of 1 right?
A) 2.5.
B) 3.
C) 5.
D) 15.
The correct answer was: 3.
Since the stock is selling ex (after ex-rights), the formula is ($70 − $55) / 5. ($70 − $55 = $15) ($15 / 5 = $3).
Reggie owns a convertible bond that converts into 20 shares of common stock. The current market value of the bond was 118-½ at the close on Friday, April 1. A 30-day call is announced prior to the opening on Monday, April 4, at a price of $102. The stock is trading at $57.75. What should Reggie do?
A) Convert the bond into the stock.
B) Hold the bond to maturity.
C) Redeem the bond at the call price.
D) Sell the bond.
The correct answer was: Convert the bond into the stock.
Reggie will not be allowed to hold the bond to maturity because it is being called. The real question is whether he should sell the bond, allow it to be called, or convert it to the underlying stock. Now that the call has been announced, the market value of the bond will fall to meet the call price. This occurs as a result of declining demand. (Who wants to buy a bond that is about to be called at a lower price?) Thus, redeeming the bond at the call price and selling the bond would both yield the same results: $1,000 × 102% = $1,020. If he converts the bond, he will get the following results: 20 shares × $57.75 = $1,155. Therefore, it makes the best sense to convert the bond.
Which of the following customer accounts is NOT SIPC-insured?
A) TIC account with business partner.
B) TIC commodities account with son.
C) Customer margin account.
D) JTWROS account with spouse.
The correct answer was: TIC commodities account with son.
SIPC coverage only applies to accounts holding securities; commodities accounts are not covered.
Amortization of a municipal bond premium does which of the following?
Increases cost basis. Decreases cost basis. Increases reported interest income. Decreases reported interest income. A) I and IV. B) II and III. C) I and III. D) II and IV.
The correct answer was: II and IV.
Tax law requires municipal bond premiums to be amortized. The effect of amortization is to decrease reported interest income and cost basis. If held to maturity, the cost basis will have been amortized down to par. Therefore, at maturity, there is no reported capital loss.
The syndicate manager takes which of the following actions in a divided municipal syndicate that does not sell out?
A) Holds an auction.
B) Confirms the bonds to the member that did not sell its share.
C) Prorates the bonds according to syndicate participation.
D) Returns the bonds to the issuer.
The correct answer was: Confirms the bonds to the member that did not sell its share.
Because this offer is a divided, or Western, syndicate, each member is responsible for selling a specific number of securities. If a member does not sell its share, it receives the bonds for its inventory.
A nonleveraged direct participation program has all of the following risks EXCEPT:
A) rate risk.
B) legislative risk.
C) liquidity risk.
D) management risk.
The correct answer was: rate risk.
If debt is not used by the partnership, rate risk does not exist.
For a new issue municipal syndicate account, settlement of the account must occur:
A) within 1 year after the issuer delivers the securities to the syndicate.
B) as soon as dealers who are not members of the syndicate request a bond.
C) within 30 calendar days after the issuer delivers the securities to the syndicate.
D) when the last bond is sold with no time limit imposed.
The correct answer was: within 30 calendar days after the issuer delivers the securities to the syndicate
The maximum length of time a new issue municipal bond syndicate can exist is 30 calendar days after the issuer delivers the securities to the syndicate. At that time the account must be settled and allocation of unsold bonds be determined in accordance with each members original allocation and whether the syndicate was set up as divided (western) or undivided (eastern).
A city’s day-to-day operational expenses may be met by the issuance of:
A) BANs.
B) CLNs.
C) TANs.
D) GANs.
The correct answer was: TANs.
When a city needs short-term cash flow to meet ordinary operating expenses (e.g., to meet the payroll for city employees), it issues TANs. These notes are paid off when the city collects the expected tax revenues.
Which of the following are money market securities?
Commercial paper. Treasury bonds. ADRs. Negotiable certificates of deposit. A) II and IV. B) II and III. C) I and IV. D) I and III.
The correct answer was: I and IV
Commercial paper and negotiable certificates of deposit are short-term debt securities and are considered money market securities.
A registered representative realizes that the wrong account number was written on an order ticket. The RR should:
A) notify a principal and await further instructions.
B) fill out an error or trade correction report and notify a principal.
C) fill out an error or trade correction report only.
D) do nothing as no action is required as long as the trade is processed for the right account.
The correct answer was: fill out an error or trade correction report and notify a principal.
Documenting errors or mistakes and notifying a principal should occur immediately. Filling out an error or trade correction report would be appropriate in this case. In-house procedures for the handling of errors can then be followed once documentation and notification have occurred
All of the following statements regarding a transfer on death (TOD) account are correct EXCEPT:
A) the owner of the account may change beneficiaries at will.
B) probate is avoided.
C) estate taxes are reduced.
D) only those assets held at the broker/dealer are transferred.
The correct answer was: estate taxes are reduced
A TOD account avoids probate, but not estate taxes. The owner of the account may change beneficiaries and their percentages as he wishes. The TOD account is an account at a specific broker/dealer and only relates to the assets in that account.
Which of the following may only be accomplished after applying the additional bonds test for a revenue bond?
A) Increasing the project’s user charges.
B) Prerefunding an outstanding bond issue.
C) Spending revenues already allocated for project expansion.
D) Issuing new bonds with an equal lien on the project’s revenues.
The correct answer was: Issuing new bonds with an equal lien on the project’s revenues
The additional bonds test must be met under the provisions of a revenue bond indenture before additional bonds with an equal lien on project revenues can be issued. The conditions under which additional bonds may be issued are specified in the bond indenture. This is an open-end covenant.
Which of the following municipal issues would least likely involve overlapping debt?
A) A school district.
B) A park district.
C) A library district.
D) An airport district.
The correct answer was: An airport district.
Overlapping debt refers to property tax districts (areas). Airport issues are usually revenue issues of an authority that has no property taxing powers.
In a seller’s option, securities may be delivered before the date specified if the seller
A) wishes to be paid earlier.
B) gives 1 day’s written notice to the buyer.
C) cannot deliver on the specified date.
D) gives notice to the buyer on the day of delivery .
The correct answer was: gives 1 day’s written notice to the buyer
In a seller’s option trade, the seller may (at his option) give the buyer written notice 1 day before making delivery.
Which of the following is true regarding a “summary section” and a “statement of additional information” for management investment companies?
A) A summary section need not be included in the prospectus of a mutual fund.
B) A statement of additional information (SAI) need not be included in the prospectus of a management company.
C) Neither are required to be in the prospectus of a mutual fund.
D) Both must be included in the prospectus of a management company.
The correct answer was: A statement of additional information (SAI) need not be included in the prospectus of a management company.
A statement of additional information (SAI) need not be in a prospectus but available for both open and closed-end investment companies. It consists of information not necessarily needed to make an informed purchase decision but still useful to the investor. The SEC however mandates that “enhanced disclosure” in the form of a summary section be included in the prospectus of open-end investment companies (mutual funds). It must be written in plain language and the SEC mandates the order of, and the items to be addressed in the summary.
If a couple has a long-term growth objective and is willing to accept a reasonable amount of risk, which of the following mutual funds is most suitable for them?
A) Common stock fund.
B) Municipal bond fund.
C) Money market fund.
D) Corporate bond fund.
The correct answer was: Common stock fund.
A common stock fund will help the couple meet their long-term growth objective
Under Regulation D, all of the following are accredited investors EXCEPT:
A) an individual with a net worth of $750,000.
B) an institution.
C) an officer or director of the issuer.
D) an individual with annual income of $200,000 for the past two years.
The correct answer was: an individual with a net worth of $750,000.
Accredited investors include institutions, individuals with a net worth of $1 million or more not to include net equity in a primary residence, individuals with annual income of $200,000 or more, and officers and directors of the issuer.
Payments received by the owner of a 403(b) plan are:
A) taxable only to extent of earnings.
B) taxable only to extent of the owner’s cost basis .
C) 100% taxable.
D) not taxable.
The correct answer was: 100% taxable
When TSA funds are withdrawn, they are fully taxed at ordinary income rates. Funds were contributed pretax and earnings accumulate tax deferred. Because no taxes were ever paid, the full withdrawal is taxable.
A new corporation with no existing products or services has a patent pending with the U.S. government. Which of the following describes this type of company?
A) Special situation.
B) Asset allocation.
C) Value.
D) Growth.
The correct answer was: Special situation.
A company with a patent pending is known as a special situation.
A customer is short 100 XYZ shares at 26 and long 1 XYZ 30 call at 1. What is the maximum potential gain for the customer?
A) 2500.
B) 500.
C) 5200.
D) 2600.
The correct answer was: 2500.
The customer has hedged his short stock position from a market advance by buying the call. If the market falls, the investor can make a maximum of $26 per share if the stock price falls to zero, less the premium of 1 paid to buy the call, for a maximum gain of $2,500 (26 − 1 = 25).
Which of the following statements regarding yield shown on a bond confirmation for a bond that has been called is TRUE?
A) A bond confirmation will show YTM if the bond has been called under an in-whole call provision.
B) A bond confirmation will show the higher of YTC or YTM if a bond has been called under an in-part call provision.
C) A bond confirmation will show the lower of YTC or YTM if the bond has been called under an in-whole call provision.
D) A bond confirmation will show YTC if the bond has been called under an in-whole call provision.
The correct answer was: A bond confirmation will show YTC if the bond has been called under an in-whole call provision
A bond confirmation for a bond called under an in-whole call provision will show YTC as the bond being called away is certain. However, in the event of an in-part call, there is uncertainty as to whether that particular bond will be called. Therefore, the lower of the YTC or YTM would be shown on the confirmation.
If a municipal bond rated BBB is pre-refunded, which of the following statements are TRUE?
The marketability of the issue will increase.
The rating of the issue will increase.
The issue is now backed by U.S. government securities.
Funds required to meet debt servicing have been set aside in escrow.
A) I, II, III and IV.
B) I and III.
C) III and IV.
D) II and IV.
The correct answer was: I, II, III and IV
When funds are escrowed to call in a bond at a predetermined call date, the bond is said to be pre-refunded. The money set aside is invested in government securities, which makes the issue very safe and highly marketable. The rating of pre-refunded bonds is AAA, as they are now backed by U.S. government securities.
Increases in which of the following indicators are regarded as predictors of the level of business activity?
A) Corporate profits.
B) Employment levels.
C) Building permits.
D) Personal incomes.
The correct answer was: Building permits.
Increases in building permits are indicative of increased, future business activity and are therefore considered a leading economic indicator. Increases in personal income and employment levels reflect current, not future activity, and would be considered coincident indicators. Corporate profits are lagging economic indicators.
Which of the following investments carries the least market risk?
A) Treasury bills.
B) Savings accounts.
C) Common stock.
D) Treasury bonds.
The correct answer was: Savings accounts
Savings accounts carry no market risk, which, by definition, is the risk that an investor will experience losses due to day-to-day fluctuations in the prices of securities bought and sold in the market.
Which of the following would be found on a when-, as-, and if-issued confirmation?
Trade date. Settlement date. Price. Accrued interest. A) III and IV. B) I and II. C) II and IV. D) I and III.
The correct answer was: I and III
Information that does not appear on a when-issued confirmation can easily be remembered as SAT (settlement date, accrued interest, and total amount due). The trade date and price per bond are included on the when-issued confirmation.
Which items would change if a company buys equipment for cash?
The working capital. The total assets. The total liabilities. The shareholders' equity. A) I only. B) I and II. C) IV only. D) II and IV.
The correct answer was: I only.
The general balance sheet formula is assets = liabilities + shareholders’ equity. A purchase of equipment for cash would affect working capital by reducing current assets. However, it would not affect total assets since it is an exchange of one asset (cash) for another asset of equal value (equipment). Since no loan was needed, it does not affect total liabilities, nor does it affect equity.
A short sale of stock directed to an exchange must observe all of the following EXCEPT:
A) a margin requirement of 50%.
B) the symbol “ss” on the consolidated tape.
C) a minimum maintenance requirement of 30%.
D) the locate requirement for borrowed shares.
The correct answer was: the symbol “ss” on the consolidated tape
The symbol “ss” does not designate “short sale.” It is used to identify stocks traded in 10-share units
Which statements are TRUE regarding contribution limits?
The contribution limit to a Coverdell ESA can be reduced or eliminated for high-income individuals.
The contribution limit to a Coverdell ESA cannot be reduced or eliminated for high-income individuals.
The contribution limit to a Section 529 plan can be reduced or eliminated for high-income individuals.
The contribution limit to a Section 529 plan cannot be reduced or eliminated for high-income individuals.
A) I and III.
B) II and III.
C) I and IV.
D) II and IV.
The correct answer was: I and IV
The after-tax contribution limit of $2,000 can be reduced or eliminated for high-income taxpayers. However, there are no income limitations placed on individuals opening Section 529 plans.
An affiliate of a corporation wants to sell 80 calls covered by 8,000 shares of Rule 144 stock she owns. This transaction is:
A) not allowed because an affiliate of a corporation may not trade options in the company’s stock.
B) allowed because the 8,000 shares of stock may be sold unrestricted.
C) allowed because the calls will be considered covered by the stock.
D) not allowed because Rule 144 stock may not be sold unrestricted by an affiliate.
The correct answer was: not allowed because Rule 144 stock may not be sold unrestricted by an affiliate.
Rule 144 stock is considered to be illiquid. It cannot be sold unrestricted by an affiliate and could, therefore, not be used to cover the calls in the event the calls were exercised.
When discussing mutual funds with a customer, each of the following statements are prohibited EXCEPT:
A) The income yield of the fund consists of both dividends and capital gains.
B) Buy shares of different funds in the same fund family and you may qualify for a breakpoint on the total purchase.
C) Get a few friends to join with you to form an investment club and you may qualify for a breakpoint.
D) Buy the shares on record date in order to receive the dividend. .
The correct answer was: Buy shares of different funds in the same fund family and you may qualify for a breakpoint on the total purchase
Most funds provide a combination privilege, allowing investors to aggregate purchases made in different funds in the same family to qualify for a breakpoint. The income yield of a mutual fund includes dividends only. A group of friends is not eligible for a breakpoint (investment clubs are not eligible). “Selling dividends” is a prohibited practice because of the immediate tax liability incurred with the dividend and share price adjustment that results after the dividend distribution.
If an investor keeps $100,000 invested in U.S. Treasury bills at all times during a 10-year period, he is subject to which of the following?
Stable principal. Unstable principal. Stable interest. Unstable interest. A) II and IV. B) I and III. C) II and III. D) I and IV.
The correct answer was: I and IV.
Treasury bills are purchased at a discount and mature at face value. This feature provides principal stability to investors who own them. The discount on bills is determined by current market interest rates and fluctuates accordingly.
Rank the following from first to last in order of payment at liquidation of a corporation.
General creditors. Preferred stock. Subordinated debentures. Accrued taxes. A) IV, III, I, II. B) III, IV, I, II. C) III, IV, II, I. D) IV, I, III, II.
The correct answer was: IV, I, III, II
The complete order of liquidation is as follows: wages, taxes, secured debt, debentures and general creditors, subordinated debentures, preferred stock, common stock.
Which of the following statements regarding the good faith deposit submitted by interested bidders are TRUE?
It is usually 1% to 2% of the total par value of the bonds offered.
It is usually 10% of the total par value of the bonds offered.
If the bid is unsuccessful, it is returned to the underwriting syndicate.
If the bid is unsuccessful, it is retained by the issuer.
A) I and IV.
B) I and III.
C) II and III.
D) II and IV.
The correct answer was: I and III
A good faith deposit is required when the syndicate places a bid on a competitive offering. It is generally 1% to 2% of the par value of the bonds offered for sale. If the bid is unsuccessful, the deposit is returned by the issuer to the syndicate manager.
A 52-year-old dentist has a balance of $150,000 in his Keogh plan, composed of $100,000 of contributions and $50,000 of earnings. If the dentist withdrew $100,000 from the Keogh plan, which of the following statements are TRUE?
The entire withdrawal is taxable. The entire withdrawal is not taxable. The entire withdrawal is subject to a 10% penalty tax. A portion of the withdrawal is taxable. A) II and III. B) III and IV. C) I and III. D) I and II.
The correct answer was: I and III.
Contributions to qualified plans are made with pretax dollars and earnings grow on a tax-deferred basis, so the cost basis is zero. Therefore, any distributions will be taxed as ordinary income. In addition, there is a 10% penalty on withdrawals made prior to reaching age 59-½.
A registered representative employed by a broker dealer must notify the employer in writing and be permitted by the employer to do all of the following EXCEPT
A) take an evening job as a bartender
B) own an interest in any other organization engaged in the securities business
C) serve as an officer of another business organization
D) own a small financial interest in a publicly traded retail company
The correct answer was: own a small financial interest in a publicly traded retail company
Registered representatives must notify their employer in writing and be permitted to engage in any other business, serving as an officer or director of another business organization, or own any interests in a privately held financial services company. Publicly held shares do not require consent provided there is no control relationship (defined as 10% or more ownership).
Under SEC rules, a customer short sale on an exchange floor can be executed on which of the following?
Plus tick. Zero-plus tick. Minus tick. Zero-minus tick. A) II and IV. B) I and III. C) I, II, III and IV. D) I and II.
The correct answer was: I, II, III and IV
On an exchange floor, a customer short sale can be executed at any time in the trade sequence.
Rule 144A regulates:
A) companies traded on the NASDAQ Global Select Market.
B) personal trading by research analysts.
C) the sale of restricted stock by control persons.
D) the sale of restricted stock to institutional investors.
The correct answer was: the sale of restricted stock to institutional investors.
Rule 144A regulates the trading of restricted securities to institutional investors known as qualified institutional buyers (QIBs).
A commercial bank purchasing qualified GO bonds may deduct what percentage of the interest cost necessary to fund the purchase?
A) 50%.
B) 80%.
C) 100%.
D) 20%.
Your answer, 80%., was correct!.
A bank-qualified municipal bond issue is a small issue, generally a GO issue of $10 million or less. If a bank were to purchase any part of a qualified issue, 80% of the annual costs necessary to fund the purchase would be tax deductible to the bank.
The Trade Reporting and Compliance Engine (TRACE):
requires that both sides of a transaction report the trade.
requires only the sell side of a transaction report the trade.
is a reporting system for corporate bonds trading in the OTC market.
is an execution system for corporate bonds trading on exchanges.
A) II and III.
B) I and III.
C) II and IV.
D) I and IV.
The correct answer was: I and III.
The Trade Reporting and Compliance Engine (TRACE) is the FINRA approved trade reporting system for corporate bonds trading in the OTC secondary market. It is not an execution system. Both sides of a TRACE eligible transaction are required to report a trade when it occurs.
A fundamental analyst would be interested in all of the following EXCEPT:
A) innovations within the automotive industry.
B) corporate annual reports.
C) statistics of the U.S. Department of Commerce on disposable income.
D) daily trading volumes on the NYSE.
The correct answer was: daily trading volumes on the NYSE.
Trading volume interests the technical analyst, who looks at fluctuations in the market, not at fundamental economic values.
If a customer purchases stock in an existing margin account and fails to make payment within the time period specified under Regulation T, the broker/dealer carrying the account can take all of the following actions EXCEPT:
A) Liquidate the entire account and remit any balance to the customer.
B) Sell out the unpaid portion.
C) Use existing SMA to meet the requirement.
D) Request an extension of time from its DEA.
The correct answer was: Liquidate the entire account and remit any balance to the customer.
If a customer does not meet a Fed call, the firm can use existing SMA to meet the call, request an extension of time from its designated examining authority, or liquidate the unpaid portion. The firm would not close out the account.
A resident of New York City purchases an Albany, New York general obligation bond and receives $600 of interest from that bond during the year. How is that $600 taxed?
A) Taxation is deferred until the bond matures.
B) It is subject to federal income tax at ordinary rates.
C) It is subject to state income tax at ordinary rates.
D) It is not subject to federal income tax.
The correct answer was: It is not subject to federal income tax
Interest from public purpose municipal bonds is exempt from federal income tax and most states have chosen to make interest on their municipal bonds exempt from state income tax to residents of their states.
A representative wishes to execute an order for a customer’s discretionary account. The municipal dealer has a control relationship with the issuer of the security to be purchased. Under MSRB rules, the representative:
A) must have specific authorization from the customer.
B) may not execute the order.
C) must wait until the firm terminates the control relationship.
D) may refer the customer to a firm that has no control relationship.
The correct answer was: must have specific authorization from the customer
Even in a discretionary account, a registered representative may not exercise discretion when a control relationship exists between the issuer and the dealer without first receiving the customer’s permission.
Which of the following statements regarding Coverdell ESAs is TRUE?
A) Contributions are tax deductible, and distributions are always taxable.
B) Contributions are tax deductible, and distributions for any reason are tax free.
C) Contributions are not tax deductible, and distributions for any reason are tax free.
D) Contributions are not tax deductible, and distributions are tax free when used for qualified educational expenses.
The correct answer was: Contributions are not tax deductible, and distributions are tax free when used for qualified educational expenses.
Coverdell ESAs offer after-tax contributions of up to $2,000 per student per year for children under age 18. Distributions are tax free as long as the funds are used for education
Inside information is considered public when it is:
A) declared so by the SEC.
B) available to the national financial publications.
C) available for public evaluation.
D) reviewed by industry SROs.
The correct answer was: available for public evaluation.
The law states that inside information is considered public information when the public has had a chance to evaluate it.
Which of the following investors would be exempt from filing form 144 when selling securities they own?
A) An employee of the company selling registered shares purchased in the open market.
B) An affiliated person selling unregistered shares.
C) An employee of the company selling unregistered shares.
D) An investor selling shares acquired in a Regulation D private placement.
The correct answer was: An employee of the company selling registered shares purchased in the open market.
Rule 144 regulates the sale of control or restricted securities. Securities bought in a registered public offering are not restricted and therefore an employee of the company selling registered shares need not file form 144. Unregistered shares or securities purchased in a private placement are restricted and Rule 144 would apply.
Once a broker/dealer receives an enrollment notification for an employee to test for the Series 7 licensing exam, the employee will have how long to successfully complete (pass) the exam?
A) 3 months.
B) 2 months.
C) 6 months.
D) 4 months.
The correct answer was: 4 months.
Once notification of enrollment for testing has been received by the broker/dealer the candidate will have 120 days (4 months) to successfully complete (pass) the exam. This is commonly referred to as the “testing window”.
All of the following would flow through as a loss to limited partners EXCEPT:
A) interest payments on recourse debt.
B) accelerated depreciation.
C) principal repayment on recourse debt.
D) depletion.
The correct answer was: principal repayment on recourse debt.
Principal repayments are not deductible for tax purposes. The interest is deductible.
The function of the Federal National Mortgage Association (FNMA) is to:
A) provide financing for government-assisted housing.
B) issue conventional mortgages.
C) purchase FHA-insured, VA-guaranteed, and conventional mortgages.
D) guarantee the timely payment of interest and principal on FHA and VA mortgages.
The correct answer was: purchase FHA-insured, VA-guaranteed, and conventional mortgages.
The FNMA buys FHA, VA, and conventional mortgages and uses them to back the issuance of debt securities. FNMA currently issues debentures, mortgage-backed securities, and certificates.
After opening a new account, how many days does a firm have to provide the customer with a copy of the account record?
A) 45
B) 90
C) 30
D) 60
The correct answer was: 30
Member firms must provide new customers with a copy of the account record (new account form) within 30 days of opening the account; this ensures the information the firm has on file is accurate.
A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. The value of the separate account is now $30,000. If the customer takes a withdrawal of $10,000, what are the tax consequences?
A) There is no tax as the withdrawal is considered return of capital.
B) Two-thirds of the withdrawal is taxable as ordinary income.
C) Any tax due is deferred.
D) The entire $10,000 is taxable as ordinary income.
The correct answer was: The entire $10,000 is taxable as ordinary income.
The $30,000 contract value represents $10,000 of contributions and $20,000 of earnings. When a partial withdrawal is made from an annuity, the earnings are considered to be taken out first for tax purposes (or LIFO). Therefore, ordinary income taxes will apply to the entire $10,000. In addition, if the customer is not at least 59-½, there will be a tax penalty of an additional 10%.
After the market closed yesterday, ABC announced that it would file for bankruptcy under Chapter 11. The NYSE decides not to open trading in ABC. In response to the NYSE’s announcement, which of the following statements regarding the OTC market is TRUE?
A) It applies to the SEC for a decision within 30 minutes of the opening.
B) It halts all trading in ABC until the NYSE reopens it.
C) It continues to trade ABC with the NYSE specialist’s (Designated Market Maker) permission.
D) It may either halt or continue trading as it sees fit.
The correct answer was: It may either halt or continue trading as it sees fit.
The over-the-counter market is not bound by actions of the NYSE or other exchanges, and third-market trading may continue in the stock.
With respect to municipal discretionary accounts, which of the following statements are TRUE?
A municipal securities principal must approve all transactions in the account promptly after execution.
All activity in the account must be reviewed at frequent intervals by a municipal securities principal.
Unless a customer gives their express authorization, the broker/dealer cannot effect transactions to the customer’s account for securities in which it has a control relationship with the securities’ issuer.
The broker/dealer and issuer must first terminate their relationship to effect transactions for securities in which they have a control relationship.
A) II and III.
B) I, II and III.
C) II and IV.
D) I only.
The correct answer was: I, II and III
As with all discretionary accounts, a principal must approve transactions promptly after execution and the account must be reviewed frequently by a principal. Because this is a discretionary account which allows municipal securities to be traded in it, these functions must be performed by a municipal securities principal. Without the customers consent, the broker/dealer cannot effect transactions in the customers account for municipal securities in which a control relationship exists between the broker/dealer and the issuer. To effect such transactions the broker/dealer must make full disclosure of the relationship and obtain the customers consent, but termination of the relationship is not required.
A customer buys 100 shares of RFTQ at $10 per share. Several months later, the stock is trading at 4.60 - 5, at which time the registered representative offers to buy back the stock from the customer for his own account at $9 per share. This action is:
A) prohibited because FINRA rules do not allow registered representatives to guarantee customers against loss.
B) permitted because it allows the customer to sell at a price higher than the current market.
C) permitted with the written permission of a principal.
D) prohibited because it violates the Uniform Practice Code.
The correct answer was: prohibited because FINRA rules do not allow registered representatives to guarantee customers against loss.
A representative may never guarantee a customer against a loss. This is specified in the Conduct Rules, not the Uniform Practice Code.
All of the following municipal bonds are callable at par. Which confirmation will show yield to call?
A) 6-½%, 7% basis, maturing 2014.
B) 5-½%, 5% basis, maturing 2010.
C) 6-½%, 7% basis, maturing 2010.
D) 5-½%, at par, maturing 2014.
The correct answer was: 5-½%, 5% basis, maturing 2010.
Bond confirmations must disclose the lower of the yield to maturity or yield to call. On a premium bond, the yield to call is the lower of the two.
When a customer instructs a registered representative to transfer and ship, the representative instructs the margin department to transfer ownership into the:
A) brokerage firm’s name and deliver the securities to the brokerage firm’s commercial bank for safekeeping.
B) brokerage firm’s name and deliver the securities to the customer.
C) customer’s name and deliver the securities to the customer’s bank for safekeeping.
D) customer’s name and deliver the securities to the customer.
The correct answer was: customer’s name and deliver the securities to the customer.
The term “transfer and ship” means to transfer the securities into the name of the customer and to ship (deliver) the securities to the customer. Hold in street name would require the securities to be transferred into the name of the broker/dealer and held in safekeeping.
Which of the following underwriting arrangements allows an issuer whose stock is already publicly traded to structure the timing of sales for an additional issue?
A) Standby.
B) Negotiated.
C) Competitive.
D) Shelf.
The correct answer was: Shelf.
A shelf registration with the SEC allows an issuer to sell the registered securities for up to 3 years from the effective date. This allows an issuer to time its sales with market conditions.
New Offering: 800,000 units at $6 per unit. Each unit has 2 shares of common stock and 1 warrant. Each warrant is to purchase ½ share of common stock. Based on the information above, how many shares of stock will be sold, and how many warrants will be sold?
A) 1.6 million shares and 400,000 warrants.
B) 800,000 shares and 400,000 warrants.
C) 800,000 shares and 200,000 warrants.
D) 1.6 million shares and 800,000 warrants.
The correct answer was: 1.6 million shares and 800,000 warrants.
Warrants may be distributed to stockholders in an underwriting as part of a unit. The warrant is a form of bonus to entice investors to purchase the unit. As each unit contains 2 shares, 1.6 million shares are being distributed. As each unit also includes 1 warrant, 800,000 warrants are being distributed.
In a municipal underwriting, the order period is the time in which the syndicate:
A) manager delivers the certificates to each syndicate member.
B) announces it will solicit customers for the issue.
C) manager accepts and allocates orders without considering time of submission.
D) manager establishes the priority for confirming orders.
The correct answer was: manager accepts and allocates orders without considering time of submission.
The order period is a short period of time following the award of a municipal issue to the winning syndicate. During the order period, orders for an issue of municipal bonds are allocated in accordance with the priority defined in the syndicate letter, not on a first come-first served basis.
A customer buys 1 XYZ Jan 65 put at 3.50 when XYZ is trading at 63.10. Just prior to expiration, with the option trading at 6.65 bid-6.70 asked, the customer closes his position with a market order. The gain is:
A) 350.
B) 320.
C) 190.
D) 315.
The correct answer was: 315.
The gain or loss is the difference between the price paid for buying the option, which is $350, and the price received for selling the option, which is $665. This equals $315. Remember, you buy at the asked price and sell to the bid.
If a member firm suspends a registered representative, the member firm must report the suspension to the:
A) state securities Commissioner.
B) news media.
C) SEC.
D) designated examining authority.
The correct answer was: designated examining authority.
If a member firm suspends a registered representative, the firm must report the suspension to its designated examining authority (DEA), which typically is FINRA or the exchanges where the firm is a member. Each DEA is a self-regulatory organization. The notice must be made within 10 business days of the suspension.
The amount paid into a defined contribution plan is set by the:
A) employer’s profits.
B) ERISA-defined contribution requirements.
C) employee’s age.
D) trust agreement.
The correct answer was: trust agreement.
A defined contribution plan’s trust agreement contains a section explaining the formula(s) used to determine the contributions to the retirement plan.
After receiving securities from another firm, a broker/dealer discovers that the securities received were not in good deliverable form. His recourse is to:
A) file a reclamation.
B) buy in.
C) sell out.
D) cancel the trade and file a complaint.
The correct answer was: file a reclamation.
After receiving the securities, the broker/dealer can file a reclamation and demand good delivery.
Excess IRA contributions are subject to a penalty of:
A) 6%.
B) 12%.
C) 10%.
D) 15%.
The correct answer was: 6%.
Excess IRA contributions are subject to a yearly penalty of 6% until they are either withdrawn together with associated growth or applied to the following year’s contribution limit.
A customer buys a 5% bond at par. The bond is callable in 5 years at par and matures in 10 years. Which of the following statements is TRUE?
A) Nominal yield is higher than either YTM or YTC.
B) YTC is higher than YTM.
C) YTC is the same as YTM.
D) YTC is lower than YTM.
The correct answer was: YTC is the same as YTM.
If a bond is trading at par, the nominal yield (coupon rate) = current yield = yield to maturity = yield to call. YTC is higher than YTM if the bond is trading at a discount to par. YTC is lower than YTM if the bond is trading at a premium over par. Nominal yield is higher than either YTM or YTC if the bond is trading at a premium over par.
If a customer writes 1 Jul 80 put at 7 and the put is exercised when the market price is at 70, for tax purposes, what is the effective cost basis of the stock put to the seller?
A) 87.
B) 80.
C) 70.
D) 73.
The correct answer was: 73.
The cost basis is 80 (price at which the writer must buy) minus 7 (premium the writer was paid), or $73 per share.
An example of a taxable bond issued by a municipal government is:
A) A Build America Bond (BAB).
B) Series EE bonds.
C) A general obligation bond (GO).
D) A tax anticipation note (TAN).
The correct answer was: A Build America Bond (BAB).
Build America Bonds (BABs) are municipal issues created under the Economic Recovery and Reinvestment Act of 2009 to assist in reducing costs to issuing municipalities and stimulate the economy. Bonds to fund municipal projects have traditionally been sold in the tax-exempt arena, but BABs are taxable obligations.
A city has issued bonds to construct a new sewage treatment facility. If the bonds are not backed by the full taxing authority of the city, all of the following statements about the bond issue are true EXCEPT:
A) the disbursement of principal and interest payments must be approved semiannually by the state public service commission.
B) there is no debt limitation on the issue.
C) the bond issue will mature within the useful life of the sewage plant.
D) if earnings fall short of the amount needed to make principal and interest payments, the debt service reserve can be used.
The correct answer was: the disbursement of principal and interest payments must be approved semiannually by the state public service commission.
This must be a revenue bond because it is not backed by the full taxing authority of the city. Rather, the principal and interest are paid by the users of the facility. The public service commission has no approval power over revenue bond interest and principal payments.
An analyst interested in measuring the breadth of market movement as an indicator of future market direction would monitor the:
A) DJIA.
B) advance/decline line.
C) Value Line Index.
D) betas of the S&P 500 stocks.
The correct answer was: advance/decline line.
The advance/decline line, which measures the number of stocks that have advanced versus the number of stocks that have declined, is an indicator of the breadth of the market’s advance or decline.
A member firm receives an order from an investment adviser to purchase shares in a common stock IPO. Regarding restricted persons, the member must:
A) obtain a representation from the conduit that the purchaser is not a restricted person.
B) obtain a list of the client(s) whose account(s) will be credited with the shares in order to determine eligibility.
C) refuse to accept the order.
D) obtain a list of all of the adviser’s clients to determine eligibility.
The correct answer was: obtain a representation from the conduit that the purchaser is not a restricted person.
When receiving an order to buy a new equity issue from a bank, investment adviser, or other conduit, a member must obtain a representation from the conduit that all purchasers are in compliance with rules regarding sales of new issues to restricted persons (i.e., they are not restricted persons).
Which of the following statements are accurate interpretations of FINRA rules governing the use of retail communications?
Copies of all retail communications must be kept on file for 3 years.
All retail communications must be approved by a principal.
All retail communications must be filed with FINRA before first use.
Sales and product promotion materials distributed to registered representatives and other employees are retail communications and must be submitted for FINRA review, even though such materials are not intended for public distribution.
A) I and III
B) I and II
C) III and IV
D) II and IV
The correct answer was: I and II
A broker/dealer’s retail communications must be approved by a principal of the firm before use or filing with FINRA when filing is required, and must be kept on file for at least three years. Pre-filing with FINRA can depend on a number of factors, such as the product. For example, pre-filing of retail communications is required for certain pieces having to do with investment companies and VAs, but not for pieces having to do with DPPs or CMOs.
A customer buys a municipal bond regular way on Tuesday, December 23. The transaction will settle on the following:
A) Friday.
B) Thursday.
C) Monday.
D) Tuesday.
The correct answer was: Monday.
Municipal bonds, like corporate bonds, settle 3 business days after the trade date. December 25 (Christmas) is not a business day.
Which of the following customer accounts is NOT SIPC-insured?
A) Customer margin account.
B) JTWROS account with spouse.
C) TIC commodities account with son.
D) TIC account with business partner.
The correct answer was: TIC commodities account with son.
SIPC coverage only applies to accounts holding securities; commodities accounts are not covered.
Moody’s Investment Grade (MIG) Ratings are applied to:
A) money market instruments.
B) corporate bonds.
C) municipal notes.
D) municipal bonds.
The correct answer was: municipal notes.
Moody’s Investment Grade Ratings are applied to municipal notes which are short-term municipal debts, such as bond anticipation notes (BANs).
If the Federal Reserve Board (FRB) decides that the rate of inflation is too high, which is it most likely to do?
Tighten the money supply. Loosen the money supply. Lower the discount rate. Raise the discount rate. A) II and IV. B) I and III. C) II and III. D) I and IV.
The correct answer was: I and IV.
If the FRB decides to attempt to curb inflation, it can raise the discount rate which in turn tightens the money supply.
When using customer portfolio margining (CPM) to calculate margin, the requirements are
Based on the risk associated with the security having the highest volatility in a portfolio.
Based on the net risks associated with all the securities in a portfolio.
Higher than the margin requirements calculated conventionally.
Lower than the margin requirements calculated conventionally.
A) I and III.
B) II and IV.
C) I and IV.
D) II and III.
The correct answer was: II and IV.
Customer portfolio margining (CPM) allows margin requirements to be calculated based on the net risk of a portfolio of securities rather than applying margin calculations separately to each position. While a number of criteria must be met before offering portfolio margining to a customer, generally it will result in lower margin requirements than when margin is calculated conventionally.
A registered representative executes the following trades for an options account:
Buy 1 FLB Apr 40 call at 9
Sell 1 FLB Apr 45 call at 4
Are these suitable trades?
A) No, because the customer cannot make a profit on these trades.
B) It depends on the customer’s investment objectives.
C) It is impossible to tell.
D) Yes, because the trades will result in a small profit.
The correct answer was: No, because the customer cannot make a profit on these trades.
These trades are not suitable because the customer will not make a profit. In any price spread, the net debit represents maximum loss; in this case, the net debit is 5 points, or $500. Maximum loss added to maximum gain will always equal the difference between the strike prices. In this example, the difference between the strike price is 5 points, therefore maximum gain is 0.
Investment company shareholders must receive financial reports at least semiannually. All of the following are true regarding these reports EXCEPT
A) one of the semiannual reports must be audited
B) a statement of all compensation paid to the board of directors (BOD) must be included
C) the report is regulated under FINRA’s rules regarding communications with the public
D) a valuation of all securities in the IC portfolio as of the date of the balance sheet provided in the report must be included
The correct answer was: the report is regulated under FINRA’s rules regarding communications with the public
The reports are required to be supplied to IC shareholders under the Investment Company Act of 1940. They are prepared and distributed by the investment companies. Unless forwarded by broker/dealers to their customers, the semiannual reports would not be regulated under FINRA’s communication with the public rules for broker/dealers.
In an initial transaction in a margin account a customer sells short 200 ABC at $18 per share. The credit balance in the account is:
A) 5400.
B) 5600.
C) 2400.
D) 2000.
The correct answer was: 5600.
The minimum equity requirement for short accounts is $2,000. The investor receives $3,600 from the proceeds of the sale and must deposit $2,000, therefore the credit balance is $5,600 ($3,600 + $2,000 = $5,600).
XYZ Corporation has outstanding a 7% convertible bond currently trading at 102. The bond, which has a conversion price of $50, was issued with an antidilution covenant. If XYZ declares a 10% stock dividend, the new conversion price, as of the ex-date, will be:
A) $55.00.
B) $45.45.
C) $45.00.
D) $55.55.
The correct answer was: $45.45.
To compute a new conversion price, divide the current conversion price by 100% plus the percent increase in shares. $50 / 110% = $45.45.
Which of the following may NOT normally assign authorization to a third party?
A) An individual.
B) A joint account.
C) A corporation.
D) A custodian.
The correct answer was: A custodian.
Assigning authorization to a third party is giving discretionary authority to someone else. The custodian of an account is the person with discretionary authority over the account. To assign the authority to someone else, unsupervised, is not allowed.
Your customer is interested in a variable annuity but is unclear on some of the details regarding different specifications and riders that can be attached to the contract. He makes the following four statements, all of which are true EXCEPT
A) with guaranteed minimum withdrawal benefits (GMWBs) the periodic payments can be monthly, quarterly or annually
B) a lifetime withdrawal benefit (LWB) or lifetime income benefit is generally in the form of a rider attached to the contract which will come at a cost to the annuitant
C) a lifetime withdrawal benefit (LWB) or lifetime income benefit will make a periodic payment even if the account balance falls to zero
D) with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed
The correct answer was: with guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is guaranteed
With guaranteed minimum withdrawal benefits (GMWBs) a lifetime of periodic payments is not guaranteed because payments stop when the annuitant has received an amount equal to the principal account value or the contract term ends. Each of the remaining statements are true.
A buy stop order may be used for all of the following EXCEPT:
A) to protect against loss in a short position.
B) to acquire a long position as a stock breaks through resistance.
C) to protect a profit in a long position.
D) to protect a profit in a short position.
The correct answer was: to protect a profit in a long position.
Buying can only protect short positions, not long positions.
A limited partner assisting the general partner to solicit new investors.
A) is permitted if no compensation is paid.
B) is permitted if done within 90 days of his acceptance as limited partner.
C) could jeopardize his limited partner status.
D) is permitted if stated in the partnership agreement.
The correct answer was: could jeopardize his limited partner status.
If limited partners, either individually or as a group, become too involved with the business of the partnership, they could be considered to be general partners and lose their limited liability.
The writer of a combination expects the market to be:
A) bearish.
B) stable.
C) volatile.
D) bullish.
The correct answer was: stable.
The writer, or seller, of a combination expects the market to be stable. The buyer of a combination expects the market to be volatile. Combinations and straddles are never bullish or bearish, as there are always both calls and puts involved in the strategy, which are both bullish and bearish. Remember, the definition of a combination is a put and a call on the same underlying security with the strike prices and/or the expiration months being different.
The manager will credit each syndicate member based on sales of that particular maturity allotted to the member, and such credits shall extinguish liability based only on such securities that are sold by the member.
This statement describes an agreement among underwriters that is a(n):
A) Eastern account.
B) proportionate underwriting.
C) undivided account.
D) divided account.
The correct answer was: divided account.
This is part of an agreement for a Western (divided) syndicate.
All of the following regarding the official statement for a new municipal issue are true EXCEPT that it:
A) meets disclosure requirements for purchasers of the new issue.
B) can be used to review the issuer’s creditworthiness.
C) must include information about the offering’s call provisions.
D) is also called a prospectus.
The correct answer was: is also called a prospectus.
The official statement is the disclosure document for each new issue of exempt municipal bonds. Although it is similar to a prospectus, these terms are not synonymous. The official statement commonly includes information about the call provisions of the bond, creditworthiness of the issuer, and other information potential purchasers should know before investing.
A retired customer was unhappy with the low yields paid by her CDs. In their first meeting, her registered representative recommended Class B shares of a long-term government bond fund, emphasized the safety of government bonds, and provided her with a prospectus. After signing a statement saying she had read and understood the prospectus, the customer invested all of her money in the fund. A year later, interest rates rose and the value of the fund declined. Having assumed the fund was government guaranteed, she was upset and became increasingly so when she learned that the deferred sales charge could cause her to lose additional money if she were to redeem her shares. Which of the following statements is TRUE?
A) The representative should have fully explained the features, charges, price fluctuations, and other characteristics of a bond fund before having the customer make such a substantial investment commitment.
B) Because the fund invests in government bonds, it is government guaranteed and is therefore just as safe as a CD.
C) Since no one can predict interest rate moves, and the customer had read the prospectus, the bond fund was an appropriate investment.
D) Because her money was originally in a single investment, it was suitable to move her funds into another single investment.
The correct answer was: The representative should have fully explained the features, charges, price fluctuations, and other characteristics of a bond fund before having the customer make such a substantial investment commitment.
This customer is used to low-risk investments. The prospectus must not only be supplied, but the risks fully explained as well.
A registered representative’s (RR) customer is speaking of a variable life insurance contract he owns. He makes several statements regarding the contract. Which of the following is NOT an accurate statement concerning a variable life insurance contract?
A) The policy provides a minimum guaranteed death benefit.
B) There is no guarantee regarding the investment results of the separate account.
C) The death benefit cannot ever be more than the guaranteed benefit.
D) The portion of the premium invested in the insurance company’s general account is used to provide for the minimum guaranteed amount of the death benefit.
The correct answer was: The death benefit cannot ever be more than the guaranteed benefit.
The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company’s general account. The remainder of the premium is invested in the separate account. While there is no guarantee on how investments in the separate account will perform, depending on its investment performance, the separate account could provide for a larger death benefit than the minimum guaranteed amount.
In a customer’s margin account a broker/dealer must segregate:
A) 100% of the long market value (LMV).
B) 50% of the equity balance.
C) The excess securities above 140% of the accounts debit balance.
D) 140% of the debit balance.
The correct answer was: The excess securities above 140% of the accounts debit balance.
A broker/dealer may hypothecate (pledge) 140% of a customer’s debit balance. Any customer securities in excess of 140% of the debit balance must be physically segregated.
Investment clubs:
can take advantage of breakpoints on mutual fund purchases.
cannot take advantage of breakpoints on mutual fund purchases.
are permitted to purchase new equity issues at the POP.
are not permitted to purchase new equity issues at the POP.
A) II and III.
B) I and III.
C) II and IV.
D) I and IV.
The correct answer was: II and III.
Investment clubs are not considered restricted persons under the rules regarding sales of a new issue, and therefore are eligible to purchase new equity issues. Note that if a registered representative (a restricted person) were a member of an investment club, the club would be prohibited from buying a new equity issue. Investment clubs are never permitted to take advantage of breakpoints available on mutual fund purchases.
In early September, a customer buys 100 shares of MCS stock for $83 per share and simultaneously writes 1 MCS Mar 90 call for $4 per share. The customer will break even when MCS stock is at:
A) 79
B) 86
C) 94
D) 87
The correct answer was: 79
This is a covered call writer. If the stock rises above $90, the writer will be exercised and will make $700 on the stock (buy at $83, deliver at $90) and keep the $400 received in premiums. If the stock declines, the call expires unexercised. The writer can lose $400 on the stock (the premiums earned) and still break even. This occurs at $79 ($83 − $4). Breakeven is cost of stock purchased less premiums.
A broker/dealer allows registered representatives to utilize social networking sites such as Facebook and LinkedIn but prohibits the use of delivery platforms such as blogs where comments can be posted, starting discussions on blog sites, or starting discussions in Internet chat rooms and posting tweets on Twitter. One of the BD’s registered representatives tweets that he is going to learn the details about a new investment product today. The Twitter posting
A) would be allowed as long as the registered representative had adhered to all of FINRA’s guidance on utilizing electronic platforms and devices
B) is not allowed because FINRA prohibits modes of communication where content can be posted impulsively such as on blogs, in chat rooms, or tweeting
C) is allowed because no investment advice was offered regarding the new product in the tweet
D) is not allowed because the BD has in-house rules prohibiting tweeting in regards to business
The correct answer was: is not allowed because the BD has in-house rules prohibiting tweeting in regards to business
FINRA has offered guidance on the use of electronic modes of delivering business-related content communications to the public. It does not prohibit the use of any technology or device but can offer and update guidance with regards to any specific technology or device. Within that guidance, FINRA has stated that in-house prohibitions on the use of any technology or device that have been mandated by the BD must be adhered to by all BD personnel.
In municipal bond language, what is a workable indication?
A) Indication that the managing underwriter will probably award your firm the number of bonds that it has requested.
B) Likely bid.
C) Indication that the issuer will probably award the winning bid to your underwriting syndicate.
D) Likely offer.
The correct answer was: Likely bid.
A municipal dealer wishing to dispose of a block of bonds will seek a workable indication from another municipal dealer. The workable indication from another municipal dealer is not a firm bid but a range.
A quote on Nasdaq is as follows:
Bid Ask 10 10.50, 1300 x 1500
The market maker is obligated to execute all of the following customer transactions in their entirety EXCEPT:
A) buy 1,500 shares at 10.50.
B) buy 1,400 shares at 10.50.
C) sell 1,500 shares at 10.
D) sell 1,300 shares at 10.
The correct answer was: sell 1,500 shares at 10.
This market maker has quoted a size of market of 1,300 − 1,500, which means it stands ready to buy a maximum of 1,300 shares at $10 and sell a maximum of 1,500 shares at 10.50. A sale of 1,500 shares at 10 is outside the size of this quote.
If an investor writes 2 DWQ Jan. 60 puts at 3 in September and the investor buys back the 2 puts at 4.50 two months later, the result for tax purposes is a:
A) $300 short-term capital loss.
B) $300 short-term capital gain.
C) $150 short-term capital gain.
D) $150 short-term capital loss.
The correct answer was: $300 short-term capital loss.
A $900 closing cost minus $600 opening proceeds equals a $300 short-term loss.
John is the annuitant in a variable plan, and Sue is the beneficiary. Upon John’s death during the accumulation period, Sue takes a lump-sum payment. What is her total tax liability?
A) None, because it is the proceeds from a life insurance company.
B) The entire amount is taxed as ordinary income, because it is not life insurance.
C) The ordinary income on the proceeds over the cost basis plus 10% of the net gain (if any) if Sue is younger than 59-½ years old.
D) The proceeds minus John’s cost basis taxed as ordinary income at Sue’s tax rate.
The correct answer was: The proceeds minus John’s cost basis taxed as ordinary income at Sue’s tax rate.
Annuity death benefits are generally paid in a lump sum. The beneficiary is taxed at ordinary income rates during the year the lump sum is received. The amount taxed is the amount of the lump-sum payment minus the deceased’s cost basis in the investment.
Arbitration and mediation are 2 services provided by FINRA to settle disputes between members. Regarding these services, which of the following statements are NOT true?
Mediation is mandatory; arbitration is not.
Arbitration always results in a binding decision; mediation may not.
If arbitration is unsuccessful, the dispute moves on to mediation.
A mediator in a dispute may not serve as an arbitrator in the same dispute.
A) I and III.
B) II and IV.
C) II and III.
D) I and IV.
The correct answer was: I and III.
Arbitration is mandatory in disputes between members. If mediation takes place and is not successful, the dispute moves on to arbitration. The person who served as mediator may not be an arbitrator in the same dispute.
A customer sells $5,000 worth of a security in a cash account and on the same day purchases $8,000 worth of a different security in the same account. At the close of the 5th business day following these transactions, no payment has been received from the customer and no extension has been obtained. Assuming no change in market value, the firm must:
A) liquidate $5,000 of securities and freeze the account for 90 days.
B) liquidate the $8,000 transaction and freeze the account for 90 days.
C) cancel both the purchase and the sale and freeze the account for 90 days.
D) liquidate $3,000 of securities and freeze the account for 90 days.
The correct answer was: liquidate $3,000 of securities and freeze the account for 90 days.
When an investor buys and sells different securities in the same account on the same day, the two transactions can be netted against each other to determine whether money is due to the client or the client owes money to the firm. In this question the client owes the firm $3,000 (an $8,000 purchase netted against a $5,000 sale). According to Regulation T, the investor has 2 business days after settlement (5 days total) to pay the amount owed. Since he has failed to do so and no extension has been obtained, the unpaid-for portion of the trade, which is $3,000, will be liquidated and, according to Regulation T, the account will be frozen for 90 days.
A 3% bond with 20 years to maturity is being issued by a syndicate with a reoffering yield of 4%. What is the term used to describe this bond?
A) Original issue premium.
B) Secondary market discount.
C) High-yield bond.
D) Original issue discount.
The correct answer was: Original issue discount.
Because the bond is being issued by a syndicate, it is a new issue (i.e., an original issue). Because the yield (4%) is higher than the coupon (3%), it is an original issue discount.
A retail customer purchases a municipal bond from your firm. According to MSRB rules, the confirmation must disclose which of the following?
Where your firm acquired the bonds. Whether your firm acted as agent or principal. Your firm's address. The price your firm paid for the bonds. A) I and IV. B) II and IV. C) II and III. D) I and III.
The correct answer was: II and III.
The broker/dealer must always disclose the capacity in which it acted (principal or agent). The confirmation must show the name of the person for whom the trade was executed (the customer). The name, address, and telephone number of the broker/dealer must be shown so the customer may easily contact the firm. The settlement date is also required. The broker/dealer is not required to disclose where it acquired the bonds or the price it paid.
Reference: 3.4.5.1.2 in the License Exam Manual.
Which of the following best describes the advantages of an oil and gas income program as compared with other types of oil and gas programs?
A) Greatest risk of capital.
B) Lowest risk of capital.
C) No depletion allowances.
D) Highest tax write-off.
The correct answer was: Lowest risk of capital.
Oil and gas income programs own producing wells and pass through their depletion allowances. There is little risk compared to other programs, such as exploration.
In a proxy contest, a member firm holding securities in street name for clients who are beneficial owners must:
A) vote the proxies as it wishes.
B) send the proxy material to the beneficial owners at the member firm’s expense.
C) send a list of the beneficial owners’ names and addresses to the issuing company so that it may send proxy materials to those owners.
D) send the proxy material to the beneficial owners at the issuing company’s expense.
The correct answer was: send the proxy material to the beneficial owners at the issuing company’s expense.
A securities firm that is a member of FINRA must forward all proxy material to the beneficial owners for all securities held in street name, and the issuers must bear the expense of shipping the proxy material.
A registered representative (RR) is explaining the characteristics of a Coverdell ESA to a customer. Which of the following statements regarding this type of savings account is CORRECT?
Contributions are tax deductible. Contributions are not tax deductible. When used for qualified educational expenses, withdrawals are taxable. When used for qualified educational expenses, withdrawals are not taxable. A) I and III. B) II and IV. C) II and III. D) I and IV.
The correct answer was: II and IV.
Contributions to a Coverdell Education Saving Account (ESA) are made with after- tax dollars. Distributions used for qualified educational expenses are tax free.
Which of the following organizations determines which OTC securities are eligible for purchase on margin?
A) MSRB.
B) SEC.
C) FRB.
D) FINRA.
The correct answer was: FRB.
The Federal Reserve Board determines whether any security is marginable.
Once the IRS determines that a tax shelter is abusive, it may do all of the following EXCEPT:
A) charge interest on back taxes.
B) charge the taxpayer with intent to defraud.
C) disallow all deductions.
D) sentence the abuser to a prison sentence.
The correct answer was: sentence the abuser to a prison sentence.
The IRS does not have the authority to hand out prison sentences.
Interest on loans to purchase securities is generally a deductible item on one’s tax return unless the purchase is for
A) warrants
B) a municipal bond
C) a corporate bond
D) stock
The correct answer was: a municipal bond
Because the interest received from municipal bond investments is tax-free, the IRS does not allow interest paid for loans to purchase municipal bonds as a deductible item on one’s tax return, as it would for other securities purchased with loans (margin).
Twenty-five basis points on a par bond with 1 year to maturity are equal to:
$.25 per $1,000. $2.50 per $1,000. 0.25%. 2.5%. A) I and III. B) I and IV. C) II and III. D) II and IV.
The correct answer was: II and III.
If 1 basis point equals .01%, 25 basis points equal .25%. .25% of $10 (which is the value of one full point for a bond) = $2.50.
A registered representative with discretionary authority requires customer authorization before purchasing:
A) noninvestmentgrade bonds.
B) junk bond funds.
C) noncallable zerocoupon bonds.
D) municipal bonds where a control relationship exists.
The correct answer was: municipal bonds where a control relationship exists.
Even though the representative has discretionary authority to trade the account, the MSRB requires that the representative receive customer permission prior to purchasing bonds where the firm has a control relationship with the issuer.
According to the Insider Trading and Securities Fraud Enforcement Act, contemporaneous traders are all of the following EXCEPT:
A) persons who make trades at approximately the same time as inside traders.
B) persons granted the right to sue inside traders for damages under the act.
C) insiders such as corporate employees.
D) noninsiders.
The correct answer was: insiders such as corporate employees.
According to the Insider Trading and Securities Fraud Enforcement Act of 1988, contemporaneous traders are corporate outsiders who make trades at about the same time as insiders. They are granted the right to sue inside traders for damages sustained.
An investor purchasing long-term AAA rated bonds should be concerned most with:
A) no risk.
B) reinvestment risk.
C) inflation risk.
D) marketability risk.
The correct answer was: inflation risk.
The major risk assumed by any investor in long-term high-quality bonds is inflation or purchasing power risk. AAA rated debt securities are likely to earn a lower rate of return, which over a longer period of time might not keep up with the rate of inflation.
An investor who has purchased a nonqualified variable annuity has the right to:
vote on proposed changes in investment policy. approve changes in the plan portfolio. vote for the investment adviser. withdraw funds without any tax consequences. A) II and IV. B) I and III. C) I and IV. D) II and III.
The correct answer was: I and III.
Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal.
Which of the following options strategies could be used by an investor who is bearish on a stock?
Debit call spread. Debit put spread. Long call. Long combination straddle. A) I and IV. B) II and III. C) I and III. D) II and IV.
The correct answer was: II and IV.
A debit put spread is a bearish strategy that could realize a profit (the difference between the strike prices minus the premium paid for the spread) if the stock price fell. A long combination, which consists of both a long call and a long put, is both bullish and bearish and could also yield a profit if the stock price fell as the result of the long put. However, both a debit call spread and a long call are bullish strategies and would not be used if one is bearish on the stock.
Reference: 4.4.1.4 in the License Exam Manual.
When a customer gives limited power of attorney to his registered representative, which of the following statements is TRUE?
A) The power of attorney must have the customer’s signature.
B) The registered representative needs written permission from the customer for each trade.
C) A principal must initial each order before it is entered.
D) The customer must renew the power of attorney each year.
The correct answer was: The power of attorney must have the customer’s signature.
The registered representative must have prior written authority from the customer and approval from a principal before exercising discretionary authority. Although a designated principal must review the account frequently and review and approve all trades on a daily basis, prior approval of discretionary orders is not required.
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 equity in the combined account?
A) 32000.
B) 75000.
C) 8000.
D) 35000.
The correct answer was: 32000.
Combined equity is found with the following equation: LMV plus CR minus DR minus SMV equals combined equity, or $35,000 plus $60,000 minus $23,000 minus $40,000 equals $32,000. SMA has no impact on the combined equity.
A commercial bank purchasing qualified GO bonds may deduct what percentage of the interest cost necessary to fund the purchase?
A) 100%.
B) 50%.
C) 80%.
D) 20%.
The correct answer was: 80%.
A bank-qualified municipal bond issue is a small issue, generally a GO issue of $10 million or less. If a bank were to purchase any part of a qualified issue, 80% of the annual costs necessary to fund the purchase would be tax deductible to the bank.
ABC corporation trading at $80 per share has just bid $50 per share for XYZ corporation, currently trading at $40 per share in a hostile takeover attempt. The most common risk or takeover arbitrage strategy would be to
A) sell shares of the target company (XYZ)
B) buy shares of the aggressor company (ABC)
C) buy shares of the target company (XYZ) and short shares of the aggressor (ABC)
D) there can never be an arbitrage opportunity in a hostile takeover scenario
The correct answer was: buy shares of the target company (XYZ) and short shares of the aggressor (ABC)
The most common form of risk or takeover arbitrage is to purchase the shares of the target company and short the shares of the aggressor, believing that the potential acquisition will raise the target company’s share price and decrease the share price of the aggressor.
What is a bank-qualified municipal issue?
A) One considered safe enough for a bank to invest in-same as investment grade.
B) An escrow receipt.
C) One in which the bank guarantees the payment of interest and principal.
D) One that receives preferential treatment by allowing a bank to exclude from gross income 80% of the interest expense incurred to carry the bonds.
The correct answer was: One that receives preferential treatment by allowing a bank to exclude from gross income 80% of the interest expense incurred to carry the bonds.
A bank-qualified municipal issue is one that receives preferential treatment by allowing a bank to exclude from gross income 80% of the interest expense incurred to carry (issue) the bonds. An issue is qualified if it is for a public purpose and the issuer issues no more than $10 million in the calendar year of the issue. Bank qualified has no bearing on the quality of the issue.
A convertible corporate bond with an 8% coupon yielding 7.1% is available, but may be called some time this year. Which feature of this bond would probably be least attractive to your client?
A) Convertibility.
B) Coupon yield.
C) Near-term call.
D) Current yield.
The correct answer was: Near-term call.
The near-term call would mean that no matter how attractive the bond’s other features, the client may not have very long to enjoy them.
If the Fed begins selling securities in the open market to tighten credit, what is the first interest rate to feel this change in the Fed policy?
A) Prime rate.
B) Federal funds rate.
C) Interest rate on long-term debentures.
D) Discount rate.
The correct answer was: Federal funds rate.
The Federal Reserve Board’s actions to influence the money supply are first felt on the federal funds rates.
Which of the following would be the least appropriate investment in a traditional IRA for a 67-year-old client?
A) Treasury notes.
B) Variable annuities.
C) Corporate bonds.
D) Common stock.
The correct answer was: Variable annuities.
Why buy a tax-deferred product in a tax-deferred account? A variable annuity will provide no additional tax savings and will likely increase the expense of the IRA. In addition to sales and surrender charges, variable annuities may impose other charges such as mortality and expense risk charges, administrative fees, etc. In less than 4 years, your client will have to begin making withdrawals regardless of any surrender charges the annuity may impose.
If a customer buys 500 shares of ABC at 48 and writes 5 ABC 50 calls at 2, what is the maximum loss?
A) 4600.
B) 1000.
C) 23000.
D) Unlimited.
The correct answer was: 23000.
The investor pays $48 per share for the stock and receives $2 for selling the calls. The maximum loss is $48 per share minus the option premium collected, or ($48 − $2) × 500 shares = $23,000.
If a ROP is asked to approve a discretionary order to buy 1 XYZ Oct 60 put and sell 1 XYZ Oct 55 put for a net debit of $5, he should:
A) not approve the order.
B) approve the order if the customer has sufficient funds in his accounts.
C) obtain the best execution for the order.
D) approve the order in writing.
The correct answer was: not approve the order.
Because this is a debit spread, the maximum gain occurs if both sides are exercised. If this occurs, the investor earns $5 (buy stock at 55 when the short put is exercised and sell stock at 60 by exercising the long put). Because the net premium paid for the spread is $5, there can never be any gain. This spread is not economical.
Your customer tells you that she sees the exchange rate for the British pound in the spot market is listed at 148.47. What do you tell her when she asks you what this means?
A) $1 equals 14.847 pounds.
B) One pound equals 14.847 U.S. cents.
C) One pound equals $1.4847.
D) $1 equals 1.4847 pounds.
The correct answer was: One pound equals $1.4847.
The exchange rate refers to U.S. cents per British pound; 148.47 equals $1.4847.
Which of the following retirement plans is NOT legally required to establish vesting, funding, and eligibility requirements?
A) Defined benefit pension plan.
B) Payroll deduction plan.
C) Keogh plan.
D) Profit-sharing plan.
The correct answer was: Payroll deduction plan.
A payroll deduction plan is a retirement plan not subject to eligibility, vesting, or funding standards as required by ERISA plans. A payroll deduction plan is a nonqualified retirement plan. Profit-sharing, pension, and Keogh plans must have established standards.
After a mutual fund’s tenth year, performance statistics must show results for each of the following periods EXCEPT:
A) 1 year.
B) 5 years.
C) 10 years.
D) 3 years.
The correct answer was: 3 years.
Mutual fund performance statistics must show results for 1, 5, and 10 years, or the life of the fund, whichever is shorter.
A customer has an order to buy 400 ABC at 60 Stop. ABC declares a 25% stock dividend. On the ex-date, the order on the order book will read:
A) buy 500 shares at 48 stop.
B) buy 500 shares at 30 stop.
C) buy 400 shares at 60 stop.
D) buy 425 shares at 50 stop.
The correct answer was: buy 500 shares at 48 stop.
For stock dividends, all orders on the book are adjusted and the order value must be the same before and after the adjustment. Before the adjustment 400 ABC at 60 Stop = $24,000 total value. After the adjustment total shares on the buy order will be 500 (400 × 25% = 100 new shares, 400 + 100 = 500). To arrive at the new STOP price divide the total order value by the new number of shares ($24,000 / 500 shares = 48). After the adjustment the new order will read; buy 500 shares at 48 stop.
A municipal bond in default is in good delivery form if
past-due coupons are attached. currently due coupons are attached. subsequently due coupons are attached. the issuer files a default guarantee letter with the MSRB. A) I and IV. B) I and III. C) III and IV. D) I, II and III.
The correct answer was: I, II and III.
To be in good delivery form, a municipal bond must be accompanied by all unpaid coupons: past due, currently due, and subsequently due.
To narrow the spread between the bid and the asked price of one of his stocks, a specialist enters a bid to buy for his own account, acting in this transaction as a:
A) floor broker.
B) broker/dealer.
C) broker (or agent).
D) dealer (or principal).
The correct answer was: dealer (or principal).
A specialist (designated market maker) buying for his own account is operating as a dealer, which means he is acting as a principal in the transaction.
In analyzing a municipal government obligation bond, an increase in all of the following would be a negative indication EXCEPT:
A) delinquent taxes.
B) municipal operating expenses.
C) property values.
D) unemployment.
The correct answer was: property values.
Increasing property values would actually have a tendency to increase the taxes paid to the municipality.
A repurchase agreement is an agreement between two parties to conduct a transaction and then reverse the transaction at an agreed-upon price in the future. The duration of the agreement and the rate charged, which represents the difference between the two transactions prices, can best be described as:
long term. short term. lower than bank loan rates. higher than bank loan rates. A) II and III. B) I and III. C) II and IV. D) I and IV.
The correct answer was: II and III.
Repurchase agreements are used by financial institutions to raise cash for short periods of time, typically overnight. Because these agreements are of such short duration, their rate (also known as the repo rate) is generally going to be lower than bank loan rates at that time.
Under the intrastate offering rule (Rule 147), when may a resident purchaser of securities resell them to a nonresident?
A) Nine months from the end of the distribution.
B) Three months after the first sale made in that state.
C) None of these.
D) Six months after the last sale made in that state.
The correct answer was: Nine months from the end of the distribution.
In an intrastate offering, a purchaser of the issue may not sell the securities to a resident of another state for at least nine months from the end of the distribution.
