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Series 7 > Marked Test 2 > Flashcards

Marked Test 2 Flashcards

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Series 7 Top-off Exam flashcards
0
Q

Bud Jones purchased 100 shares of DEF at 20 on June 16 and passed away on July 27 when the market value of DEF was 25. If the 100 shares of DEF are inherited by Mr. Jones’s daughter Mary, what are the tax implications?

I) Mary assumes a cost basis of 20
II) Mary assumes a cost basis of 25
III) The holding period for the stock is short-term
IV) The holding period for the stock is long-term

A

II and IV

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1
Q

The minimum equity requirement for a pattern day trader is…

A

$25,000, which must be deposited before the client may continue day trading

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2
Q

In a closed-end mutual fund the customer pays…

A

Market Price + Commission

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3
Q

In an open-end fund the customer pays…

A

Net Asset Value + Sales Charge

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4
Q

Business Development Company (BDC)

A

Raises capital for small private companies by selling securities to investors and is similar in structure to a closed-end investment company. Not taxed if they distribute at least 90% of their income to investors

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5
Q

Standby Underwriting

A

An arrangement in which the underwriter agrees to buy all the shares not subscribed to in a rights offering

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6
Q

Firm Commitment

A

A underwriting where the underwriters agree to purchase the entire issue from the issuer. If they do not sell the entire issue, they cannot return the unsold portion to the issuer.

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7
Q

Best Efforts Underwriting

A

An offering in which the investment banker agrees to distribute as much of the offering as possible and to return to the issuer any unsold shares

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8
Q

All-or-none Underwriting

A

A type of best efforts underwriting in which the issuer will sell the entire amount, or cancel the entire issue.

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9
Q

Fidelity Bond

A

An insurance policy required of every broker-dealer to provide protection for the firm in the event of a fraud or theft by broker-dealer employees.

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10
Q

Private Activity Bonds

A

Category of municipal bonds, where the funds will generally be used to finance the construction of a facility that will be used by a private corporation. Interest may be taxable for federal income tax purposes and is often subject to the Alternative Minimum Tax (AMT).

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11
Q

Alternative Minimum Tax

A

Designed to prevent wealthy investors from using tax shelters to avoid other (income) taxes. The calculation of the AMT takes into account tax preference items.

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12
Q

Total equity formula from a combined margin account:

A

LMV + CR - DR - SMV

Long market value (LMV) plus the credit balance (CR), then subtract the debit balance (DR) and the short market value (SMV)

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13
Q

Federal Funds Rate

A

The interest rate at which depository institutions lend immediately available funds (balances at the Federal Reserve) to another depository institution overnight. It is influenced, but not set by, the Federal Reserve Board.

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14
Q

Direct Participation Program (DPP)

A

A business venture structured to pass through income and tax losses to investors. Commonly structured as a limited partnership.

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15
Q

A charge to a customer for the collection of dividends, holding of securities, and other services must be:

A

Reasonably fair and not discriminate between customers

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16
Q

Fourth Market

A

The direct trading of securities between institutional investors to avoid brokerage commissions. In some cases, this is done through an electronic system.

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17
Q

Regulation NMS

A

National Market System requires nondiscriminatory access to quotations, automated execution of orders, and limit order protection of an inter-exchange basis. Market centers must provide automated trading systems, and implement procedures designed to prevent trade-throughs at inferior prices of protected quotations.

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18
Q

Involves buying the higher exercise price and selling the lower exercise price…

A

Bear Spread

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19
Q

Involves buying the lower exercise price and selling the higher exercise price…

A

Bull Spread

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20
Q

Narrow-based index option would be used to…

A

Used to hedge a stock portfolio consisting of stocks from the same industry

21
Q

A broad-based index option would be used to…

A

Hedge a diversified stock portfolio

22
Q

The primary benefit of a 1035 exchange is…

A

That it is not taxable. However, the new annuity may come with new restrictions making it unsuitable for the investor.

23
Q

Advanced option strategies such as spreads and straddles should be executed over how many order tickets?

A

1

24
Q

What organizations enforces municipal securities regulations for broker-dealers?

A

FINRA

25
Q

A nonqualified variable annuity

A

Annuity that is not inside an IRA or qualified retirement plan.

26
Q

The total value of the order before the dividend must…

A

Equal the value after the dividend

27
Q

What is the maximum amount of losses on taxes an investor can take in a year before carrying forward the remaining balance?

A

1/3?

28
Q

All of the following statements are TRUE concerning both auction rate securities (ARSs) and variable-rate demand obligations (VRDOs), EXCEPT:

a) Interest rates are set at specified intervals
b) They are often issued by municipalities
c) They are long-term securities with short-term trading features
d) They have a put feature allowing the holder to redeem the security at par

A

d) They have a put feature allowing the holder to redeem the security at par

29
Q

Municipal bond insurance guarantees…

A

Timely payment of principal and interest.

30
Q

Joanna, a client of yours, anticipates that the value of the U.S. dollar is weakening in relation to the euro and decides to purchase 10 March 115 euro call options at 1.30 when the spot price is 115.55. The contract size of each euro contract is 10,000. The total time value paid by Joanna for the 10 contracts is:

a) $130
b) $550
c) $750
d) $955

A

c) $750

31
Q

Reverse convertible securities

A

Short-term notes issued by banks and broker-dealers paying a coupon rate with an obligation to purchase shares of an underlying asset at a fixed price it the underlying asset trades below the kick-in video

32
Q

At what age must IRA withdrawals begin?

A

70.5

33
Q

The separate account of a variable life policy has performed poorly for some time. A client is concerned about her cash value and death benefit. Which of the following statements is TRUE?

a) The cash value is guaranteed
b) The cash value may decline, but not below a contractual minimum
c) The death benefit is the lesser value of the contract or the amount of the investment
d) The death benefit may decline, but not below a contractual minimum

A

d) The death benefit may decline, but not below a contractual minimum

34
Q

Recapture

A

A situation where tax benefits previously taken should be paid back to the government.

35
Q

Overlapping Debt

A

GO bonds from one political jurisdiction and another adjacent jurisdiction that share and pay from public goods together

36
Q

Qualified institutional buyers must have at least _______ of investable assets.

A

$100 million

37
Q

The 30-Day Visible Supply

A

The Daily Bond Buyer’s report of all municipal bonds that are expected to be brought to market in the next 30 days.

38
Q

Universal life insurance

A

Allow the purchaser to vary his premiums based on current income levels and insurance requirements

39
Q

Variable life insurance

A

Provides returns based on the performance of a separate account

40
Q

Variable-Rate Demand Obligation (VRDO)

A

Debt instrument representing borrowed funds payable on demand and that accrue interest based on prevailing money market rate, such as the prime rate.

41
Q

Auction-Rate Security (ARS)

A

Debt sold through Dutch auction at interest rate that will clear the market at the lowest yield possible, insuring all bidders receive the same yield on the issue

42
Q

Tax-Anticipation Note (TAN)

A

Short-term state or local debt issued to immediately finance a project that will be repaid with future tax collections

43
Q

Bond Anticipation Note (BAN)

A

Short-term note issued in advance of a larger bond funding an upcoming project

44
Q

The 5% Markup Policy

A

Maximum for markups and markdowns; guideline, not a rule; does not apply to new issues, mutual funds, or munis; based on current offer

45
Q

On February 22, an investor sells ABC stock at $31 for a 3-point loss. On March 10, the investor purchases ABC stock at a price of $27. For tax purposes, the investor’s cost basis for the stock purchased on March 10 is:

a) 24
b) 27
c) 30
d) 31

A

c) 30

46
Q

not-held order

A

Market or limit order that give RR both time and price discretion to attempt to get the best possible price

47
Q

Divided Account (Western Account)

A

Each member is responsible for its own participation in the syndicate. If any bonds remain unsold, it is the responsibility of that member.

48
Q

Divided Account (Eastern)

A

Unsold bonds are the responsibility of the entire syndicate. Each member would then be liable for the same proportion as his original participation.

49
Q

Why must the maturity of commercial paper be 270 days or less?

A

Short-term corporate debt of 270 days or less is exempt from registration

Series 7 (4 decks)

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