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Sie/S7 Top Off/S66 > S7 Top Off > Flashcards

S7 Top Off Flashcards

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SIE Exam flashcards
1
Q

``What does a prospectus for a variable annuity need?

A

Must be filed with the SEC
May be delivered electronically
Must provide full and fair disclosure
Must detail all sales charges and ongoing expenses of the contract

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2
Q

What is the goal of GROWTH FUND?

A

main objective of a growth fund is long-term capital appreciation

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3
Q

What is the additional bonds covenant?

A

A financial test that ensures a project’s revenue is sufficient to make the debt service payments on both existing and proposed bond issues

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4
Q

What is taken into consideration when determining the markup on a municipal securities transaction?

A

The dollar amount of the trade
The best judgement of the dealer
The fact that the dealer is entitled to make a profit

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5
Q

What is a debit put spread?

A

Bearish options strategy.

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6
Q

What level are GNMA interest taxed at?

A

federal, state, and local taxes.

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7
Q

What two securities pay a dividend but are not eligible for the corporate dividend exclusion?

A

A money-market fund

A real estate investment trust

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8
Q

How are municipal bonds purchased in the secondary market taxed?

A

ordinary income

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9
Q

What are MSRB rules on transactions execution?

A

MSRB rules require that transactions be executed at a price that is fair and reasonable.

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10
Q

How do you find the breakeven point for a writer of a covered call?

A

The purchase price of a stock - premium received

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11
Q

What is a broker-dealer acting as that’s always willing to buy and sell securities?

A

market maker

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12
Q

What is a broker-dealer acting in when they charge the customer a markdown/markup?

A

principal capacity

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13
Q

What is a broker-dealer acting as when they charge a customer a commission?

A

agency capacity

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14
Q

How do you find the P/E (price to earning ratio)?

A

Market price / earnings

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15
Q

What is another name for yield to maturity?

A

Basis

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16
Q

How are taxes affected when covered calls expire?

A

The premium will be realized as a short-term capital gain and the cost basis for the stock will generally remain the same.

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17
Q

How do you find the cost basis when a covered call exercises?

A

Premium + strike price = cost basis

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18
Q

The securities that are deposited in an escrow account for an advance refunding of a municipal bond are

A

Treasury bonds

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19
Q

What is AIR (Assumed Interest Rate)?

A

The assumed interest rate (AIR) is used to determine the subsequent payments made to the annuitant.

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20
Q

What is the minimum maintenance requirement rule for a LONG MARGIN account?

A

25% of the market value of securities must be in account

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21
Q

How are shares of a close-end company sold?

A

Market value + commission

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22
Q

What is regulation A (axempt)?

A

Regulation A offering is exempt from the registration and prospectus requirements under the Securities Act of 1933. The offering is limited to the issuance of $75 million (Tier 2) of securities during a 12-month period.

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23
Q

What are government inflation-adjusted securities based on the CPI called?”

A

TIPS. purchased as protection against inflationary or purchasing power risk

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24
Q

How often is a margin account marked a day?

A

Once every day

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25
Q

What is an accumulation unit in a variable annuity contract?

A

An accounting measure that’s used to determine the contract owner’s interest in the separate account

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26
Q

What is matured debt?

A

Matured debt is debt of the municipality that is no longer outstanding and, therefore, is not included in analyzing the debt structure of a municipal bond.

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27
Q

What is total bonded debt?

A

Total bonded debt is all of the general obligation debt issued by a municipality.

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28
Q

What is total direct debt?

A

Total direct debt is the sum of the total debt and any unfunded debt of a municipality.

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29
Q

What is overlapping debt?

A

Overlapping debt is that portion of the debt of other government units for which residents of a particular municipality are responsible, such as services or facilities shared by several municipalities.

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30
Q

How do you find a company’s EPS?

A

EPS = (Net Income - Preferred Dividends) ÷ Common Shares Outstanding

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31
Q

How do you find the stock’s parity price?

A

Current market price of the bond / the conversion ratio (amount of shares convertible)

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32
Q

The term that’s used when a company sells stock to the public above par value is

A

Capital Surplus or Paid-in capital

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33
Q

What is “Soft-Dollars”

A

The term that defines an arrangement in which an investment manager receives research and/or brokerage services in exchange for placing orders through that broker-dealer for commission is called soft dollars.

The benefit being received by an adviser must benefit its clients.

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34
Q

What is “Hard-Dollars”?t

A

the practice of paying for the services separately and directly

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35
Q

What is the latest a firm is allowed to accept a exercise notice from a customer for a listed equity option?

A

5:30 PM on the Friday it expires (3rd friday of the month)

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36
Q

What does a customer buy when they buy variable annuities?

A

They buy accumulation units that vary based on the value of the subaccounts units.

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37
Q

How soon could A customer who purchases shares of an exchange-traded fund (ETF) be extended credit by a broker-dealer?

A

Immediately

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38
Q

What is retail communication?

A

Retail communication is promotional material that’s sent to more than 25 retail investors in a 30-calendar-day period.

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39
Q

What is correspondence communication?

A

Material that’s sent to 25 or fewer retail investors in a 30 day period

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40
Q

What is institutional communication?

A

Material that is only to be sent to institutions.

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41
Q

What is material sent to retail and institutional investors?

A

either considered correspondence or retail communication based on the number of retail investors to which it’s sent.

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42
Q

What is a saucer?

A

A saucer is a chart pattern used by technical analysts that indicates that a stock has formed a bottom in its trading cycle and is ready to rise.

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43
Q

What is a inverse saucer?

A

where the stock forms a top in its pattern and is expected to fall.

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44
Q

What does the bottom of a saucer indicate?

A

Bullish

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45
Q

What does the top of a saucer indicate?

A

Bearish

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46
Q

How do you find the current yield?

A

Annual interest / current market price of bond

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47
Q

What type of bonds will an investor pay accrued interest for a secondary market purchase of?

A

Tax anticipation notes

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48
Q

What are characteristics of reverse convertible securities?

A

The coupon rate is usually above prevailing market rates

The investor may have an obligation to purchase shares of an equity security

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49
Q

What is parity?

A

Parity exists when a convertible security is trading at a price that’s equal to the total value of the stock into which it’s convertible.

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50
Q

What happens when a convertible stock is trading at premium to parity?

A

The bond can be converted into the stock and then sold at the higher price which creates arbitrage.

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51
Q

What happens when a stock is trading at or discount to parity?

A

Nothing can be gained through conversion.

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52
Q

What day is used to calculate accrued interest payments on municipal bonds?

A

Interest on new municipal bonds is calculated from the dated date, which is the date from which interest starts to accrue on a municipal bond.

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53
Q

What are technical indicators?

A

Short interest and trading volume

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54
Q

What are fundamental indicators?

A

EPS and the P/E ratio

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55
Q

What are private label mortgage back securities?

A

Private label mortgage-backed securities are issued by financial institutions such as commercial banks, investment banks, and home builders and they contain some agency securities.
Credit rating is assigned by intendent credit agency.
Typically have high credit rating risk.

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56
Q

What is a sinking fund?

A

Sinking funds are savings accounts that assist issuers in paying for an outstanding bond issue.

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57
Q

Under what circumstances will the payout from a variable annuity increase?

A

The performance of the separate account exceeds the AIR

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58
Q

What happens to short term and long term bond rates when interest rates fluctuate?

A

short-term rates will fluctuate more sharply than long-term rates.

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59
Q

What happens to short term and long term rate prices when interest rates fluctuate?

A

Long-term bond prices are affected more than short-term bond prices.

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60
Q

How do you characterize inverse exchange-traded funds (ETFs)?

A

They are designed to deliver the opposite of the performance of an index or other benchmark

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61
Q

What can recruitment advertising not have?

A

. A member firm’s recruitment advertisements may not contain exaggerated claims about opportunities in the securities business.

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62
Q

How can a customer use DVP or RVP?

A

the broker-dealer must be notified of the identity of the third-party bank or institution that’s being used to provide delivery of securities or funds.

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63
Q

How long must payment be made for DVP or RVP?

A

Delivery and payment can be made as late as 35 days after the trade date.

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64
Q

What is Moody’s ratings is the most speculative in the investment-grade category

A

Baa

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65
Q

What does a MIG (Moodys) rating applies to a

A

Municipal notes

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66
Q

How do you find the market capitalization?

A

multiplying the number of outstanding shares by the current market price per share.

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67
Q

What makes up outstanding shares?

A

Institutional shares + retail shares + restricted shares

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68
Q

How many stocks does the Dow Jones have?

A

30

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69
Q

What is a call spread?

A

an options strategy where you buy and sell options of
Same class (puts or calls)
Same expiration date.

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70
Q

What makes a call spread a credit call spread?

A

A credit spread involves selling a high-premium option while purchasing a low-premium option in the same class or of the same security, resulting in a credit to the trader’s or investor’s account.

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71
Q

How does the Options Clearing Corporation select a member firm to receive the exercise notice?:

A

A random selection basis

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72
Q

How do you find the equity in a long margin account?

A

Long Market Value - Debit Balance

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73
Q

How do you find the equity in a short margin account?

A

Credit Balance - Short Market Value

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74
Q

How do you find the equity in a margin account?

A

Long margin account value + short margin account value

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75
Q

When does retail communication have to be reviewed?

A

When it makes a financial recommendation or promotes a product or service of the firm

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76
Q

Who do you go to if an investor with physical securities dies?

A

The transfer agent

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77
Q

How is the basis for gifted shares calculated?

A

cost basis of gifted shares is equal to the donor’s basis at the time of the gift.

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78
Q

How are inherited shares basis calculated at the time of death?

A

The basis of inherited shares is generally the value of the shares at the time of the decedent’s death.

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79
Q

When must Confirmations on regular-way transactions must be sent to customers?

A

Completion of the transaction

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80
Q

How do you find the conversion parity price?

A

Current value of the convertible security / conversion ratio

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81
Q

What municipal securities do NOT require voter approval?

A

A special tax bond

A certificate of participation

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82
Q

The largest portion of the underwriting spread in a new municipal securities issue is the?

A

Total takedown

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83
Q

During annuitization, a variable annuity owner will receive payments that are based on a

A

Fixed number of annuity units

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84
Q

A bond is selling at a premium. This indicates that?

A

Interest rates have decreased since the bond was issued

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85
Q

What is a high-grade bond?

A

investment-grade or highly rated bond.

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86
Q

What is a High-yield?

A

non-investment-grade or junk bonds that expose an investor to the risk of not achieving safety of principal.

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87
Q

What is a long combination?

A

The purchase of a call and put on the same stock, with different expirations and/or strike prices

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88
Q

What is a long straddle?

A

A long straddle consists of purchasing a put and a call, on the same underlying security, with the same strike price and same expiration.

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89
Q

What is the Federal Farm Credit System?

A

The Federal Farm Credit System is composed of the Banks for Cooperatives, Federal Intermediate Credit Banks, and Federal Land Banks.

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90
Q

As a retirement vehicle, what type of annuity would probably provide the greatest protection of purchasing power?

A

Variable annuities

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91
Q

Issuers repurchase their shares to?

A

Increase their earnings per share (EPS)

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92
Q

What are the characteristics of reverse convertible securities?

A

Short-term notes issued by banks and broker-dealers
pay a coupon rate above prevailing market rates
Can be converted at any time

structured products

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93
Q

What is a call premium?

A

It’s the amount over par value that the issuer must pay to exercise the call privilege

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94
Q

How long until a equity security that is distributed under the provisions of Regulation S may be resold in U.S. markets:

A

After a one-year waiting period is satisfied

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95
Q

What is ERISA?

A

ERISA requires that employees be age 21 or older, have worked full-time (1,000 hours minimum) during the year, and be employed for at least one year be treated fairly

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96
Q

A customer writes an IBM October 120 call, receiving a $4 premium, and buys an IBM October 100 call, paying a $12 premium. IBM is currently selling at $108. If he exercises the IBM October 100 call just prior to expiration, what should the stock be selling at in order for the customer to break even?

A

108

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97
Q

What type of research MUST be approved by a broker-dealer?

A

Third-party research

Research which is prepared by the broker-dealer that’s underwriting an IPO and released more than 10 calendar days following the IPO

Research which is prepared by the broker-dealer that makes material disclosures regarding conflicts of interest

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98
Q

What do technical analyst review?

A

Advance-decline theory
short interest
trendline theory

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99
Q

What type of analysis would look at The price-earnings ratio of the Dow Jones stocks?

A

A fundamental analyst

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100
Q

What calculation describes the payout on a variable annuity?

A

A fixed number of annuity units multiplied by a variable dollar amount

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101
Q

What is rule 144 (4 weeks)

A

After filing Form 144, an investor has 90 days to sell the greater of 1% of the outstanding restricted or control shares or the average weekly trading volume over the previous four weeks.

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102
Q

What is classified common stock?

A

Classified common stock has unique privileges that other common shareholders are not provided

extra voting rights; often used by execs by top companies to keep control of company

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103
Q

What is a renewal and replacement fund?

A

It holds monies put aside for the improvement of the facility.

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104
Q

What is Form 3?

A

A person must file Form 3 with the SEC within 10 days of becoming an insider.

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105
Q

What is Form 4?

A

Form 4 must be filed within two business days of the date on which an insider changes his ownership position (i.e., buys or sells).

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106
Q

Where can The annual interest payment or bond interest expense be found?

A

a company’s income statement

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107
Q

Where can the amount of debt or bonds outstanding be found?

A

balance sheet

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108
Q

What type of dollars (tax vs pretax) is bond interest paid in?

A

Bond interest is paid in pretax dollars

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109
Q

What is cash dividends paid with?

A

Paid from net income or in after-tax dollars.

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110
Q

What is a yankee bond?

A

A yankee bond is a bond that is issued by a foreign company but sold to US investors

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111
Q

What is an ADR (American Depository Receipt)

A

A stock issued by a foreign company but sold to US investors

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112
Q

When purchasing a new issue of stock in a cash account, when must payment be made under Reg. T?

A

Two business days after the settlement date

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113
Q

A client redeems shares of a mutual fund. According to current regulations, a check must be sent within how many days of submitting a redemption notice?

A

7 days

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114
Q

An option contract for RFQ is for 108 shares. This is most likely a result of what circumstance?

A

There has been a stock dividend

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115
Q

What is the maximum qualified dividends paid on both common and preferred stock can be taxed at?

A

20%

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116
Q

What are Dividends from a REIT taxed at?

A

Ordinary incoe

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117
Q

What is the position limit rule?

A

The position limit rule regulates the maximum number of option contracts an investor may have, per security, on one side of the market.

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118
Q

An investor is short 2,000 XYZ calls, what makes a position limit?

A

Buying puts (the right to sell) and selling calls (an obligation to sell)

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119
Q

An investor is long 2,000 XYZ calls, what is added to the position limit?

A

Buying calls (the right to buy) and selling puts (an obligation to buy)

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120
Q

According to industry rules, how long should investors wait between 1035 exchanges of variable contracts?

A

36 months

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121
Q

Who has the ability to declare dividends?

A

Board of Directors of a company

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122
Q

What rate are ordinary dividends taxed as?

A

Ordinary income tax rate

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123
Q

What is the equation for working capital?

A

(current assets - current liabilities)

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124
Q

What are cash dividends considered to be apart of when issued by a corporation in working capital?

A

Cash dividends are considered a current liability to a corporation when declared by the board of directors.

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125
Q

The day-to-day business activities of a unit investment trust (UIT) are the responsibility of who?

A

Trustee

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126
Q

What length of maturity bonds have the most interest rate risk

A

Long-Term

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127
Q

What happens to callable bonds when interest rates decline?

A

callable bonds are more likely to be called which effectively decreases the bond’s maturity to the call date.

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128
Q

An 75-year old individual has contributed $40,000 to a qualified plan that currently has a value of $100,000. If she decides to take a lump-sum distribution of the total value, what she is taxed on? Why?

A

100K
`Since contributions to a qualified plan are made in pre-tax dollars, this results in a zero cost basis (i.e., none of the funds have been 1As a result, when distributions are made, the entire amount is taxable as ordinary income.

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129
Q

Why does a bond sell at discount?

A

A bond sells at a discount because of an increase in interest rates since the bond was issued

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130
Q

For a discount bond what are the highest yields?

A
  1. Yield to maturity
  2. Current yield
  3. Nominal yield
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131
Q

What is a riskless principal transaction?

A

A riskless principal transaction is one in which a broker-dealer buys or sells a stock on a principal basis to fill a customer order that is already in hand.

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132
Q

What does the MSRB require to be included in customers confirmation statements?

A

The MSRB regulates the yield that must be disclosed on a client’s confirmation. The yield disclosed is the lower of the yield to maturity or yield to call.

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133
Q

What is the lowest yield for a bond that is callable and trading at a discount?

A

Yield to maturity

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134
Q

What can be used to hedge a short of a stock position?

A

A call option

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135
Q

What will eliminate a short position in a listed option?

A

Closing purchase

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136
Q

What is Opening Purchase?

A

Establishing a long position

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137
Q

What is Opening Sale?

A

Establishing a short position

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138
Q

What is Closing Purchase?

A

Liquidating an existing short position

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139
Q

What is a Closing Sale?

A

Liquidating an existing long position

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140
Q

What is a good faith deposit?

A

A good faith deposit is a sum of money given to the issuer of a new municipal bond issue and is not a factor in secondary-market transactions.

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141
Q

What is a secondary-market joint account?

A

A secondary-market joint account exists when two or more dealers form an account to jointly offer a block of bonds in the secondary market.

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142
Q

Who can issue municipal bonds?

A

states, political subdivisions (e.g., counties and townships), interstate authorities, and intrastate authorities.

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143
Q

If a customer places an order to buy bonds at 104 net, it indicates that the customer:

A

Wants to pay a maximum of 104 including any markup or commission

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144
Q

What is the dated date of a bond?

A

The dated date of a municipal bond is the date that interest begins to accrue and will not affect its marketability.

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145
Q

What affects the marketability of a municipal bond?

A

Moody’s or Standard and Poor’s Rating

block size

Maturity

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146
Q

What is the regulation of communication of social networking sites similar to?

A

This communication is regulated in a manner that’s similar to correspondence.

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147
Q

What affects the credit analysis of a general obligation bond?

A

The tax collection record of the municipality

An evaluation of the debt to real estate value ratios in the municipality

148
Q

What affects the credit analysis of a revenue bond?

A

Feasibility studies

The debt service coverage ratio

149
Q

A company currently has $125,000,000 of 3 1/4% convertible bonds. The company is going to offer bondholders $125,000,000 of 3 1/4% nonconvertible bonds plus cash of $15,000,000 for the convertible bonds. How will this transaction, if successful, affect the company’s financial status?

A

It will reduce the cash position and the potential dilutive effect on the common stock

150
Q

What is a temporary hold?

A

A temporary hold is placed on an account when a client being exploited is being suspected

151
Q

How long do temporary holds last for?

A

The initial hold is for 15 business days

152
Q

What is the order of days the temporary holds may last for?

A

15 days
10 days
30 days

153
Q

Where are rule violations settled?

A

Code of Procedure,

154
Q

Why is arbitration chosen over litigation?

A

Arbitration is usually chosen over litigation because arbitration is less costly.

155
Q

What securities are usually sold at a discount?

A

Treasury bills

bankers’ acceptances

156
Q

What happens to a option when a stock split occurs?

A

number of contracts increases (or decreases)

strike price is reduced proportionately

number of shares in the option remains th e same

157
Q

What are listed options adjusted by?

A

stock splits
stock dividends
rights offerings

NOT CASH DIVIDENDS

158
Q

Money received by a corporation when it sells its stock above its par value is called?

A

surplus or paid-in capital

159
Q

Profit that has been retained by the company and have not been paid as dividends is what?

A

retained earnings

160
Q

What are benefits of CMOs?

A

$1,000 denominations
Highly rated
Various bond classes

161
Q

What is the term of a graph of optimal portfolios resulting from a comparison of risk and return?

A

Efficient frontier

162
Q

How will an investor get profit if they are long a stock a long a put?

A

He will have a profit if the market price exceeds the cost of his stock plus the premium for the option

163
Q

An investor purchases 500 shares of STC at $87 and subsequently purchases 5 STC Jan 87 puts at 8. At what market price must STC trade for the investor to have a profit?

A

95

164
Q

What is a debit spread?

A

A debit spread involves purchasing a high-premium option while selling a low-premium option in the same class or of the same security, resulting in a debit from the trader’s or investor’s account

165
Q

What is an international fund?

A

A fund that holds ONLY foreign securities.

166
Q

What is a global fund?

A

A fund that holds funds from around the globe.

167
Q

What is the SRO rule requirement for member firms to send account statements regardless of activity in the account?

A

Quarterly

168
Q

What is a prime brokerage account?

A

A prime-brokerage arrangement involves a variety of services offered by a broker-dealer to an active trading firm, such as a hedge fund.

169
Q

What securities do not trade with accrued interest?

A

Treasury bills, bankers’ acceptances, zero coupon bonds, treasury STRIPS

170
Q

What does Regulation NMS (National Market System) apply to?

A

Listed equity trades

Quotes available for electronic execution

171
Q

If a bond is selling at a premium and is callable at a premium, the yield would be calculated based on:

A

The yield-to-worst

172
Q

A private placement conducted under Regulation D may be sold to a maximum of how many nonaccredited investors?

A

35 nonaccredited investors

173
Q

What is the Bond Buyer?

A

The Bond Buyer computes the Revenue Bond Index which is the average yield of 25 revenue bonds with 30-year maturities.

174
Q

What is a put provision?

A

A put provision allows the bondholder to redeem the bond on a specified date (or dates) prior to maturity.

Benefits bondholders

175
Q

What is a subscription agreement?

A

The subscription agreement sets the terms and conditions of the securities. The client, or an authorized person of an institutional investor, will sign the agreement attesting to the status of an accredited investor.

176
Q

What happens to Dividends and capital gain distributions in a variable annuity?

A

All growth, dividends, and capital gain distributions paid during the accumulation period in a variable annuity are automatically reinvested and grow tax-deferred.

177
Q

What types of stocks require a stock legend?

A

Control stock and restricted stock

178
Q

What info does the MSRB require to be disclosed when promoting 529 plans?

A

risks and costs involved with the different types of plans

a disclaimer stating that, prior to investing in a plan, the customer should read the official statement

a disclaimer that the client should check with her home state to learn if it offers tax benefits to those who invest in its plan.

179
Q

If an equity option is exercised, when is the settlement date for the stock transaction?

A

Within two business days

180
Q

What do changes in a client’s patterns of purchases and sales indicate?

A

An RR should update a clients financial condition.

181
Q

What are industrial development revenue bonds?

A

Industrial development revenue bonds are secured by a lease agreement with a corporation and are only as secure as the corporation.

182
Q

What are not subject to FINRA suitability rules?

A

Annuity transactions in tax-qualified, employer-sponsored annuity programs

183
Q

What is a bond swap?

A

bond swap is simultaneously selling one bond and purchasing another.

This is to change the coupon, maturity, rating, and for tax purposes.

184
Q

Why are reasons someone would do a bond swap?

A 
to change the 
coupon
maturity
quality rating
 tax purposes.
185
Q

How can a numbered account be opened?

A

The registered representative should open the account only if the customer signs a written statement acknowledging ownership of the account.

186
Q

What are FINRA rules regarding granting discretion persons?

A

Obtain the signature of each person authorized to exercise discretion in the account

Record the date such discretion is granted

Record the age or approximate age of the customer in connection with exempted securities other than municipals

187
Q

When are mutual fund ex dividend dates?

A

mutual fund’s ex-dividend date is on a date that is determined by the fund or its principal underwriter (sponsor).

188
Q

A variable annuity contract holder dies during the accumulation period. In this situation what is true regarding the tax consequences?

A

proceeds in excess of cost are taxable to the beneficiary as ordinary income.

189
Q

Upon the death of the insured, the proceeds of a variable life policy?

A

Pass to the beneficiary free from federal income tax

190
Q

Where would you find a company’s amount of interest paid on the company’s bonds outstanding (interest expense)?

A

Company’s income statement

191
Q

Where would you find a company’s assets (inventory), liabilities (debt or bonds), and shareholders’ equity (treasury stock)

A

Balance sheet

192
Q

What are Trade Reporting and Compliance Engine (TRACE) reports?

A

TRACE was created to provide greater transparency in the corporate bond market.

193
Q

What are TRACE Reports used for?

A

U.S. and foreign corporate bonds

U.S. treasuries

debt of U.S. government agencies and enterprises.

194
Q

When would a A due bill be used?

A

If a trade happened before the ex-dividend date, with delivery made after the record date

195
Q

What kind of risk are TIPS exposed to?

A

Interest rate risk

196
Q

Industrial development revenue bonds are backed by:

A

The corporate guarantor

197
Q

What is a guaranteed bond?

A

A guaranteed bond is one that, along with its primary form of collateral, is secured by a guarantee of another corporation.

198
Q

What is a When-issued transaction?

A

The term when-issued covers the period of a new issue of municipal securities from the original date of sale by the issuer to the delivery of securities to the underwriter.

199
Q

When do call options expire?

A

11:59PM

200
Q

How long do customer complains get stored for?

A

4 years

201
Q

What is the efficient frontier?

A

Graphs of optimal portfolios that provide the highest return for a given level of risk.

202
Q

Where do REITs trade?

A

OTC or an exchange

203
Q

What stipulations can a municipality use to refund a revenue bond?

A

If interest rates declined to reduce interest charges

To issue new bonds at lower interest rates

To eliminate restrictions in the bond resolution

204
Q

What must a broker dealer provide a customer for each penny-stock transaction?

A

The current quotation for the security

The compensation the broker-dealer AND RR will receive for the transaction

205
Q

A bond counsel will issue an unqualified legal opinion for a municipal bond issue to state what?

A

There are no limitations or pending lawsuits that hinder the issuance of the bonds

206
Q

What makes VRDOs effectively a short term security?

A

Put feature

207
Q

What does the carrying firm do in a ACAT?

A

Submits the asset input data

208
Q

What will the receiving firm do in an ACAT?

A

Submit the TIF data

if there are no exceptions, it will review the asset input data and accept

209
Q

How long until the receiving firm update the TIF data if mistake was found?

A

24 Hours

210
Q

What is a business development company?

A

A business development company (BDC) raises capital by selling securities to investors

BDC will use the money it raises to invest mostly in private companies, small and developing businesses, and financially troubled companies that have difficulty raising capital in public markets.

Traded on exchanges

211
Q

What is the objective of a BDC?

A

Providing current income and capital appreciation

Will invest their funds in both debt and equity of private small and middle-market companies

212
Q

What does aggressive risk tolerance mean?

A

An aggressive risk tolerance is for investors who want high growth and do not need income.

Accept high volatility and possibility to lose money

213
Q

What is interest on US Treasury securities subject to?

A

Federal

214
Q

What tax is interest from municpal bond tax subject to?

A

State tax

215
Q

A convertible bond is convertible at $87 and is selling in the market at 104. At what price should the common stock be selling for it to be at parity with the bond?

A

90.5

216
Q

How often must you receive an updated privacy notice? (Regulation SP)

A

Once at open and Annually after

217
Q

How can you limit a loss on an existing long position?

A

A sell stop order thats placed below the current market price

218
Q

What is debt per capita used to analyze?

A

General Obligation (GO) Bonds

219
Q

What is a conservative growth fund?

A

Conservative growth funds invest in blue-chip stocks and stocks that keep up with inflation

220
Q

What is a broker-dealer who buys a security from a market maker (dealer) on behalf of its customer acting as?

A

Agent (broker)

221
Q

A bond convertible at $30 is selling in the market for 150. If the stock has a current market price of $70, the parity price for the bond is:

A

2333

222
Q

Under the provisions of Rule 10b-10, what must a confirmation sent to a customer disclose?

A

Time of transaction or time transaction will be furnished

Capacity member acted in

Amount of markup

223
Q

What is a debit call spread?

A

Bullish position when the long option has the largest premium.

224
Q

When will brokered (long-term) CDs be called?

A

When they’re trading at a premium to their call price (interest rates fell)

225
Q

What happens to growth, dividends, and capital gains distributions paid during the accumulation period in a variable annuity?

A

They get automatically reinvested and grow tax deferred.

226
Q

What is an interval fund?

A

Classified as a type of closed-end fund that continuously offers shares to investors outside of an exchange.

Illiquid because shareholders can only redeem shares at intervals.

Suitable for long term investors

227
Q

Whats the maximum amount Reg D offerings can be sold to nonaccredited investors?

A

35 nonaccredited investors.

228
Q

How can a resident of another country open a brokerage account?

A

The client can have either a taxpayer identification number or a passport number and country of origin.

229
Q

What is a short straddle?

A

A short straddle consists of selling a put and a call, on the same underlying security, with the same strike price and expiration.

230
Q

What is a term bond issue?

A

A term bond issue is one in which all of the bonds mature in one specific year. In order to accumulate the funds that may be used to help retire the bonds, the issuer will deposit funds (above the amount that is used to pay interest) in a sinking fund.

231
Q

What is Earned Surplus?

A

profits that have been retained by the company and have not been paid as dividends.

232
Q

What is a secondary-market joint account?

A

A secondary-market joint account exists when two or more dealers form an account to jointly offer a block of bonds in the secondary market.

233
Q

What are the rules of a secondary-market municipal joint account?

A

There may be an order period
There may be a takedown (member discount)
Members may not publish different offering prices

234
Q

When computing coverage for revenue bonds, the ratio used is:

A

Net revenue to debt service

235
Q

What is Regulation SHO?

A

Regulation SHO requires a broker-dealer to make a notation on every sell order ticket to indicate whether the transaction is a long sale or a short sale.

236
Q

What is Modern Portfolio Theory?

A

Modern Portfolio Theory creates optimal portfolios based on a client’s risk tolerance and investment objectives, by allocating the portfolios among various classes of securities.

237
Q

What are the rules of SEC Rule 482?

A

An offer to sell securities can only be made through a prospectus.

No application to invest

238
Q

What are the main concerns with issuing a GO Bond?

A

ability to levy and collect taxes
Demographics (diversity of economy)
Factors affecting the issuer’s ability to pay, such as the budgetary pictures and legislative climate

239
Q

A 57-year old father was in the accumulation phase of his variable annuity when he passed away. What are the tax implications if the annuity is inherited by his son if liquidated?

A

Any amount above the cost basis is taxed as ordinary income to the son.

240
Q

What has an affect on SMA in a long margin account?

A

Cash dividends paid on securities

Cash deposited in the account

Appreciation of the market value of the securities held in the account

241
Q

What is the Interbank market?

A

The Interbank market is the purchase and sale of foreign currencies among large banks. Helps establish the cash (spot) prices for foreign currencies.

242
Q

What is the calendar used by corporate and municipal bonds?

A

30-day month and a 360-day year.

243
Q

What is the wash sale rule?

A

If a security is sold at a loss, and within 30 days (prior to and after the sale), substantially the same security is purchased, the IRS, considers it a wash sale and will disallow the loss.

244
Q

How do you avoid the wash rule?

A

Purchase bonds either by a different issuer or with a different coupon or maturity.

245
Q

What does Nasdaq Level 1 show?

A

highest bid and lowest offer.

246
Q

What does Nasdaq Level 2 show?

A

firm quotes and the market makers who are making a market in the security.

247
Q

What is a feature of Nasdaq Level 3?

A

allows the market makers to change their quotations in the system.

248
Q

What is a bond secured by other bonds and securities?

A

Collateral trust bond

249
Q

What mutual fund events must be reported for taxes?

A

Dividends
Capital Gains
Exchanging funds

250
Q

What type of stock position has unlimited risk?

A

Selling a put and is short the stock uncovered

251
Q

What is a net basis transaction?

A

When a dealer holding a customer order to buy, acquires the stock on a principal basis and executes the customer’s order at a different price than the dealer’s acquisition price.

252
Q

A tombstone ad states that the McGee Oil Company is offering $200,000,000 of 8 1/2% bonds due July 1, 2038 at 99 1/2% of par value. The yield to maturity on the bonds is? Why?

A

Greater than 8 1/2% because the bond was issued at a discount (99 1/2%)

253
Q

The BG mutual fund has an NAV of $11.72 and a maximum offering price of $12.67. Based on these details, what’s the maximum sales charge for the BG fund’s shares?

A

7 1/2%

12.67-11.72 = $.95

$.95 / 12.67 = 7 1/2

254
Q

What is the support level of a stock?

A

The support level of a stock is the bottom of its trading range. At this price, investors are attracted to the stock, purchase the security, and support the price.

255
Q

What is the resistance level?

A

The resistance level is the top of its trading range. At this level, the market price of the security meets resistance since investors feel the stock is overvalued.

256
Q

What does a breakout above the resistance level of a stock indicate?

A

A breakout above a resistance level of a stock is a bullish indicator.

257
Q

What communication contains in the legend “This material must be preceded by or accompanied by a prospectus”?

A

Supplemental sales literature

258
Q

Where are the rights and obligation of a limited and general partner found?

A

Agreement of Limited Partnership

259
Q

What gives a Limited Partnerhship life?

A

Certificate of Limited Partnership

260
Q

What is the offering memorandum in a private placement?

A

The same as a prospectus

261
Q

Once an Automated Customer Account Transfer Service (ACATS) transfer request has been validated, depository-eligible securities should be transferred within?

A

Three business days

262
Q

Who/What are exempt from penny stock disclosures?

A

Transactions with an institutional accredited investor

Private placements

The issuer, officers, directors, general partners, or 5% owners

Transactions that are not recommended by the broker-dealer

Transactions by a broker-dealer whose commissions and markups from penny stocks do not exceed 5% of its total commissions and markups

263
Q

Aglet International, Inc. has pretax income of $2,000,000. In addition, it received dividends of $100,000 from the common stock of a corporation in which it had a 10% interest. If the corporation pays a 34% tax rate, what is its total tax liability?

A

$697,000

264
Q

Treasury arbitrage restrictions generally prohibit issuers of municipal securities from? Why?

A

Investing bond proceeds in higher-yielding Treasury securities. Because of the tax exemption allowed on municipal bond interest, municipalities are normally able to issue bonds with coupon rates below those of Treasury securities.

265
Q

What is duration?

A

Duration measures price sensitivity for fixed-income securities given changes in interest rates.

266
Q

How are British Pound option premiums quoted? E.g. : 7.50

A

Cents per unit (Move decimal left twice)

267
Q

MSRB rules state that subject or nominal quotes may be given for:

A

Informational purposes

268
Q

When does a primary offering of securities for a company that is already exchange-listed require that prospectuses be delivered?

A

On purchases made at the public offering price

269
Q

A corporate bond is convertible at $25 and the underlying stock is currently selling at $30 per share. If the corporation indicates that the bond will be called at 115 ($1,150) on the next call date, what are the prices? Whats the BEST advice to give to the bondholder?

A

1200 and 1380

Convert the bond

270
Q

What is considered nontransferable assets for ACATs?

A

Firm-specific or proprietary products, such as mutual funds or annuities

271
Q

A broker-dealer must maintain customer account records for how long after an account is closed?

A

6 years

272
Q

How long must a broker-dealer keep files in a easily accessible location after leaving the firm?

A

2 years

273
Q

What is a stock at its resistance price?

A

Overbought

274
Q

What is a stock at its support price?

A

Oversold

275
Q

A customer, who is going on vacation, enters a GTC order to buy a stock. The order is executed. The customer tells the registered representative that he wants the stock but will not return in time to pay for the security by the payment date. The customer states he will send in a check a few days late. The registered representative should:

A

Request an extension

276
Q

What are Bank-qualified bonds?

A

Bank-qualified bonds are issued by small municipalities and a municipality may only issue up to $10,000,000 annually.

Done to encourage locally issued municipal securities

Commercial banks that purchase this type of security are permitted to deduct 80% of the interest cost paid to depositors on the funds used to purchase the bonds.

277
Q

What are the time periods that funds must show in an adverstisement of an average return?

A

1 for 1 year of existence
5 for 5 years of existence
10 for 10 years or more of existence

Life of the fund if they want

278
Q

An investor buys 200 shares of TDX at $20 per share. TDX declares a 10% stock dividend. The investor’s cost basis per share for tax purposes would be?

A

$18.18

279
Q

What is FNMA backed by?

A

Federal National Mortgage Association (FNMA) bonds are issued by a privately owned organization and are not backed by the U.S. government.

280
Q

On a when-issued municipal bond transaction, the interim confirmation will show the?

A

Capacity in which the broker dealer acted

281
Q

What are the features of Capital Asset Pricing Model (CAPM)?

A

explain the behavior of security prices

provides a mechanism to assess risk and return

based on the efficient market theory and assumes investors act rationally

282
Q

What is calculated to find the managers payout in a underwriting?

A

All shares

Syndicate+Selling group

283
Q

What does the writer of a combination believe to happen in price?

A

The underlying security’s price will remain stable.

284
Q

What does the buyer of a combination believe the price to be?

A

Market price of the underlying security will be volatile.

285
Q

What can an insider of a company not do?

A

Short the stock

Use inside information

286
Q

The interest from bonds issued by U.S. territories, possessions, and the Commonwealth of Puerto Rico is:

A

Exempt from federal, state, and local taxes

287
Q

A Nasdaq-listed stock currently shows an inside market of 15.50 - 15.75, 10 x 10. A broker-dealer that is not a market maker in the stock simultaneously receives orders from two customers, one to buy 500 shares of the stock at the market, the other to sell 500 shares at the market. Rather than send the orders to a market maker for execution, the broker-dealer matches the two orders with one another at 15.625, and charges each client a commission. This transaction is what and what rules apply?

A

A cross trade, which must be specifically disclosed on the confirmation to each customer

288
Q

What is a cross trade?

A

In a cross trade, a broker-dealer acts as agent for both the buyer and seller.

Must be disclosed

289
Q

If the NAV of the Greenwich Fund is 90% of its offer price, this must be a

A

Closed end fun because the maximum sales charge on an open end fund is 8.5%

290
Q

What are T-Bonds and T-Bills quoted with?

A

1/32 of a point.

291
Q

What type of security will raise additional capital when exchanged through the issuance of additional shares?

A

Debts with warrants

292
Q

What happens when a auction for a Auction Rate Security fails?

A

The holders will continue to hold the securities and the interest rate will be set to the maximum rate allowed in the plan documents.

293
Q

What is a pattern day trader?

A

A pattern day trader is defined as a person who day-trades no less than four or more times in a five-day period.

294
Q

What is Strategic asset allocation strategy?

A

Strategic asset allocation attempts to maintain the assigned allocation over a long period and is more passive in nature

295
Q

What is laddering?

A

Laddering is considered diversifying a bond portfolio by staggering the maturity dates of the bonds in an attempt to manage interest-rate risk.

296
Q

A 57-year old father was in the accumulation phase of his variable annuity when he passed away. What are the tax implications if the annuity is inherited by his son?

A

If liquidated, any amount above the cost basis is taxed as ordinary income to the son.

297
Q

How many days must pass before a member of a syndicate may extend credit for a customer on a security that was part of a new issue?

A

30 days

298
Q

On the ex-date of a cash dividend, the subject security would be:

A

Reduced by the amount of the dividend

299
Q

What annuity has a payout option that gives a lump sum payout to the beneficiary after the death?

A

Unit refund life annuity

300
Q

What is the basic balance sheet equation?

A

Total Liabilities + Stockholders’ Equity

301
Q

Where do you find the annual interest payment?

A

Income statement

302
Q

What is the annual interest payment deducted from?

A

EBIT

303
Q

What is a bear spread?

A

A bear spread always involves buying the higher exercise price and selling the lower exercise price.

304
Q

What is the maximum loss on an uncovered put?

A

Total value of the option - premium recieved

305
Q

A municipal offering in which two or more issues of bonds have the same priority of claim against pledged revenues is referred to a?

A

Parity bond

306
Q

What is the equation for outstanding shares?

A

Shares issued - treasury stock (stocks bought back by company)

307
Q

What is the advance - decline theory?

A

The advance-decline index is a measurement of advancing stocks versus declining stocks over a specified period. It is a good indicator of the strength of a bull or bear market.

308
Q

What is the “real interest rate”?

A

The real interest rate is the yield of a security reduced by the inflation rate.

309
Q

What is current ratio and how long of a period does it show?

A

Comparison of current assets to current liabilities for a one year period to show companys ability to pay those liabilities.

310
Q

What is the acid test (quick ratio)

A

Measures the liquidity of a company by calculating how well current assets can cover current liabilities.
The quick ratio uses only the most liquid current assets that can be converted to cash within 90 days or less.

311
Q

What is a tax swap?

A

A tax swap is the sale and purchase of securities to realize a capital loss that can be offset against a capital gain.

312
Q

What is MIG and what are the ratings?

A

Moodys Investment Grade
MIG 1
MIG 2
MIG 3

313
Q

What is AMBAC?

A

AMBAC insures new municipal bond issues.

314
Q

What bonds are interest tax-free?

A

Long-term municipal bonds and Short-term municipal commercial paper

315
Q

What is a rights offering?

A

When a company issues rights to all existing shareholders enabling them to subscribe to new stock below the current market price of the outstanding securities.

316
Q

What is the quick asset ratio (Acid-test ratio) equation?

A

Cash +Accounts Receivable + Marketable Securities / Current liabilities

317
Q

When can a brokerage firm apply a hold on the transfer of securities on an account?

A

Senior investor (Specified adult) (65+ or 18+ with disabilities)

318
Q

How do you find the ask price for mutual fund shares?

A

NAV / 100% - Sales Charge % = Ask price

319
Q

Why does a bond issued with warrants trade as two securities?

A

When the bond is issued, the warrants are detached from the bond and will trade as a separate unit. An event that will reduce the proportionate claim of common stockholders to the earnings of a corporation is considered to be dilutive

320
Q

What is a Limited tax bond?

A

A bond with a limit of how high taxes can be raised

321
Q

The federal tax exemption for interest earned on an industrial revenue bond is NOT available if the?

A

Holder of the bond is a substantial user of the facility

322
Q

When can a carrying firm protest an account transfer?

A

if the basic account information, such as the tax ID number, account title, or account number does not match the information that is on record at the carrying broker.

323
Q

How do you find the common dividend payout ratio?

A

Common Dividend ÷ EPS

324
Q

When is the registration statement effective?

A

the 20th day after filing.

325
Q

Where do penny stocks trade?

A

OTC Pink Market

326
Q

What is Regulation S (Slimy)?

A

Regulation S provides companies with certain guidelines through which securities may be sold outside the U.S., without SEC registration.

327
Q

What are the general conditions for Regulation S (Slimy)

A

Any offer, sale, or resale is made in an offshore transaction.
No direct selling effort may be made in the U.S. in connection with the transaction.

328
Q

What must the firm do after placing a temporary hold on an account?

A

Must provide notice to the account owner and the trusted contact person within 2 business days

329
Q

What are bond volatility ratings?

A

These ratings may account for NAV changes due to currency fluctuations.

CAN NOT BE REFERRED TO AS RISK RATINGS

330
Q

How can a call holder be entitled to a stock dividend?

A

If the option is exercised prior to the ex dividend date.

331
Q

The most detailed financial information regarding a municipal securities issuer is found in the:

A

Official statement

332
Q

What happens to a long margin account after a stock dividend?

A

The market value of the stock in the account will be reduced by the amount of the stock dividend
Number of shares of the stock increases.

333
Q

What is an error account used for?

A

It is used by a broker-dealer if the firm or an RR executes a trade in error (e.g., the wrong security or the wrong side of the market).

334
Q

An investor is long 200 shares of ABC stock at $58 and short 1 ABC May 60 call at 2. What is his breakeven point?

A

57

the first step in determining the breakeven point is to calculate the investor’s net investment amount. In this question, the investor paid out a total of $11,600 (200 shares x $58 per share), but received $200 in premium on the sale of the call. Therefore, the investor’s net investment amount is $11,400. The second step is to recognize that since the investor has a 200 share position, the $11,400 must be divided by 200 to determine the breakeven point of $57. Theoretically, if ABC stock is trading at $57, the investor would lose 1-point per share for each 100 share position ($200 total loss); however, since the call option is out-of-the-money and expires worthless, the investor would keep the $200 premium. The $200 loss in the stock is offset by the $200 received in option premium and the investor will break even.

335
Q

What type of accounts can not purchase limited partnership investments?

A

account by a person who holds discretionary authority over the account.

336
Q

What is in the WSP?

A

WSP manual includes the policies and procedures governing all aspects of a firm’s business as well as identifying those responsible for implementing the procedures.

337
Q

What is a hedge of hedge funds?

A

A fund of hedge funds is a illiquid mutual fund that invests in unregistered, private hedge funds.

338
Q

What level are CMO interest taxed at?

A

Federal, State, Local

339
Q

When do investors receive CMO principal payments?

A

Investors receive their principal payments each month instead of receiving the entire amount of principal at maturity.

340
Q

How are mutual funds purchased?

A

Purchaser must buy them at the next calculated NAV Price?

341
Q

An investor who expects an increase in volatility in the equity markets will MOST likely adopt what strategy?

A

Buying VIX call options

342
Q

When does a bond have a higher yield to maturity than yield to call?

A

When the bond is purchased a discount to par ($1000)

343
Q

How can a shareholder vote in a proxy if they cant in person?

A

Will receive a proxy to vote, or sign over the vote to another person

344
Q

What call has unlimited risk?

A

Writing an uncovered call

345
Q

What is an indenture?

A

The indenture contains all the agreements and covenants pertaining to a bond issue, and also contains the provisions for the application and allocation of funds of a revenue bond.

346
Q

Who is permitted to review and approve an opening of an account?

A

Municipal securities principal and general securities princip

347
Q

What is required of a purchaser representative?

A

Theyre Knowledgeable and experienced in financial and business matters

348
Q

What are structured products?

A

Structured products are prepackaged securities that often combine securities, such as a bond with a derivative.

349
Q

What can be linked to a structured product?

A

securities, commodities, or interest rates.

350
Q

What is a straight life payout annuity?

A

An annuity that allows you to get receive payout from annuity as long as you live.

Greatest risk, greatest cash flow.

351
Q

When is written notification not required when a RR opens an account with another member firm?

A

if the transactions will be limited to redeemable investment company shares, variable contracts, or unit investment trusts.

352
Q

What two securities are usually sold at a discount?

A

Treasury Bills and Collateralized Mortgage Obligations

353
Q

When will a put have intrinsic value?

A

When the market price of the underlying security is less than the strike price.

354
Q

What are the rules for breakpoints?

A

Must be in same fund family
Can be with different broker-dealers
Available for any investments made by a customers immediate family

355
Q

What must a RR do before fund shares are purchased by a customer?

A

Ask if the customer owns mutual fund shares even if they are in a different broker dealer

356
Q

What is a particpating preferred stock?

A

Stock that gives the holder the right to particpate in any extra dividends that are paid to common stockholders.

357
Q

What must be reported to FINRA?

A 
Person who has been indicted for felony, misdemeanor involving stocks
Theft
Robbery
Burglary
Extortion
Forgery
Counterfeiting

Some state DUI

358
Q

What qualifies you for statutory disqualification?

A

Applicants who have been convicted of a felony or a securities related misdeamnor

359
Q

What happens when securities are inherited?

A

Cost basis is stepped up to current market value at time of death

Security is considered to be held long term

360
Q

How long do statutory disqualification convictions last?

A

10 years

361
Q

When must an account be transferred to another firm (ACAT)

A

3 business days

362
Q

When must a customer account transfer be validated or protested?

A

One business day

363
Q

What are convertible bond holders?

A

Creditors of a corporation

Provide investors with ability to convert bond into common shares at a set price

364
Q

What happens if a convertible bond sells below the point where there’s no advantage to the conversion feature?

A

The bond may sell at a price based on its inherent value as a bond

365
Q

What happens tax wise to distributions from a qualified plan?

A

The full distribution is made taxable as ordinary income

366
Q

When does retail communication need to be approved before initial use, by principal of the member firm?

A

Concerning CMOs and Options

367
Q

What is the most important when opening an account and making a recommendation to a cusotmer?

A

The recommendation is in the customers best interest.

Sie/S7 Top Off/S66 (4 decks)

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