SIE TEST TOPIC Flashcards
the following outlines the frbs buying
securities come out of the economy and money goes in
ms goes up
interest rates go down
borrowing and spending for consumers easier
economy expands
selling for frb
securities go into the economy and money comes out
ms goes down
interest rates go up
borrowing and spending becomes more difficult
economy contracts
during the cooling off period underwriters cannot
make offers to sell the securities
take orders
distribute sales literature or advertising material
during the cooling off period underwriters can
take indications of interest
distribute preliminary prospectus
publish tombstone advertisements to provide information about the potential availability of the securities
for investors looking for income through preferred stock, which would be most inappropriate
adjustable rate preferred
are treasury receipts or strips backed in full by us government
strips are
receipts are not
guaranteed bonds are unsecured or secured
unsecured
is an income bond a good recommendation for an investor seeking income
no
why would you place money market securities in a clients portfolio
highly liquid
very safe
a good place to invest money that will be needed soon
risks with money market securities
rate of return is low and not suitable for long term investors
all options accounts must
be approved by a firms Registered options principal
closed end investment companies are the only
investment company security that trades in the secondary market
close end investment companies may issue
common stock, preferred stock, and debt securities
a prospectus may or may not be altered
may not. no highlighting, writing, or taking any measure to bring attention to any specific passage or section.
an owner of reits holds
reits may or may not
may or may not be listed on exchanges
are or are not investment companies
offer dividends and gains to investors but
an undividend interest in a pool or real estate investments
be registered with the sec
cannot
not open or closed
do not pass through losses like LP and therefore are not considered DPP
hedge funds are considered
unregulated as they currently do not have to be registered wit the SEC
no matter how diversified a portfolio
it will still be subject to systematic risk
buy to open position=
long=bullish
sell to open a position
short=bearish
Declaration, record, and payment determined by
ex dividend date determined by
BOD
Finra
margin
is the amount of equity that must be deposited to buy securities in a margin account
marginable
securities that can be used as collateral in a margin account
to open a margin account,
it is mandatory that the customer signs the credit agreement and the hypoythecation agreement. Loan consent form is optional
Joint tenants with right to survivorship
all parties have undivided interest in the account
tenants in common
each party must specify a percentage interest in the account
current ira contribution limits and catchup contribution limits for those
50 and older may be tested.
FIncen
bureau of the us treasury department that collects and analyzes information about financial transactions to combat money laundering, domestic and international terrorists financial and other financial crimes
one exception to the lifetime, six year, and three year retention is
the requirement for customer complaints
must be retained for 4 years
a member firms failure to register an employee who performs any of the functions of an RR may
lead to disciplinary action by finra
Reports of rising inventories generally occur during which period of the business cycle?
A)Recovery
B)Peak
C)Contraction
D)Expansion
contraction
Downturns in the business cycle (a contraction) tend to be characterized by rising inventories due to a lack of consumer demand. During expansion or recovery, demand is high and goods are less likely to remain in inventory.
All of the following actions must be completed before a customer enters the first option order EXCEPT
A)completion of (signing of) the options agreement
B)completion of the new account form
C)delivery of an OCC disclosure booklet
D)approval by a branch office manager or registered options principal
A) A)completion of (signing of) the options agreement
Customers do not have to complete (sign) the options agreement before entering an order, although under the rules, the agreement must be signed and returned by the customer within 15 calendar days of account approval.
A mutual fund has breakpoints at $25,000, $50,000, $100,000, and $250,000. Which of the following transactions might be considered a breakpoint sale? I.The client purchases $48,000 worth of shares
II.The client redeems $24,000 worth of shares
III.The client purchases $252,000 worth of shares
IV.The client purchases $96,000 worth of shares
1 and 4
Breakpoints allow for lower sales charges at or above the designated points—in other words, quantity discounts. A breakpoint sale occurs whenever a purchase is made just below a designated breakpoint amount. Allowing a purchase to occur in an amount just below a breakpoint can be viewed as an effort by representatives to share in the higher sales charges.
If the dollar price of a municipal bond is 101 and the basis is 6.10, the nominal yield is
A)6.1
B)greater than 6.10
C)less than 6.10
D)equal to the YTM
b) greater than 6.10
For bonds trading at a premium (101), the nominal yield (or coupon) is higher than the basis (YTM). For bonds at a premium, yields from lowest to highest are yield to call, yield to maturity, current yield, and nominal yield.
A customer wants to save some money for his grandson’s college education in an IRA account. Which of the following regarding a Coverdell Education Savings Account (ESA) is TRUE?
A)The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over.
B)The maximum contribution permitted is $3,000
annually.
C)The customer may make annual contributions until the grandson graduates from college.
D)The customer may take a deduction for the amount contributed.
A)The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over.
The maximum annual contribution to an ESA is $2,000. Contributions are not deductible and must cease when the beneficiary reaches age 18. Any unused balance must be rolled over or distributed by the time the beneficiary attains age 30. Amounts not used for one child may be rolled over tax free to the account of another child of the same family only once during any 12-month period.
Which of the following are not 3-year or 6-year records? I.Compliance and Procedures Manual
II.List of home, regional, and branch offices
III.Minutes of directors’ meetings
IV.Customer complaints
C)III and IV
Minutes of directors’ meetings (The Minute Book) is a lifetime record. Customer complaints must be kept on file for 4 years, not 3 or 6. The Compliance and Procedures Manual, which must frequently be updated, and the list of all offices where business is done are both 3-year records.
Reference: 3.2.4 in the License Exam Manual
When interest rates in the open market move up or down, a bond’s coupon rate will
A)move with the open-market interest rates
B)be adjusted to match the open-market rates
C)be unaffected by the open-market interest rates
D)move inversely to the open-market interest rates
C)be unaffected by the open-market interest rates
Though the price of a bond will react to market forces, such as supply and demand, and be interest-rate sensitive (inverse), the coupon is always the same: A fixed percentage of par value established by the issuer when the bond was first issued.
A company has just conducted a stock offering, by prospectus, through an investment banker. The proceeds of the offering are used to purchase a portfolio of securities. The stock, now in the hands of the public, is freely traded in the secondary market, and the portfolio is managed to generate maximum profit according to a specific investment objective. The company must be
A)a fixed UIT
B)a nonfixed UIT
C)a closed-end company
D)a mutual fund
C) a closed end company
A closed-end company, or closed-end management investment company, is much like any other company, just that its source of profit is investments, rather than selling a product or service. Shares of closed-end companies are traded in the secondary markets, while the other choices listed here offer only redeemable securities.
Which of the following would be unacceptable reasons for an officer of a member firm to make a contribution to the election campaign of a political candidate? I.The candidate is a member of the officer’s political party.
II.The candidate has promised to steer business to the officer’s firm.
III.The candidate is a close relative of a potential customer of the firm.
IV.The officer approves of the policies and programs the candidate has proposed.
A)II and III
B)II and IV
C)I and IV
D)I and III
A)II and III
Political contributions may never be used to procure or enhance business.
A shareholder had arranged to vote by proxy at the corporation’s annual shareholders’ meeting, but later decided to vote the shares personally. All of the following statements regarding this situation are true EXCEPT
A)the shareholders may instead vote personally as they wish
B)the proxy may be assigned to yet another person
C)the shareholders must accept the proxy’s decision
D)the shareholders may still abstain from voting altogether
C)the shareholders must accept the proxy’s decision
If a shareholder decides not to abide by the decision to assign a proxy to a particular person, the decision can easily be abrogated. The shareholder may still abstain, may vote the shares personally or by mail or online, or may reassign the proxy to another.
An investor purchases a T-bill for $9,925 that will mature at $10,000. The difference between the $9,925 paid and the $10,000 that will be received is
A)the discount to par and will be considered interest received at maturity
B)the premium above par and will be considered the interest received at maturity
C)the discount to par and will be considered a capital gain at maturity
D)the premium above par and will be considered dividends received at maturity
A) the discount to par and will be considered interest received at maturity
T-bills are purchased at a discount to par. In this case, it is bought at $9,925, which is a $75 discount to the $10,000 par value to be received at maturity. Debt instruments pay interest not dividends, and the $75 difference between what was paid and what will be received is considered the interest paid on the T-bill at maturity.
Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club’s brokerage account. The investment club
A)is a restricted account but will be allowed to purchase equity shares of an IPO
B)is a restricted account and will not be allowed to purchase equity shares of an IPO
C) is not a restricted account but will not be allowed to purchase equity shares of an IPO
D) is not a restricted account and will be allowed to purchase equity shares of an IPO
D)is not a restricted account and will be allowed to purchase equity shares of an IPO
Because the restricted person’s interest in the club’s brokerage account does not exceed 10%, the investment club account is not considered a restricted account. If not restricted, the club can purchase shares of an equity issue at the public offering price if it chooses to.
A customer’s account has been frozen. Which of the following is TRUE if the customer wants to purchase more securities?
A)Funds can be borrowed in the form of a margin loan up to 50% of the securities’ value.
B)Approval must be received for any purchase in the account from the SEC.v
C)Funds to pay in full must be available in the account before the buy order is entered.
D)No new purchases can be made in an account that has been frozen.
C)Funds to pay in full must be available in the account before the buy order is entered.
Purchasing securities in a frozen account is permitted, but the funds to pay for the purchase in full must be available in the account before the order can be entered.
An investor holds a November 35 call that was purchased on March 3. The investor, if wanting to exercise the contract, would need to do so no later than
A)1 business day after purchase
B)1 business day after settlement
C)the 3rd Friday of November
D)the 3rd Friday of March
C) the 3rd Friday of November
Options can be exercised up to and including (no later than) expiration. Options expire on the 3rd Friday of the expiry month. In this case, the 3rd Friday of November.
Water and sewer facilities are most likely to use what kind of debt financing to fund expansion plans?
A)U.S. Treasury receipts
B)Municipal revenue bonds
C)Municipal general obligation bonds
D)U.S. Treasury bills
B)Municipal revenue bonds
Municipal revenue bonds are issued to finance any municipal facility that charges user fees. These municipal bonds are self-supporting because principal and interest payments are made exclusively from revenues generated by the project for which the debt was issued, such as a water and sewer facility billing the municipalities’ customers for usage each month.
Which of the following statements regarding $1,000 par value 6.5% bond trading offered at 110 is TRUE?
A)The bond’s current yield equals $65 / $1,100 or 5.9%.
B)The bond is offered at a discount.
C)The bond’s yield to maturity and stated yield are the same.
D)The bond’s current yield is lower than its yield to maturity.
A) The bond’s current yield equals $65 / $1,100 or 5.9%.
This bond is trading at a premium (110 or $1,100). Given the bond is trading at a premium, the current (stated) yield will be higher than its yield to maturity. A bond’s current yield is calculated by dividing its annual interest ($65) by its current (market) price ($1,100), which in this case equals 5.9%
Generally before borrowing from or lending to a customer, a registered representative must advise the firm in writing and receive written permission. Which of the following would be an exception to the written notice and approval requirement?
A)The customer is an immediate family member of the RR.
B)The customer has a business relationship with the RR outside of the firm.
C)Both are employed by and registered in the industry with the same BD.
D) The customer has a personal relationship with the RR outside of the firm.
A)The customer is an immediate family member of the RR.
There are two exceptions to the written notice and approval requirement for permitted lending arrangements between customers and RR’s. They are; when both are immediate family members or when the customer is a lending institution and the loan is a standard commercial lending transaction.
Regarding exchange-traded funds (ETFs), as compared to open-end (mutual) funds, which of the following are TRUE? I.ETF transactions are subject to commissions.
II.Expenses for ETFs tend to be very high compared to mutual funds.
III.ETFs may trade at a price that is less than the NAV per share.
IV.ETFs cannot be purchased on margin while mutual funds can be.
A)II and IV
B)I and IV
C)II and III
D) I and III
D) I and III
Because ETFs usually track an index, the operating expense ratios are generally lower than that of open-end companies. But that advantage can be canceled out by the commission charges when purchasing and selling an ETF. An open-end investment company must redeem shares at the NAV per share; with ETFs, pricing is based on supply and demand, making it possible to receive less than NAV. One cannot purchase open-end shares on margin, but ETFs can be.
All of the following may be purchased on margin EXCEPT
A)exchange listed securities
B)NASDAQ listed stocks
C)call and put contracts
D)municipal securities
C) call and put contracts
Option contracts—calls and puts—are among those securities products that cannot serve as collateral for a margin loan and, therefore, may not be purchased on margin. In the case of options, their unpredictable intrinsic value, diminishing time value, and limited life make them inappropriate for securing any kind of loan.
Investors face many different risks. Which of the following would be factors of systematic risk? I.War
II.Global security threats
III.Call risk
IV.Interest rate fluctuation
A)I and II
B)II and IV
C)II and III
D)III and IV
A)
I and II
war and global security threats
Systematic risk points to changes in the overall economy. It has an adverse effect on individual securities apart from the company’s circumstances. It is generally caused by factors that affect all businesses, such as war, global security threats, or rampant inflation. No matter how diversified a portfolio is, it remains subject to systematic risk. An investor cannot diversify systematic risk away.
The transfer agent for a corporation is responsible for each of the following EXCEPT:
A) Maintaining records of ownership
B)Canceling old and issuing new certificates
C)Acting as an intermediary between the buy and sell sides of a transaction
D)Ensuring that its securities are issued in the correct owner’s name
C) Acting as an intermediary between the buy and sell sides of a transaction
The transfer agent (often a bank) for a corporation is responsible for ensuring that its securities are issued in the correct owner’s name, canceling old and issuing new certificates, maintaining records of ownership, and handling problems relating to lost, stolen, or destroyed certificates. Acting as an intermediary in a trade is the function of the clearing corporation.
All of the following would be included in a notice of corporate action regarding a stock dividend EXCEPT
A)the rate of the dividend
B)the declaration date
C)the record date
D)the stock’s issue date
D)the stock’s issue date
There is no need to include the original date of issue of the stock, which might be many years in the past, in the notice delivered for a stock dividend.
Money market instruments guaranteed by a bank that are used to provide capital for international trade are called
A)foreign bills
B)Eurodollars
C)banker’s acceptances
D)American depository receipts
C)banker’s acceptances
Banker’s acceptances (BAs) provide short-term financing for importers and exporters.
A shareholders’ meeting for ABC Corporation will take place in 8 days. A customer whose stock is being held in street name has not returned the proxy statements. Which of the following is TRUE?
A)The member firm may not vote the shares under any circumstances.
B)The member firm votes the shares as recommended by the issuer’s management.
C)The member firm may vote the shares as it wishes on minor matters.
D)The member firm must ascertain how the investor wishes to vote the shares.
C)The member firm may vote the shares as it wishes on minor matters.
Which of the following would lead to a standardized cost-base adjustment for stockholders?
A)Merger
B)Spinoff
C)Dividend
D)Takeover
C) Dividend
Scheduled, common events such as dividend declarations, issuance of rights and warrants, and forward and reverse stock splits are accompanied by standardized adjustment of the stock’s cost base. Unique events such as corporate mergers, takeovers and spinoffs are dealt with in a nonstandardized case-by-case manner that depends on the individual circumstances. Ideally, the outcome is what is best for the stockholder and the company.
Question ID: 939725
An investor holds a debt security backed by ad valorem taxes. This security is issued by
A)either a state or city government
B)a city or local municipality
C)the federal government
D)a state
B) a city or local municipality
Ad valorem taxes are real estate taxes. Real estate taxes can only back debt securities issued by towns, cities, or counties (never states). These are collectively known as local municipalities.
An officer of a broker-dealer firm would be categorized as a restricted person if that individual attempted to purchase
A)a new issue IPO at the public offering price
B)call or put options on a stock in the secondary market
C)a municipal bond in a state where the officer does not reside
D)closed-end funds on the secondary market
A) a new issue IPO at the public offering price
As restricted persons, officers of broker-dealer firms or other institutional investors are prohibited from purchasing a new issue (IPO) at the public offering price.
An investor requests a preliminary prospectus for a new issue. Regarding the document which of the following is TRUE?
A)Receipt of it is a commitment that the underwriters will sell securities to the recipient.
B)It is made available between the registration date and the effective date.
C)It can be deemed an offer to sell securities to the public.
D)The final price for the securities is published within it.
B) It is made available between the registration date and the effective date.
The preliminary prospectus (red herring) is a prospecting tool used to gauge indications of interest. It is made available to those who request it between the registration date and the effective date (cooling-off period). Receiving it is not a commitment to purchase shares and making it available is not a commitment to sell shares to the recipient. No final price would be found on a preliminary prospectus.
A member firm believes that financial exploitation of a senior customer is being attempted. While not required to, but allowed to, they put a temporary hold on disbursements of cash and securities from the account. The temporary hold should be
A)no longer than 15 business days with no extensions possible
B) no longer than 3 business days unless a state regulator or agency of jurisdiction extends it longer
C)no longer than 15 business days unless a state regulator or agency of jurisdiction extends it longer
D)for as long as is required for a complete and thorough investigation to be concluded
C) no longer than 15 business days unless a state regulator or agency of jurisdiction extends it longer
The rule specifies that the temporary hold on disbursements if one is placed should be for no longer than 15 business days. A state regulator or agency of jurisdiction can terminate it sooner or extend it longer if they deem it warranted.
When an issuing company sells securities to primarily institutional investors and a small number of wealthy individuals, as opposed to the general investing public in an exempt offering, this is known as
A)a secondary placement
B)a private placement
C)a primary placement
D)a secondary offering
B) a private placement
A private placement occurs when the issuing company sells securities that are exempt from registration to private investors, as opposed to the general investing public. These investors tend to be institutional investors and small groups of wealthy individuals who meet certain net worth and income criteria.
Direct participation programs (DPPs) are set up
A)to pass on taxable income only to the investors, but not losses
B)to be taxed directly, much like corporations are taxed
C)as tax-free investments with no potential write-offs
D)having the owners of the business liable for any taxes due
D) having the owners of the business liable for any taxes due
DPPs are not taxed directly as a corporation would be. Instead, the income or losses from the business are passed directly through to the owners of the partnership. These are the investors who are then individually responsible for any tax liability.
A broker-dealer’s business continuity plan (BCP) should be reviewed
A)annually by a principal of the firm
B)bi-annually by a registered representative designated to do so
C)on an as needed basis or if prompted by FINRA to do so
D)semi-annually by a principal of the firm
A) annually by a principal of the firm
Business continuity plans (BCPs) are required to be reviewed annually by a principal of the firm.
Short-term securities that generate funds for a municipality that expects alternate longer-term financing include all of the following EXCEPT:
A)REITs
B)RANs
C)BANs
D)TANs
A) REITs
Tax anticipation notes (TANs) for example are used to finance current operations in anticipation of future tax receipts. This helps municipalities to even out cash flow between tax collection periods. Similarly, BANs, bond anticipation notes will be converted to long-term financing through the sale of bonds and so on. REITs are not a municipal security. They issue shares of beneficial interest in a trust set up for real estate investment.
Which of the following organizations looks to promote self-discipline among members and investigate and resolve grievances between the public and members and between members?
A)MSRB
B)SIPC
C)FINRA
D)SEC
C) FINRA
Financial Industry Regulatory Authority (FINRA) regulates all matters related to investment banking, trading in the OTC markets and some exchange markets, and the conduct of FINRA member firms and associated persons including the promotion of self-discipline among members. It also investigates and looks to resolve grievances between the public and members and between members. The MSRB relies upon FINRA to perform dispute resolution.
A customer receives a Regulation T margin call for $3,200. To meet the deposit requirement, which of the following can be deposited?
A)Fully paid for marginable securities totaling $3,200 in market value
B)Cash in the amount of $1,600
C)Fully paid for marginable securities totaling $1,600 in market value
D)Fully paid for marginable securities totaling $6,400
in market value
Fully paid for marginable securities totaling $6,400 in market value
When meeting a Regulation T margin call with cash, 100% of the call must be deposited—in this case, $3,200. If using fully paid for marginable securities to meet the call, a deposit totaling twice the amount of the call must be made—in this case, $6,400. This is because securities are only marginable to 50% of their value.
The prospectus delivery requirement, access equals delivery, is satisfied when
A)the final prospectus has been filed with FINRA and is available on FINRA’s website for investors to see
B)the final prospectus has been filed with the SEC and is available on the SEC’s website for investors to see
C)the preliminary prospectus has been filed with FINRA and is therefore available on FINRA’s website for investors to see
D)a red herring is initially sent by mail to investors during the cooling-off period
B)the final prospectus has been filed with the SEC and is available on the SEC’s website for investors to see
Beyond physical delivery of a paper prospectus, access equals delivery is the industry standard for meeting the final prospectus delivery requirements. It is deemed to be satisfied when the final prospectus has been filed with the SEC and is therefore available on the SEC’s website for investors to log in and see. This standard does not apply to delivery of a preliminary prospectus before the effective date.
Shares must be borrowed in order to
A)sell short to open a position
B)buy to open a position
C)buy to close a position
D)sell short to close a position
a)sell short to open a position
When selling short, an investor is opening a position (a short position). Selling short means selling shares not yet owned. In order to do so, the shares must be borrowed first.
Which of the following is TRUE for U.S. Treasury-issued securities?
A)T-notes and T-bills pay interest annually.
B)T-bills and T-bonds pay interest semiannually.
C)T-bills are purchased at a discount, while T- bonds are purchased as a percentage of par.
D)T-notes are purchased at a discount to par, while T-bonds are purchased as a percentage of par.
C) T-bills are purchased at a discount, while T- bonds are purchased as a percentage of par.
T-bills are purchased at a discount, while T- bonds and T-note are purchased as a percentage of par. T-notes and T-bonds pay interest semiannually, but interest on T-bills is not paid until maturity (the difference between the discount paid and par value received).
Which of the following statements with regard to the issuance of securities is TRUE?
A)The Securities Act of 1933 provides criminal penalties for fraud
B)The cooling-off period beginning when a registration statement is filed with the SEC, can’t last longer than 20 days.
C)While the SEC is reviewing a registration statement for a new offering of securities, the underwriters are permitted to solicit and accept orders for the securities from the public.
D)Once a registration statement has been filed with the SEC it should be expected that the securities could be sold to the public within 2 business days
A)The Securities Act of 1933 provides criminal penalties for fraud
The Securities Act of 1933 (also known as the Paper Act, Full Disclosure Act, New Issues Act, Truth in Securities Act, and Prospectus Act) ensures that the investing public is fully informed about a security and its issuer when the security is offered on the primary market. The Act provides criminal penalties for fraud in the issuance of new securities. The SEC review period, known as the cooling-off period, must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date.
Which if the following may NOT be purchased on margin but can be used as collateral for a margin loan after being held for 30 days?
A)Equities
B)Warrants
C)Options
D)Mutual funds
D)Mutual funds
Neither mutual funds nor new issues can be purchased on margin. However, both may be used as collateral for a margin loan after being held for 30 days. Options are not marginable securities, but equities, bonds, and warrants are.
If a broker-dealer suspects that a transaction involves funds derived from illegal activity, a suspicious activity report (SAR) would be triggered at what threshold?
A)More than $5,000 in funds or other assets
B)More than $10,000 in funds or other assets
C)At least $5,000 in funds or other assets
D)At least $10,000 in funds or other assets
C)At least $5,000 in funds or other assets
The threshold for triggering a suspicious activity report (SAR) is at least $5,000 in funds or other assets. Do not confuse this with a Currency Transaction Report (CTR), which is triggered by amounts greater than $10,000.
A customer writes an MMM January 70 put at 6. The maximum potential gain on this position is
A)$760
B)$600
C)$300
D)$100
B)$600
The potential gain on any short (written) option position, call or put, is the premium received on the transaction.
During times when interest rates are rising, which of the following preferred are likely to pay a higher annual dividend?
A)Adjustable rate
B)Convertible
C)Participating
D)Callable
A)Adjustable rate
Adjustable-rate preferred dividends are tied to benchmark interest rates, such as Treasury securities. As these rates fluctuate up and down, so do the dividends on the adjustable shares.
Which of the following points to a general decline in prices occurring during severe recessions and the unemployment rate is rising.
A)Stagnation
B)Deflation
C)Stagflation
D)Contraction
B)Deflation
Deflation is a general decline in prices. Deflation usually occurs during severe recessions when unemployment is on the rise.
Question ID: 940576
In general, the first industry form that a new applicant for registration sees is the Form U-4. This lengthy form requests information about the applicant’s I.name including any aliases
II.residency history back through the previous two years
III.10-year employment history
IV.convictions, but not arrests, dealing with any securities related violations
A)III and IV
B)I and III
C)II and IV
D)I and II
B)I and III
The Form U-4 contains the applicant’s name as well as any aliases used. Residence history is shown for the past 5 years and employment history for the past 10 years. Charges, arrests, and convictions for securities related violations must be disclosed.
The sales charge for Class A shares may NOT exceed
A)8.5% of the total investment
B)8.5% of the NAV of the shares purchased
C)6.25% of the NAV of the shares purchased
D)6.25% of the total investment
A)8.5% of the total investment
Though they are almost always much smaller, sales charges for Class A shares may not exceed 8.5% of the money invested. For example, if an investor spends $1,000 for Class A shares, no more than $85 may be charged as a sales load.
An order is entered by a customer to sell at 30 stop limit. Once the order is entered, the stock trades in the following sequence: 32, 29, 31, and 33.
The order would be executed and the investor would receive a price of
A)29
B)31
C)30
D)32
B)31
This is a sell stop order with a limit of 30. Once the stock trades at 30 or lower, the order is elected (triggered) and becomes a live working order. This occurs at 29. The order will then be executed at its limit (30) or better. This occurs at 31.
A client opens a new margin account and, as the initial trade, purchases 300 shares of MS Corporation common stock at $10 per share. The firm would send the client a margin call for
A)$2,000
B)$1,500
C)$1,000
D)$3,000
A)$2,000
No credit may be extended in a new margin account with less than $2,000 in equity. This purchase of $3,000 of stock would normally require 50% payment ($1,500) in accordance with Regulation T, but because it is the initial trade in the account, the $2,000 minimum must be met.
A corporation that has issued cumulative preferred stock
A)pays only current dividends with no liability for missed or past-due dividends
B)pays only the current dividends on the preferred, before paying a dividend on the common and then pays any past-due dividends
C)pays past and current preferred dividends before paying dividends on common stock
D)pays the preferred dividend before paying the interest payments due on its outstanding bonds
C)pays past and current preferred dividends before paying dividends on common stock
Dividends in arrears (those missed) on cumulative preferred have the highest priority of dividends to be paid. Current and unpaid past dividends on cumulative preferred stock must be paid before common stockholders can receive a dividend. Bond interest, however, is always paid before any dividends, preferred or common.
While preferred shares tend to be less volatile than common shares, one type of preferred is noted as being even more stable in price than the others. This would be
A)callable
B)participating
C)convertible
D)adjustable rate
D)adjustable rate
Because the dividend payment adjusts to current interest rates, the price of the stock remains relatively stable. In other words, it is the return that fluctuates rather than the price.
The Securities and Exchange Commission (SEC) requires that notice of corporate actions be given for all of the following EXCEPT
A)the issuance of warrants to be attached to a bond offering
B)interest payments on the issuer’s debt instruments
C)a reverse split on the issuer’s common stock
D)dividend payments on the issuer’s common stock
B)interest payments on the issuer’s debt instruments
Payment of bond interest is an obligation and therefore not considered a special corporate action notice. Reverse splits and warrants are not regular happenings, and even though some companies have paid dividends regularly, those dividends are not guaranteed and can be halted. Hence, these events would be considered special corporate actions and therefore require notification to the marketplace.
A common stockholder’s voting rights apply to which of the following? I.Election of the board of directors
II.Declaration of dividends
III.Authorization or issue of more common shares
IV.Changing suppliers for raw material or parts used in production
A)II and III
B)I and III
C)II and IV
D)I and IV
B)I and III
Common stockholders never vote directly on dividend payment or size. They may elect the board of directors (indirectly influencing the policy on payment of dividends) and may vote on issues concerning the company’s capitalization, such as the issuance of more common stock. They do not vote on day-to-day business decisions, such as suppliers used.
All member firm communications are held to certain standards by FINRA. All of the following characterize those standards EXCEPT
A)the nature of the audience (age, investment experience) need not be a consideration at an open seminar
B)professional designations and degrees may be noted but not used to imply expertise in areas where none exists
C)recruitment advertising must be fair and balanced in nature when expressing potential income
D)charts and graphs must be balanced in showing both opportunities for gains and possible losses
A)the nature of the audience (age, investment experience) need not be a consideration at an open seminar
FINRA mandates that members must consider the nature of the audience to which the communication will be directed and should provide details and explanations appropriate to the audience.
All of the following are exempt from the Federal Reserve Board (FRB) Regulation T margin requirements EXCEPT
A)government agency issues
B)municipal bonds
C)corporate stocks
D)Treasury bills
C)corporate stocks
Certain securities are exempt from the FRB’s Regulation T initial margin requirements. Those exempted would include U.S. Treasury issues, government agency issues, and municipal securities. Corporate securities are not exempt; for corporate securities to be purchased on margin, buyers must meet the requirements of Regulation T.
A toy company is experiencing sudden strong demand for a game. Purchasing this company’s stock may prove profitable in the short run. This company’s stock might BEST be termed as a(n)
A)Cyclical
B)Growth
C)Special situation
D)Short sale
C)Special situation
Special situations arise when a company shows unusual profit potential resulting from nonrecurring circumstances. These situations might include new management, the discovery of a valuable natural resource on corporate property, patents pending, or the introduction of a new product.
When making unsolicited cold calls to prospects, a registered representative must disclose all of the following to the individual called EXCEPT
A)the address of any securities issuer mentioned during the call
B)the name of the member broker-dealer firm
C)the caller’s name
D)the address at which the caller may be contacted
A)the address of any securities issuer mentioned during the call
When making cold calls, the caller must disclose his name and the name of the member broker-dealer, the telephone number or address at which the caller may be contacted, and that the purpose of the call is to solicit the purchase of securities. When securities of any issuer are mentioned in such a call, there is no requirement to disclose the address of the issuer.
A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year and was missed in the 2 previous years. If the company wants to pay a dividend to common shareholders, how much must the company pay this customer per share first?
A)24
B)8
C)0
D)16
A)24
If the company is going to pay a common stock dividend, it must pay the preferred dividends first, including all dividends in arrears (missed). There are $16 due in back dividends for the 2 years missed, in addition to $8 this year, for a total of $24.
Regarding registered representatives working from their residence, commonly known as their “home office,” all of the following would be true EXCEPT
A)prospects would not be allowed to visit and be on the premises at this location
B)the office would be subject to a premise visit and review by a principal of the firm
C)the office is subject to a premise visit by FINRA
examiners as often as they see fit
D)home office address and telephone numbers may be used for normal advertising purposes
A)prospects would not be allowed to visit and be on the premises at this location
Registered representatives are allowed to operate out of a home or residence, advertising the address and contact numbers. All normal business activities, including taking customer orders for the purchase and sale of securities, would be permitted. Additionally, it would be subject to a premise visit and review by principals of the firm and FINRA examiners as often as needed.
what considerations should a registered rep explain to a customer when recommending a 529 college savings plan
potential deductibility of contributions from state taxes
computation of dollar prices and accreued interest on municipal bonds is normally on what calendar basis
30/360
under normal circumstances, a customer’s letter of intent on a mutual fund purchase is valid for what maximum period of time
13 months
blue sky laws are regulated by what entity
state securities regulators
MJS Corporation has called in its 6% preferred shares. Owners of these shares should expect that
A)the shares will continue to trade in the open market
B)dividend payments will cease on the call date
C)the shares will be resold to new investors
D)dividend payments will continue until the owner chooses to turn in the shares
B)dividend payments will cease on the call date
When a corporation calls in preferred shares, the shares stop trading and dividend payments cease on the call date.
All of the following are true regarding breakpoints for mutual funds EXCEPT
A)the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold
B)a breakpoint sale is considered to be a sale just below a breakpoint
C)breakpoints must be disclosed to potential investors
D)the greater the investment, the lower the sales charge
A)the first breakpoint investors can achieve is mandated by industry rule to be at the $10,000 investment threshold
There is no standardized industry mandated breakpoint schedule. Offering breakpoints and where they occur is at the discretion of the investment company. In accordance with a breakpoint schedule, the greater the investment, the lower the sales charge will be. A breakpoint sale occurs when a sale is made just below a breakpoint with the intent of the registered representative to be the recipient of a higher sales commission. In this light, disclosure of breakpoints when they are offered is required.
A broker-dealer firm opening a corporate account must establish all of the following EXCEPT
A)any limitations the corporation has placed on account activities
B)the legal right of the corporation to open a brokerage account
C)location of any account records the corporation will keep when received
D the names of those who will have access to or authority over the account
C)location of any account records the corporation will keep when received
Where the corporation keeps its records is of no concern to the broker-dealer. The broker-dealer will keep its own records on the account, in any event. All the other information noted must be ascertained before the account may be opened.
All of the following statements are true EXCEPT
A)a bond mutual fund may issue bonds
B)a closed-end company may issue bonds
C)a bond mutual fund may not issue bonds
D)a closed-end company may issue preferred stock
A)a bond mutual fund may issue bonds
A bond mutual fund invests in the bonds of other companies. It may not itself issue bonds or preferred stock. They can only issue common shares. Closed-end companies are much like any other company. They may issue bonds and preferred stock, once they have sold common stock and become a publicly traded company.
The allowable deduction for equipment used in an oil and gas direct participation program is taken as
A) depreciation over the life of the program
B)a credit applied at the end of the program
C)depletion applied when the equipment is sold
D)a one-time expense applied at the end of the program
A) depreciation over the life of the program
Tangibles such as equipment that will have some salvage value at the end of the program can be depreciated. The depreciation is an allowable deduction taken over the life of the program.
Which of the following would cause a mutual fund’s NAV per share to fall? I.The fund purchases securities for the portfolio.
II.The fund pays a dividend to shareholders.
III.The market value of the portfolio declines.
IV.A large number of shares are redeemed.
A)I and III
B)I and IV
C)II and III
D)II and IV
C)II and III
Paying a dividend and suffering market decline both reduce the net assets of the fund without reducing the number of shares; hence, the NAV declines. Purchasing portfolio securities simply replaces portfolio cash with an equivalent value of securities; hence the NAV remains unchanged. Redemption of shares reduces the fund’s net assets, but the number of shares declines by an equivalent proportion; hence, the NAV remains unchanged.
Which of the following is TRUE for debt instruments issued by the U.S. Treasury?
A)All are issued in book-entry form.
B)All have interest stated as a percentage of par value.
C)All are priced as a percentage of par value.
D)All pay semiannual interest payments.
A)All are issued in book-entry form.
Which of the following is a debt instrument that pays no periodic interest?
A)Treasury bond
B)Treasury STRIP
C)Treasury note
DCorporate bond
B)Treasury STRIP
All of the following securities are backed by the full faith and credit of the U.S. government EXCEPT
A)Treasury bonds
B)Treasury notes
C)Treasury STRIPS
D)Treasury receipts
D)Treasury receipts
Treasury receipts are issued by broker-dealers, and they are backed by the good faith and credit of those that issue them. Treasury STRIPS are the U.S. Treasury Department’s version of these, and therefore they are backed in full by the U.S. government. Treasury bills, notes, and bonds are backed in full by the U.S. government.
A luxury tax that consumers must pay that is levied on nonessential items of a certain value or more is an example of
A)regulatory risk
B)political risk
C)consumer risk
D)legislative risk
D)legislative risk
Legislative risk is the risk that laws are introduced or amended. Always associate changes in tax laws or code with legislative risk.
An investor owning 400 shares of CDS stock receives notice that the stock will be split. When the split is complete, the customer owns 600 shares of stock. The split must have been
A)a forward, uneven split
B)a forward, even split
C)a reverse, uneven split
D)a reverse, even split
A)a forward, uneven split
Because the split resulted in the investor owning more shares, it was a forward split. Because the ratio of shares owned before and after the split was 2:3 (400:600 in this case), the split was an uneven split.
A closing transaction can be
A)a buy only
B)a sell only
C)a short sale
D)either a buy or a sell
D)either a buy or a sell
A closing transaction can be either a buy or a sell, depending on what the opening (initial) transaction was. The closing transaction will always be the opposite of the opening one—buy to open, sell to close or sell to open, buy to close.
Question ID: 939914
Your customer wants to be in a position to buy CDS stock while taking in premium. Which of the following options positions might accomplish this?
A)Long puts
B)Short puts
C)Short calls
D)Long calls
B)Short puts
Long calls or short puts would meet the criteria of being in a position to buy stock, but only sellers of options take in premium (income). Therefore, to meet both criteria, shorting puts would be the only basic option position that might accomplish this.
Noncash compensation exceeding the $100 annual limit to another member firm’s employee is
A)never permitted
B)permitted if occasional
C)permitted only if it is an ongoing occurrence such as season tickets
D)permitted because it excludes cash
B)permitted if occasional
The rules regarding gifts, gratuities, and compensation to another firm’s employees permit occasional noncash expenditures that exceed the $100 limit. These might include dinners, seminars, tickets to entertainment events, or reminder advertising items. However, vacations or season tickets to cultural or sporting events are always violations.
The law that provides the legal framework for state registration of securities is the
A)Trust Indenture Act of 1939
B)Uniform Securities Act
C)Securities Act of 1933
D)Securities Exchange Act of 1934
The Uniform Securities Act provides a legal framework for the state registration of securities, as well as the registration requirements applicable to broker-dealers, investment advisers, investment adviser representatives, and registered representatives.
When making unsolicited cold calls to prospects, a registered representative must disclose all of the following to the individual called EXCEPT
A)the address of any securities issuer mentioned during the call
B)the name of the member broker-dealer firm
C)the caller’s name
D)the address at which the caller may be contacted
A)the address of any securities issuer mentioned during the call
When making cold calls, the caller must disclose his name and the name of the member broker-dealer, the telephone number or address at which the caller may be contacted, and that the purpose of the call is to solicit the purchase of securities. When securities of any issuer are mentioned in such a call, there is no requirement to disclose the address of the issuer.
Which of the following securities are nonexempt from registration under the Securities Act of 1933?
A)Corporate debt issues and U.S. government agency issues
B)U.S. government Treasury issues and real estate investment trusts
C)Real estate investment trusts and corporate equity issues
D)Municipal securities and U.S. government agency issues
C)Real estate investment trusts and corporate equity issues
Real estate investment trusts (REITs) are nonexempt securities subject to the registration and new issue disclosure provisions of the Securities Act of 1933. Agency issues, U.S. government issues, and municipal securities are exempt.
The statement “These securities have not been approved or disapproved nor have any representations been made about the accuracy or the adequacy of the information” is
A)mandated by FINRA to be placed in both the preliminary and final prospectus
B)mandated to be in the final prospectus by the SEC
C)is the disclaimer placed by the underwriters in a tombstone advertisement
D)placed by the issuer in the preliminary prospectus
B)mandated to be in the final prospectus by the SEC
Commonly known as the Securities and Exchange Commission’s disclaimer, the SEC mandates that it be found in the final prospectus.
Which of the following statements with regard to the issuance of securities is TRUE?
A)Once a registration statement has been filed with the SEC it should be expected that the securities could be sold to the public within 2 business days
B)The Securities Act of 1933 provides criminal penalties for fraud
C)While the SEC is reviewing a registration statement for a new offering of securities, the underwriters are permitted to solicit and accept orders for the securities from the public.
D)The cooling-off period beginning when a registration statement is filed with the SEC, can’t last longer than 20 days.
B)The Securities Act of 1933 provides criminal penalties for fraud
The Securities Act of 1933 (also known as the Paper Act, Full Disclosure Act, New Issues Act, Truth in Securities Act, and Prospectus Act) ensures that the investing public is fully informed about a security and its issuer when the security is offered on the primary market. The Act provides criminal penalties for fraud in the issuance of new securities. The SEC review period, known as the cooling-off period, must last a minimum of 20 days before the SEC releases the securities for sale to the public (effective date). Solicitations and the acceptance of orders may never occur before the effective date.
A member of the Federal Reserve System wanting to increase its reserves could do so by borrowing money from
A)another FRB member bank at the prime rate.
B)the Federal Reserve Board (FRB) at the discount rate.
C)another FRB member bank at the discount rate.
D)the Federal Reserve Board (FRB) at the federal funds rate.
B)the Federal Reserve Board (FRB) at the discount rate.
A Federal Reserve Board member bank can increase its reserves by borrowing from the Federal Reserve Bank directly, or it can borrow from another FRB member bank. When borrowing from the FRB directly, a bank will pay the discount rate. When borrowing from another member bank, a bank will pay the federal funds rate.
For real estate program partners, tax deductions will be derived from
A)mortgage interest paid and depreciation
B)income received for rents
C)historic rehabilitation credits received
D)government-assisted housing allowances
A)mortgage interest paid and depreciation
Deductions for real estate programs come primarily from mortgage interest paid on the properties and the depreciation allowable for the properties.
Which one of the following best describes a debenture?
A)A debt obligation allowing the holder to purchase shares of the company’s common stock
B)A long-term corporate debt obligation backed by the title to equipment owned by the corporation
C)An unsecured corporate debt obligation
D)An investment in the debt of another corporation
C)An unsecured corporate debt obligation
A debenture is unsecured corporate debt, not backed by any physical assets but only the issuer’s good faith and credit.
A company offers to repurchase outstanding debt securities it has issued directly from its bondholders for cash in what would commonly be known as a
A)tender-offer
B)hostile takeover
C)acquisition
D) buy-back
A)tender-offer
When a company offers to buy outstanding securities for cash or for cash plus other securities from its stockholders or bondholders this is known as a tender-offer. In contrast, a buyback, sometimes referred to as a repurchase, is when a company buys its own outstanding securities in the open market rather than appealing directly to its investors.
Which of the following records must be maintained for 6 years?
A)Minute books of directors meetings
B)Organizational amendments shown on Form BD
C)Customer ledgers (statements)
D)Customer confirmations and order tickets
C)Customer ledgers (statements)
Customer ledgers, from which account statements are prepared, must be kept on file or in appropriate electronic form for 6 years. Minute books and Form BD and its amendments are kept for the life of the firm. Confirmations and order tickets are kept for 3 years.
Regarding options positions, which of the following statements is TRUE?
A)Call writers may be obligated to purchase the underlying, and put writers are obligated to sell the underlying.
B)Call buyers have the right to purchase the underlying, and put writers may be obligated to purchase underlying.
C)Call writers have the right to sell the underlying, and put writers are obligated to sell the underlying.
D)Call buyers have the right to purchase the underlying, and put buyers have the right to purchase the underlying.
B)Call buyers have the right to purchase the underlying, and put writers may be obligated to purchase underlying.
Buyers of options have rights, and writers (sellers) of options may be in an obligatory positon if the buyer exercises the contract. Call buyers have the right to purchase stock, and put buyers have the right to sell stock. Call writers may be obligated to sell the stock, while put writers may be obligated to buy the stock.
An investor buys 1 DWQ May 70 call at 2, giving the investor the right to buy 100 shares of DWQ at $70 per share. All the specifications of the transaction are set or standardized by the Options Clearing Corporation EXCEPT
A)expiration date in May
B)contract size of 100 shares
C)premium of 2
D)exercise price of 70
C)premium of 2
Options Clearing Corporation (OCC) sets standard exercise prices and expiration dates for all listed options, but the options premiums that buyers pay are determined by the market.
Rule 144 imposes volume limitations on the number of shares that can be sold by I.control persons selling registered stock held for 1 year
II.control persons selling restricted stock held for 2 years
III.nonaffiliates selling registered stock held for 1 month
IV.nonaffiliates selling restricted stock held for more than 6 months
A)I and II
B)I and IV
C)III and IV
D)II and III
A)I and II
Control persons are always subject to volume limitations. Nonaffiliates have no volume (or any other restrictions) when selling registered stock. If, however, the shares are restricted, volume limits for nonaffiliates are imposed for 6 months.
A method of registering securities at the state level that is reserved only for federal covered securities is known as
A)notice filing
B)qualification
C)federal covered application
D)coordination
A)notice filing
The method known as notice filing exempted federal covered securities from state jurisdiction but still established a method by which the states could collect fees when issuers of those securities wished to have them sold in the state.
Which of the following is best describes the trade execution of ADRs?
A)Trades are executed domestically in U.S dollars.
B)Trades are executed overseas in U.S dollars.
C)Trades are executed domestically in a foreign currency.
D)Trades are executed overseas in a foreign currency.
A)Trades are executed domestically in U.S dollars.
