Understanding Trading, Customer's Accounts, and Prohibited Activities (Green cards) Flashcards

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1
Q

Which of the following is a way to increase information security?

A) Using password-protected laptops

B) Encrypting the company website

C) Sharing software programs between employees

D) Allowing employees to take files home with them

A

A:

Using password-protected laptops would be one possible measure that would help protect confidential information. Encrypting the company website would not be helpful, but
encrypting email interactions would increase information security. Software programs should be password-protected to help protect data. Allowing employees to take files home with them would not increase information security.

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2
Q

When are taxes incurred on a traditional IRA?

A) Never

B) When the initial investment occurs

C) When the money is withdrawn

D) Annually when the beneficiary pays income tax

A

C:

Taxation occurs when the money is withdrawn.
People invest already-taxed income into Roth IRAs. No IRAs require annual taxation.

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3
Q

At the end of the second quarter, if a company has a stock price of $10 and pays a dividend of $0.50 every quarter, what is the annualized dividend yield?

A) 5%

B) 0.5%

C) 10%

D) 20%

A

D:

The dividend yield formula calls for dividing the annual dividend by the current stock price. The company has been paying a quarterly dividend of $0.50, so the annual rate is $2.00 which is 20% of $10.

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4
Q

Which of the following is an advantage of a Roth IRA when compared to other types of IRAs?

A) Contributions to the plan are tax-deductible.

B) Required minimum distributions (RMDs) are not required at the age of 72 when the original owner is alive.

C) Funds are taxed as ordinary income when withdrawn in retirement.

D) There is no provision for catch-up contributions. “

A

B:

An advantage of a Roth IRA is that required minimum distributions (RMDs) are not required at the age of 72 when the original owner is alive. The other options listed are not advantages of Roth IRAs.

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5
Q

John and Sarah are a married couple and contact a broker in order to open an account that gives them authority over it and allows for continued control if the other spouse dies. What type of account should the broker recommend?

A) Joint Tenants in Common (JTIC) Account

B) Marital Account

C) Transfer on Death (TOD) Account

D) Joint Tenants with Rights of Survivorship (JTWROS) Account

A

D:

John and Sarah would need to open a Joint Tenants with Rights of Survivorship (JTWROS) Account to meet their specifications. The Joint Tenants in Common (JTIC) Account would not allow them to retain control of the account in the event of a joint tenant death. A Marital Account allows for
marital property and trust accounts to be controlled
by a trustee. A Transfer on Death (TOD) Account helps with the transfer of assets upon the account holder’s death.

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6
Q

Which of the following would be expected to earn a risk-free rate?

A) Short-term treasury bonds

B) Equities

C) Options

D) Commodities

A

A:

Short-term treasury bonds and highly rated money market funds would be expected to earn a risk-free rate. Equities. options, and commodities experience more volatility in their returns.

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7
Q

The S&P 500 return for a time period was 7%. Maggie, a fund manager, had a benchmark in the S&P 500 that returned 9%. What was the Alpha generated?

A) 2%

B) -2%

C) 14%

D) 9%

A

A:

The Alpha is the excess return that fund managers generate against an index benchmark. The Alpha is the return of the fund manager less the return of the selected index: 9% - 7% = 2%

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8
Q

When the market or an asset is identified as “bearish,” what are investors most likely to do?

A) Sell their investments and assets.

B) Temporarily freeze their trading activity.

C) Invest more and buy more assets.

D) Diversify their investment portfolio.

A

A:

Choice A is correct because a bearish market is one in which investors expect prices to decline soon, leading investors to sell their assets. Choice B is incorrect because halting trading activity could result in losses if prices fall. Choice C is incorrect because investing more is the opposite of what one should do in a bearish market. Choice D, despite being a good long-term investment strategy, is incorrect because it is not a response to a bearish or bullish market.

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9
Q

Which order type is certain to be fulfilled?

A) Market

B) Buy Stop

C) Limit

D) Sell stop-limit

A

A:

Choice A is correct because a market order is to be fulfilled as soon as practical at the current market price. Choices B, C, and D are incorrect because they have conditions that may not be fulfilled before the end of the day, and at that point, they would expire unless they were good-til-cancelled (GTC) orders. In that situation, it is still not certain that any of these orders would be fulfilled because the market price may never reach the specified price targets in the orders.

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10
Q

Which definition of a short sale is correct?

A) It is a sale of a security that is borrowed but not owned.

B) It is a sale that is settled on the trade date.

C) It is a sale of stock with fewer than 100 shares (a round lot).

D) It is a sale on behalf of a minor in a UGMA or UTMA account.

A

A:

A short sale is the sale of a borrowed security in the expectation that the price will decline. Choice B is incorrect because a short sale is irrelevant to the time to settle. Choice C is incorrect because a short sale is irrelevant to the quantity of shares in the transaction. Choice D is incorrect because a short sale is irrelevant to a uniform gift to minors account (UGMA) or uniform transfer to minors account (UTMA).

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11
Q

Which of the following is a defining characteristic of a Roth IRA?

A) Contributions to it are tax-deductible.

B) Withdrawals from it are tax-free.

C) It allows catch-up contributions at age 50 and up.

D) Mandatory minimum distributions at age 72.

A

B:

Qualified withdrawals from Roth IRAs (done after age 59 1/2 and after satisfying a 5-year holding period) are tax-free.
Tax-deductible contributions are a characteristic of a traditional IRA, not a Roth IRA. Catch-up contributions at age 50 and up are a characteristic of both traditional IRAs and 401(k)s but not of Roth IRAs. Choice D is incorrect because not requiring such distributions at that age is a unique trait of Roth IRAs.

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12
Q

Which equation is an expression of a basis point, which may be used to refer to the yield of an investment, especially a debt security?

A) 0.1% = one basis point

B) 0.01% = one basis point

C) 0.001% = one basis point

D) 1% = one basis point

A

B:

Choice B is correct because .01 of 1% equals one basis point. Choices A, C, and D are incorrect because .01 of 1% equals 1 basis point.

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13
Q

Which definition of the bid price is correct?

A) It is the amount the seller asks the broker-dealer to obtain for a stock.

B) It is the amount the seller’s broker-dealer asks the clearing broker to obtain for the stock.

C) It is the amount the market maker asks in order to sell the stock to the buyer.

D) It is the amount the buyer pays for the stock “

A

D:

Choice D is correct because the seller sells the stock to the market maker at the bid price set by the market maker. Choices A, B, and C are incorrect because the bid price is set by the market maker and is the price the seller receives
for the stock.

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14
Q

In which corporate action is the shareholder provided with more new shares in exchange for fewer old shares?

A) Buyback

B) Stock split

C) Reverse stock split

D) Tender Offer

A

B:

A stock split exchanges old shares for new, with more new shares than old. Choice A is incorrect because a buyback is when a corporation buys its own stock in the open market to decrease shareholders and retain more dividends. Choice C is incorrect because a reverse stock split exchanges fewer new shares for old. Choice D is incorrect because a tender offer is a public offer to purchase a set quantity of shares at a set price.

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15
Q

What does an investor expect will happen after they complete a long purchase?

A) The investor expects the exchange to halt trading for 15 minutes.

B) The investor expects the exchange to halt trading for the remainder of the day.

C) The investor expects the market value of the security to rise.

D) The investor expects a stock split in the security. “

A

C:

The investor expects to sell the security for a higher price at some point in the future. Choices A and B are incorrect because a long purchase would not necessarily be accomplished in anticipation of a halt in trading. Choice D is incorrect because a long purchase is not necessarily done in anticipation of a stock split. An expected rise in the stock price, for whatever reason, would be the main reason to
make a long purchase.

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16
Q

A customer wants to open an account to save for their hild’s education. Which of the following account types would be suitable?

A) 529 College Savings Account
B) Fee-eased Account
C) Discretionary Account
D) Joint Tenants with Rights of Survivorship Account

A

A:

A 529 College Savings Account is a tax-advantaged savings plan that allows tax-free growth of earnings and tax-free
withdrawals when using funds for qualified educational expenses. In Choice B, the advisor charges a fee based on a percentage of managed assets; In Choice C, the customer allows the broker or advisor to make investment decisions;
and in Choice D has two or more individuals with equal rights and shared ownership.

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17
Q

Which of the following statements is true regarding record keeping requirements for investment advisers?

A) Records must be maintained for at least five years.

B) Records can be discarded after one year.

C) All records must be kept in hard copy format

D) Investment advisers do not have to maintain records.

A

A:

Investment advisers are required to keep records related to their business activities, including client accounts, transactions, and communications for at least five years. lt is important for investment advisers to maintain accurate and complete records to ensure compliance with applicable laws and regulations. Failure to do so can result in disciplinary action and fines by regulatory authorities.

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18
Q

Which of the following is the difference between the bid and ask price called?

A) Spread

B) Order type

C) Bid wanted

D) Offer wanted

A

A:

When trading a security, the bid price represents the highest amount a buyer is willing to pay, while the ask price indicates the lowest price a seller is willing to accept. The difference between these two prices is referred to as the spread, and it reflects the transaction cost incurred by both parties involved in the trade. The spread is an essential factor in assessing the liquidity of a security.

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19
Q

What type of order is executed at the current market price?

A) Market order

B) Limit order

C) Stop order

D) Day order

A

A:

A market order is an order to buy or sell a security at the current market price. When one is placed, the trade is executed immediately at the best price. In contrast, a limit order buys or sells a security at a specific price or better, while a stop order buys or sells a security once the price of the security has reached a specified level. A day order buys or sells a security that is valid for the current trading
day only.

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20
Q

Which department is responsible for ensuring that a firm’s financial statements are accurate and in compliance with applicable regulations?

A) Internal audit department

B) Investment banking department

C) Compliance department

D) Research department

A

A:

The internal audit department evaluates/ensures the accuracy of a firm’s financial Statements and regulation compliance and identifies/mitigates operational and financial risks. Choice B provides financial advisory services and executes capital markets transactions for clients; Choice C ensures the firm’s compliance with relevant laws and
regulations; and Choice D conducts research to
inform the firm’s investment decisions.

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21
Q

Which Of the following investment strategies enables an investor to automatically reinvest dividends to purchase additional shares of stock, frequently at a reduced price?

A) Dividend Reinvestment Plan (DRIP)

B) Dollar-Cost Averaging Strategy

C) Systematic Investment Strategy

D) Automatic Investment Strategy

A

A:

A Dividend Reinvestment Plan (DRIP) allows an investor to automatically reinvest their dividends to purchase more stock shares, often at a reduced price. Choice B involves investing a fixed amount at regular intervals, reducing the impact of market fluctuation. Choice C refers to any strategy that has a disciplined and consistent approach. Choice D refers to setting up regular, automatic contributions to an investment account.

22
Q

What is the primary role of FINRA concerning brokerage firms and their registered representatives?

A) Advising individual investors on decisions

B) Supervising and regulating the of brokerage firms and their registered representatives

C) Delivering financial education to employees of firms

D) Establishing interest rates for various financial products

A

B:

Supervising and regulating the operations of brokerage firms and their registered representatives is the primary role of FINRA (Financial Industry Regulatory Authority).

23
Q

Imagine that a customer is a pattern day trader.
Which of the following account types can this customer use?

A) Cash account

B) Margin account

C) Retirement account

D) Advisory account

A

B:

Pattern day traders execute four or more day trades within five business days in a margin account, provided the number of day trades is more than 6% of the total trades in the account during that period. They are subject to specific requirements and limitations, including a requirement to maintain a minimum equity of $25,000 in their margin account at all times and their day trading activities must be done through a margin account.

24
Q

What is the purpose of SEC Regulation M?

A) Regulating the trading of municipal bonds

B) Overseeing corporate mergers and acquisitions

C) Preventing manipulative securities market practices

D) Monitoring foreign investments in American markets

A

C:

SEC Regulation M prohibits activities that could artificially alter prices and manipulate market conditions, thereby
preventing manipulative market practices. Choice A, regulating municipal bond trading, is incorrect because Regulation M pertains to more than municipal bonds. Choices B and C, overseeing mergers and acquisitions and
preventing manipulative practices, respectively, are regulated under different laws/frameworks.

25
Q

As per FINRA Rule 3240, which pertains to borrowing from or lending to Customers, how long after the termination Of a borrowing or lending agreement must members retain written pre-approval records of the agreement?

A) Two years

B) Four years

C) One year

D) Three years

A

Choice D is correct because FINRA Rule 3240 explicitly States that members must retain the mentioned pre-approval records for at least three years after the termination of the agreement or the end of the registered person’s association
with the member in question.

26
Q

In the securities market, what does a narrower bid-ask spread signify?

A) Higher liquidity and increased transaction costs

B) Lower liquidity and increased transaction costs

C) Higher liquidity and decreased transaction costs

D) Lower liquidity and decreased transaction costs

A

C:

A narrower bid-ask spread signifies higher liquidity and decreased transaction costs. Choices A, B, and D are incorrect because they misrepresent the relationship between bid-ask spread, liquidity, or transaction costs.
A narrow spread indicates a more active participation in the market, making it easier to buy or sell the security without significantly affecting its price.

27
Q

Which of the following is an example Of material nonpublic information?

A) A company’s quarterly earnings report that was publicly released an hour ago.

B) A widely circulated press release announcing a merger
between two public companies.

C) A company’s CEO sharing future product plans during a publicly accessible

D) Undisclosed information regarding a pending lawsuit that could impact its stock price.

A

D:

Material nonpublic information refers to information that is not publicly available and can have a significant effect on the company’s stock price if it were disclosed. In this case, the
information about the pending lawsuit is not publicly known and could potentially impact the stock price, making it material nonpublic information.

28
Q

In an options trading strategy, which approach should an investor utilize to potentially profit from both upward and
downward movements of a stock’s price?

A) Iron condor

B) Vertical spread

C) Straddle

D) Covered call

A

C:

A straddle involves concurrently buying a call option and a put option with the same strike price and expiration date, so an investor can profit from upward and downward movements of a stock price. Choice A profits from stock trading in a specific range. Choice B involves buying and selling options of the same type but with different strike prices. Choice D doesn’t profit from upward and downward
movements of the stock price.

29
Q

Which of these tax-advantaged brokerage accounts can be either a cash or a margin account?

A) Roth IRA

B) SIMPLE IRA

C) SEP IRA

D) Individual Retirement Account (IRA)

A

D:

An Individual Retirement Account (IRA) is a tax-advantaged brokerage account that can be either a cash or a margin account, allowing individuals to save for retirement with tax
benefits. Choices A, B, and C are incorrect because they do not provide the flexibility of being either a cash or margin account.

30
Q

What is the primary function of the book-entry system
in the securities industry?

A) To physically document every change in security ownership,

B) To electronically monitor and record the current
ownership of a security.

C) To maintain a sequential log of all transactions involving a particular security.

D) To guarantee that Security transactions comply with T+ System settlement regulations.

A

B:

The primary function of the book-entry system in the securities industry is to facilitate the electronic tracking and recording of security ownership without the need for
physical certificates (Choice A). Choice C is incorrect because the system does not maintain a sequential log of transactions. Choice D is incorrect because the book-entry system’s primary function is not focused on compliance
with settlement regulations.

31
Q

Which type of account enables clients to collaborate with a
financial advisor while still retaining the authority to approve investment decisions?

A) Brokerage Account

B) Discretionary Account

C) Managed Account

D) Non-Discretionary Account

A

D:

In a Non-Discretionary Account, the client must approve all investment decisions made by the advisor. Choice A is incorrect because it allowins clients to buy and sell securities without an advisor. Choice B is incorrect, as it gives the financial advisor the
authority to make investment decisions without apprcwal. Choice C is incorrect because it often involves the advisor actively managing the client’s investments.

32
Q

In which type of brokerage account must a customer
deposit cash within two days of purchasing a security?

A) Margin Account

B) Traditional IRA

C) Cash Account

D) Roth IRA

A

C:

n a Cash Account, customers are required to deposit the full cash amount for a security purchase within the T+2 settlement period. Choice A allows customers to borrow funds from the brokerage to purchase securities and does not require the full cash amount within
the two-day settlement period. Choices B and D are types of retirement accounts and are not directly related to the settlement period for purchasing securities.

33
Q

In the context of safeguarding customer information within the
financial industry, which legislation grants the SEC the authority to set appropriate standards for financial institutions?

A) Securities Act of 1933

B) Investment Company Act of 1940

C) Investment Advisers Act of 1940

D) Gramm-Leach-Bliley Act

A

D:

The Gramm-Leach-Bliley Act grants the Securities and Exchange Commission (SEC) the authority to set appropriate standards for
financial institutions, specifically in relation to safeguarding Customer information.

34
Q

In accordance with Cboe Rule 9.11, which detail is required to be included in a customer’s options trade confirmation?

A) The specific option’s symbol

B) The customer’s investment objectives

C) The option’s exercise price

D) The broker’s commission fee

A

C:

The option’s exercise price is a mandatory detail according to Cboe Rule 9.11. This allows the customer to know the price at which they can exercise their options contract. Choice A, the specific option’s symbol, Choice B, the customer’s investment objectives, and
Choice D, the broker’s commission fee, are not required to be included in the trade confirmation by this rule.

35
Q

In the context of securities trading, which of the following entities is NOT legally permitted to engage in trading activities, assuming that no associated individuals would gain a financial advantage from the trade?

A) The mutual fund itself

B) A subsidiary company under the control of a mutual fund

C) An independent brokerage firm

D) An affiliated entity involved in the portfolio management of the mutual fund

A

A:

A mutual fund is an investment vehicle that pools money from many investors to purchase securities such as stocks, bonds, and other assets. Choice B, a subsidiary company under the control of a mutual fund, Choice C, an independent brokerage firm, and Choice D, an affiliate entity involved in the portfolio management of the mutual fund, are all separate legal entities that may trade independently.

36
Q

An investor observes a substantial discrepancy in the price of a company’s convertible bonds and the stock it can be converted into. To capitalize on this, the investor chooses to
purchase the convertible bonds and sell the stock. What is this financial strategy called?

A) Risk Mitigation

B) Market Speculation

C) Financial Arbitrage

D) Portfolio Diversification

A

C:

Financial Arbitrage is the concurrent purchase and sale of an asset to profit from price differences in identical/similar financial instruments on different markets. Choice A is
incorrect because this Strategy is for reducing loss potential. Choice B is incorrect, as it involves making high-risk decisions in hopes of significant returns, Choice D is about spreading investments across various financial instruments to reduce risk.

37
Q

What is the mandatory step that a customer must complete before initiating trading activities in their account?

A) The customer must demonstrate a high-risk tolerance

B) The customer must officially sign an account agreement

C) The customer’s identity and relevant must be verified and documented.

D) The customer must receive approval to execute options trades on s specific exchange.

A

C:

It is a requirement that a customer’s identity and relevant information are verified and documented before trading.
Choice A is incorrect because it is not a legal requirement for trading; Choice B is incorrect because signing an account agreement does not precede the verification process; and Choice D is incorrect because it is not a universal requirement for all trading activities, but rather is specific to options trading.

38
Q

In a DVP settlement procedure, when is the buyer’s payment for securities due?

A) At the time of delivery

B) At the time of receipt

C) Two days after the purchase

D) Five days after the purchase

A

A:

In a DVP (Delivery versus Payment) settlement procedure, the buyer’s payment for securities is due at the time of delivery. This means the buyer must pay for the securities they are purchasing at the same time they receive the delivery. The purpose of the procedure is to ensure that the buyer only pays for the securities that they actually receive, and that the seller only delivers the securities once they have been paid for.

39
Q

In options trading, which of the following is the term for
simultaneously buying a put and a call of the same underlying stock with the same strike price and expiration date?

A) Spread Strategy

B) Straddle

C) Discretionary authority

D) Nondiscretionary authority

A

B:

In options trading, a straddle is a strategy that involves buying both a call option and a put option for the same underlying stock, with the same expiration date and strike price. A straddle is used to profit from a significant price
movement in the underlying stock when the investor is uncertain about the direction of the move.

40
Q

What type of quote is used for a trade that an investor wants executed on a best-efforts basis, without a limit?

A) Firm quote

B) Nominal quote

C) Subject quote

D) Not-held quote

A

D:

A not-held quote is used when an investor wants a trade executed on a best-efforts basis, without a limit, meaning that the broker is not obligated to fill the order at a specific price or time frame, but will try to execute a timely trade. Choice A is guaranteed by the market maker to be the best bid/ask price available; Choice B is an approximate/estimated price; and Choice C IS a quote that is subject to change or adjustment.

41
Q

Which of the following account types is specifically designed for customers who want to work with a financial advisor but
still want to authorize purchases themselves?

A) Fee-Based Account

B) Advisory Account

C) Discretionary Account

D) Education Accounts

A

B:

An advisory account is for customers who want to work with a financial advisor to create an investment strategy while retaining the authority to make purchases themselves.
Choice A charges fees based on a percentage of assets under management; Choice C gives the financial advisor the authority to make trades without the customer’s permission; and Choice D is for customers saving for educational expenses.

42
Q

What type of order allows an investor to have more control and is not executed if the market price does not fall within a specified limit range?

A) Market order

B) Limit order

C) Stop order

D) Good-til-canceled (GTC) order

A

B:

A limit order is an order to buy or sell a security at a specified price or better, or the limit price. With a limit order, the investor has more control over the price at which the trade is executed, and the trade is not executed if the
market price does not fall within the specified limit range.

43
Q

Which of the following account types is best suited for a customer working with a financial advisor but still wanting to retain all rights to authorize purchases?

A) Fee-Based Account

B) Discretionary Account

C) Advisory Account

D) Margin Account

A

B:

A discretionary account is a type of account where the customer gives the financial advisor or broker the authority to make trading decisions and execute trades on their
behalf without prior approval for each trade. This allows the financial advisor to manage the account more efficiently, but it also requires a higher level of trust between the customer and the advisor.

44
Q

According to FINRA Rule 4320, how many days can a failure to deliver a position in a non-threshold security be outstanding before the participant is required to close the position?

A) 7 days

B) 15 days

C) 30 days

D) 35 days

A

D: FINRA Rule 4320 requires a participant to close out a failure to deliver position in a non-threshold security by no later than the beginning of regular trading hours on the 35th consecutive settlement day following the settlement date (T+35).

45
Q

Which Statement about conditional orders is correct?

A) A buy limit order is typically set at a price above the current market.

B) A sell limit order is typically set at a price below the
current market.

C) A buy stop-limit order is typically set at a price 10%
above the current market.

D) A sell stop-limit order is typically set at a price above the current market.

A

D:

The goal is to sell when the market rises to an investor’s target price. Choice A is incorrect because a buy limit order is set at a favorable price below the current market. Choice
B is incorrect because a sell limit order is typically set at a favorable price above the current market where the investor wants to sell. Choice C is incorrect because the investor’s price is specific, not a percentage above the current market.

46
Q

Which statement about the manner of delivery of notices
regarding corporate actions is correct?

A) An exchange does not provide notices for shares traded on its exchange.

B) Notices regarding corporate actions are provided prior
to approval by the board of directors.

C) The NYSE provides notices for shares traded in OTC markets to meet appropriate deadlines,

D) FINRA communicates the notices for shares traded in
OTC markets to meet appropriate deadlines.

A

D:

FINRA provides notices for OTC shares, not the NYSE (Choice C). Choice A is incorrect because an exchange handles notices for shares traded on it, assuring its deadline is
met. Choice B is incorrect because approval of corporate actions by the board of directors is required before notices are provided. until the board of directors votes its approval, the corporate action doesn’t exist, and no notice is
appropriate.

47
Q

Under FINRA 4512 — Customer
Account Information, which data is NOT required to be kept by the broker-dealer firm?

A) Contact information

B) Whether of legal age

C) For a corporation, an alternative contact

D) Signature of the supervisor approving the establishment of the account

A

C:

Choice C is correct because an alternative contact is only required for an account holder who is a natural person. Choices A, B, and D are incorrect because these are all required items of data that the broker-dealer firm is required to keep.

48
Q

What is stated on a bond issue?

A) Current yield

B) Nominal yield

C) Yield to maturity (YTM)

D) Yield to call (YTC)

A

B:

A bond is issued with a stated interest rate and schedule of interest payments to calculate nominal yield. Choice A is incorrect because the current yield is calculated by dividing the nominal interest rate by the current market value (variable). Choices C and D are incorrect because YIM and Y TC are affected purchasing the bond at a premium, discount, or non-face amount market value, which may vary
from the nominal yield.

49
Q

Under Section 21A of the SEC Rules and Regulations, what is the statute of limitations for insider trading cases?

A) One year

B) Three years

C) Four years

D) Five years

A

D:

Choice D is correct because Section 21A of the SEC Rules and Regulations states that insider trading cases cannot be brought to the court more than 5 years after the date of the
incriminating purchase or sale in question.

50
Q

Which statement about cost basis is true?

A) From the point of view of the IRS, the oldest shares purchased may need to be designated as the shares sold.

B) Cash received is usually included in the calculation of the cost basis.

C) Only the purchase price is included, not the cost of acquisition.

D) If stock dividends have been declared, this does not affect the calculation of cost basis per share.

A

A:

The IRS may consider first-in, first-out (FIFO) an appropriate identification of securities sold. Choice B is incorrect because cash received is taxed in the year received. Choice C is incorrect because the cost of acquisition is included in the cost basis calculation. Choice D is incorrect because if
multiple purchases have been made, if stock dividends have been declared, the identification of the cost basis is more involved.