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A foreign currency investor is long 40,000 Swiss francs at $.81. If the investor buys 4 July 80 SF puts at 1.25 to hedge, the breakeven point is: A) 0.8225. B) 0.5125. C) 0.4975. D) 0.4875.

A) 0.8225. When hedging with puts, the breakeven point is the cost of the underlying investment plus premium paid ($.81 cents plus $.0125 equals $.8225, or 82¼ cents).

A customer is long 300 shares of COD and simultaneously short 200 shares of COD. To sell the 300 shares held long, the order ticket must be marked: A) 100 shares long and 200 shares short. B) long. C) 200 shares long and 100 shares short. D) short.

A) 100 shares long and 200 shares short.

A customer has a $10,000 debit balance. What is the maximum value of their securities that the broker/dealer can hypothecate? A) 14000. B) 2500. C) 5000. D) 10000.

A) 14000. The broker/dealer can hypothecate 140% of the customer's outstanding balance.

The over-the-counter market could be characterized as what type of market? A) Dealer. B) Primary. C) Auction. D) First.

A) Dealer.

Which of the following orders may be used to acquire a security at a specific price or better? I. A buy stop limit. II. A buy limit. III. A sell stop. IV. A sell limit. A) I and II. B) II and IV. C) II and III. D) I and III.

A) I and II. Only buy orders can acquire stock. Only buy limit orders can acquire stock at a specific price or better.

Which of the following trade actively in the secondary market? I. Open-end funds. II. Closed-end funds. III. Unit investment trusts. IV. REITs. A) II and IV. B) III and IV. C) I and III. D) I and II.

A) II and IV. Closed-end funds and REITs trade actively in the secondary market. Open-end funds and unit investment trusts do not trade in the secondary market; instead, shares are redeemed by the issuer.

Which of the following statements regarding warrants are TRUE? I. They pay dividends. II. They are debt securities. III. They allow for the purchase of common stock at a fixed price. IV. They are equity-equivalent securities. A) III and IV B) I and II C) II and IV D) II and III

A) III and IV

Which of the following may only be accomplished after applying the additional bonds test for a revenue bond? A) Issuing new bonds with an equal lien on the project's revenues. B) Prerefunding an outstanding bond issue. C) Spending revenues already allocated for project expansion. D) Increasing the project's user charges.

A) Issuing new bonds with an equal lien on the project's revenues.

A convertible corporate bond with an 8% coupon yielding 7.1% is available, but may be called some time this year. Which feature of this bond would probably be least attractive to your client? A) Near-term call. B) Current yield. C) Coupon yield. D) Convertibility.

A) Near-term call. The near-term call would mean that no matter how attractive the bond's other features, the client may not have very long to enjoy them.

Which of the following are directly backed by the U.S. government? A) PHAs and NHAs. B) GO bonds. C) Double-barreled bonds. D) Moral obligation bonds.

A) PHAs and NHAs. Public Housing Authority and New Housing Authority issues are unique as municipal instruments because they are fully backed by the U.S. government.

Your broker/dealer has just negotiated a trade with another broker/dealer in a Nasdaq-listed stock. The automated system that will facilitate the reporting of the post-execution data electronically, such as price and volume, to FINRA is known as A) Trade Reporting Facility (TRF) B) Super Display Book (SDBK) C) Consolidate Tape System (CTS) D) the Designated Market Maker (DMM) display book

A) Trade Reporting Facility (TRF)

Your client is a self-employed physician who makes annual contributions to his Keogh plan. If he also receives additional income from making speeches at medical conventions, this income is: A) eligible for inclusion in both his Keogh and IRA. B) not eligible when computing his Keogh contribution. C) not eligible for inclusion in an IRA. D) not eligible for inclusion in either his Keogh or IRA.

A) eligible for inclusion in both his Keogh and IRA.

All of the following statements regarding Eurodollar bonds are correct EXCEPT: A) non-U.S. investors are not subject to currency risk. B) they are issued outside of the United States. C) interest and principal are paid in U.S. dollars. D) U.S. investors are not subject to currency risk.

A) non-U.S. investors are not subject to currency risk.

If a customer has a securities account worth $220,000 and a money market account worth $260,000, what is this customer's coverage under SIPC? A) 250,000. B) 480,000. C) 220,000. D) 470,000.

B) 480,000.

A J & J Treasury bond with a 5% coupon due July 1, 2007, is purchased in a cash transaction on February 24. What is the number of days of accrued interest? A) 53. B) 54. C) 63. D) 55.

B) 54. A bond begins accruing interest on the prior interest payment date (January 1) and accrues up to, but not including, the settlement date (February 24). Because accrued interest on government bonds is computed actual days, actual year, 31 days for January plus 23 days for February, it equals 54 days.

An investor files the necessary forms to sell stock under Rule 144. The filing is effective for a maximum of how many days? A) 30. B) 90. C) 120. D) 60.

B) 90.

If a customer wishes to buy 1 XYZ option and sell another XYZ option, but he is not willing to spend more than $300, which of the following orders should be entered? A) 2 limit orders. B) A spread order. C) 2 stop orders. D) A straddle order.

B) A spread order A spread involves the simultaneous purchase and sale of different option contracts of the same type. A spread incurs a gain or loss depending on what happens to the difference in the premiums between the two contracts. Because this investor wants to limit his risk to $300, he would buy the spread at a net debit of $300 or less (this is one order, not two).

If an investor practices value investing, which of the following stock types is he least likely to purchase? A) A stock that is presently selling for two-thirds of net current assets. B) A stock with an above-average price-to-earnings ratio. C) A stock that has exhibited a high dividend yield in the past. D) A stock with a low price-to-earnings ratio.

B) A stock with an above-average price-to-earnings ratio. A growth investor looks for stocks with above-average price-to-earnings ratios. Conversely, a value investor focuses on stocks with low PE ratios, a low price-to-book value, and historically high dividend yields.

Which of the following would be most likely to require a mandatory sinking fund? A) A GO. B) A water and sewer revenue bond. C) A PHA. D) A TAN.

B) A water and sewer revenue bond.

Who signs the agreement among underwriters for a municipal bond issue? A) Managing underwriter and bond counsel. B) All members of the underwriting syndicate. C) Managing underwriter and issuer. D) Managing underwriter and trustee

B) All members of the underwriting syndicate.

The income level of a donor: I. may affect contributions into a Coverdell ESA. II. will NOT affect contributions into a Coverdell ESA. III. may affect contributions into a Section 529 plan. IV. will NOT affect contributions into a Section 529 plan. A) II and IV. B) I and IV. C) II and III. D) I and III.

B) I and IV. Contributions into a Coverdell ESA are phased out at high income levels, whereas the income level of a donor has no impact on contributions made into a Section 529 plan.

According to MSRB rules, if a customer purchases a municipal bond from your firm, the confirmation must disclose I. where your firm acquired the bonds. II. whether your firm acted as agent or principal. III. your firm's address. IV. the price your firm paid for the bonds. A) II and IV. B) II and III. C) I and III. D) I and IV.

B) II and III.

If an investor buys a LEAPS contract on issuance and allows it to expire unexercised, what is the investor's tax consequence at expiration? A) Short-term capital loss. B) Long-term capital loss. C) Short-term capital gain. D) Long-term capital gain

B) Long-term capital loss. A LEAPS contract has an expiration of more than one year. Upon expiration, the buyer incurs a long-term capital loss equal to the amount of the premium paid.

If an investor has a fixed-annuity contract with an insurance company, which of the following risks is assumed by the investor? A) Value of each annuity unit each month. B) Purchasing power risk. C) Investment risk. D) Mortality risk.

B) Purchasing power risk. An investor who purchases a fixed annuity contract assumes purchasing-power risk. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation.

A technical analyst has been charting ABC stock and notes that the support/resistance levels are $20 and $30 respectively. If the analyst expects ABC to fall through support, which of the following orders should he enter? A) Buy 100 ABC 20.50 stop. B) Sell 100 ABC 19.50 stop. C) Buy 100 ABC 30.25 stop. D) Sell 100 ABC 29.75 stop.

B) Sell 100 ABC 19.50 stop. An analyst who expects a stock to fall through support is anticipating that the stock will decline. He can take advantage of this trend by establishing a short position at the top of the decline. He will enter a sell stop order just below the support price.

Your customer informs you that he has shares of stock restricted under Rule 144. He suggests that he wants to sell covered calls against the shares he owns to bring additional income into his account. Which of the following should you advise? A) This is prohibited because the customer may need to sell the stock before the restriction is lifted. B) Selling calls against restricted (Rule 144) shares is prohibited because the restricted shares could not be delivered if the calls were exercised by the buyer. C) This is permitted because there is no restriction against using covered calls to bring income into any account. D) This is permitted, as the calls would be considered covered by the restricted shares.

B) Selling calls against restricted (Rule 144) shares is prohibited because the restricted shares could not be delivered if the calls were exercised by the buyer.

Which of the following statements regarding Series EE bonds is NOT true? A) They are an accrual-type security. B) They earn tax-free interest. C) They are no longer exchangeable for Series HH bonds. D) They are issued at 100% of face value.

B) They earn tax-free interest.

All of the following will affect SMA in a short account EXCEPT: A) the sale of securities. B) appreciation of CMV. C) a decline in CMV. D) the purchase of securities.

B) appreciation of CMV In a short account, the customer benefits if the CMV falls. If the CMV is falling, the equity is increasing, thus increasing SMA. If the CMV is rising, the equity is falling, with no effect on SMA.

Under FINRA rules, customers who are approved to trade options must receive a copy of the OCC Disclosure Booklet: A) at or before the mailing of the next monthly statement. B) at or before account approval. C) at or before the mailing of the confirmation representing the first options trade. D) within 15 days of account approval.

B) at or before account approval.

If the Swiss franc is trading at .69, and a customer buys 1 Sep SF 70 put and writes 1 Sep SF 65 put, this position is a: A) calendar spread. B) bear spread. C) bull spread. D) diagonal spread.

B) bear spread. The 70 put is dominant because it will have a higher premium than the 65 put. Buying puts is bearish; this is a debit put spread.

Under the Code of Arbitration, all monetary awards must be paid within how many days of the decision date? A) 45. B) 15. C) 30. D) 60.

C) 30. All monetary awards in a Code of Arbitration decision must be paid within 30 days of the decision date. If payment is not made, the amount of the award begins to accrue interest as of the decision date.

If a client is moderately risk-averse and has an investment objective of capital preservation, what types and allocation of investments would you recommend for this customer? A) A preponderance of speculative stocks and high-yield bonds. B) A preponderance of growth stocks and limited partnership vehicles. C) A mix of investment-grade bonds and cash/cash equivalents. D) A mix of high yield bonds and cash/cash equivalents.

C) A mix of investment-grade bonds and cash/cash equivalents. An individual with an investment objective of capital preservation should be investing in a mix of investment grade bonds and cash/cash equivalents. Lower risk capital appreciation vehicles, such as large-cap common stock, should also be considered. The other choices noted are too risky for a risk-averse investor.

A technical analyst has been charting XYZ stock and notes that it fluctuates between $36 and $41. If the analyst expects a breakout through resistance, which of the following orders should be placed? A) Buy XYZ 35 GTC. B) Buy XYZ 35 Stop GTC. C) Buy XYZ 42 Stop GTC. D) Buy XYZ 42 GTC.

C) Buy XYZ 42 Stop GTC. A buy stop order is placed above a resistance level. It is triggered if and when the stock trades at or above the stop price. This allows an investor to participate in a bullish breakout through resistance.

If LEAPS options positions are maintained for more than 12 months, which of the following statements are TRUE? I. The LEAPS writer's gains are taxed as short-term gains. II. The LEAPS writer's gains are taxed as long-term gains. III. The LEAPS buyer's gains are taxed as short-term gains. IV. The LEAPS buyer's gains are taxed as long-term gains. A) II and IV. B) I and III. C) I and IV. D) II and III.

C) I and IV. The LEAPS writer's premium is taxed as a short-term gain. The LEAPS buyer took a position for longer than 12 months, so any profits are considered long-term capital gains. The writer's gain is short term because by opening with a sale, a holding period is never established.

Characteristics of Inverse Floater CMOs include: I. low volatility. II. high volatility. III. decreasing principal payments as interest rates rise. IV. increasing principal payments as interest rates rise. A) I and III. B) II and IV. C) II and III. D) I and IV.

C) II and III.

A municipal revenue bond has a catastrophe call feature but otherwise is not callable. Which of the following statements regarding the features of this bond that must be described on a customer's confirmation is TRUE? A) It must be designated as subject to eminent domain. . B) It must be designated as callable. C) It need not be designated as callable. D) It must be designated as callable in the event of an act of God.

C) It need not be designated as callable

One of your customers has maintained a traditional IRA for the past 15 years. Some of his annual contributions were not tax deductible due to his income level and participation in another qualified plan. At age 60, the customer elects to make a lump-sum withdrawal. Which of the following statements is TRUE? A) The entire withdrawal is taxable as ordinary income. B) The portion representing earnings from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. C) The portion representing earnings and principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income. D) The portion representing principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income.

C) The portion representing earnings and principal from the nondeductible contributions is tax free, while the balance is taxable as ordinary income.

In margin accounts, the interest rate charged to customers by a broker/dealer is most closely related to the: A) prime rate. B) discount rate. C) call loan rate. D) federal funds rate.

C) call loan rate.

A registered representative who does not complete the regulatory element of continuing education within the prescribed time frame: A) is limited to accepting unsolicited orders only until the CE requirement is met. B) can continue to function as a representative with the written permission of a principal. C) cannot function as a representative until the CE requirement is met. D) is required to take a 120-day leave of absence .

C) cannot function as a representative until the CE requirement is met. If a registered person does not complete the regulatory element of CE within the prescribed time frame, the representative's license will be suspended by FINRA until the CE is completed.

An upward sloping yield curve represents all of the following EXCEPT: A) inflation expectations. B) time value of money. C) foreign interest rate differentials. D) increased risk of default over time.

C) foreign interest rate differentials. Foreign interest rate differentials are not reflected in an upward sloping yield curve. Interest rate differentials between countries reflect differences in domestic monetary and fiscal conditions. The time value of money is reflected in the upward sloping yield curve.

An ADR represents a: A) U.S. security trading in a foreign market. B) foreign security trading in both the U.S. and a foreign market. C) foreign security trading in the U.S. market. D) U.S. security trading in both the U.S. and a foreign market.

C) foreign security trading in the U.S. market.

All of the following are derivative securities EXCEPT: A) collateralized mortgage obligations. B) equity options. C) general obligation bonds. D) warrants to purchase publicly traded common stock.

C) general obligation bonds.

All of the following statements regarding corporate insiders are true EXCEPT A) only public information may be used to make transactions B) reports of changes in holdings must be filed with the SEC C) purchases may not be made through the exercise of options D) short selling of the company's stock is prohibited

C) purchases may not be made through the exercise of options

If a registered representative is suspended by FINRA's Department of Enforcement, his first appeal would be to: A) the SIPC. B) a federal court. C) the National Adjudicatory Council. D) the SEC.

C) the National Adjudicatory Council. A registered representative may appeal decisions of the DOE to FINRA's National Adjudicatory Council. Appeals may then go to the SEC and finally to the federal appellate court system.

If an investor writes 2 DWQ Jan. 60 puts at 3 in September and the investor buys back the 2 puts at 4.50 two months later, the result for tax purposes is a: A) $150 short-term capital loss. B) $300 short-term capital gain. C) $150 short-term capital gain. D) $300 short-term capital loss.

D) $300 short-term capital loss. A $900 closing cost minus $600 opening proceeds equals a $300 short-term loss.

If a member wishes to appeal an adverse decision in a Code of Procedure hearing, the member first must appeal to the National Adjudicatory Council within how many days of the decision date? A) 40. B) 45. C) 30. D) 25.

D) 25.

If a stock is sold on November 30 when the record date for a dividend distribution is December 1, the seller is: I. entitled to the dividend if the trade is done regular way. II. not entitled to the dividend if the trade is done regular way. III. entitled to the dividend if the trade is done with cash settlement. IV. not entitled to the dividend if the trade is done with cash settlement. A) I and III. B) II and IV. C) II and III. D) I and IV.

D) I and IV Anyone who owns the stock on the record date will receive the dividend. In a regular way trade, the seller will still be owner of record on record date, as the trade will settle after the record date. In a cash settlement transaction, the buyer will be owner of record on record date.

If an investor keeps $100,000 invested in U.S. Treasury bills at all times during a 10-year period, he is subject to which of the following? I. Stable principal. II. Unstable principal. III. Stable interest. IV. Unstable interest. A) II and III. B) I and III. C) II and IV. D) I and IV.

D) I and IV. Treasury bills are purchased at a discount and mature at face value. This feature provides principal stability to investors who own them. The discount on bills is determined by current market interest rates and fluctuates accordingly.

Which of the following money rates are set by banks in competition with one another for borrowers? I. Federal Funds Rate. II. Discount Rate. III. Broker Call Loan Rate. IV. Prime Rate. A) I and II. B) II and III. C) I and III. D) III and IV.

D) III and IV.

A municipal securities dealer informed XYZ municipal bond fund that it was the leading retailer of XYZ shares and that, in return, XYZ should employ the dealer in effecting more transactions for the fund's portfolio. Which of the following statements regarding the request is TRUE? A) It is not permissible because municipal securities dealers are not allowed to execute trades for the portfolios they underwrite. B) It is permissible because it suggests a more reciprocal arrangement between the two parties. C) It is permissible because MSRB rules do not cover municipal bond issuers or funds. D) It is not permissible because it violates the MSRB anti-reciprocal rule.

D) It is not permissible because it violates the MSRB anti-reciprocal rule.

Which of the following transactions is subject to the 5% markup policy on markups and markdowns? A) Municipal bond transactions. B) Mutual fund shares sold to the public. C) New issue corporate equity securities sold in a public offering. D) NYSE-listed stock traded in the third market.

D) NYSE-listed stock traded in the third market.

A customer interested in a collateralized mortgage obligation (CMO) might look to which of the following for historical data or projections regarding mortgage prepayments? A) DEA. B) FINRA. C) Daily Bond Buyer. D) PSA.

D) PSA. The Public Securities Association (PSA) uses historical data and projections of mortgage prepayments to estimate yield and maturity of different CMO tranches.

A registered representative is attempting to close a large municipal bond sale, but the customer voices concern about a potential increase in interest rates. Which of the following actions are permitted by MSRB rules? A) Guaranteeing the customer against any loss. B) Offering to share in profits or losses resulting from the transaction. C) Personally offering to buy the bonds back at a specified price and date. D) Selling the customer a put or entering into a repurchase agreement.

D) Selling the customer a put or entering into a repurchase agreement.

Which of the following best describes how a syndicate determines the amount to bid for a new municipal issue? A) The gross spread minus the takedown. B) The average reoffering price plus the takedown. C) The average sales price divided by the interest cost. D) The average reoffering price minus the spread.

D) The average reoffering price minus the spread.

Your broker/dealer has just negotiated a trade with another broker/dealer in a Nasdaq-listed stock. The automated system that will facilitate the reporting of the post-execution data electronically, such as price and volume, to FINRA is known as A) Consolidate Tape System (CTS) B) Super Display Book (SDBK) C) the Designated Market Maker (DMM) display book D) Trade Reporting Facility (TRF)

D) Trade Reporting Facility (TRF) Broker/dealers acting in a dealer capacity (negotiating transactions with other broker dealers) in Nasdaq-listed stocks or in exchange-listed stocks when they occur off of the exchange trading floor will have the post-execution data such as price and volume transmitted electronically to FINRA via the Trade Reporting Facility (TRF).

Interest on loans to purchase securities is generally a deductible item on one's tax return unless the purchase is for A) warrants B) stock C) a corporate bond D) a municipal bond

D) a municipal bond Because the interest received from municipal bond investments is tax-free, the IRS does not allow interest paid for loans to purchase municipal bonds as a deductible item on one's tax return, as it would for other securities purchased with loans (margin).

All of the following would be considered either retail communications or correspondence EXCEPT A) an electronic communication distributed through the firm's website regarding potential opportunities with the firm as a registered representative B) a written communication to all of the firm's customers regarding a new mutual fund being offered C) a letter to 10 individual investors within the past week regarding a new investment strategy D) an email to several municipalities sent out in a single day offering your firm's services for underwriting their municipal securities

D) an email to several municipalities sent out in a single day offering your firm's services for underwriting their municipal securities

The 5% markup policy applies to: A) All of these. B) mutual funds. C) new issues. D) principal OTC trades.

D) principal OTC trades.

Capital gains on municipal bond transactions are: A) untaxed. B) taxed at the state and local levels only. C) taxed at the federal level only. D) subject to tax as would be any other capital gain.

D) subject to tax as would be any other capital gain.

Each of the following would be disclosed to potential municipal bond buyers in the official statement of a new municipal bond issue EXCEPT: A) the creditworthiness of the issue. B) the source from which interest and principal will be paid. C) the issues purpose. D) the disclosure that it was prepared by the underwriters.

D) the disclosure that it was prepared by the underwriters.

All of the following statements concerning investment companies are true EXCEPT: A) an investment company that invests the majority of its assets in one industry may still qualify as a diversified company. B) a diversified company can be either an open-end or a closed-end investment company. C) a nondiversified company is any management company not classified as a diversified company. D) to be considered a diversified investment company, the company must invest in both equity and debt instruments.

D) to be considered a diversified investment company, the company must invest in both equity and debt instruments.

Bonds traded on a cash settlement basis settle on the: A) T+1 business days. B) regular way settlement date. C) T+2 business days. D) trade date.

D) trade date.