90q 6/1 unused

Which of the following is true if a member firm is acting in both a principal and an agency basis on the same trade? A) This is an example as acting as a market maker. B) This activity requires prior disclosure. C) This activity is not allowed. D) This is an example of acting as an agent for the client.

A BD is both a broker and a dealer, but the BD may not act in both capacities on the same transactions. The best response to this question is that it is not allowed. LO 1.h C

A customer enters an order for ABC, Inc., common stock that includes instructions that it must be executed in its entirety when entered or canceled. This is known as A) an all-or-none (AON) order. B) a day order. C) an immediate or cancel (IOC) order. D) a fill-or-kill (FOK) order.

A FOK order must be canceled immediately if it cannot be filled in its entirety when entered. In this light, there can be no partial exuctions. The entire order must be filled immediately, or it must be killed. An IOC order allows for partial executions, and an AON order can remain working as a good till canceled order if it cannot be filled immediately when entered. D

A customer buys a 4% Treasury bond, maturing in 10 years, at a price of $96.08. The yield to maturity (YTM) is A) less than nominal yield. B) same as current yield. C) greater than nominal yield. D) less than current yield.

A bond whose price is below par (priced at a discount) has a higher YTM than a current yield, which in turn is higher than the nominal yield. C

Which of the following would be least likely to directly impact a bonds yield? A) Number of bonds in the issue B) Issuer's credit quality C) Current interest rates D) Time to maturity

A bond's yield expresses the cash interest payments in relation to the bond's value. Yield is determined by the Issuer's credit quality, prevailing interest rates, time to maturity, and any features the bond may have. The number of bonds in a single issue is generally determined by how much capital the issuer needs to borrow at the time of issue, while its yield is something that will fluctuate as the bond trades in the secondary market and gets closer to maturity. A

A clearing corporation agent or depository for securities transactions A) can never be a corporation. B) can be a commercial bank. C) must be a broker-dealer. D) can be a bank or corporation only if they are also a broker-dealer.

A clearing agent can be a broker-dealer but doesn't have to be. In addition to broker-dealers, commercial banks can act as clearing agencies and depositories, as can corporations that are set up specifically to clearing securities transactions and taking custody of funds and securities. LO 1.e B

A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is A) a depository. B) a broker-dealer. C) a transfer agent. D) a clearing agent.

A clearing agent is an intermediary between the buy and sell sides of a transaction that receives and delivers payments and securities on behalf of both parties. While some broker-dealers are self clearing (act as their own clearing agent), simply being a broker-dealer doesn't always include being able to provide the services of a clearing agent. LO 1.e D

Your customer invests in a mutual fund that has a contingent deferred sales charge that begins at 5% and declines over a holding period of five years until it reaches zero. Your investor is likely purchasing what share class? A) C shares B) B shares C) A shares D) No-load shares

A contingent deferred sales charge structured this way is common with back-end load (B shares). No-load means no sales charge. LO 4.b B

To ensure that the information obtained from each new customer is accurate, firms must furnish to each customer a copy of the account record within how many days of opening the account? A) 10 B) 30 C) 20 D) 45

A copy of the account record must be furnished to each customer within 30 days of opening the account. B

Which of the following represents securities normally included in the financial markets? A) Stocks and bonds B) Equity, debt, derivatives, and commodities C) Equity, debt, currency, and derivative products D) Equity, debt, and currency, but not derivative products

A number of different assets such as equities (stocks), bonds, currencies, and derivative products such as options can be offered and traded in the financial markets. Stocks and bonds are each examples of equity and debt instruments, respectfully. Commodities trade in the commodity market. LO 10.a C

If a registered representative is sharing in profits and losses with a customer, all of the following statements apply except A) The representative may share in gains and losses, but only in proportion to the representative's share of the investment money. B) The representative's expertise must be considered part of the contributions to the account. C) If the customer is an immediate family member of the representative, sharing in gains and losses need not be proportional. D) The representative must receive prior written permission from the principal before the arrangement may be made.

A registered representative may share in gains and losses with a customer, provided written permission is first obtained from the representative's principal, the investments take place in a joint account, and the representative's share of the gains and losses is proportional to the representative's share of the investment funds. The representative's knowledge and expertise may not be considered part of the representative's contribution, only what proportion of the investment funds the representative has contributed. LO 11.g B

LMN Corporation has 10 million shares of common stock outstanding. LMN intends to offer an additional 2 million shares through a stock rights offering in order to raise additional capital. Your customer owns 500,000 common shares of LMN Corporation. How many stock rights will your customer receive when the rights are issued? A) 100,000 B) 200,000 C) 2 million D) 500,000

A rights offering allows stockholders to purchase common stock below the current market price. The rights are valued separately from the stock and trade in the secondary market during the subscription period, which is typically 30-45 days. Exisiting shareholders receive one right per share owner. The number of rights required to purchase one sahre of the new issue depends on the number of outstanding shares and the number of new shares offered. D

All of the following are advantages of using American depositary receipts (ADR) when investing in the stock of a foreign corporation except A) ADR issuers provide financial reports in English. B) ADRs provide a hedge against currency risk. C) ADRs make it significantly easier to invest in a foreign security. D) ADRs pay dividends in U.S. dollars.

ADRs do not provide a hedge against currency risk. All of the other points are true of ADRs. B

All of the following are self-regulatory organizations (SROs) except A) Municipal Securities Rule Board (MSRB). B) Securities and Exchange Commission (SEC). C) Financial Industry Regulatory Authority (FINRA). D) New York Stock Exchange (NYSE).

All U.S. exchanges such as the NYSE and Chicago Board Options Exchange (CBOE) are SROs. In addition, FINRA and the MSRB are SROs. The SEC is not. LO 10.a B

For initial public offerings (IPOs) of common stock, which of the following would be considered restricted persons? A) The sibling of an associated person's father B) Fiduciaries acting on behalf of an associated person C) A person owning at least 5% of the member firm D) A member firm

An individual person or entity would have to own 10% or more of a member firm before they would be considered a restricted person. The sibling of a parent is an aunt or an uncle and not a restricted person. Fiduciaries acting on behalf of the issuer or underwriter are restricted. LO 1.a D

The City of Philadelphia issued $100 million in GO debt three years ago. The bonds were issued with a 20-year maturity and carry a 5% coupon. Your client, who purchased one of these bonds on the initial offering, calls you to get a current quote. You respond that the bonds are selling at a slight premium. This means that A) the current yield is higher than the nominal yield. B) the yield to maturity is equal to the current yield. C) the yield to maturity is higher than the current yield. D) the nominal yield is higher than the yield to maturity.

An inverse relationship exists between bond prices and yields. If the bond is now selling at a premium, the yield to maturity has dropped. The yields from highest to lowest for a premium bond would rank as follows: nominal or coupon yield, current yield, and yield to maturity. LO 3.a D

A deficit in the U.S. balance of payments can occur if interest rates in foreign countries are higher than U.S. domestic rates. interest rates in foreign countries are lower than U.S. domestic rates. U.S. consumers are purchasing (importing) foreign goods. foreign consumers are purchasing (importing) U.S. goods. A) II and III B) I and III C) II and IV D) I and IV

Anything that sends money out of our domestic economy leads to a deficit (more money flowing out than coming in). When interest rates abroad are higher, money flows out of the United States to those foreign locations. When U.S. consumers are purchasing more foreign goods and services, money flows out of the United States to those foreign markets. LO 9.f B

Owning an American depositary receipt (ADR) effectively eliminates which of the following risks? A) Market risk B) Currency risk C) Liquidity risk D) Business risk

As ADRs trade on domestic exchanges and OTC, there is almost no liquidity risk. ADRs are still subject to currency risk because the corporations are located in foreign countries. All corporate stocks are subject to business and market risk. LO 2.e C

Which of the following is not an advantage of purchasing mutual funds? A) Professional management B) Liquidity C) Breakpoint sales D) Diversification

Breakpoint sales is a term used in the securities industry to mean sales just below the breakpoint at which the investor would pay a lower sales charge. Allowing a sale to occur in an amount just below a breakpoint can be viewed as an effort by representatives to make higher sales charges. The others listed here are advantages. C

Common shareholders have the right to A) access a company's books and records with Securities and Exchange Commission (SEC) permission. B) full access to a company's books and records. C) limited access to a company's books and records. D) no access to a company's books and records.

By virtue of owning the company's common stock, shareholders have a limited right to review the company's books and records. For example, they have the right to examine the minutes of meetings of the board of directors (BOD). LO 2.a C

Carrying firms, those that carry customer accounts, must A) commingle customer funds and securities with the firms' funds and securities. B) segregate customer funds and securities from the firms' funds and securities. C) maintain levels of net capital equal to or lower than noncarrying firms. D) not disclose its net capital if it is higher than noncarrying firms.

Carrying firms, those that carry customer accounts, must segregate customer funds and securities from that of the firm's and because carrying customer accounts entails some inherent risk, maintain net capital higher than that which would required for non carrying firms. B

For each transaction, a customer must be sent or given a written confirmation of the trade at or before the completion of the transaction, the settlement date. Information on that trade confirmation would include the markup (markdown) charged on a principal transaction. the commission charged on an agency transaction. the number of bonds purchased in a bond trade. the Committee on Uniform Securities Identification Procedures (CUSIP) number (if any). A) I and IV B) II and IV C) I and III D) II and III

Commissions for agency transactions are shown on confirms but not markups or markdowns charged in principal transactions. In a bond trade, the par value of the bond purchase (or sale) is confirmed, not the number of bonds. If the security has one, the applicable CUSIP number is included. LO 11.k B

All of the following may be purchased in the secondary market except A) common shares of an open-end investment company. B) shares of a real estate investment trust. C) common shares of a closed-end investment company. D) common shares of a corporation.

Common shares of an open-ended investment company (like a mutual fund) do not trade in the secondary market. Investor purchase the shares from the issuer and redeem their shares with the issuer. A

In order for a registered representative of a member firm to receive any form of compensation, such as commissions, after terminating employment, all of the following statements are correct except A) there must be a contract in effect calling for these continuing commissions. B) earnings from referred business from existing clients would be eligible for payment. C) it would be permissible to pay continuing commissions to a surviving spouse. D) the agreement must be entered into before the termination of employment.

Continuing commissions are permitted, but there is no requirement that they be offered. In order for a former registered representative to receive them, the terms must be spelled out in a contract entered into before termination. The contract may call for payment to heirs but cannot provide any compensation for business referred or introduced by an employee after that person ceases to be registered with the member. LO 12.a B

Records relating to a Currency Transaction Report (CTR) must be retained for A) six years. B) five years. C) three years. D) four years.

Currency Transaction Reports (CTRs) must be retained on file, together with other records generated in conjunction with them, for five years. LO 11.b B

For real estate program partners, tax deductions will be derived from A) mortgage interest paid and depreciation. B) government-assisted housing allowances. C) historic rehabilitation credits received. D) income received for rents.

Decutions for real estate programs come primarily from mortgage interest paid on the properties and the depreciation allowable for the properties. A

Which of the following is a lagging economic indicator? A) Building permits B) The stock market as measured by the S&P 500 C) Duration of unemployment D) Manufacturer's new orders

Duration of unemployment is a lagging indicator. All of the others are leading indicators that tend to change direction before the economy changes direction... C

Which of the following characteristics are typical of an exchange-traded product (ETP)? A) The value of an ETP is derived by formula disclosed in the prospectus and it trades on an exchange only after normal trading hours. B) An ETP is marginable but may not be sold short. C) An ETP is an ineligible investment for retail customers, and may not be purchased on margin. D) The value of an ETP is derived from other investment instruments, and it trades on a national securities exchange.

ETPs are priced so that the value of the product is derived from other investment instruments, such as a commodity, a currency, a share price or an interest rate. ETPs are benchmarked to stocks, commodities or indices. They are marginable and may be sold short. LO 5.j D

Exchanges may establish rules for all of the following except A) listing and delisting of a security. B) order priority. C) capital requirements for members. D) capital requirements for OTC securities.

Exchanges have no authority over securities that do not trade on that exchange. D

Which of the following are considered tools used to implement fiscal policies? Government spending Operations of the Federal Open Market Committee (FOMC) Changing the reserve requirements Taxation A) I and III B) II and III C) II and IV D) I and IV

Fiscal policy refers to governmental budget decisions enacted by the president and Congress to regulate federal spending and taxation. Increases in taxes and decreases in government spending slow the economy, while lowering taxes and increasing government spending spur growth in the economy. LO 9.e D

Someone who is short 1 August 35 put at 3 will breakeven at A) 38. B) 32. C) 35. D) 30.

For puts, the breakeven is found by subtracting the premium (3) from the strike price (35). Put sellers are bullish; therefore, the short put contract is profitable at or above the breakeven at expiration. LO 5.a B

For restricted stock (unregistered) held by a nonaffiliated, which of the following applies? A) Six-month holding period, with sales allowed freely thereafter B) No holding period, but volume limits always apply C) No holding period or any volume restrictions D) Six-month holding period, with volume limits thereafter

For restricted stock (unregistered) held by a nonaffiliated, a six-month holding period before any sales can be made applies. After the holding period, sales can be made freely. LO 2.f A

Which of the following would decrease the U.S. balance of payments deficit? A) A decrease in exports of domestic goods from the United States B) U.S. investors seeking better returns in overseas markets C) An increase in imports of foreign goods into the United States D) An increase in purchases of U.S. securities by foreign investors

Foreign investors placing their money in the United States or investing more in the United States will decrease the U.S. deficit. LO 9.f D

If a customer is interested in monthly income, which of the following securities would meet that need? A) Treasury notes B) Federal National Mortgage Association (FNMA) bonds C) Municipal revenue bonds D) Government National Mortgage Association certificates (GNMA)

GNMA certificates provide a monthyl interest and principal payment. The others listed here pay semi-annually. D

A municipal securities dealer has just made a contribution to the mayor's reelection campaign. How long must the firm wait before it can enter competitive bids on proposed bond issues by the city? A) Six months B) Can never underwrite a bond for the city again C) No waiting period D) Two years

If a potential bond issue is up for competitive bids, any firm may participate in the bidding process, because the city will select the best arrangement available. If it is a negotiated bid (not competitive), there is a two-year waiting period because a firm that has made a political contribution might have an unfair negotitating advantage over firms that have not. C

A corporation has a shareholders' meeting coming up wherein several controversial proposals will be made. A number of persons will be actively soliciting proxies, and the corporation plans to send out up-to-date material on the proposals to shareholders to permit them to make informed decisions. Which of the following must review this material before it is sent out? A) The Securities and Exchange Commission (SEC) B) The regional exchange where the stock is traded C) None; review not required D) The Financial Industry Regulatory Authority (FINRA)

If proxies are to be solicited in what is known as a proxy contest, the corporation must send out written material to the shareholders to permit them to make informed proxy decisions. The securities and Exchange Commission (SEC) imposes this requirement and further requires that it be given the material to review before it is sent to the shareholders. A

Which of the following orders need not be immediately filled in their entirety? Immediate or cancel (IOC) Fill or kill (FOK) Market at open Buy stop limit A) I and III B) I and IV C) II and IV D) II and III

Immediate or cancel (IOC) orders allow partial execution, with the unexecuted portion of the order being canceled. Limit orders may be partially filled. A limit order may be filled in pieces until the end of the day (if a day order), or until cancelled (if GTC). Both FOK and market at open orders are expected to be filled immediately and in their entirety. If unable, a FOK order would be canceled (killed). LO 1.g B

What is the maximum number of nonaccredited investors allowed in a Regulation D exempt transaction under Rule 506(c)? A) 35 B) 25 C) None D) 50

In order to sell under Rule 506(c) (which allows advertising), all purchasers of the advertised securities must be accredited investors, or the business must reasonably believe that the investors are accredited investors at the time of the sale. LO 1.c C

A company reorganizing with the intent to emerge from a bankruptcy is likely to issue which of the following type of bonds to accomplish that goal? A) Mortgage bonds B) Subordinated debt C) Debentures D) Adjustment bonds

Income bonds, also known as adjustment bonds, are used when a company is reorganizing. These bonds allow the issuer to only pay interest if the corporation has enough income to meet the interest payment obligations. This allows the corporation some flexibility while attempting to reorganize and emerge from bankruptcy. LO 3.c D

Unique tax advantages associated with oil and gas direct participation programs are A) tax credits and cash flow allowances. B) intangible costs and cash flow allowances. C) intangible costs and depletion allowances. D) tax credits and depreciation allowances.

Intangible drilling costs (IDCs) and depletion allowances are both unique tax advantages associated with oil and gas DPPs. IDCs can all be written off completely in the first year of the program instead of over the entire life of the program, and depletion allowances are allowable deductions that compensate for the depletion of the natural resource taken after it is sold. LO 5.f C

Which of the following debt securities has interest that is subject to federal income tax but not state income tax? A) 30-year revenue bond for a toll bridge B) 30-year general obligation (GO) bond C) 30-year debenture D) 10-year STRIP

Interest from a Treasury issue (like a STRIP) is subject to federal income tax but not state income tax. Municipal bonds (GO and revenue) have interest that is tax free at the federal level, and may be tax free at the state level depending on the owner's residency. A debenture is a corporate bond, and the interest is taxable at all levels. LO 3.g D

Interest-rate risk A) occurs when interest rates fall, pushing bond prices lower. B) is often called purchasing power risk. C) occurs when interest rates rise, pushing bond prices higher. D) cannot be reduced by diversification.

Interest-rate risk is one of the systematic risks that cannot be reduced by diversification. It is the risk that fluctuating interest rates will impact bond prices. Primarily, when interest rates are rising, bond prices will be pushed lower. D

Shortly after the branch opens, a customer, Martin, deposits $4,000 in cash into a business account. About midday, his spouse Cindy deposits another $4,000 in cash into the same account. Just before closing, Martin returns and makes another identical $4,000 deposit as he did that morning. What is this action called and which report should be filed? A) Structuring, and both a CTR and a SAR should be filed B) Structuring, and and only a CTR should be filed C) Extraction, and a CTR should be filed D) Integration, and an SAR should be filed

It appears that Martin is structuring deposits to avoid attention being drawn to the amount of cash he and his spouse are depositing. This activity is called structuring. As the transactions exceed $10,000 in a day of currency, your firm would file a Currency Transaction Report and a suspicious activity report with FinCEN. LO 11.b A

All the following are exempt from the Securities Act of 1933 except A) debt securities issued by religious organization. B) fixed annuity contracts. C) limited partnership. D) U.S. Treasury securities.

Limited partnership interests are not exempt securities. The exempt securities include U.S. government securities, municipal bonds, commercial paper and banker's acceptances that have maturities of less than 270 days, insurance policies and fixed annuity contracts (but not variable annuities), charitable, religious, educational, and nonprofit association issues and more. LO 1.c C

Listed options expire on A) the business day after settlement. B) the first day of the expiration month. C) the third Friday of the expiration month. D) the first Friday of the expiration month.

Listed options contracts expire on the third friday of the expiration months at 11:59 pm. C

Margin calls can be met with deposits of A) cash only. B) cash or fully paid for marginable securities. C) fully paid for marginable securities only. D) either marginable or non-marginable securities.

Margin calls can be met using either cash (100% of the call) or fully paid for marginable securities (twice the amount of the call because securities are only marginable to 50% of their value). LO 6.g B

Within the money supply, which of the following are part of M2 but not M1? A) Checking accounts at commercial banks B) Money market mutual funds C) Demand deposits at S&Ls D) Currency in circulation

Money market funds are part of M2 but not M1. M2 includes everything in M1, plus time deposits and money market funds. LO 9.h B

What dollar limit is placed on damages if a suit is filed based on allegations of manipulative practices? A) 300% of the damages suffered B) $500,000 C) No dollar limit D) $250,000

No dollar limit is placed on damages collectible from a lawsuit based on allegations of fraudulent or manipulative practices. C

Which of the following would be applicable to nonexempt securities (those that must be registered) being offered to the public by a corporate issuer? Securities Act of 1933 Prospectus Securities Act of 1934 Secondary market A) II and IV B) III and IV C) I and II D) II and III

Offering nonexempt securities [those that must be registered with the Securities and Exchange Commission (SEC)] such as common stock to the public requires the registration of the securities under the Securities Act of 1933. The offering must be made by prospectus. LO 1.b C

Your customer has purchased an MJS October 35 call at 4. Their proof of ownership will be A) the certificate issued by the underlying company (MJS). B) the executing broker-dealer's account records. C) the trade confirmation. D) the Options Clearing Corporation (OCC) issued certificate.

Options are issued by the OCC and traded by investors without a physical certificate. The definitive proof of ownership is the trade confirmation—essentially, the document that confirms the purchase. LO 5.c C

The broadest index covering U.S. markets is which of these? A) S&P 500 B) Russell 2000 C) Wilshire 5000 D) Bloomberg Barclays Aggregate Bond

Orginally tracking over 5000 stocks the Wilshire 5000 covers all the companies listed on the major stock markets, including companies of all sizes across all industries. C

Penny stock rules apply to both solicited and unsolicited transactions. specify that established customers of the firm need not sign a suitability statement. mandate that an account holding penny stocks only need not be provided with a monthly statement. require that prospects be given a copy of a risk disclosure document before their initial penny stock transaction. A) II and IV B) I and III C) I and IV D) II and III

Penny stock rules only apply to solicited transactions, and it is required that the penny stock disclosure document be provided before any transactions in those securities may take place. However, a signed suitability statement (different than the risk disclosure) is not required for established customers. Statements of account activity must be provided monthly when an account holds penny stocks. LO 2.a A

All the following are lagging indicators except A) labor cost per unit of output. B) corporate profits. C) personal income. D) outstanding commercial loans.

Personal income is a coincident indicator. Corporate profits, labor cost per unit of output, and outstanding commercial loans are lagging indicators. LO 9.b C

Securities acquired through some means other than a registered public offering are known as A) affiliate's stock. B) restricted. C) convertible. D) control.

Restricted securities are those acquired through some means other than a registered public offering. Securities purchased via a priavte placement are an example. These securities may not be sold (are restricted) until they have been held fully paid for six months. B

An investor who is an affiliate of XYZ Corporation holds shares of restricted XYZ stock. These shares have A) a six-month holding period and are subject to volume limits for as long as the investor is an affiliate. B) no holding period, nor are they subject to any volume limitations currently or in the future. C) a 30-day holding period and are subject to volume limits for as long as the investor is an affiliate. D) no holding period but are subject to volume limits for as long as the investor is an affiliate.

Rule 144 mandates that restricted shares held by an affiliate are subject to a six-month holding period and will be subject to volume restrictions (limits) for as long as the individual continues as an affiliate of the corporation. LO 2.f A

Which of the following would require the filing of a SAR? Any transaction alone or in aggregate involving at least A) $5,000 on a single day. B) $,3000 on a single day. C) $3,000 and appears to serve no business or legal purpose. D) $5,000 and appears to serve no business or legal purpose.

SARs are required to be filed by the firm if the transaction appears to serve no business or legal purpose, and the transaction involves alone or in aggregate at least $5,000. LO 11.b D

Each of the following provides for an exemption from the registration requirement of the Securities Act of 1933 except A) Regulation A. B) access equals delivery rule. C) Regulation D. D) Rule 147.

Securities offerings may qualify for exemption from the registration statement and prospectus requirements of the Securities Act of 1933 under Regulation A, Regulation D, Rule 147 and Regulation S. LO 1.c B

To qualify as an exempt transaction under Tier 2 of Regulation A, an issuer may offer a maximum of which of the following? A) Up to $75 million in securities in a 12-month period B) Up to $15 million in securities in a 12-month period C) Up to $22.5 million in securities in a 12-month period D) Up to $20 million in securities in a 12-month period

Securities offerings up to $75 million in a 12-month period are allowed in Tier 2. Of the $75 million, no more than $22.5 million can be sold on behalf of existing selling shareholders (similar to a combination offering). These offerings are subject to SEC review only and no review at the state level. Tier 2 offerings are still subject to rigorous disclosure requirements to the SEC, including audited financial statements and annual, semiannual, and current reports. LO 1.c A

An investor who relies heavily on fixed interest payments from long-term (25-30 years) bonds should be most concerned with A) inflation risk. B) legislative risk. C) reinvestment risk. D) financial risk.

Sometimes referred to as purchasing power risk, inflation risk is the effect of rising prices over a long period while an investor is collecting fixed interest payments. For example, if a bond's yield is lower than the inflation rate, the purchasing power of the interest payments received diminishes over time. LO 7.a A

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) a short sale. B) a special situation. C) a growth. D) a cyclical.

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. LO 9.c B

All of the following are exempt from Regulation T except A) NYSE-listed securities. B) New York City bonds. C) GNMAs. D) T-bills.

Stocks that trade on the NYSE are subject to Regulation T. Municipals,tresuries, and agencies are exempt. A

An investor holds a 4% bond, callable in 8 years, and maturing in 12 years. The bond's current yield (CY) measures its annual coupon payment relative to A) its market price. B) par value. C) its value at maturity. D) its value when callable.

The CY measures a bond's annual coupon payment (interest) relative to its market price, as shown in the following equation: annual coupon payment ÷ market price = current yield. LO 3.a A

What is the maximum number of nonaccredited investors allowed in a Regulation D exempt transaction under Rule 506(b)? A) 25 B) None C) 50 D) 35

The SEC does not require registration of an offering under Regulation D as long as there are no more than 35 non accredited investors. There is no limit to the number of accredited investors that may invest in the priavte placement. D

The law that provides the legal framework for state registration of securities is A) the Trust Indenture Act of 1939. B) the Securities Exchange Act of 1934. C) the Uniform Securities Act. D) the Securities Act of 1933.

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. LO 10.d C

A bond having an 8% coupon is selling with an 8.25% yield to maturity. Which of the following statements are true? Nominal yield is higher than yield to maturity (YTM). Current yield is higher than nominal yield. Nominal yield is lower than yield to maturity (YTM). Current yield is lower than nominal yield. A) I and IV B) II and III C) I and III D) II and IV

The bond is offered with a YTM of 8.25%. Because the YTM is higher than the 8% coupon, the bond is trading at discount to par. For discount bonds, the nominal yield is lower than both the current yield and the YTM. LO 3.a B

The cost of doing business is closely linked to the cost of money, which is known as A) supply. B) interest. C) M1. D) demand.

The cost of doing business is closely linked to the cost of money; the cost of money is called interest. In large measure, the supply and demand of money determines the rate of interest that must be paid to borrow it. LO 9.i B

Which of the following expressions describes the current yield of a bond? A) Annual interest (coupon) payment divided by par value B) Yield to maturity divided by par value C) Yield to maturity divided by current market price D) Annual interest (coupon) payment divided by current market price

The current yield on a bond is calculated by dividing the annual interest (coupon) payment by the current. market price of the bond: Annual coupon payment / market price = current yield D

A barometer of short-term interest rates and one that is therefore considered the most volatile interest rate in the U.S. economy is A) the prime rate. B) the discount rate. C) the broker call loan rate. D) the federal funds rate.

The federal funds rate is the rate commercial money center banks charge each other for overnight loans of $1 million or more. A barometer of the direction of short-term interest rates, which fluctuate constantly, the federal funds rate is considered the most volatile rate in the U.S. economy. LO 9.i D

The monetarist theory proposes which of the following? A) The Federal Reserve may impact the economy by raising and lowering the discount rate. B) The Federal Reserve has a major impact on the economy by raising and lowering taxes. C) The federal government can impact the economy by raising and lowering the federal funds rate. D) The federal government impacts the economy through repurchase and reverse repurchase agreements.

The federal reserve controls the discount rate and repurchase and reverse repurchase agreements. The federal government controls taxes and spending. A

Raising funds is generally accomplished by corporations through the issuance of stock (equity) or bonds (debt). This is done in A) the capital market. B) the currency market. C) the secondary market. D) the funding market.

The issuance of stock or bonds by corporations to raise new funds takes place in the capital market. LO 1.a A

Electronic market centers designed primarily for institutional investors describes A) the exchanges. B) the fourth market. C) the third market. D) the OTC market.

The market centers that operate through electronic communication networks are known as the fourth market. These centers were created to serve large institutional investors like mutual funds and pension plans. The fourth market reduces the transparency of trading activity by these organizations and allows them to trade more efficiently. LO 1.d B

Which of these is considered a standard corporate action where adjustments made to cost basis, for outstanding shares, are standardized? A) Stock split B) Merger C) Buyback D) Takeover

The most common corporate actions -- dividend declarations (both cash and stock), stock splits (both forward and reverse), and the issuance of rights and warrants -- are standardized regarding any adjustments to cost basis for outstanding shares. Some corporate actions are unique and thus standardized adjustments would not be applicable. These would include, but not be limited to, the following: mergers and acquisitions (M&A), takeovers, spinoffs, tender offers, and buybacks. A

Corporate bonds are most likely to trade in which market center? A) The exchanges B) Over-the-counter market C) The third market D) Directly with the issuer

The over-the-counter market trades unlisted stocks as well as most bonds, including municipal bonds and treasury debt that trades in the secondary markets. LO 1.d B

Which of the following investment companies has an actively managed portfolio? A) Equity fixed unit investment trust (UIT) B) Closed-end company C) Debt fixed unit investment trust (UIT) D) Face-amount certificate company

The portfolios of both face-amount certificate companies and UITs are nonmanaged. The closest they come to management is when the securities make up the portfolio are selected. After that, the portfolio does not change. Closed-end companies have an investment adviser who actively manages the portfolio, buying and selling securities. B

An investor requests a preliminary prospectus for a new issue. Regarding the document which of the following is true? A) It is made available between the registration date and the effective date. B) It can be deemed an offer to sell securities to the public. C) Receipt of it is a commitment that the underwriters will sell securities to the recipient. D) The final price for the securities is published within it.

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. LO 1.b A

Regarding filing for corporate bankruptcy, which of the following is true? A) Liquidation means that property will be taken and sold to repay all debts. B) Reorganization does not allow for continued operations to occur. C) Reorganization means that property will be taken and sold to repay all debts. D) Reorganization can only occur after liquidation in a corporate bankruptcy filing.

The primary difference between a reorganization and a liquidation is that in a reorganization, the corporation can keep property and continue doing business. Liquidation means that all property will be taken and sold to repay all debts. LO 3.c A

The SEC has established rules regarding delivery of a prospectus when a secondary market transaction occurs after the effective date. Which of these is correctregarding the rules for initial public offerings (IPOs) and additional public offerings (APOs)? A) An IPO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. B) An APO of a stock listed on the NYSE requires delivery for a period of 25 days. C) An APO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 90 days. D) An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days.

The prospectus delivery rules include the following: IPO for listed or Nasdaq—25 days APO for listed or Nasdaq—none IPO for non-Nasdaq—90 days APO for non-Nasdaq—40 day LO 1.b D

The preliminary prospectus for the IPO of the Big Shoes Sneaker Company indicates it will be an unlisted security. How long following the effective date will the final prospectus be provided to investors? A) 20 days B) 10 days C) 45 days D) 90 days

The prospectus requirement in an IPO of a security that is not listed in the National Market System is 90 days. LO 1.b D

Records of original entry must be recorded no later than the next business day and must be kept readily available for A) three years. B) four years. C) six years. D) two years.

The records must be maintained for a period of six years, but must be readily available for two years. D

The transfer agent for a corporation is responsible for each of the following except A) acting as an intermediary between the buy and sell sides of a transaction. B) ensuring that its securities are issued in the correct owner's name. C) canceling old and issuing new certificates. D) maintaining records of ownership.

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... A

What is the penalty for not taking the required minimum distribution (RMD) for the year? A) 10% of the annual contribution limit B) 10% of the amount that should have been taken C) 50% of the amount short of what should have been taken D) 50% of the annual contribution limit

There is a 10% penalty for early withdrawal. The penalty for missing a RMD is 50% of the amount missed. LO 6.e C

All of the following would be included in a notice of corporate action regarding a stock dividend except A) the stock's issue date. B) the declaration date. C) the record date. D) the rate of the dividend.

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. A

LMN Corporation's board of directors declared a $0.50 per share dividend on Wednesday December 2. The dividend will be paid to shareholders of record on Monday, December 28. The dividend will be sent to shareholders on Tuesday, January 19. What is the most likely ex-dividend date? A) December 27 B) December 25 C) December 26 D) December 24

This is a potent example of a difficult question that requires you to slow down and think it through. The ex-date for a corporation will be one business day prior to the record date. The record date is December 28. The days before that are Sunday and Saturday. The next day before that is Friday, December 25 (a holiday). The first business day before the record date is Thursday, December 24. The only holidays we have heard of appearing on the exam are July 4 and December 25. LO 2.b D

What government organization maintains the Specially Designated Nationals List? A) FBI B) OFAC C) FINRA D) FinCEN

This is one of the functions of the Office of Foreign Asset Control (OFAC), a division of the treasury that enforces economic and trade sanctions. B

An investor enters a sell stop limit order at 60. Following the order entry, trades occur at 62, 60, 59, 61, and 63. The investor will most likely receive A) 59. B) 60. C) 61. D) 63.

This is really two orders. The first is to stop at 60. That is, once the stock trades at 60 or lower, the order is elected (triggered) and becomes a live working order. That order is to sell at 60 or better. Therefore, the first time the stock hits 60 (or less), is the trade at 60. That triggers the sell limit order to sell at 60 or better. The next trade is at 59 and that is not an acceptable price given the limit order set at 60. The following price, however, at 61, is the next acceptable price after the order is triggered and that is where the order would most likely be executed. LO 1.g C

A customer sells shares of the ABC Growth Fund and invests the proceeds into the Windmill Income Fund. Both investments are in Class A shares. What are the tax consequences for these transactions? A) The customer will defer any gains and will pay a new sales charge. B) The customer will defer any gains and will not pay a new sales charge. C) The customer will realize any capital gains or losses but will not pay a new sales charge. D) The customer will realize any capital gains or losses and will pay a new sales charge.

This transaction will result in the customer realizing any capital gains or losses for tax purposes. The exchange (conversion) privilege would waive the new sales charge if this transaction was between funds within the same fund family (sponsor). In this question the funds are at different sponsors; any sales charges will apply to the new purchase. LO 4.b D

Those persons employed by a Financial Industry Regulatory Authority (FINRA)-registered broker-dealer to do nothing other than provide training for its associated persons A) are exempt from the firm element of the firm's continuing education requirement. B) must be registered as a representative. C) must be registered as a principal. D) need not be registered.

Those who manage any part of a member's securities activities must be registered as a principal with FINRA, including those involved solely in training associated persons. C

Which of the following would constitute improper use of a customer's securities or funds? Agreeing to a stock purchase the representative thinks is beyond the client's means Selling a bond at the client's insistence during a period of high interest rates Lending securities for a short sale when the client has agreed to it on the phone Borrowing a client's funds without permission, though it will be repaid the same day A) III and IV B) I and III C) II and IV D) I and II

Though a customer may be ill-advised, complying with it does not constitute improper use. To lend securities without a signed loan consent agreement does constitute improper use, ad does borrowing the client's funds without permission of the client, no matter how briefly the funds will be held. A

Trading hours on the New York Stock Exchange are A) 9:30 am to 4:00 pm Central Time. B) 9:30 am to 4:00 pm Eastern Time. C) 9:00 am to 4:00 pm Eastern Time. D) 9:30 pm to 4:00 am Eastern Time.

Trading hours on the NYSE are from 9:30 am to 4:00 pm Eastern Time on business days. LO 1.d B

Treasury bills (T-bills) are A) short-term debt obligations issued monthly. B) short-term debt obligations issued weekly. C) intermediate-term debt obligations issued weekly. D) intermediate-term debt obligations issued monthly.

Treasury bills are short-term debt obligations of the U.S. government issued weekly. LO 3.e B

An investor holds a Treasury note with a stated interest of 6%. The investor will receive A) two $60 interest payments per year. B) one $6 interest payment per year. C) one $60 interest payment per year. D) two $30 interest payments per year.

Treasury note (T-note) annual interest is stated as a percentage of par value ($1,000) and is paid in semiannual payments/ Therefore a 6% T-note pays $60 per year in two payments of $30 each. D

The Securities Act of 1933 requires that all of the following be offered by a prospectus except A) variable annuities. B) unit investment trusts. C) mutual fund shares. D) Treasury bonds.

Treasury securities are exempt from registration requirements and therefore do not require a prospectus. LO 1.c D

An investor holds a 6% callable bond purchased at 105. If the issuer calls the bond before maturity, the yield to call (YTC) realized by the investor would be A) less than the coupon. B) greater the current yield (CY). C) greater than the yield to maturity (YTM). D) equal to the yield to maturity (YTM).

When a bond purchased at a premium (105) is called before it matures, the accelerated premium loss is reflected in the calculated yield to call (YTC). In this light, remember that the YTC is always the lowest of all possible yields for premium bonds, less than the coupon, CY, and YTM. LO 3.a A

Which of the following is not required for a communication to be considered a recommendation? A) The suggestion of a course of action B) The involvement of a security, investment, or investment strategy C) The intention to make a recommendation D) The opinion of a reasonable person that the communication is a recommendation

When a registered representative (or other associated person) provides information that a reasonable person would view as suggesting a course of action regarding a security, a class of investment, or an investment strategy, that person is making a recommendation. LO 7.c C

Isaac James has some call options in his account that he would like to exercise. He wants to know when the resulting purchase of the stock would settle. You would tell him A) trade date. B) trade date plus 1 business day. C) trade date plus 2 business days. D) trade date plus 3 business days.

When purchasing or selling an option, the settlement is the next business day. When an option is exercised the resulting stock transaction is 2 business days following exercise. LO 1.i C

When shares are held in street name, this refers to the shares being A) held in the name of the broker-dealer for the beneficial owner. B) restricted, and thus, nontransferable. C) held at the transfer agent for the beneficial owner. D) allowed to be sold only on the exchange where they were initially purchased.

When shares are held in street name, they are being held in the name of the broker-dealer for the beneficial owner. This is done to facilitate payments and delivery. This does not encumber the shares regarding receipts of dividends or their transferibility if sold. A

Common shareholders have the right to receive an audited set of financial statements of the company's performance A) annually. B) biannually. C) monthly. D) each quarter.

While a company can supply this information as often as they want to shareholders, it is only required that an audited report be received on an annual basis. LO 2.c A

A customer investing in common equity securities could realize all of the following except A) current income via dividend declarations. B) potential capital appreciation. C) protection of principal investment. D) potential hedge against inflation.

While common shareholders could realize potential capital appreciation, current income via dividend declarations and a potential hedge against inflation, protection of the initial investment is not guaranteed. Common shareholders have limited liability, meaning that while they cannot lose more than was initially invested, they could still lose all of it. LO 2.c C

The ratings on the debt instruments of a foreign country with outstanding loans from a number of other countries worldwide have been downgraded. The impact felt due to the risk of possible default is known as A) legislative risk. B) political risk. C) interest-rate risk. D) sovereign risk.

While it can be noted that sovereign risk is a type of political risk, the risk of default by a country on its debt instruments is specifically recognized as sovereign risk. LO 7.a D

Which of the following is a lagging indicator? A) Raw materials orders B) Decrease in industrial production C) Increase in the consumer loans to personal income ratio D) Increase in hours worked

changes in the ratio of consumer installment credit to personal income is a lagging indicator. Changes in industrial production and hours worked are coincident indicators. Changes in raw materials orders is a leading indicator. C

An unsecured promissory note issued by a bank that can be traded in the secondary market is known as A) commercial paper. B) mortgage bond. C) a negotiable CD. D) prime paper.

corporations issue unsecured promissory notes known as commercial or prime paper. When a bank issues an unsecured promissory note, it is known as a negotiable CD. C